Rabu, 27 Desember 2006

Stash some cash for emergencies

As I mentioned in my last post, I knew the personal finance books I received for Christmas would yield some good fodder this blog. Here's the first interesting tidbit to share.

In The Wall Street Journal Complete Personal Finance Guidebook, Jeff Opdyke recommends stashing a few hundred dollars cash in a very secure spot in your home, just in case the power goes out in your area for an extended period of time. Though M and I have started using cash on a more regular basis, we get that cash from an electronic ATM. Plus, we're still pretty tied to using our debit card to pay for things.

Other than big snowstorms or the occasional flooding, natural disasters are rare in South Jersey, but having some cash around to pay for groceries in an emergency isn't a bad idea. Now I just have to find a secure place in my home to keep it (something I won't be writing about here).

By the way, the Carnival of Personal Finance is up at My Personal Finance Blog. Check it out if you have a chance.

Jumat, 22 Desember 2006

Personal finance books under my Christmas tree

In our house, celebrating Christmas has become a month-long affair. With in-laws and siblings down south, a daughter attending college in Boston, and a blended family in general, M and I have been involved in family gift exchanges the last two weekends. We have three exchanges to go before the year is through (counting Christmas morning).

All the early exchanging makes the holidays a little more hectic , but it has perks. For instance, I've already gotten two things on my gift list: Jane Bryant Quinn's Make the Most of Your Money, and The Wall Street Journal Complete Personal Finance Guidebook, by Jeff Opdyke.

Author, author
Both books are tremendous resources for just about everything personal finance-related, from excellent writers. Jane Bryant Quinn is one of the most well-known personal finance experts around. I interviewed her once for my job, and she's as classy as she is money-smart. (Interesting notes I didn't know about her until now: She helped develop Quicken, the personal finance software I use, and her stepdaughter is Martha Quinn, one of the original MTV video jocks. Source: Wikipedia)

Jeff Opdyke is The WSJ's Love & Money columnist. He doesn't have the long list of credentials of Jane Bryant Quinn, but he has been covering personal finance and investing for The WSJ for more than a decade and has a real knack for clear, non-intimidating finance writing. (Interesting note about him I didn't know: He works for The WSJ but lives in Baton Rouge, Louisiana.)

Everything personal finance
I'm already halfway through the guidebook. It's a "lighter" read than JBQ's book, both in tone and weight. Mr. Opdyke covers all the basics of personal finance, from banking to investing to insurance, in less than 250 pages. My daughter Jess got it for me (because she "admires my passion for finance"), an irony because I think it's ideal for someone like her--young, busy, and just starting out in life. It also has a companion workbook (sold separately).

Ms. Quinn's book has been staring at me from the top of dresser the past two weeks. It covers the same ground as the guidebook and much, much, more, and in greater detail. It's more than two inches thick and 1,000 pages, including appendixes. However, it's well-organized and easy to navigate. Just don't try to stuff it in your special someone's stocking.

For me, perhaps the greatest gift from both of these books: Fodder for an abundance of personal finance ideas and thoughts to share with you here at The Coin Jar in the months ahead.

Kamis, 21 Desember 2006

Private Student Loan Consolidation

Last week I wrote about federal loan consolidation and emphasized the importance of reviewing offers closely. There are two changes I wanted to point out: (1) Educational Loan Company - mentioned as a good baseline for comparing “medium-term” repayment offers – had required a minimum consolidation amount of $20,000; that has been reduced to $10,000. (2) The North Carolina Program, which had offered a 2% rate reduction incentive, offers incentives totaling 2% for on-time payment and an additional .25% reduction for auto payment (2.25% total rate reduction benefit available).

Contrary to popular belief, private loans can be consolidated … Here is what you should know if you have them and are considering consolidation:

• DO NOT consolidate them with federal loans even if they provide the option.

• They can’t be consolidated until you’re out of school and beginning repayment.

• In most cases, consolidating private loans will leave you with a variable rate loan – it will not typically fix your loan rate [like federal consolidation].

