Keith Reed's Money Corner

The Absolute, Positive Best Valentine's Day ideas under $50, anywhere!

2011-02-14T13:52:00.000-05:00

If you're doing the Valentine's Day thing, you've got just one weekend left to find an appropriate gift. Of course, the thought that counts, not the money you spend, and with finances still tight for a lot of people, I asked my blog readers and Twitter followers to shoot me their best Valentines Day gift ideas for under $50.

Lemme tell you: the answers were, uh, creative. (As an aside, I heard from a lot of you about the farce and commercialism of Valentine's Day. I can't say I necessarily disagree that the biggest Vday winners are retailers and there's certainly nothing wrong with finding your own ways and days to celebrate your love. But, uh, that ain't what this post was about. Besides, if it meant a lot to your S/O, would you really risk pissing him or her off for lack of a few roses and a card?)

Now, for the answers and the winner of the $55 gift code generously provided by CSNStores. I could put the answers into three categories: the quaint, the explicit and the heartfelt.

Quaint:
One woman suggested a "Recession V-day" with "dollar store wine glasses, candles, rose petals and a card"). Another suggested " a love letter. Seriously, a letter with real effort and thought is the best gift."

Explicit:
Might wanna cover the kids' eyes for this one: someone literally emailed me this as a suggestion: the 'sex sling'. Wow.$29.95...click the link or use your imagination.

But the winner was @evolve_u, who tweeted the following heartfelt suggestions and gets the $55 from CSN:

"Buy 3 pks of V-Day cards from $1 store. In ea card, write 1 thing you luv about ur love (i.e. "You make me blush when..." "I love how you..." "Our first kiss felt like..."; plant the cards in places s/he will find them... (e.g. in the car, under a pillow, in a lunchbox, under the remote, in the fridge, etc.) everyday leading to V-Day. On the 14th, over homemade candlelit dinner (wearing his/her favorite lingerie/silk pjs), tell him/her in person how much s/he means to you. Total cost $25: cards $3; candles: $2; food: $20; time: priceless; reward: ;-)"

However you plan to celebrate, have fun, and make sure not to breatk the bank. Happy Vday.

$55 prize for your best under $50 Valentine's Day gift ideas

2011-02-10T10:59:00.000-05:00

Four days until Valentine's Day, so help me help out the people with bigger hearts than wallets. Today and tomorrow send me your best suggestions for Valentine's Day gifts under $50. Get creative. No flowers, candy or blanket-on-the-floor matinee here. Get your imaginations working; you've only got a week to make him or her feel like a million bucks on a shoestring budget.

As a bonus, I'm giving away a promo code worth $55, courtesy of my partner CSN Stores. Best answer gets the prize, which you can use toward anything at CSN, which has more than 200 online shops where you can find everything from stylish handbags, a L shaped desk, or great cookware!

Best idea gets the prize, so be creative. I'm taking as many ideas as you want to send me either here or on Twitter, so send a bunch. It is Valentine's Day, and grown folk do like to get all happy time with theirs. If your idea's all hot & steamy, that's fine by me, but let's not get too explicit. Suggestive's cool, x-rated ain't.

Monday Q&A: Is there a quick fix for low FICO scores?

2011-01-31T08:34:00.000-05:00

This question came from one of my formspring followers:

Q: Is there any way you can improve your credit score in a short time?

A: I'd generally say no, but really the answer depends on how much you want to improve your credit score and what you consider a short period of time.

Ruining a credit score usually happens over time, as either bad financial decisions or tough times erode your record of on-time payments and throws your debt-to-available-credit ratio out of whack. If it took you two years for your FICO score to drop below, say 600, don't expect it to be 800 in a year or less.

The things that help you improve your credit score the most are making payments on your debts on time and paying down the balances on any outstanding accounts you have, especially unsecured accounts like credit cards. The faster you can pay off any overdue or outstanding balances, the better chance you have of raising your score. But any blotches on your credit report, like delinquencies, bankruptcies or accounts in collection, can remain a drag to your FICO score for as long as seven years.

Do what you can to be responsible with your credit from here on out, but don't expect things to turn around overnight.

State of the Union: the President should be unemployed

2011-01-26T16:30:00.000-05:00

Jobs were the top issue in President Obama's State of the Union speech, and they should have been. But does anyone in Washington actually understand how unemployment affects a real person's life?

Congressional Democrats and Republicans have used unemployment as a political football for two years, even allowing unemployment benefits to expire for those who needed them while they argued over the terms of an extension. In the meantime people who receive unemployment were dealing with the reality that they weren't getting out of the system nearly what they put in, and very likely weren't getting enough to keep themselves afloat. I'll use myself as an example to explain:

The first thing you need to know about unemployment benefits is they aren't guaranteed to everyone. You only collect unemployment if you were previously employed full time; part-timers and those who were self-employed or had contract work usually don't qualify. Unemployment benefits are funded by money your former employer pays into a kind of insurance fund which pays off if you lose your gig. But that's the problem. Most people buy enough insurance to cover all their losses from an accident, flood or whatever else you're insuring against. You wouldn't insure a $45,000 car with a policy that'd only give you $20,000 in coverage.

