Debt Free

Charles Dickens once said, paraphrased for this century: “Earn $50,000 annually and spend $49,600; you’ll be happy. Earn $50,000 annually and spend $50,400 and you’ll be miserable.” Old Chuck was right on the money. Even 150 years ago this piece of fiscal wisdom was hard to fault. Anyway, enough literary references for one day; here are some tips on saving an extra $100 every week without living in a cave lit with candles, while eating dog food for dinner:

Tips on Saving Money #1
Audit your expenses – There are 2 categories of expenses you should be looking when trying to regularly save money; regular, recurring expenses and singular expenses, which through force of habit may have become recurring. Tip number one for saving money is to analyze all your regular, recurring expenses and find any opportunity to trim them back. These include all your utilities, insurance, credit card bills, and memberships and/or subscriptions. Block out at least a couple of hours, because that’s how long it will take. It could prove to be a very profitable couple of hours, so take the time.

These savings can add up fast and even better, you’ll realize these savings over the long term, as you’re billed for them every month. Look at your utility bills, such as power, water, sewer and cable. The first thing to check is that they’re accurate. Are you being billed for any services that you’re not receiving? You wouldn’t be the first to be billed for extended cable with the sports plus pack, when you were only getting the regular sports pack. You have to scrutinize your bills carefully to catch any such errors.

After you’ve verified the accuracy of all your bills, the next step is to go through each one and make sure that you’re actually using the services that you’re being billed for. For example, I just audited my expenses and realized I’m still being billed $7.95 a month for AOL that I haven’t used in years. I originally had it so I could get on the Internet in any town in which I happened to travel, no matter how small or out of the way. Now, however almost any hotel worthy of sleeping in will have free high speed Internet access, so AOL is useless to me. (Actually the cheaper hotels have free Internet, the nicer ones usually bill you around $10 a day for it. Go figure.)

As you thoroughly audit all your bills, fill out a spread sheet. This way, when you’re finished, you’ll have an accurate record of all your unused or little used services and how much you’re paying for the privilege of having them.

So now you have two expense categories; those services you intended to have, but no longer use, and those that you’re being billed for by mistake. Cancel those that you are using little or not at all. Next, call all your service providers that are incorrectly billing you, if there are any, and get back all the money they have incorrectly billed you for. If you have Showtime, but only watch it 3 times a month, why have it at all. Many times you could just rent a movie once a week. You’ll come out ahead monetarily and get better movies to boot.

Tips on Saving Money #2
Look at your diet to save money. Really, there are many things that you eat that you could either eat for less, or do away with altogether. This really adds up fast. The key is to eat healthy, but frugally. Thankfully fresh vegetables are quite inexpensive and also happen to be extremely healthy; antioxidants, you know. A rule with food is that the more processing and salt that has been added to your food, the less healthy and more expensive it will be. The exception to this rule is exotic or organic foods. These can be very healthy, but also very expensive.

I’m going to be the picture of hypocrisy as I write this while sipping an Americano, and tell you to stay away from expensive coffee drinks. At least an Americano is usually the least expensive drink on the menu at your average espresso emporium. Switch to a less expensive drink, or horror of horrors, drip coffee. The 2008 National Coffee Drinking Trends survey found that 17% of Americans drink gourmet coffee drinks daily. As the average such drink is about $4.00 (if you’re cheap and don’t tip) that’s one expensive habit. I would expect that the percentage of average urban Americans that drinks such beverages is much, much higher. So, if you’re in Boston, New York, Seattle or San Francisco cut back on the frilly java.

 Whole foods will be better tasting, cheaper and keep you healthier. You just have to get tin the habit of actually eating them. The next tip that can save you money on food is where you shop for your victuals. Stay away from specialty and trendy food markets unless you feel Buffy just won’t respect you should you shop there. Honestly, you get to shop with a great cross section of America by shopping in a warehouse store. I regularly see brand new Mercedes S550s and Lexus RX350s in the parking lot of our warehouse food store right next to beat up Cavaliers and Toyota pickups. Inside it is so ethnically diverse I could be shopping in Mexico City, Khartoum, or Mogadishu, depending on the day and time I’m shopping. Cultural education aside, it’s the fact that I save about $200 - $250 a month on food for a family of four by shopping at such a store that I choose to spend my money there.

I achieve these savings without making huge changes to our diet. I’m fairly conscious about sale items and value brands, but not nearly as much as I could be. Was I to analyze our purchases a bit more carefully the savings would be even more dramatic.

Tips on Saving Money #3
As with tip number 1, be prepared to spend some time on this one, but it will be money well spent. Depending on your individual financial situation and lifestyle, this could actually take all day. Gather all your bills and credit card statements and go to the quietest corner of your house, away from the TV, kids and your dog. Organize your bills in some sort of order. Make this something that works for you, but make sure all the customer service phone numbers and balances are easy to find for each of your creditors and service providers.

Do whatever makes you the most effective, weather it’s a cigarette (more on these later), cup of coffee, an hour in the gym, or a good night’s sleep, then go to work. You’re going to call every one of your creditors and service providers and negotiate your best possible deal with them. You can save big money doing this. In fact, you could easily save your $100 a week from this alone, depending on how large your bills are. It’s important however that you’ve taken the steps I described in tip number one first. You want to make sure you’re not negotiating on items you shouldn’t have been paying for in the first place. As another example, I saved about $60 month on my Internet and cable bill alone by just asking what they could do for me.

Call every single one of your credit card companies. After you’ve put any of your cards on auto-pay that aren’t set up that way already, you’re going to get a lower interest rate on your credit cards. If you haven’t had a late payment in the last 6 months, this should be no problem, especially if you have a stack of credit card offers in your mailbox everyday. Credit card companies know they have competition that numbers in the hundreds, so in most cases will want to keep your business if you have been a good customer.

This is one of those steps that isn’t very difficult, but it’s fairly time consuming and uncomfortable for many people, so it’s often not done. That’s a shame, because too many people don’t follow this tip, and so are paying far higher credit card payments than they should be.

Tips on Saving Money #4
Look at your habitual expenses and entertainment, such as cigarettes, movies and the like. I’m not one to suggest skirting the law, but the snacks at the movie theaters are outrageously expensive. Bring in your own and you’ll easily save $5.00 –   $10.00 for a family of four every time you go to the movies. Actually, at $10 per ticket for a movie, plus parking if you go in the city, you should probably think about renting instead.

About cigarettes, if you smoke, you know you should quit, you’ve heard it from a thousand other people, you don’t need me telling you too, so I won’t. Keep smoking if you must, but drop back to a pack a day. If you smoke 2 packs a day now you’ll save about $6.00 - $7.00 a day right there. 6 x 7 = $42 a week, so you’re almost half way to your $100 weekly savings. If you smoke 3 packs a day, well then, you’ll be even further, won’t you?

Tips on saving money are like dollars themselves, you can’t have enough of them. Now you have some more to sustain you on your journey toward being Debt Free.

*Go Bruins*

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Who’s James Lockhart, and why should you care? Lockhart is the head of the Office of Federal Housing Enterprise Oversight, or OFHEO, another one of the seemingly endless number of government alphabet agencies entrusted with ensuring your well being. The statements uttered by Lockhart yesterday gave insight to how some on the hill would handle the credit industry problem, if left to their own devices; more government intervention, as we saw recently in California.

Freezing wages, prices or any other monetary attribute is always a bad idea. Historically it has never worked, and there’s no reason to think this would buck that trend. If mortgage lenders are restricted in the interest rates they can charge it will make the problem worse, and here’s why:

The problem now isn’t that mortgage interest rates are too high. It’s that many well qualified buyers are being left out in the cold when it comes to getting a mortgage, due to very tight lending policies. Lenders don’t feel like they are getting enough return to justify the risk from any but the most ‘A’ rated borrowers. Freezing the allowable mortgage interest rate will only exacerbate the problem. Telling investors that they can’t get the return on their investment they feel is warranted to justify the perceived risk will only cause them to invest else where. You’ll get capital flight from mortgage loans to other investments.

