Employers are slowly moving away from the traditional pension plans that many of our parents enjoy and now offering an employee match program. This means employees can no longer sit back and let others make their retirement decisions for them, but must be proactive in planning their futures.
If you haven’t heard the good news, Congress has approved a measure that will put money into your pockets starting sometime in May. In a previous post, we discuss how big of a rebate you should expect to receive as well as possible financial savvy ways to spend them. The bad news is, wherever there is money, there are scammers. Scammers are posing as the IRS through emails and phone calls promising earlier delivery of your rebate checks, in addition to direct deposits. Milk Your Money has come up with some warning signs to be appraised of in order to avoid becoming a victim.
One of the main reasons we decided to start putting together a blog for people was because of the idea that you could make your money work harder for you, hence milking it. One of the best ways to do that obviously, is to put your money into a high interest bearing account so that the snowball effect of compound interest will, eventually, accumulate more than what you spend.The easiest place to start something like this is online. NOTE: Any rates we discuss are active at or near the time of writing, please be mindful of the dates. Lets take a quick look at some of the major players:
ING Direct
Schwab Bank High Yield Investor Checking
Bank of America Online Banking
As the subprime crisis continues to impact our equity markets, many investors see the glass half full and consider this a great buying opportunity. However, some investors are getting out of the market as they fear things will only get worse. Regardless of your risk tolerance and buying strategies, now more than ever should you be cautious before getting into any new investments. The fear of a possible recession runs parallel with panicked investors and scamsters working overtime trying take your fear and capitalize on it. Milk Your Money has come up with a few things you should do before you make any big investment decisions.
The Financial Industry Regulatory Authority (FINRA) – the largest non-governmental regulator for all securities firms doing business in the United States – has an easy to use tool that allows you to do a background check your on your current or future broker and financial institutions. This simple two minute process can save you from losing your nest egg and allows you to invest with confidence. FINRA’s report will tell you if your broker is currently suspended or has recent enforcement actions taken against them etc.
Leave New Investment Products Alone
Yesterday we discussed whether the recent action by the Federal Reserve to cut interest rates represents an opportunity for homebuyers to save money by refinancing their homes. Today, we will discuss what the rate cuts mean to your student loans. Unfortunately, after doing some research, we have found that how banks determine the rate as to which they will lend you money for school varies from financial institutions and different lending products. In addition, many other factors are used to help banks set your rates like co-signers, credit history, variable and fixed products, and percentage of origination fee (a percentage of the total amount of the loan). So, stay with us as we plow through the nontransparent world of student loan lending.
Remember, the lowest rates generally will come with requirements of a co-signer, in addition to an origination fee. Most lenders will only allow you to consolidate your private loans with them once, but you can always use a different lender to consolidate in the future. Also, keep in mind when you consolidate, your loan term with some products will reset you to an additional 20 years. Therefore, if you have been paying your loans for 5 years and you consolidate, you will take the balance you currently have and stretch it out for another 20 years, meaning more interest payments. Just like home loans, don’t be afraid to ask about a fixed rate, generally you will be able to get a fixed rate of about 8.4% with a 1% origination fee and a peace of mind knowing your monthly payments will never change.
At the request of a Milk Your Money subscriber, we are doing a two part series on the pros and cons of refinancing your loans in light of the Federal Reserves recent interest rate cuts. Today, we will focus on refinancing your home loan. Should you take advantage of the rate cuts and refinance your home? Tomorrow, we will do a piece on what the rates cuts mean to both your student loans, what actions should you take? Click here to subscribe to Milk Your Money’s daily posts in your email, so you don’t miss out on tomorrow’s follow-up piece.
ou do not own at least 20% of your home. PMI payments can range anywhere from $100/month - $300/month depending on the size of your loan. Many of you may have piggyback loans, which are loans of two amounts typically one loan for 80% and another for 20% (this loan will most likely have a higher rate and separate terms), this type of borrowing allows you to bypass paying PMI. You may want to consider refinancing your loan if you have a piggyback product if the value of your home combined with your previous principal payments, gives you 20% ownership of your home. This will allow you to cash in on the lower rates as well as combine your loan into one fixed rate loan with no PMI, a win win situation.
Credit card companies are coming under fire lately, and in our opinion, deservedly so. Credit cards of all kinds are now taking advantage of the 10 pages of fine print you agree to when signing up for a new card, which gives them the rights to basically do whatever they wish to your interest rate. It is not uncommon now for good customers, those that pay their card in full every month on time, to have their rates raised. Sound unfair, well it is. Because of the problems associated with the mortgage mess and even hedge funds, banks are now looking for other ways to balance their books, and they are turning to the average consumer.
from certain financial institutions. You can now be charged the same late fee for being an hour or a day late as those customers who are months late on their payments. Keep in mind that due to the magical fine print you agreed to, any late fees may also result in a penalty rate imposed on your account, which according to CNN can top 30%, which can be applied to not only purchases you are going to make in the future, but also the ones you made last week!