With unemployment, typically the best you'll do is about a third of what had been your weekly pay. Raise your hand if you could pay all your bills with that.

This is how that worked out in my case: Until Dec. 31, my gross income was about $2700 each pay period. Here's what that state of Ohio approved under unemployment claims:

The top number, $470, represents what I'm eligible to receive each week (provided every week I go online and fill out a form that certifies I could work, I looked for work and didn't turn down any work that was offered to me). Do the math and you'll see that the weekly amount is about 14.7 percent of my previous salary. And I've got children. Luckily, I also have savings.

The bottom two numbers are the total unemployment benefit I'm eligible for and how much of that is remaining. That's right: the state is granting me a whopping 12 grand and change in unemployment benefits, of which I've got just about $11,000 left.

Oh, and one last thing: there's a "waiting week", akin to the NFL's bye weeks, where you're approved for benefits but don't get a payment at all. I found that out after calling the state unemployment office and holding for more than a half-hour to ask why I got money for the past two weeks but not the first week of the year.

(Notice the $470 becomes $423 after taxes. Yes, they take taxes out of unemployment payments.)

The woman on the phone explained to me that everyone has a 'waiting week' under Ohio law; I explained that someone should tell our legislators that people's bills don't take a week off.

Which brings me back to the State of the Union speech. I don't believe President Obama has done a bad job on the economy and I'm not cynical enough to blame him for all the country's job losses or the fact those jobs haven't returned yet. The Reagan, Bush 41, Clinton and Bush 43 presidencies passed while the economy was being wrecked; it won't be fixed in two years.

Still, I think we need a New Rule here: No politician can give a speech about jobs until they've experienced the unemployment bureaucracy for at least one month.

Should you hire a tax preparer or DIY?

2011-01-25T11:39:00.000-05:00

Here's a question from a Twitter follower who's striking out on his own:

I usually avoid tax questions, and for good reason: I'm not a CPA or tax preparer, so anything dealing with the specifics of a return, etc. is more than I'm qualified to answer. This, though, is a general question and important to answer since so many people are going through career transitions and need to make similar decisions.

Your employment status shouldn't necessarily dictate whether you do your taxes on your own or hire someone. You need to consider the complexity of your return and how confident you are that you can do it without errors that might hold up a potential refund or trigger an audit.

Even though I held only one full time job in most years, for example, I still used a CPA to file my taxes. It cost more than just using Turbo Tax, but I've never been comfortable enough with the dizzying tax forms to want to do even a basic return myself.

If you're uncomfortable with filing taxes on your own, hire a qualified CPA or tax preparer. It will save you headaches, and possibly money down the road. Thanks for the question.

Best money bets for college students

2011-01-24T09:00:00.002-05:00

A question I get asked often is for advice for college students. One of my Twitter followers, @BeForREAAL, brought the topic up last week:

My thoughts on that question never waiver: the best financial decision college students can make is to avoid graduating with unnecessary debt. The two most important ways to do so is avoid over-borrowing for school (i.e., borrowing for more than tuition, fees and books instead of working to pay for incidentals), and using credit cards for non-essential purchases. The average college student in the 2008-2009 school year had borrowed more than $23,000. That's a lot to have to pay back -- with interest -- in a tough economy where it's hard to find a job.

I opened the question up for my timeline and got some other answers:

Pretty sound, common sense advice. What else would you suggest?

formspring.me

2011-01-23T15:11:00.001-05:00

Got questions you want answered on my blog (or just anything you wanna know in general?) ://formspring.me/KdotRE

Learning big lessons from losing a big job

2011-01-21T16:08:00.000-05:00

View of Cleveland & Lake Erie from my former corner office

Yesterday's post was about how unsettling and eye-opening it's been to lose my job. Today I'm talking about how I got here.

What's interesting about being in my position is that it didn't come about in a 'conventional' way -- if there is a such thing. What I mean is that even though I work in a shrinking industry (journalism) during a massive recession, neither of those things were responsible for my job loss. In fact, my own ambition and desire to climb may have as much to do with it as anything. Let me explain.

Two years ago I worked for the Cincinnati Enquirer as a business reporter covering Procter & Gamble, the biggest company in a town with several Fortune 500 headquarters. In my early 30s, I'd say I had done well building my career; decent enough that my blog had a nice following, I was freelancing cover stories for major magazines and national TV and radio outlets regularly called me for commentary.

Still, journalists were getting fired left and right, I'd recently had a setback at work and a bunch of people at my company were being laid off. On top of that, my goal was never to write for anyone else forever: I wanted to be a magazine editor, to have a gig that came with a bigger following and management experience I could apply when I struck out on my own as an entrepreneur.

Then the call came: a magazine in Cleveland needed a new top editor and their headhunter got my name from an editor I'd worked with in NYC. Was I interested? Unsure at first, I got advice from family, mentors and my then significant other, then packed up and moved to Cleveland. A nonprofit operation whose funders were losing faith, my job was to use what I'd learned about management to turn the place around. And boy did I try.