With less capital available for mortgage lending, there will be even fewer available mortgages, leaving even more willing (many with very good credit) home buyers out in the cold than there are now. As fewer home buyers can get mortgages, people will not be able to sell their existing homes to buy new ones. This will mean that home builders will be sitting on inventory, and paying carrying costs. The combination of unsold new home inventories (creating a lack of revenue) and carrying costs will cause even more problems in the nation’s home builders, and they will lay off additional employees. In addition, the small business owners that are the subcontractors for these builders will be forced to lay off employees or go out of business entirely.

Once again artificial fiscal controls will have exactly the opposite consequences than what was intended. Government meddling to control private markets will almost always conspire to limit supply, and make the situation worse. The mortgage interest situation would not be any different.

Have a great, Debt Free weekend!

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How to get out of debt fast isn’t rocket science, or missile science, as one of my friends once said. It is like a diet, but with your finances. If you take in fewer calories than you burn, the caloric deficit will result in weight loss. Similarly, if you take in less money than you spend, the deficit will result in debt. So, the trick to getting out of debt is to reverse the trend.

As with any equation, there are at least two sides. You can either reduce the money going out, or increase your income, preferably both. The key to getting out of debt is to optimize the combination of income and spending. Here are the keys to get out of debt fast:

Before you change anything, contact one of the three credit bureaus and get a copy of your credit report. It’s free once a year from each of the major credit reporting agencies. You can stagger these reports to get one every 4 months. You can also get a more comprehensive service from FICO, the fine people behind whole credit scoring system, that includes neat graphs and charts with your score from all three agencies at the same time and such niceties as real time credit monitoring. This isn’t free, but it is pretty inexpensive and does provide much more information in a timely fashion. You can get a free trial here.

Once you get your report(s) go over them with a fine toothed comb to make sure that all your debts are, in fact your debts. Only once you’ve done this can you be sure you’re not starting the debt dig out procedure from a hole that’s deeper than it should be. Start that process first, and while you’re waiting to get your information, jump into the rest of the steps (with both feet).

Get Out Of Debt Fast Key #1
Control your spending. This is the single most important thing you can do to get out of debt. The average American consumer is about $11,450 in debt. You have to spend at pretty fierce clip to amass that much debt. This debt calculation counts those all Americans age 18 and over as consumers. There are about 220 million Americans in that age group and the total amount of consumer debt in the U.S. is about $2.524 trillion. Controlling your spending as a means to get debt free is important on two fronts.

First of all, the majority of those who exhibit high levels of consumer debt, not including mortgage or emergency medical debt, got that way through poor spending habits. Here are some things you can do to help control your spending, and most importantly developing a lifestyle that precludes excessive spending.

1.      Control your spending by developing a sensible budget. – This step to getting debt free is numero uno. You can’t plan if you have no basis for it. Many people have a poor idea of how much money they really spend on various items. To prevent those seemingly insignificant expenses that really add up to significant ones, a budget is a must. I posted on how to make a budget recently.

2.      To control your spending, check every expense to make sure it is legitimate. - It’s a real pain the backside, but you’d be amazed at how much money you have that you give away unintentionally. Look at receipts and billing statements closely to ferret out all those charges that maybe shouldn’t be there. In addition, make sure that actually get those sale prices at the store that you’re supposed to. It’s fairly common to have the price in the computer not agree with the promotional sale tag on the shelf.

3.      Control your spending by reconciling all your medical bills with your insurance statements. - Most medical insurance plans limit the amount health care providers can charge for certain procedures for those on preferred plans. The allowable cost will be listed on your insurance statement for each procedure. Make sure that you are not being charged more than the allowable amount for any of the procedures you’ve had performed. If you’ve checked the cost of medicine lately, you realize that it’s gone up. No, really, it has. Being overcharged for a single procedure can easily cost you hundreds of dollars, so it’s worth it to take steps to prevent it.

4.      Control your spending by putting as many of your recurring bills as possible on auto-pay. Make sure you set this up so the money is withdrawn from your account at a time when you have money in there. Setting up your finances this way reduces the time you spend paying bills, but not as much as you may think, because you still must check everything to ensure the proper amount was debited from your account. The real reason to setup auto-pay for your bills is that it prevents you from paying financial institution fees and charges associated with late payments. A strong secondary reason for doing so is that helps protect your credit score from the effects of late payments.

Get Out Of Debt Fast Key #2
The other side of the equation is how much money you bring in to feed your budget beast every month. A two pronged approach to get out of debt fast requires you to not only control your spending, but increase your income as well. There are myriad ways to increase your income. These range from increasing the income you make at your current job, to starting an second job, to plunging into your own business on the side. As with getting out of debt, it’s best to take a multi-pronged approach to increasing your income.

Since there are so many opportunities available to accomplish the goal of increasing your income, it’s silly not to avail yourself of more than one. For example, try to increase how much money you make from your current job and investigate home business opportunities (many great ones, even more scams). The advantages of a home business are flexibility and almost unlimited possibilities. The disadvantages are risk and the possibility of sinking endless hours into something that may not pay off as well as you would like.

To maximize your income, it’s usually best to create multiple streams of income. These would include your primary job, side business(es) and investments. One caveat here; it is very easy to get yourself torn in many different directions when developing multiple income streams, so it’s important to approach this with some semblance of planning.

The other advantage of creating multiple streams of income is that diversification of your income, as with diversification of your investments, provides you with some measure of protection. You won’t be as effected by things such as outsourcing, your company going out of business, or company mergers if you have a secondary or tertiary source of income. You’ll not have all your eggs in the same basket. At some point you’ll have multiple baskets, each with more eggs than you started with.

Get Out Of Debt Fast Key #3
How should you go about paying your debt down, once you begin doing so? There are multiple schools of thought on this, but I prefer a combination approach to paying down debt. As with the snowball approach, you’ll pay off your highest interest obligations first using as much money as you can dedicate to doing so, while paying only the minimum payment on all your other debts. After you pay off the highest interest debt, you’ll use that money toward the second highest rate, and so on.

With the hybrid approach however, you’ll first pay off any cards that are at, or close to their credit limits. Why would you do this? The reason to get all your cards at a target of about 60% of their individual credit limits is to improve your credit utilization score, a measure of what percentage of your available credit you’ve used. Having a few credit cards at or near their limits decreases your credit utilization score and lowers your overall credit score.

If you can raise your score, you’ll usually qualify for lower interest rates on your credit cards. You won’t be given this lower rate out of the goodness of the lender’s hearts though, you’ll have to ask (beg??) them for it, so get on the damn phone!! Lowering your interest rate will obviously lower your monthly payments and allow you to get out of debt even faster.
 

Debt Freedom Tip:
Talk with your accountant, tax professional or financial planner to make sure your tax burden is as low as legally possible. If you haven’t done a very good job in this regard, you may free up enough income from this alone to propel yourself toward debt freedom more quickly than you could have imagined.

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Interestingly enough, we are going deeper into debt at a highly disproportionate rate. According to the same Fed report, overall consumer credit increased at an annual rate of 3-1/4 percent in January, revolving credit jumped at an annual rate of 7 percent, and non-revolving credit increased at an annual rate of 1 percent.

Think about that for a second. U.S. consumers are increasing their levels of revolving debt at a rate that's 7 times greater than their level of non-revolving debt. Non-revolving debt is for loans that are taken out once, then paid down over time, such as car loans and mortgages. Revolving debt is an account that can be borrowed against and then repaid repeatedly, such as general credit and store credit cards. That means Americans are increasing their levels of debt for major purchases at a level far below that of inflation, while their debt levels for credit card purchases are forging ahead at levels almost double that of the inflation rate.

This is problematic for consumers on a few levels. One is that revolving accounts tend to have far higher interest rates than non-revolving accounts. This means consumers are spending a larger percentage of their money on something for which they receive nothing in return. Actually the latest Fed consumer debt statistics indicate that as of December 2007, the average credit card interest rate was 12.16%. As a way of comparison, the average 48 month new car loan was only 7.59% (corrected from the Jan, 08 report), and the latest 30-yr fixed mortgage interest rates (according to Bankrate.com) were lower still, at only 5.73%.