• Keep in mind that the best option is often to leave them alone. How to know?

1) Look at the benefits of your current lender. There are only about ten lenders that will consolidate any private loans. Most companies require that you have loans with them to be eligible to consolidate with them. The amount will vary – some will require that you have one or more loans with them – some will require 50% or more of the consolidating amount be with that lender. Researching your lender is a good start …

2) Shop around. As mentioned, there are a few companies that don’t have stipulations in order to use their consolidation/refinance program. Here’s a published list - http://finaid.org/loans/privateconsolidation.phtml. The lender, not the government, dictates the interest rates provided [most are linked to the Prime Rate or LIBOR].

Private loan are credit-based loans [as is the refinancing/consolidation process]. If you had poor credit when getting the loan initially, consolidating them may make sense if you now have better credit and/or a co-signer with good credit. The difference in rate from poor to excellent credit can be as much as 6%+ with some lenders. If you had good credit from the beginning, consolidation is not likely to provide much benefit to you. There are distinct costs to weigh in the decision. All of the criteria used to assess the ‘utility’ of the original loans should be examined when evaluating consolidation options. See my alternative loan article on the OFS website - http://financialsuccess.missouri.edu/altloanselection.pdf - for more detailed information about ‘cost’ considerations such as fees, potential prepayment penalties, borrower benefits, etc.

Rabu, 20 Desember 2006

Good personal finance advice for your ears

I love my iPod. Listening to podcasts of radio shows from Dave Ramsey, Crown Financial Ministries, and Charles Stanley make my hour-long commute to and from work an education rather than just a grind. (In fact, I rarely listen to music.)

I'm going to add another show to my podcast favorites: "The Color of Money" from National Public Radio (NPR). It airs every week on NPR's "Day to Day" show. Michelle Singletary, the personal finance columnist for the Washington Post, is the primary contributor. The segment covers the usual range of topics, from saving for retirement, college, etc. to tips on starting a business.

Maybe the best part about it: It's informative and short, about four minutes long. Plus, with the podcast, no endless NPR fundraising segments to sit through in the fall and spring.

A Penny Saved hosts Carnival
The list of submissions to the weekly Carnival of Personal Finance seems to get longer and longer. This week's carnival is at A Penny Saved, and since there are so many choices, here are a few from the bottom of the list you otherwise may not have seen:

Kamis, 14 Desember 2006

Federal Student Loan Consolidation

As the end of the semester is upon us, it seems timely to review the issue of student loan consolidation. This week I’ll address consolidation of federal loans and will address consolidation of private loans next week.

First off, some reminders about some of the recent law changes:
- In-school consolidation is no longer an option. You will need to be out of school in order to be eligible to consolidate.

- You are no longer required to have multiple lenders in order to be able to choose your lender – even if all of your loans are with one lender [i.e., DMU], you are able to shop for the best deal for you.

- You are now unable to consolidate your loans with your spouses’ loans – this was never smart, but is no longer an option.

Other important consolidation considerations:
- You do not want to consolidate Perkins loans [or other loans] if they may be forgiven or repaid by your employer, state, etc. It is ok to consolidate them otherwise.

- If a lender is offering to combine your federal loans with private loans, credit cards, or any other non-federal loan debt, RUN!

- You can AND SHOULD consolidate even if you consolidated prior to take advantage of lower rates. You can always reconsolidate (to combine) loans as long as you have loans to consolidate that haven’t been consolidated prior. As most of you heard last year from me, doing this WILL NOT negatively impact your interest rate. Your overall rate will be a weighted average of your loans rounded up to the nearest 1/8th. For example, if you consolidated $5,000 of loans at 6.8% and $5,000 at 4.8%, you would now have a $10,000 consolidation loan at 5.8% … view resources below to access a calculator to find out your weighted average.

- Some people are afraid to consolidate because their repayment will be extended (thus more interest paid). Keep in mind that you can select the repayment option you want as well as choose to pay whatever amount you want (no legitimate program will assess a penalty for early payoff). Consolidation, however, is the only way to ‘lock’ the rate of otherwise variable rate loans.