2) Stop using multiple credit cards. The more credit cards you are using, the more likely you are going to "break the rules," with one of the companies. For example, you might go over your credit limit or forget a payment. Focus on using one card and really understand the terms of the card to ensure you use the card only to your advantage.
In our quest for consumption, we can readily come up with a healthy list of things, given the cash flow, we could run out and buy right now. Let's imagine for a moment that’s possible. What would you buy? If you’re like us, that list spills over into electronics, home theater and sporting goods. When going through the process of shopping, some will simply see things they want and make impulsive purchases. I had this happen to me not even a week ago with a lob wedge that I had an eye on. I can barely call myself a hack so purchasing a $50 golf club was already a little out there. On top of that, it was on sale for $30! I had to go through the agony of making some perfect text book practice swings in the store, imagine it in my bag, visualize myself making a few beautiful pitches on to the imaginary greens, then put the club back on the shelf and walk away. Let me tell you, it’s a man's equivalent to giving birth. Maybe not, but still pretty difficult.
Impulsive purchases are probably single handily the cause of Americas credit card debt problems. Remember the two-week rule we mentioned in an earlier post? For those items that you know you will enjoy and get your money’s worth, perhaps your decision of purchasing will ease if you find the product used and cheaper. We have recommended five items that you may be better off buying used and five where buying used is not worth it. Now, let's take a look at what is best used and new.
USED 
1. Golf clubs. You saw that coming didn't you? There are people out there that have their entire business built around reselling used golf clubs. A woman I work with was somewhat apprehensive about buying a used club, but ended up going to a manufactures' outlet site and got one that was "like new" and it was in pristine condition. This is an example of investigative research to save some pretty big bucks. Clubs are a lot like cars in that if you wait for the latest club to come out, the one before it get substantially reduced in price. Ebay is not a bad way to go about this. Just buy steel irons and be sure the drivers and woods show a picture.
2. Computer Monitors. I have a sick obsessive fascination with having as much desktop real estate as possible. If I could justify the cost, I would use two 30" monitors at every machine I have. Obviously, that’s an obscene amount of monitor, but still, it doesn't hurt to look! (Looking is free.) To have reasonable success with buying larger monitors, I go to the Dell Outlet page to find good deals on monitors of a larger persuasion. Don't be afraid of buying a monitor that has been refurbished! These monitors undergo an extensive quality check before they go out and the risk of getting a bad monitor is extremely low. The worst you can expect might be a bit of slight marring on the bezel, or frame. To me that's fine, if I can save $150-200 dollars. The technology these days for LCD is so run of the mill that consistency is near 100%. This outlet list changes often so check back regularly.
3. Books & DVDs. To be completely honest, a large part of my entertainment budget goes towards books. A few DVDs here and there, but not many due to Redbox and Blockbuster Online. However, for my book indulgence, I do a sneaky thing. I go to the big fun bookstores (Barnes and Noble, Books-a-Million, Borders, etc) and I buy absolutely nothing. Again, like the golf clubs in the sporting goods store (see above), this is extremely difficult to not give in to the instantaneous feeling of satisfaction. What I do is write down the ISBN number and go look on Amazon for it. I do this for two reasons: 1) I will get the same book, in nearly the same condition, which will be close to 50% off what it was in the store; and 2) It allows me to have a buffer of time to be sure that the book I am seeking is something I truly want/need. Waiting to purchase lends time to take in to account reader reviews and it's amazing these brick and mortars are staying in business.
4. Vehicles. This is somewhat a no-brainer for anyone with a sliver of frugality within them. It’s a widely known fact that a brand new car depreciates at least 3-5% as soon as you drive it off the lot. Then it loses 15-20% of its value every year after that. It’s not uncommon for people now to owe more on their car than it’s worth, don’t be one these. While some say that a car is an asset, it is also a depreciating asset. In fact, it is the only “asset” people willingly borrow money, at interest, while knowing it will depreciate. Get a vehicle that’s 2-3 years old and let someone else take that hit, just make sure that the car was well cared for. That new car scent can be bought easily. Taking care of your car will save you tons over the long run either way. Buying new does absolutely nothing but throw good money out the window at about $12 a day, in addition to gas, maintenance, etc, etc.
5. Wall Art. Hopefully you don't think we are suggesting that you are like the Amish, so by all means decorate! There is quite a bit of decent paintings, photographs that you can find out there at decent prices. I feel good about buying these used as there is only so much you can really purchase before your walls are full and your need goes down. Kept within your budget and at the right places, this can even be a rewarding hobby. Check The Wall Art Store or All Posters.