Who are we borrowing this huge amount of money from? Well, the usual suspects, of course. The largest credit card issuers, in order of outstanding credit are:
Bank of America
JP Morgan Chase
Citi
American Express
Capital One – Apparently, they are in your wallet!

Eveybody's Not Really Drowning in Credit Card Debt!
Although you may feel as though you're right in there with everyone else, drowning in credit card debt, it's actually not true. According to the U.S. Federal reserve, just over 50% of U.S. consumers either have no credit cards (GASP!), or pay off their entire balance every month. Furthermore, according to FICO, the folks that bring you the credit scoring system, 40% of consumers regularly carry a balance of $1,000 or less. FICO also reports that only 15% of credit card users regularly carry a balance of over $10,000.

Of concern for some consumers is that the credit card issuers are willing to let consumers have so much credit available. Credit balances are increasing, but credit limits are increasing even faster. The aggregate credit card limit is now $19,000. This actually helps your FICO credit score because if you have higher limits as a percentage of your outstanding balance, your credit utilization score will be lower. A lower credit utilization score will raise your credit score. However, this gives consumers the ability to charge absolutely huge amounts at a relatively high interest rate, something that's not good for their personal finance picture as a whole. Thankfully, relatively few consumers actually do this, but it could spell problems ahead for the economy if the trend changes.

According to FICO the typical American has 9 credit cards of all types, including gas cards, store cards and such cards as Visa and Master card. If you cross this with the Fed information that about 25% of the population has no credit cards, that indicates a small percentage has about a dozen cards, which I'm sure most financial experts would agree is far too many.

Hopefully these credit card statistics will give you a bit better understanding about the state of credit cards in the U.S. and where you fit into the picture.

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Mortgage Terms - Good Faith Estimate
The good faith estimate in your mortgage paperwork was mandated by Congress in 1974 as part of the Real Estate Settlement Procedures Act (RESPA). This was done in part to limit the rampant process of many supposedly impartial third parties in the mortgage process getting kickbacks for such things as title insurance. The good faith estimate give the prospective borrower a complete list of all the fees and rates associated with the loan.

These mortgage fees and charges are categorized according to a number. The number corresponds to the same number on HUD forms and gives an indication as to the type of charge or fee. The classifications are in 100 number increments, and there are many different items you may find within each classification.
800's – payable in connection with the mortgage

900's – must be paid in advance

1,000's – paid into a reserve with the lender

1,100's – title charges

1,200's – government charges for recording and transfer

1,300's – anything else

Keep in mind that it is called an estimate for a reason. Good faith estimates can and do change, often in the 11^th hour. So keep in mind that although you have a good faith estimate in your hands, it may not be the actual mortgage you end up with.

Mortgage Terms – Appraisal
This is a professional opinion of a properties value. Appraisals are performed, appropriately enough, by a real estate appraiser, who takes into account things such as the properties location, the type of structure and the surrounding neighborhood. One of the key elements used to determine the value of your property or one that you are looking to buy, is the recent selling price of similar properties that are close by. These are known as “comps” in the real estate world. In most cases the buyer must pay for the appraisal. The results of the appraisal are typically reported on a Uniform Residential Appraisal Report form.

Mortgage Terms – Annual Percentage Rate (APR)
APR is one of the most misunderstood terms associated with a mortgage. It is actually a number intended to make comparing mortgage rates easier. When comparing a mortgage, an apples to apples comparison is often very difficult due to the plethora of fees and charges that are tacked on. When the effect of these additional moneys are taken into account, the effective interest rate changes because you're financing more than just the home's price.

As with the good faith estimate, the APR is required by law to be disclosed to the borrower. Although it is better than nothing, the APR still fails to give buyers the one, easy to compare number that it was intended to. This is mostly because there isn't a standard for which fees and charges must be included when calculating the APR. It is a good starting point for comparisons though, and better than nothing. Keep in mind that the APR calculations are dependent upon the term of the mortgage so different length mortgages cannot be compared using the APR. For example, the APR of a 15 year mortgage cannot be directly compared to the APR of a 30 year loan.

Mortgage Terms – Acceleration Clause
This is a clause in the mortgage that allows the lender to accelerate the repayment of the loan. In most cases it allows the lender to demand the entire outstanding loan balance. This provision is usually invoked if the applicant defaults on the mortgage or is found to have provided false information in order to get the loan.

Mortgage Terms - Earnest Money -
Earnest money is given by the buyer to the seller to prove they are serious about wanting to buy the property. It is basically a deposit. Earnest money will be delivered to the sellers along with a formal offer to purchase the property. It is usually 1% to 2% of the selling price. Earnest money deposits are helled a trust account and are used as part of the down payment if the trans action goes to fruition. In the event the deal falls through, any cancellation fees are taken out of the deposit before it is returned to the buyer.

Mortgage Terms – Points
Points are equal to 1% of the loans amount and are used to effectively “buy down” the interest rate in the case of discount points, and pad the lender's pockets in the case of origination points. You will often see the term in ads for mortgage rates. In this case they are referring to discount points. If you see an ad the offers a mortgage at 5.75% with 1 point it means that you would be paying an additional 1% of the loan's value in order to receive a lower interest rate. For example, if the mortgage amount was $250,000, 1 point would equal an additional $2,500.

Points are prepaying the lender interest, rather than making them collect it over the term of the loan. So, in exchange for paying the additional $2,500, you would get a lower interest rate, typically about 1/8 of a percentage per point. Points will lower the monthly mortgage payment at the expense of additional up front money. It will take some years to make up the additional money, so you'll have to determine weather or not it makes financial sense for you.

Stay tuned for more mortgage terms soon. Have a great, Debt Free week. Go Cougs, beat NC!!

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Apple Computer alum, best selling author, columnist, and speaker Guy Kawasaki has started a great, new concept in websites. It’s dubbed Alltop.com, and the premise is simple, but powerful. Grab the headlines, posts and stories from best websites and blogs all over the web. Put them in one place, all categorized for easy reference. It works great.

I’m honored that Guy has included this blog, Debt Free, to be included as one of the chosen. There’s obviously personal finance related content, but there’s really something for everyone. So, no matter what or how diverse your interests, stop by Alltop.com and take a look. It just might turn into one of your favorite stops on the web.

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So, what are you to do? Where are you going to get the money it will take to put yourself behind the wheel? First you’ll have to wrestle with the lease vs. buy decision. That’s a subject for another post, I’m going to assume that you’ve already made the decision to buy your car, and leave the leasing to someone else.

Car loans are available from a number of sources. Most traditional lenders, such as banks and credit unions, offer car loan products. In addition, you can finance through the dealer, if you’re buying your car there. You can also get a loan from one of the many on line vehicle loan providers. All have their advantages and disadvantages. Rest assured, you can get a good loan, and with the average price of a new car for 2008 hovering at around $28,000 according to Edmunds.com, you’re probably going to need one.

First of all, negotiate the price of the car down as low as possible. One way to pay less in interest payments is to just finance less. Pretty basic, but it bears repeating.

Car Loans Through the Dealer –
Rule number one; secure your financing before you ever go near the dealer’s lot. Even if you don’t use it, and for some reason you do finance through the dealer, having your loan secured from an outside source gives you a hefty advantage at the negotiating table. Dealer financing has its advantages for you as a customer, however most of the advantages lie with the dealer. Many car dealers make a large percentage of their profit through the financing they provide. Many car dealers are on the up and up, but there are those that aren’t, and even those that are reputable are out to make as much profit as possible. For more info, here's a post I did some months back on car dealer scams. 

One possible advantage by getting a loan from the dealer is one of the low interest incentive programs offered by many auto manufacturers. You have to run the numbers however, as many of these low, or zero interest loan programs are offered in lieu of a substantial cash rebate. Look at how much you stand to save by foregoing the discount and financing at the low interest rate, versus taking the discount and getting a good loan somewhere else.