“How do I decide where to consolidate – I get so many offers?”
This is perhaps the most important question to address … My experience with consolidation issues over the past several years has drawn me to one primary conclusion – the ‘financially smart’ place to consolidate is not going to be the same for every student; it is largely a factor of how you plan to repay your debt.

(1) If you haven’t borrowed much or plan to repay your debt quickly, you should search for a company that will reward you for doing so. This benefit will normally come as a principal balance credit. For example, Key Bank offers a 5% credit for consolidating with them. Some companies will provide a max credit, as well as other ‘fine print’ caveats, so read the application. While a couple ‘Benjamins’ is nice if this is my situation, if I have a long-term repayment scenario, being enticed by this type of benefit would be a big mistake!

(2) If I find myself in a ‘long-term’ repayment situation (I’m going to define this as 10 years or more of repayment anticipated), the best “deal” for me would be the company that will reduce my interest rate the most. This won’t solely be people that have large debt levels; these will also be individuals that wisely consolidated during the past couple years when rates were at historic lows and they see an opportunity to repay their debt at amazingly low levels and want to minimize that payment while they invest, prepare for homeownership, and focus on other financial goals. Your baseline when comparing rate benefits is to understand that an “average” company will offer a 1.25% reduction (normally .25% reduction for auto pay will be provided along with a 1% reduction in rate for on-time payments [normally of 36-48 months]). As part of the resource links below, I provide links to state programs that provide ‘above average’ benefits, like North Carolina, which offers a 2.25% total benefit for automatic and on-time payments. Information about the programs as well as other information are available below …

(3) The first two scenarios will cover most individuals, however, some individuals will have borrowed too much to pay off quickly; others may be debt averse and don’t want to extend it, so they fall somewhere in between the above two options. In this case, where you plan to repay your debt over an ‘intermediate’ term, review a company that will provide interest rate benefits (these will almost always work out better than the principal credit benefits) where the benefits are offered up front. For example, the Educational Loan Company offers a better than average rate reduction benefits (1.75%), but rather than needing 4 years of on-time payment, .5% of the benefit is up front for auto pay and 1.25% is available after only 24 months of on-time payments.

NOTE. Three things I want to emphasize. (a) These are general guidelines/rules of thumb – run the numbers to see what will make sense for YOUR LOAN SITUATION. (b) Read the applications to see if there are caveats – for example, the principal balance credit by Key Bank is foregone if you defer or forebear the loans during the first 36 months of repayment; Educational Loan Company requires you to be consolidating at least $10,000 total in debt. So read through to make sure the program fits with your situation. Don’t, however, assume that you’re not eligible either. It’s easy to say “I’m not from North Carolina, so I can’t do that” when the reality is that if you’re willing to spend 5 minutes, you can create a connection that will enable you to be eligible for their program. Thus, (c) BE SMART and take a few minutes to figure things out, it will be well worth your time!

- Calculating your loan payment
- Calculating your weighted average
- Consolidation strategies
- Repayment options
- State consolidation programs

* All of these links are available via the OFS site click on the “student issues” button

Red storm rising for many homeowners

The predictions are coming true. And faster than many financial experts expected.

People are losing their homes. In droves.

"Americans who have stretched themselves financially to buy a home or refinance a mortgage have been falling behind on their loan payments at an unexpectedly rapid pace," The Wall Street Journal recently reported. "The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion U.S. mortgage market.

The article notes that most of the defaults stem from people that had a questionable ability to pay from the start. However, it appears that the trend is spreading to other parts of the mortgage market as well.

A report on ABC's Good Morning America said that more than a million families have lost their homes to foreclosure in the first 11 months of this year. That's up a whopping 43% from the same period a year ago. In the state of Georgia alone, foreclosures have increased 100%.

An early increase
The apparent culprits of much of the foreclosure activity: non-traditional loans, such as interest-only and adjustable rate mortgages. As housing prices soared through 2005, millions of homebuyers took out these mortgages--which have low monthly payments in the beginning, but that can jump substantially after a few years--to keep their home purchase "affordable."