NEW
1. HD TV's. This is an interesting category as it could be easily argued either way. Some will say that it's just like computer monitors and the technology is so stable these days that you can’t go wrong. I disagree somewhat in that TV's have a great deal more going on under the plastic skin. You wouldn't think of it, but they actually have some pretty advanced chips in them that lend themselves to widening the spectrum of quality across the field. A higher quality, name brand, HD TV is going to look noticeably better than a lower end one. Without getting into a long post about the pros and cons of certain sets, there is still the argument that TV's are getting cheaper almost by the day. Find a TV you like at Best Buy, note the model number and then go home and look online for it. These prices will have dropped significantly online, then in one-month see if they have come down again at Best Buy. Again, Amazon has nice selection as does Costco. (Let us know if you find that 60" Vizio for less than $2k!)
2. Computers. I am a bit of a stickler for computers but I also do quite a bit of tweaking and know my way around pretty well. Having said that, there are two avenues to explore: DIY - Go to Pricewatch.com and get your parts. They do a really good job of giving you the power to select the parts you want in the price range that works best for you. You can also see price trends for more expensive items and see where the gouging drops off. NewEgg.com also has some pretty good deals for more everyday items.
Buy Whole - Of all the computer manufacturers out there, it is not easy to simply recommend one and have that answer all the needs of the average consumer. If you need just an eMachine, go to WalMart and be astounded by the savings. For an overall positive experience and a decent warranty, buy a Dell. You can snag some great deals from their Outlet Store, but new machines are a good buy as well.
3. Clothes & shoes. Just spend wisely here. Not many would buy used clothes and shoes given the choice. You don't have to buy everything from the most expensive trendiest store, outlet department stores should be ok no matter your dress code. I have to wear a shirt and tie to work everyday (excluding casual Fridays) and I rarely pay more than $10/shirt and $10/tie. I’m serious, I’m not wearing the worst of the worst either. Occasionally, check out the back of stores where the clearance sections are, you will be surprised. If you feel differently about this, please leave a comment and let us know. 
4. Cell phones. Used cell phones are sold for three reasons: they don't work, they are awful quality, or they are stolen. Do the research to see what you like best and stick with it. Get a modest plan, and take advantage of a renewal deal. Verizon has a Two Year Renew plan and it’s pretty nice (however, for the consumers sake we would like to see these contracts be reduced to at least 1 year). I usually make a point of not looking at other phones for the 1st year, and then as the second year starts up, I begin looking around for what is nice. Just don't go over the top with features and be wary of rebates!!
5. Furniture. Much like clothes, you can't really feel good about buying a couch that someone has obviously made a large part of their life on (including their children). It's too difficult to bring it back to "like new" and the fabric will eventually go back to its engrained smell. Not to mention lots of furniture made these days is not of solid wood, but of particleboard, that doesn’t have the lifespan of wood. Spend the time to do research and know your budget limits. Set aside a certain amount of money to work with and stick to it. Don't feel like you need to furnish your entire house at once and PLEASE don't get suckered into a store credit card. Unless you can pay it off and keep it off, it will hit your credit report to continually opening new lines of credit. Buy a decent bed first and go slowly from there. The furniture will have more meaning to you and will last longer because of it. The only used furniture I could feel good about recommending would be hard wood antiques. Even then, I would need to do a great deal of research to justify it. Exception to all of this is college, beer taste just as good on a used couch.
The personal savings rate in the United States is around 1%, an embarrassing number for one of the richest countries in the world. Why aren't we following the saving generations that came before us? We can think of a few reasons: ARM mortgages, easy access to credit, ipods, 5+ year car loans, and rising college tuitions. As this troubling trend of insufficient savings continues, banks have created new ways to encourage saving, but should you enroll?
Everyone knows of a gas station in their area where they can save a couple cents on a gallon of gas. Have you ever wondered if it is worth going out of your way to fill up at these cheaper stations? We have determined it is not.
For the most part, people are too busy to spend money during the weekday, it's the weekends where pockets empty. Presidents Day Weekend is among us and with any additional day off from work, represents an additional day to spend our hard earned money. Obviously the best way to save money is not to spend it, so how should you spend your weekends without blowing your budget? Milk Your Money came up with ten ideas to enjoy your time off while by keeping your credit cards in your wallet...
1) Invite your friends over for dinner. Rather than spend an evening out on the town. Most friends will provide some help by bringing beverages or a side-dish, and with the money already budged for food that night, the extra amount spent will be minimal.