Here’s an example:
GM is trying to rid itself of some excess inventory that burns a bit more fuel than some would consider desirable, so they’re offering 0%, 60 month financing on Silverado pickups. You can also choose a $2,000 rebate, if you’d rather have that. Now this is a nice truck if there ever was one, and if you can afford to feed it, more power (and it has up to to367hp) to you.

0% Car Loan
Where do you end up after you analyze this loan? A Silverado extended cab 4x4 with the 5.3l V8 fetches about $33,000. If you financed at zero percent it would cost you $33,000, but it would effectively cost you less, due to the time value of money. Your real cost is closer to $30,000 after the effects of 3.5% inflation is calculated on your payment stream.
 

Cash Rebate in lieu of 0% loan
If you took the $2,000 discount and financed $31,000 at 6.75% for 60 months, your payment would be $610 per month for 60 months, vs. the $550 you’d pay for the 0% loan on the $33,000 loan. Your total of payments would be $36,600. The present value of the payment stream is roughly $31,165. That $610 you pay for your last payment in 5 years is only worth about $512 in today’s dollars.

So, in real terms you spend about $1,165 more for the cash rebate plus the third part loan. If, however, you invested the $2,000 at 10% for the 5 years, you’d end up with about $3,300. That’s enough math for one Friday, I think. Just remember to bring your financial calculator to the F&I office with you and don’t take the F&I manager’s word for everything. Remember, they are all about getting you to say “yes”. So when they say, “If I could, would you”, just say no! (At least until you’ve run the numbers yourself)

You can get a good car loan. They key is to look at all the alternatives. Weather you finance through the dealer, get a loan at your bank or credit union, or get a loan from a on-line car loan website, just make sure you compare all the offers, and make the best choice. Don’t just grab the first loan to come your way.

Have a great, Debt Free, weekend!

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So, how does it work? How can you actually profit from a company’s troubles and it’s stock price’s decline. Short selling works like this. First of all, with short selling, you don’t actually buy the stock, it’s on loan from your broker. When you make the transaction, the stock is sold and you receive the proceeds from the sale. They are deposited into your brokerage account. Sweet! You just got money in your account from a stock you didn’t even own.

Not so fast there, Warren (whose standard investment strategy, buy value stocks and hold for long term appreciation, is the opposite of short selling). At some point you have to repay the money the broker loaned you. Actually you have to repay the shares, and that’s where you make your money. In investor parlance, getting out of your position and repaying the broker is called “closing the short”. If, for example you borrowed to short 100 shares of Bear Stearns in mid August of 2007. The stock was trading for around $120 a share then. You are then liable to repay 100 shares at some point in the future. If you wanted to cash out for Christmas, you could have gotten out for $89 a share. You would purchase 100 shares at $89 each to repay your broker. The difference between the price when you borrowed and when you repaid is your profit. In the example you made $31 a share, for a profit of $3,100.

Not bad at all, but as we know now only a small fraction of what you could have made. Holding until today would have gotten you a much tidier profit in the neighborhood of $115 a share, for $11,500 in gains. This little example illustrates the potential of short selling, but it also shows one of the problems. One of the problems associated with short selling is risk. A well run company may not fall, especially in the long term. You have to get out when the stock’s price is lower than when you borrowed.

The other big disadvantage, especially over the long term, is that you are limited in your total profit from short selling. The most money you’ll ever make is the difference between the price when you got in and zero. For a short seller, that’s a best case scenario. Cases like Bear Stearns, where a company goes from selling for well over $100 a share to virtually zero in a few months, are pretty rare. Typically you’ll get returns of far less, and if the stock does turn around, you’ll have to repay the shares at a higher price than what you got them for.

Short selling is usually not for the novice investor, although you could have made a nice profit by short selling financial services stocks over the last 6 months, novice or not. Have a great day, and stay Debt Free.

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When I bought my home some years back for instance, my lender informed me that I could afford a home that cost $235,000. At the time, my wife and I thought the better of buying such an expensive house and settled for one that cost $152,000, although we looked at homes that cost up to $195,000. We actually made offers that were up to $189,000. In retrospect, it turned out to be a great decision to avoid a home in the $200,000 plus price range. After having kids the extra cash every month was definitely welcome. Some of the homes in the upper $180,000s would have been nice though, and we would have made up some of the difference in the lower maintenance costs associated with a newer home.

How do you answer the question of how expensive a home to buy? Many experts recommend buying a home that costs no more than 3 times your annual income if you’re putting 20% down. Needless to say (but I will anyway) a 20% down payment can be a stretch for a first time homebuyer, especially in some of the more expensive metro areas throughout the country. The 3 times the annual income isn’t a hard and fast home pricing rule, and can be altered by your expected annual income increase and your debt level.

If you are carrying very little debt or are in a career where you reasonably expect to receiver rapidly growing compensation, you may decide it is worth it to take on a higher priced home. I tend to break on the conservative side of this however, and many homeowners that find themselves in trouble today got that way due to buying a home that was too expensive. When the expected income gains failed to materialize, they couldn’t refinance, or they had an unexpected major expense, their mortgage payments were difficult or impossible to maintain. 

Be a bit conservative when deciding how much home you can afford. Take into account your current, and perhaps more important, your expected future level of debt. If your debt level is greater than 10% of your annual income, ratchet back your expectations a bit and buy a slightly less expensive house, in the range of 2.5 times your annual income.

Also consider the local real estate market, current mortgage interest rates, and your family plans. If you plan on having a large family, for example, it might be better to buy a smaller, lower priced home now. Later you can use your equity to get into a larger home, when you really need the space and your career is more advanced. If mortgage interest rates are quite low, as they are now (5.74% for a 30-year fixed, as I write this) you’ll be able to afford slightly more house, but you’ll also want to take more advantage of the relatively inexpensive money. This increases your ROI as the value of your home appreciates.

Your new home price should not be the total of the largest loan you can qualify for and every last penny worth of cash you have to your name. It’s a difficult decision, because the family home is the best investment for many families, and one of the only ways that many people generate any real wealth. However, if your employer offers a retirement plan with matching contribution, you may be better served to go a bit more conservative on the house and put the remainder into your retirement plan. This will allow you to take advantage of your employer’s matching and leave your less likely to run into problems down the road in the event of an unforeseen financial difficulty.

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If you are going to be flying in the next few weeks, either for business, to take the kids on a spring break vacation, or go on one yourself, the cost of air travel could be your largest single budget item. Here's how you can save money on those air tickets and lessen the pain of your next trip through the friendly skies.

How to Save Money on Air Tickets 1
If you're going to be renting a car anyway, you should look at other destinations in close proximity to your actual one. In many cases you can save money by landing at an alternative airport, then driving an hour or so to your final destination. For example if you were flying from LA to Colorado Springs departing on April 15^th and returning on the 20^th, you could fly on United for $239 round trip if you landed in Denver, while the same trip landing at Colorado Springs is $512 round trip. If you were going form Denver to LA the cost is the same $239 if you land at LAX, while it costs $309 to travel to Burbank and $300 at The Duke airport in Orange County.

A trip from LAX to JFK airport in New York during the same time period, will set you back a heady $690 round trip. Going to Newark and driving across the river will save you a few bucks, at $669 round trip. Now, if you don't mind landing in Queens, you can save huge money on your tickets by going to La Guardia airport and paying only $373 round trip. If you flying a family of five, think of the savings. Let's see, $317 x 5 = $1,585! That's almost enough to take another vacation, but you should think twice on that and invest the savings instead. (All fares directly from the United Airlines website as of this morning)

How to Save Money on Air Tickets 2
So, now you know that where you fly in the general vicinity of your destination makes a huge difference in how much you pay, so what else can you do to save money? Well, if you're willing to adjust where you fly, you should also consider adjusting when you fly, as this can have a significant impact on ticket prices too. Another United Airlines example is for a round trip flight from the rain in Seattle to the sun in Miami on the same April dates as above. Leaving at 6:00am and arriving in Miami at 4:38 pm through Denver will allow you to get round trip tickets for $505. That also requires you leave from Miami at 6:00am for the return trip on the 20^th.