I remember watching a news report about a year ago that cautioned about the risks of all these homebuyers taking out non-traditional loans. The reporter brought up the possibility that, when homeowners' payments increased in three, or four, or five years, we could see many people losing their homes because of an inability to pay.

Well, the increase has come early. For instance, $1.2 trillion in adjustable rate mortgages will adjust upward in the coming months, the Good Morning America report said. The impact on already stretched homeowners is proving to be pretty big.

Evaluate other options
If you've been able to make your monthly payments on an adjustable rate or interest-only mortgage, now's the time to evaluate other options. Consider refinancing to a 30-year fixed-rate mortgage, which currently runs at about a 6% interest rate per year--historically, still a very good deal. You'll surely face some upfront refinancing costs--and make sure there isn't a pricey prepayment penalty in your mortgage contract--but those costs can be worth it over the long run.

However, you may find that going to a fixed-rate loan--even a 30-year one--means you can no longer afford your house. Generally, housing costs (mortgage, interest, taxes, and insurance) should be 25%-35% of your household's monthly net income. If refinancing causes your mortgage payment to eat up 40% or 50% of your net income, you've bitten off more than you can chew.

In that case, it may be time to call your realtor. Which is better than dodging calls from creditors and eventually seeing your family's home auctioned off in a sheriff's sale.

Senin, 11 Desember 2006

Not too early to think of 2007 personal finance goals

2006 is almost in the books. So what are your personal finance goals for 2007?

More than one-third (37%) of American workers said they plan to pay off credit card debt next year, and a third plan to put a set amount of money into savings each month. That's according to latest Principal Financial Well-Being Index, a survey of U.S. working adults at businesses with 10 to 1,000 employees and sponsored by the Principal Financial Group®.

Those are great goals to have. Add to those starting an emergency cash reserve, or increasing your reserve amount to six months of living expenses. Or keeping better track of how you spend your money. Or making sure you and your family have enough life insurance.

For my wife M and me, I'd like to see us get better at setting and living within our monthly cash budget. We did great our first month in October, but weren't as disciplined in November and through this month so far. Next year, I'd like to shoot to stay within our monthly budget for at least six consecutive months.

I also want to finalize our wills. This was a 2006 goal that I set just a few weeks ago , and I made a good start using my company's online estate planning document service. But I ran into a couple snags, so completing it will have to wait a little longer (sorry, M my sweet!).

Two other big objectives: Paying off the last of our student loans and a personal loan we took when we had CJ Jr. If we reach those goals--a good possibility--then we could start up our kids' college savings contributions again and making extra payments on the mortgage--two things we cut back on when we went to one income last June.

Last, but not least: Buying a highly used but reliable van (with cash, of course). This goal is heavily dependent on whether our family size shows signs of increasing in the next couple months, Lord willing.

Yes, I should have plenty of personal finance experiences to blog about in 2007.

Kamis, 07 Desember 2006

Extended Warranties - Unwarranted?

A lot of electronics will be purchased this holiday season. For those of you that will find yourself in this situation, the inevitable question awaits … “Would you like to purchase our extended warranty?” What do you do …?

What do the experts say … Consumer groups [and common sense] will normally tell you to turn down the urge to accept the offer. A fast-growing $15 billion dollar industry has been built on the likelihood, however, that you’ll succumb to the impulse to say yes. Millions of people each year pay anywhere from 10% to 50% of a product’s original purchase price to extend a warranty. The decision to buy the extended warranty defies the recommendations of most economists, consumer advocates, and product quality experts who warn that the plans rarely benefit consumers and are almost always a waste of money.

What are they … Extended warranties were first introduced as a high-pressure sales tool by large electronics stores in the late 1980s. Now, they are a core product sold by all kinds of retailers and cover a wide range of products. The warranties are technically insurance products where the premium is paid in a lump sum at the time of purchase. Extended warranties generally lengthen the coverage provided by the manufacturer’s warranty on a product. While terms vary dramatically, the plans typically add from one to three years of protection.