2) Start a project at home. Have a room you have wanted painted for awhile or something that needs fixing? I know this doesn't sound like fun for some people, but I like spending my time off working on small projects around our home. Sweat equity is a great thing, pay yourself to increase the value of your investment. 
3) Watch a movie. I rarely see a movie when it is in the theatre. If you think about it, the cost for two tickets will probably cost around $20 plus at least $6 of popcorn and a drink. That's $26 for two hours of entertainment which breaks down to $13/hour. Lately, we have been renting movies at Redbox machines for $1/night or watch a movie On Demand which we already pay for with our cable.
4) Get Active. To the contrary of what Gold's Gym says, staying healthy is cheap if not free. Walk your dog, play some tennis, go for a jog, work on your short game (golf), shoot some hoops, play tag with your kids - are all great ways get off the couch and save some money.
5) Plan Ahead. Do a little research before the weekend rolls around. Check to see if one of your favorite restaurants or bars is having a special, buy tickets in advance to sports events or concerts, or bring your own food or drink for a day at the beach. The more you get serious about your finances, the more you will realize that planning plays a major role. 
6) Smart Shopping. Its inevitable that you will find yourself in a store that is literally full of things that you want to buy. For these times, its a good idea to follow the 2 week rule. Make a mental list of the things you want and then simply wait 2 weeks to see if you really do want it. A majority of the time, you will see that you don't really need the item. Ben does this with books, and of course golf clubs.
7) Streamlined Clutter. While this sounds boring, the long term benefits can be seen further down the road. Deep clean those storage areas that are full of things that have no other place. By taking "clutter" and either getting rid of it or putting it in the appropriate place, you gain the efficiency of the space you have available to you. Spend some time to be as thorough as possible and streamline your closets, putting clothes you haven't worn in a year in a box for long term storage. This will make your morning routine simpler and allow you to see your exact inventory of clothes. Apply this to your car, garage, storage closets, attics....you get the idea.
8) Budgetize Your Entertainment. In the event that you do end up doing something a little more expensive than usual, don't fret. Simply figure out how much you overspent and divide that by your allotted "weekend money," this will be the number of weekends you will need to lay low before you can spend for your budgeted weekend entertainment.
9) Wait for the DVD. Instead of spending $40-60 a month on cable, what if you spent $60-80 a year on TV series on DVD. If all you watched was Sopranos on HBO, you could have saved quite a bit by waiting until the season (or series) was over and watching the whole thing on DVD. Ben did this and said it was very rewarding as there was no weekly wait to see what happens. He is currently waiting for Lost to be over to do this as well.
10) Don't Cut, Just Curb. The weekends are highly coveted and far too short. We are not saying that you should stop doing certain things that make you happy, just see if there is a way to reduce some of them. Its unrealistic to assume that we can live like monks or spartans but the idea of frugality is in efficiency in the use of resources. $
As we all know by now, this country is in a rapidly increasing downward spiral in real estate, credit and mortgage lending. About a week after Bush released the economic stimulus plan, he and six large mortgage lenders unveiled a plan to come to the rescue of a majority of foreclosing families. The question is, how will this plan work out? Will it be effective? Will it turn our economy around? (Image credit to Rick LaForce)
y that we have seen this sort of behavior before. It happened in the 70s as well as the 90s. In the early 2000s we saw a major rush into real estate that some say we are paying for now. The other side of this coin however is much more negative. Depending on who you talk to, we are headed straight for a recession (which is defined in macroeconomics as a decline in the nations Gross Domestic Product or negative economic growth for more that two quarters, or six month). Basically it means that we, as Americans, are not spending as much as we should be and demand dwindles, regardless of whether prices move up or down. A famous news paper columnist, Sydney J. Harris, is quoted as saying “A recession is when your neighbor loses his job; a depression is where you lose yours.” Personally, I have not noticed any reports, at the time of this writing, of an over all, wide spread loss in jobs. If you find differently, feel free to leave a comment and weigh in.
Little Help?
With this background we are better able to understand what the governments actions are attempting to do: pump life back into the country’s economy. After the rate cuts, Bush decided that best way to move more cash would be to directly inject it by putting it squarely in the wallet of the common citizen. We discuss elsewhere as to what we think you should do with it. As a side note, the tally for the amount of money being milked out was just about $150 billion dollars and there was a motion to add a another measly $40 billion so that the elderly and military vets could also participate. This barely passed at the 11th hour. How nice of them.
There are naysayers (of course!) that believe that this is simply the beginning and this is a fruitless effort. Will the changes that these lenders are proposing be enough to put the brakes on this drop? It will be interesting to see where we can go from here. It also leads to a whole other discussion on investing. Have you taken a good look at the financial market lately? $