If you don't care to get up at 3:00 so you can get to the airport 2 hours early, you can sleep in until 7:00 am and fly out at 11:11am for the sum of $590. The other problem with waiting on this particular trip is that you'll have to connect through the hell that is Chicago O' Hare, the airport that recently had one of the worst on time performance records of any major airport in the nation.

If you really don't want to get up at 6:00am for your return trip from Miami, I understand. However, waiting until 1:00pm will cost you plenty, as ticket prices will jump to $857 round trip, even if you still leave Seattle at 6:00am. Move your departure out of Seattle from 6:00am to the 11:11 time slot and you'll be paying $932.50 round trip. So, drag your rear end out of bed early and save money on those tickets! An added bonus is that the airport is frequently less crowded at that hour of the morning, which alone may make it worthwhile.

How to Save Money on Air Tickets 3
Now you know you can save money on your tickets by being flexible about when and where you fly. The next thing you can do to save is not be picky about the airline on which you fly. Using Alaska air for your flight, rather than United, will let you fly out at 7:00am and pay only $458, rather than $505. The penalty here is that you have to connect through LAX, and the flight times stretch this into an all day event, as you arrive in Miami at 7:50pm. U.S. Air, on the other hand will cost you $705 for the same trip. (all fares from the repective airline's websites)

How to Save Money on Air Tickets 4
One other thing you can do to save money on your flight is to check for online discounts. Some airline offer special web-only discounts. The same Seattle – Miami trip can be had from Southwest Airlines for only $298 round trip, if you book the flight online. If you are looking for international air travel destinations check out Vayama.com for great savings on 1,000's of international destinations.

Obviously, the key to savings on air travel is flexibility. The ability to adjust when, where, and on which airline you'll be flying will net you some handsome savings on the trip. Bon Voyage!

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A continuing education certificate program can be a great way to set yourself apart from others with their paws out for a raise. These programs can make you more valuable to your existing employer when it comes time to ask for a raise, and help insulate you from the next round of cutbacks. In addition, continuing education can position you well for either a career change or your next step up the corporate ladder, either with your existing employer or another.

One great advantage to a certificate program is that it is much faster to complete than a degree program. Unlike a degree, which can take well over a year, even for accelerated programs, certificate programs can be completed in weeks or months, depending upon the program.

There are literally thousands of continuing education programs to choose from. Here are some of those that are both proven to earn you extra money now, and predicted to in the future. Another advantage is that many of these programs can be complete either all, or in part, on-line. This is a huge help, because you can fit your studies around your existing schedule. A third advantage of completing a certificate, versus a degree program is that they are usually far less expensive. Many companies will help offset all or part of the cost of such continuing education programs.

1)      Project Management – Experienced project managers are always in demand, just ask Donald Trump, he’s fired a ton of them. A good PM can make or break a project, and potentially cost a company millions. Getting a PM certificate from an accredited program can help you step into this in-demand and lucrative field. PMs are found in many industries, from marketing to construction, so you won’t have to limit yourself. Project management certificate programs are offered from well respected institutions such as Villanova University, UC Irvine, and the University of Washington. According to payscale.com, project manager professional’s salaries range from $80,245 in construction to $99,769 for a computer software program manager.

2)   IT and Network Security – This is a obviously a growing field, as is evidenced by the number of news stories dealing with compromised networks, computer viruses and stolen personal data. IT and network security pros combat these attacks and keep data secure. Businesses can save costs and increase productivity by having IT security on staff or contracting with specialized firms in this area. The benefits of this type of security are such that sales of computer and network hardware and software increased 15% from 2005 to 2006 and another 25% from 2006 to 2007 according to research firm Infonetics Research. Someone has to install and configure all of that stuff, in addition to the other tasks performed by computer security pros.

Some of the continuing education certifications that you can get to help you advance on the IT security career path are :
- Certified Information Systems Auditor (CISA)

- Certified Information Systems Security Professional (CISSP)

- Certified Information Security Manager (CISM)

- Cisco Certified Security Professional (CCSP)

- Cisco Certified Network Associate/Professional (CCNA/CCNP

- Cisco Certified Internetwork Expert (CCIE)

- Check Point Certified Security Expert (CCSE)

- SANS-GIAC certifications family

- Prosoft CIW Security Professional (CIW-SP)

- Certified Protection Professional (CPP)

- Certified Network Security Professional (CNSP) or Associate (CNSA)

Annual salaries for IT security professionals range from the high $40Ks to over $100,000 depending upon experience, certifications, employer, and so forth.

3)      Executive Coaching – After they incur costs in the 10’s or 100’s of thousands to recruit executives, and because their execs have such a dramatic impact on the ultimate success of the business, companies are searching for ways to increase the effectiveness of their executives. Enter the executive coach, whos job is to do just that. The field of executive coaching is growing rapidly due the pressure from shareholders and others to extract the most return from highly paid executives.

The good news for those seeking a career in this field is that the higher paid the exec, the greater the likely ROI from coaching, and the easier it is to get a good ROI from hiring a well paid coach. Certificate programs in executive coaching are available from many providers. Many programs however, require an advanced degree for admission. Such institutions of higher learning as Columbia University, University of Georgia, Kaplan University Online, and NYU offer certificate programs in this discipline.

There are certificate programs available in dozens of diverse, in-demand fields. Other certificate programs besides those mentioned above include video game design, forensic nursing, network administration, graphic design, paralegal, fire and safety engineering technology, homeland security, occupational safety, web design, management information systems, and international marketing.

Weather you’re seeking to advance your existing career, go off in a completely new career direction or help ensure against the next round of corporate cutbacks, a certificate program can offer a cost and time effective way of doing so. With so many programs being offered on-line now, and such a huge variety of different programs, it may be just what you’ve been looking for. For more information on getting a professional certificate from over 40 different providers, see AchieveYourCareer.com. They have over 40 different certificate and advanced degree providers listed, such as DeVry University, Cornell University, Boston University, Art Institute of Pittsburg and Indiana State.

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Too many pols seem convinced that we can tax ourselves into prosperity, when history has shown just the opposite. They will continue to pull more money out of the private sector (You know, the part of the economy that creates productive jobs), so they can divert it to the government, who will spend it less efficiently and create nothing in the way of economic growth in the process. Create new businesses that employ people, develop new products, processes and technologies, and put America back into economic health? Why no, that might require us to CUT Taxes.

If you’ve ever heard politicians bellyache about how much tax cuts cost, you’ll understand why they just don’t get it. They’re looking at your money as their money. From where I’m sitting, tax cuts don’t cost, they save (taxpayer’s money). At least the Senate endorsed continuing $340 billion of the tax cuts. Our fine congressional members in the House, on the other hand, want to expand domestic programs and hike our taxes by letting every one of the tax cuts expire. They just don’t get it…….

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Just what are the limits you're subject to when contributing, withdrawing or rolling over a 401k plan anyway?

401k Contribution Limits:
For 2008, according to IRS rules you can contribute a maximum of $15,500 to your 401k plan. If you're one of the 95% who failed to contribute the maximum amount to the plan in prior years, the IRS allows you to contribute a “catch up” amount, which for 2008 is $5,000. You must be over 50 to take advantage of the catch up contribution. Any employer matching funds are not included in the IRS contribution limits. So, if you're contributing the maximum of $15,500 and your employer provides 50% matching funds, their $7,750 is over and above the limit, so your effective limit for 2008 is $23,250.

401k Rollover Limits:
You're not limited on the dollar amount for 401k rollovers, as you are with contributions, however you can only roll over once every 12 months. Unless you're a rabid job changer, this shouldn't present too much of a barrier.

401k Withdrawal Limits:
There are several limits placed upon your ability to withdraw the funds in your 401k. You can't just retire, pull out the entire lump sum, and head for the Caribbean. Well, you could, but you would be faced with severe financial penalties for doing so.