How do they work … In terms of service, most warranty providers use third-party contractors to repair broken items, and consumers don’t get to choose who performs a covered repair. Many policies won’t cover accidents or normal wear and tear (the most common causes of breakdowns in common household goods). Most importantly, however, is the fact that the vast majority of extended warranties are never used.

One distinct disadvantage for consumers is its vast difference versus selecting other “insurance-type” products. When buying auto insurance, for example, it’s relatively easy to make an informed purchasing decision by comparing terms and prices among different providers. It’s not nearly as simple a process to comparison shop for an extended warranty at the checkout counter. Not all salespersons are provided a commission for selling the product but be certain that they’re trained to make sure you know about the warranty and its benefits.

By the numbers … Warranty Week, an industry publication, last year estimated that of the $15 billion in premiums charged to consumers in 2004, $7.5 billion went straight into the pockets of the stores that sell warranties. Of the remaining $7.5 billion, it was estimated that only $3 billion was paid in claims by the insurance companies that back the plans (20% payout ratio). Contrast that with the auto insurance industry that paid out $66 in claims for every $100 in premiums during the same year (Insurance Information Institute).

Bottom line … Consumer Reports almost never recommends buying an extended warranty, especially on automobiles. But even Consumer Reports makes exceptions to the rule. Last year, for the first time, they discovered that repairs on some products (namely laptop PCs, treadmills, and plasma TV sets) were common enough and expensive enough that a decently priced extended warranty would make sense. So what does that mean for you? More times than not, an extended warranty is an unnecessary, expensive option – think twice about it when making that purchase this holiday season.

(SOURCE – Washington Post, October 2006)

- Extended Warranties & Service Contracts (Univ of FL)
- Extended Warranties: Are They Worth Buying? (Univ of KY)
- Take a Hard Look at Extended Warranties (CUNA)

Selasa, 05 Desember 2006

Research: Thinking about money increases selfishness

I didn't have to go far to find an intriguing post in this week's Carnival of Personal Finance, hosted by Money and Values. Just the second one listed, actually.

Laura Young, host of "The Dragon Slayer's Guide to Life" blog, highlights some interesting research featured in the November Science magazine on "The Psychological Consequences of Money." A study conducted by a team from the University of Minnesota shows that just the thought of money tends to make folks more self-centered, selfish, and less willing to help others.

I feel like I've known this fact for years, especially being a sports fan. As the contracts for professional athletes and televising events have gotten bigger, so have the egos and self-centeredness of the players and league executives, across all sports. It's nice to see some solid scientific data to back it up.

Senin, 04 Desember 2006

A holiday gift for your kids that will last a lifetime

I'm probably missing a marketing opportunity here somewhere.

Occasionally I notice that people find my blog by googling "coin jars." Which got me to thinking, if you're looking for one last small gift to round out your child's holiday goodies, why not consider giving him or her a coin jar?

A search of Amazon.com produces a choice of four kid-friendly coin jars, ranging in price from $12.99 to $49.95. (I'm not counting the Qing porcelain coin vase included in the search results as fit for children. Also, note that two of the jars are virtually identical; one just costs $2 more because it's endorsed by Discovery Channel.) All are electronic, counting the coins as your child puts them in and displaying the total amount saved. One even counts and wraps the change for you.

I like the idea of motivating kids to save by showing them immediately how much their quarters and pennies have added up to. But I also think you get a big bang for the buck with children by dumping a bunch of coins out on the floor and helping them patiently count up their loot (reinforcing their math and money skills along the way). Either way, you're sure to get a "Whoa!" or an "Awright!" when they see the total in the end, which will leave a good impression of the value of saving on their minds.

Granted, an electronic coin jar isn't as fun as TMX Elmo or Nintendo Gameboy Advance. But those gifts will last from maybe a couple weeks to a year. The benefits of being a good saver will have the shelf-life of a lifetime.