Withdrawal Age - There age limits for 401k withdrawals. Currently, you must be 59-1/2 years of age to begin withdrawal of funds, unless you are rolling over into another IRS approved financial vehicle such as an IRA. You are also allowed to withdraw funds before age 59-1/2 to avoid foreclosure if you meet the terms of IRS section 213. I recently did a post covering early withdrawal and other 401k hardship withdrawals. You must also begin withdrawal from your 401k by age 70-1/2 if you have not already begun doing so, unless you are still working for the employer sponsoring the 401k. The post 70-1/2 withdrawals must meet IRS mandated minimums, currently defined by tables and based on life expectancy. Failure to take the post 70-1/2 withdrawals triggers a whopping 50% (of the mandated withdrawal amount) IRS penalty, so take the money out)

Withdrawal Amount - There are currently no limits on how much you can take out, but remember withdrawals are taxable events. The IRS allows you to take the entire amount of the 401k, but it is taxed as ordinary income and reported as such on your form 1040, so the more your take out, the higher tax bracket in which you place yourself. If you were born before 1936, you meet special rules, including the ability to average a lump sum distribution over 10 years. See your tax professional if you were born when Roosevelt (either one) was President.

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So, what are you to do if you want to earn extra money, but aren't cut out to be a waiter or convenience store clerk? The route taken by many is to get some sort of job where they can work from home. That can be a great way to make the extra money you're looking for and still fulfill your family obligations. What are some of the top work at home jobs?

It seems like there are about a million ads on the Internet for this type of thing. You see them on the sidebars of websites everywhere trumpeting the ease in which you can join the ranks of those living the good life, making tens of thousands of dollars a month while relaxing on a beach somewhere, Pina Colada in hand. It's true, there really are people living that lifestyle, but there are people making $5 million a year pitching for the Yankees too. What about some of the top work at home jobs that don't involve Internet marketing. After all, not everybody's a marketer or wants to be one.

Thanks to the advances in communication over the last few decades, working at home either full or part time is a real possibility, and in fact a WorldatWork report last year noted that some 28 million people work from home at least part time. You have two avenues to pursue when it comes to earning more money working from home. You can convince your employer to let you take on additional work that you can perform from home(for additional pay, of course), or you can look into opportunities outside your regular work.

Work at home opportunities outside of your regular job are growing an varied. Here are some of the top jobs where you can work all, or substantially from home, and earn good money doing so. (in no particular order)

Work at Home Job 1
Software engineer - This field is projected to be in very high demand over the coming decade. As nearly everything is controlled, produced, or distributed by some sort of computer these days, it's easy to see why. For you, as someone looking to earn additional income, it's a great opportunity, as software engineers make very good money. The problem is that it's not a career you can just jump into. The “engineer” in the title is the first clue here. Anything with the term engineer usually requires substantial education, but nonetheless, there are some great opportunities for software engineers and developers.

If you have skills in this area, but not college degree, you may consider freelancing. There are many companies and business owners that need small software projects and are willing to pay to get them done. You may be just the one to do it for them. Try looking at elance.com. They regularly have lists of projects available for independent programmers to bid on. You're competing with skilled programmers from India, Russia and other places that will do these jobs for comparatively little money, so it may behoove you to develop a client list on your own, but elance.com can be a good place to get your feet wet.

Work at Home Job 2 -
Consultant - This is a catch all title that involves letting someone pick your brain for money. A great job, that. Consultants tend to be very highly compensated and there is tremendous amount of freedom. If your present field of employment is one where you've gained specialized knowledge that would be valuable to others, you can earn money as part time consultant. Many people have specialized skill sets derived from their professional, academic, or private lives that they can put to use working from home as consultants. You may think you don't know enough to be a consultant, but you really only need know more than those you are consulting for. You can do research to learn what else you need for a specific project.

You can bill hourly or on a contingency basis. Typically it's better to use a contingency only with those clients who you've already formed an hourly billing relationship, but not always. The contingency fee arrangement can be immensely profitable, however. This is where you bill the company you're consulting for as a percentage of some metric, such as profitability or revenue. For example, you could bill 15% of a division's increased revenue in the first year. Obviously you can make insane amounts of money this way. I've had consultant friends that took companies from a multi-million dollar monthly loss, to making millions of dollars in profit annually.

Work From Home Job 3 -
Freelance writer - Don't laugh, it's really not as hard as it sounds. I've made well over $10,000 in the last 2 years freelancing, and it's really taken minimal time. You can write for a number of different markets, from corporate communications to consumer magazines and trade journals. The corporate tends to be overlooked when people consider freelancing, but it can really be very lucrative. With corporate down-sizing many firms have decimated or eliminated their corporate communications departments. There is a need for press releases, product manuals, instructions sheets, training manuals, video scripts, and the like.

Many non-native English speakers just can't do this effectively, so the chances of this type of work being outsourced are relatively low. The nice thing about writing for the corporate market is that you are helping them out and can continue to do so for a very long time. In most cases, if you are working for a large or medium sized corporation you can get regular work for quite some time. It only takes a few clients until you can build up a substantial second income. As you can bill from $80 - $120 an hour for your services, in many cases, it can even rival the money you make from your current job. If you want to persue this field, I especially recommend the book "The Well Fed Writer" from Peter Bowerman. I read it more than once, and it's an excellent reference from someone who's well respected and very successful in this field.

Work at Home Job 4 -
Paid surveys – Here's an area where you can actually make money, but you have to be aware that many of the so-called paid survey opportunities advertised are either outright scams or of dubious quality. My wife does this on occasion and has made over $80 an hour for it, although it sometimes requires a drive to a marketing firm's local office. That kind of eliminates the whole work from home aspect. Marketing knowledge is very valuable and many consumer products firms are willing to pay handsomely for it. Before you think you are going to be paid $100 to answer a 10 minute survey, however, think again. While that opportunity may exist, it's like pitching for the Yankees, although without the fanfare (pretty rare).

Work at Home Job 5 -
Data entry - Although we've come a long way all the stuff in computers has to get there some how. The tedious process of data entry is perfect for someone working from home. Just fill out this spreadsheet and email it back. It would make me eviscerate myself with a rusty sword, but there is a demand for it. Many legitimate firms need this sort of work done, but as with paid surveys be aware that many of the data entry positions advertised on the Internet are actually opportunities to create Googe Adwords ads to sell products. That wouldn't be a problem, but you would actually be an affiliate marketer, selling products on which you would be paid a commission. The problem arises because you have to use your own Adwords account. Yes, you can make absolutely huge amounts of money selling products and services as an affiliate using Adwords, however the uninitiated (and many times even the initiated) can also run up giant balances in their Adwords accounts. If you're trying to get debt free,you really don't want a job where you could wind up thousands of dollars in debt after your first month. This is a common scenario, and it's best to avoid it.

Work at Home Job 6 -
Desktop publishing – Again this is a job that's perfect for doing from home, but does require a specialized skill set. If you have it that's great. A strong background or skills in copy editing, writing, graphic design, and image editing are required. You create and design corporate presentations, magazine articles, books and web layouts. You should know MS Word, PowerPoint, Adobe Illustrator, Photoshop and Pagemaker like the back of your hand, but you typically make from $15 - $40 per hour for this sort of work.

Work at Home Job 7 -
Administrative Assistant - Not the secretaries of old, the admin assistant for the new millennium encompasses all manner of coordination and communications tasks. You'll schedule meetings, write memos and emails, and support executives and sales personnel. All of these tasks, thanks to the telephone, Blackberry and VPN, can be done very effectively from home. The rub here is that in most cases, you'll have to do this work during business hours. You may be able to live on the east coast and do work for companies in the west, however. Expect to receive about $12 - $18 for every hour in this line of work.

Working form home will not only add to your bottom line (from sitting at your computer all evening), but you'll save money too. You won't have to by a new wardrobe, pay for parking, gas or other transportation related expenses, or shell out $5.00 at Starbucks during your break. The additional money and flexibility, plus the benefits for the environment, and employers are what's driving the expansion of the work at home movement. Be aware of the many scams around in the work from home field. Steer clear of those jobs where you have to pay to get started. Freelancing or contracting is different. You're in business for yourself and there will be numerous expenses associated with that. Go forth and prosper.

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1. Dead - Yes, it's true, the IRS will let you take you funds from your 401k or other qualified retirement vehicle if you're dead. Of course it will be kind of tough to nail that hole in one on the 11^th at Estancia if you're dead, so maybe you'll have to look for other ways of avoiding the 10% early withdrawal penalty, such as ....

2. You're over age 55 and have retired or quit your job. There, that's more like it! You can be alive, 56 years old and enjoying some sun out on the course while spending the fruits of your old employer's 401k matching contribution.

3. You got a divorce and the judge declared that you have to split the 401k as part of the divorce decree. In that case, avoiding the 10% penalty is probably the last of your worries, financial and otherwise.

4. The cost of that expensive hip replacement you had to get so you could keep golfing was greater than 7.5% of your adjusted gross income and you withdrew 401k funds to pay for it. Seriously, if you withdrew funds to pay for medical expenses that were greater than 7.5% of your adjusted gross income, and you itemized your deductions, you can avoid the IRS early withdrawal penalty.

5. The withdrawals meet the "substantially equal payments" criteria. The substantially equal payments criteria means that the payments must be “part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee “ The section of the Internal Revenue code that deals specifically with this topic is section 72(t)(2)(A)(iv). According to the IRS, other qualifying methods of avoiding the 10% penalty according to the SEP criteria are:

   A) “the amount to be distributed annually is determined by dividing the taxpayer's account balance by an annuity factor (the present value of an annuity of $1 per year beginning at the taxpayer's age attained in the first distribution year and continuing for the life of the taxpayer) with such annuity factor derived using a reasonable mortality table and using an interest rate that does not exceed a reasonable interest rate on the date payments commence. “

   -or-

   B) “if the amount to be distributed annually is determined by amortizing the taxpayer's account balance over a number of years equal to the life expectancy of the account owner or the joint life and last survivor expectancy of the account owner and beneficiary (with life expectancies determined in accordance with proposed section 1.401(a)(9)-1 of the regulations) at an interest rate that does not exceed a reasonable interest rate on the date payments commence.” Got that?? It basically means that you can guess how long you're going to live according to a generally accepted life expectancies table and then treat your 401k as an annuity that pays out at a reasonable interest rate.

The IRS (and I) recommends that if you are attempting to qualify for the substantially equal payments criteria, you hire a professional financial planner, attorney, or accountant that is well versed in this particular area. Failure to qualify could result in the obligatory IRS fees and penalties levied at those who would make tax mistakes, willful or accidental.

So, you can get an early withdrawal from your 401k plan if you play by the IRS rules. The other option is to throw caution to the wind, say “What the hell, you only live once” and generously contribute the extra 10% to the American people (Where of course it can be frittered away in the bureaucratic morass that is our Federal Government).

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Just how do you become a millionaire, anyway? On this day after the Forbes list of the world's richest people came out, it seems appropriate to discuss just how you could become one of them. In the first place, being a mere millionaire these days is no indicator of great wealth, although it's still the term thrown about the most when people (those that aren't, anyway) discuss being rich.

In fact, I remember an interview that was done a few years ago about retirement savings in which a young girl expressed amazement when the interviewer asked about saving a million dollars for retirement. She was of the mistaken opinion that she'd never need to save even close to that amount to comfortably fund her retirement. Apparently she'd either forgotten about the effects of inflation, was independently wealthy, or was planning on marrying up. Maybe she just loved the whole mountain tent decor and would be comfortable living that way.

In any case for many that have aspirations of attaining wealth becoming a millionaire is merely the first step in the process. Given that first step or not, one must get there at some point in the process, just how do you become a millionaire?

Besides winning it, or being given your million dollars, there are two basic paths you can take toward millionaire status. You can work for someone else and invest a portion of your income, or you can work for yourself and invest a portion of your income. Either way has it's advantages and disadvantages. In addition, there are countless combinations you can use to reach you goals within these two very broad avenues. To become exceedingly (is that even possible??) wealthy, you'll have to either:

A) Start your own successful business, then plan and execute an exit strategy that would include taking the business public or selling it for a substantial amount of money.

-or-

B) Work for a company in the early phases of its existence and be given a portion of the business that will be worth a substantial amount of money. This method worked well for many people in Sunnyvale, Redmond, Austin, Mountain View, and Cupertino. You can then invest the substantial windfall to become quite wealthy.

-or-

C) Get one of the few extremely high paying jobs with a salary and bonus structure such that you have a substantial amount of money left over to invest. You must then invest at a rate of return that will result in your extreme wealth. Not only must you land such employment and make the appropriate investments, but if you take this route, you must live fairly frugally in the wealth generation phase. It is hard for many to resist the pull to plunk down their new found money on a 8,000 square foot golf course home, a Bentley, and trips to Monaco for the Grand Prix every year. In many of these types of jobs, your peers will live with the trappings of wealth, and it can be easy to emulate their behavior.

Of those younger billionaires on the Forbes billionaire list, 68% of those under 40 years old made their money starting with nothing, so take heart, it can be done. Getting the mindset to actually achieve that level of wealth may be almost as difficult as getting that rich itself.

What about just becoming a plain old, garden variety millionaire? Thankfully, that is much easier, and doesn't really require too much beyond some basic financial planning and discipline. You need to make some good decisions about the direction of your life along the way. If you take the work for someone else approach, rather than starting your own business, you'll need to plan and execute a career path that affords you enough income to invest for retirement such that you'll reach a million dollars in assets, not including the equity in your primary residence. This can be easily done, and in fact, according to the most recent Merrill Lynch wealth report there about 9.5 million such people in the world.

For example, say you play around a bit in college, change you major a time or two, and don't graduate until you're 25 years old. Upon graduation, you get a decent, but not very high paying job, earning $35,000 per year with good benefits. If you plan to get only a 3% annual raise (less than the cost of living), put away 10% of your salary toward retirement (assuming no company matching, so it's not too great of job), and earn an 8% rate of return on your investments, you could easily become a millionaire. In fact you'll retire at age 65 with a nest egg of about $1.2 million. On this you can live with 97% of your last year's salary of $110,000 per year until you die at 90, and leave a $1.3 million nest egg to your heirs. You could even retire at 63 and just manage to eat up your retirement savings by the time you reach 90.

The above calculations assume you'll get a big, fat Zero for Social Security, because face it, for anyone under 35 now that could easily be the case. It also assumes a 3.1% annual inflation rate. Just how nice would an employer matching contribution be in the above scenario? If you were a bit more ambitious and received on average a 5% annual raise, you would retire with a $1.56 million nest egg at 65, so you would be a millionaire times 1-1/2. It may not seem like much, just increasing your retirement nest egg by such an amount, but in fact it's extremely powerful. Such an increase would allow you spend $150,000 per year in retirement, instead of only $107,000. Even spending almost 50% more, your retirement savings would still continue to grow, such that when you took your last breath at 90, you'd be everyone's favorite uncle, because you'd leave your heirs a $5.2 million present.

What if you didn't want to wait until you were in your 60's to become a millionaire? The majority of people would rather get there when they were a bit younger so they could enjoy the fruits of the labor. You better count on earning some great money and having a solid investment plan. If you start at the same $35,000 level, contribute 12% to your retirement plan, and can increase your income 10% per year, you can amass a $1.3 million fortune at age 55. The effects of increasing your income 10% annually are intoxicating. By age 55, you'll be pulling down $555,000 per year.

Can't wait until age 55? You will probably have to start your own successful business, be an extremely astute investor, or substantially up your retirement percentage. There are some keys to becoming a millionaire, to wit:

Do the following to become a millionaire:

1. Spend less money than you make. Frugality is paramount, unless your income is in pretty rarefied strata.

2. Invest what you don't spend. The power of compounding is the single most powerful fiscal tool at your disposal. Compound interest will make you a millionaire if you give it time to work, which segues nicely into the next key to becoming a millionaire...

3. Start investing early. Even if you don't put away much, start contributing something as early as possible. Use the tips from your high school restaurant job. Even a small bit of money invested as a teenager will have grown to a substantial amount later in life, and how much do you really need $100 now anyway? If you earned and stashed away only $100 a month starting at age 15, got a robust 10% return on your investments, and did nothing else to contribute toward your retirement, you'd reach millionaire status at age 60! That's on a simple $100 a month, but you have to start early. If you moved that 5 years to age 20, you would still reach $1 million at age 65. Starting at 15 however would have you at $1.75 million by 65.

4. Stay as close to debt free as possible. Debt carries interest. Unfortunately, debt has the kind of interest you pay to others, not the interest others pay to you. With the exception of your mortgage and car payments, you should strive to carry as little consumer debt as possible.(Debt Free, remember?) Paying interest on depreciating assets (basically all consumer goods are depreciating assets) carries with it a double whammy. You are essentially paying twice; the depreciation and the interest. You may also use debt to finance your education. Remember the value of your education is not only the higher paying career you'll likely receive, it's the relationships and the social network you build while in college. Your friends will go on to become captains of industry, politicians, judges, investors, statesmen(women), and journalists. Don't lose touch.

5. Buy a home. That is not always the smartest move in every market, but statistics don't lie. On the average nationwide, homeowners have a much high net worth than do renters. It's not even close. The average homeowner with an income in the range of $50,000 to $79,999 has a net worth of $195,000, while renters with the same income average only about $25K. In the income range of $30 to $50K, the homeowner has an even greater advantage percentage wise. Their net worth is 12 times higher; $126,000 to only $10,000. These stats courtesy of the Federal Reserve Board.
   

Don't do the following to become a millionaire:

1. Gamble

2. Spend more than you make

3. Amass large amounts of consumer debt

4. Skip college – There are a tremendous number of very successful people who never even attended college, much less graduated. You can have a great, and very profitable career in sales, own your own business, or a number of other avenues. The statistics are however, that college graduates earn far more than those who don't have a degree. Don't forget the networking aspects, as noted above.

5. Smoke – Not only will the health issues cost you money, time with family, and make you miss work, cigarettes are very expensive. If your smokes are $6 a pack, and you smoke 2 packs a day you spend $12 a day, 7 days a week. You opportunity cost by not investing the $360 a month is staggering. If you start smoking at 17, and die when you're 67 you lost plenty. That same $360 a month, invested at only 8%, would be worth $2.9 million! So, instead of watching that new BMW drive by while you're hanging outside the office on your smoke break, put it out and invest the money. That 535 could have been yours!

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According to a report released at the end of last month by RealtyTrac, the nation's leading information source on foreclosures, there were 215,749 foreclosure filings in the month of December. This represents an increase of 97 percent over December of 2006. RealtyTrac reports the total for Q4, 2007 was 642,150 filings. This is 86% above the foreclosure total for Q4, 2006. Nationwide total filings for the year 2007 was 2,203,295. Almost 22% of these, 481, 392, were in California alone, although due to the large number of properties in California, this only equates to 1.9% of households in the state.

The state with the dubious distinction of having the highest property foreclosure rate in number of properties in some stage of foreclosure per population falls to Nevada, at a rather stratospheric 3.4%. Because Nevada is a rather sparsely populated state that only equates to 66,000 foreclosure filings. Another state experiencing foreclosure woes is that peninsula of bluehairs in the Caribbean, Florida. Florida reported 279,325 foreclosure filings in 2007, a foreclosure rate of a little over 2%.

Why are these areas experiencing such high foreclosure rates? Part of the reason may be because they also had major price run ups over the previous 5 years, with some of the highest real estate appreciation rates in history. In some cases properties in areas of California, Nevada and Florida were climbing over 30% per year for a few years in a row. This all started in during the end of the 1990's or early in this decade. By a year or two ago, the trend had reversed itself.

Florida, California, and Nevada were 3 of the states experiencing the highest rates of property appreciation in 2001 and negative or very low appreciation from 2006 - 2007. The top 13 real estate markets ranked by average annual appreciation in 2001-2 were all in California, according to Realtor.com's house price index. They also had number 20, with San Francisco occupying that slot in the survey for 2001. California also grabbed numbers 24 and 35. Florida had 3 of the top slots, numbers 17-19. They also had numbers 26, 31, and 37. So between them Florida and California had over half the top 40 metro areas with the highest property appreciation rates early in this decade.

Looking at real estate appreciation rates between 2006 and 2007 we find that oh, how the mighty have fallen! In fact, many of the same areas that were flying highest in 2001 - 2002 have experienced drastic property depreciation in the last 2 years. Between Q4 2006 and Q4 2007 the state of California as a whole saw property values decline an average of 6.6% according to the U.S. Office of Housing Enterprise Oversight. Some areas in California fared even worse.

The LA Times reported 3 weeks ago that home sales in southern California fell to their lowest levels in over 20 years, with the number of homes sold down over 44% from this time last year. The median home price in the 6 county region has eroded 18% in the last year, and of the homes that did sell, 25% were in some stage of foreclosure. Riverside County experienced the largest decline in home pricing of the 6 at -20.1%, while San Diego homes only lost an average of 9.1% of their value for the 12 month period. In 2001, Riverside had the 35^th highest real estate appreciation rate in the country, at 10.9%, while Orange County was in 42^nd , with a 10.5% appreciation rate.

The National Association of Homebuilders Housing Opportunity Index, which ranks the affordability of housing in metropolitan areas, shows that in Q4, 2007 California cities occupied 24 of the bottom 25 slots in the affordability index. This means that the median home price is higher as a percentage of the region's median income. 23 of the 26 areas had a median income higher than the national MSA average of $59,000. Many of the least affordable areas of California were actually in the Bay area, where real estate values have yet to implode, although incomes there are relatively high. In Florida, the Miami area ranks highest, reaching number 12 nationally on the list of the least affordable housing, with Naples – Marco Island coming in at number 33. Remember, California didn't leave much room for anyone else at the top.

So is the level of foreclosure as bad as it's being reported? In some areas, yes, while in others not so bad. California is dragging the national average way down, with their large number of foreclosures. This is partially due to the continued unaffordability of residential real estate despite declining home values. The lack of relatively affordable housing has led many prospective homeowners to go the unconventional financing route. The dropping home values have left many people with the more aggressive ARMS unable to refinance, and so, here we sit.

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In most cases they will cut off access to your credit line with no warning. You'll continue to write checks against your credit line as you always have, but all of a sudden the checks will be returned, unpaid. In some cases, banks will send out letters to inform credit line holders that their line has been terminated or suspended. Countrywide Home Loans has reportedly sent out about 125,000 notices to borrowers indicating their home equity lines were being frozen. Other banks freezing home equity credit lines include Indy Mac, Chase and WaMu, but not as many as Countrywide so far.

Many people assume that if their home values decrease, their equity will drop and their line of credit limit may be reduced accordingly, but that's not what most lenders have been doing so far. For most people with HELOCs, banks are just freezing or terminating them completely. People who live in areas with rapidly declining real estate values such as Florida, southern California and Nevada are more likely to get letters of death about their HELOCs, although King5 news in Seattle, an area with relatively strong home values, is reporting this phenomenon as well.

What can you do if this happens to you, or to determine if you're at risk of having your credit line frozen? The first thing you can do is to call your lender. They may just reverse the freeze by you asking them to do so. In most cases, however you'll have to get an appraisal to determine weather the value of you home has indeed declined. (Be aware that home appraisals are not free) If if the value hasn't declined or if it has only gone down slightly, you may be able to get them to reinstate your credit line.

People with homes whose loan to value is above 90% are in more danger of having their line frozen. At such LTV numbers it only takes a relatively small drop in home values to erase all the home owner's equity. It obviously scares lenders that the security on the credit line could disappear, hence their propensity to freeze the borrower's credit. If you have 50% equity in your home, you're much less likely to be in this predicament.

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