In the ensuing two years we got some of the highest praise for our editorial content we'd ever gotten. Our audience loved what we were doing. We even took home some major journalism awards; one of my commentaries narrowly lost one contest to Earl G. Graves, founder of the much larger Black Enterprise, one of my role models in this business. I took the nomination as a victory.

The business side was a different story. I had a staff of four valiantly doing the work of at least twice as many people. My title was editor, by my responsibilities were more like editor/publisher/development officer/marketing and circulation guru. Our funders said how much they loved our work, but the love didn't come with a commitment to extend our funding. I closed our office in favor of telecommuting last August to save money, and we shut down for good Dec. 31. As trying as it's been for me, my biggest lament was for my three colleagues who lost their jobs.

So why post about this on a blog where I usually answer questions about personal finance and the economy? Well, because some of the lessons I learned have universal application for anyone climbing a career ladder, or stumbling down a couple rungs. When I was in Cincinnati, the paper's executive editor told me he had to take detours to smaller markets and off the beaten path in order to land in the big chair. I didn't forget that when Cleveland called, and neither should you when you get a similar call. To paraphrase another mentor: companies, no matter how small, don't call you looking for chief executives every day.

On the other hand, I learned how important it is to do due diligence on new employers, especially when stepping into an executive role. Had my mouth not watered so much at landing that beautiful corner office with a spectacular view, I might have discovered how dire the management and financial situations were at the magazine (although, honestly, I still would have taken the job).

There were plenty of other lessons, but the last one I'll share comes out of losing the job: It's not the end. As many daily postmortems as I subject myself to about what I could've done to save the place, ultimately none of them matter. Nor does my frustration and anxiety over what's next. What matters is I gained, in two years, a ton of experience that many other people my age don't have. No one can take from me that at 31, I sat in the big chair, even if it was in a small shop. By 33, I'd grown totally into that chair and with my 34th birthday just days behind me, the challenge now is to figure out how to parlay all those lessons into the next big opportunity.

And the thing to remember, if you've lost your gig like I have, is that that opportunity is coming. The only question is whether you'll be ready to recognize it when it does.

I'm Jobless

2011-01-20T18:20:00.000-05:00

For a few years, I've been blogging about personal finance, sharing all I learned as a business journalist in plan English with my readers here. When the economy turned, I turned with it: readers started asking a lot more about how to be safe in this economy, how to save cash, live on a budget and preserve their jobs. Unfortunately some of my friends and readers of this blog lost their jobs to the Great Recession.

I never imagined I'd be one of them, but I am. It's taken a while to decide I should blog about this; the psychological effects of losing a gig are as great as the financial ones. You start thinking things like "Who cares what an unemployed journalist has to say?"

Then you get over it (or at least I did). Truth is I'm one of millions of people who are still without jobs, even as other pundits talk about a recovery. And I've got it good: I have savings and I'm connected enough in my industry to have decent leads on contract and freelance work. In a way, this is a blessing: I'm free to work on projects that have been dormant for months or years. Some of them, like a radio pilot I recorded last year, have gotten more traction since Jan. 1 than they did in the months before I lost my gig.

Revitalizing this blog fits in that category. Being newly unemployed is giving me a first-hand look at what so many others have gone through, from the frustration of job hunting when you're limited by geography, to the maddening bureaucracy of filing for unemployment benefits, to the absurdity of what the state hands you in exchange for all that red tape.

It'll be an adventure I share, along with my reflections on career, next moves and the normal personal finance observations I've always posted here. Hope you ride with me.

*Tomorrow: How I got here and why it's a blessing*

Hey Keith. Great to see you prospering and good to see you're still giving out advice. My question is a pretty simple one, but one that everyone seems to ask. What's the best way to start saving and building financial wealth? The smallest tips will help.

2010-11-07T01:49:00.001-04:00

So many people ask that question because there's no one answer. There are underlying habits that anyone needs to have to increase their chances at financial stability, such as living within a budget and not using credit cards outside of emergencies. But other than that, there's no one size fits all for wealth building. Whether you start that process with saving up an emergency fund, investing in stocks, starting a business or paying off debt all depends on your situation. Start with an evaluation of where you are and what your goals are, and that will point you in the right direction.

Ask me anything

Grading CNN's Black In America: Almighty Debt

2010-10-22T12:18:00.002-04:00

I caught CNN's Black In America special, "Almighty Debt" last night. Bottom line: I think CNN deserves kudos for putting up the time, money and Soledad O'Brien to report on black debt, but the presentation left me wanting. I was hoping that at some point the church angle would go beyond anecdotes about how some churches are helping their members financially. Helping congregants isn't specific to black churches and it left a lot of material unexplored. For example, where does "prosperity gospel" as preached by megachurch leaders like Bishop Eddie Long, fit in a community plagued by debt and institutional economic bias? What role, if any, do black churches still have as economic engines in downtrodden communities?

And I really would have loved to see a more explicit discussion of the difference between debt as a function of the legacy of institutional racism and debt as a result of really, really bad choices. For an example of the latter, see this keeping-up-with-the-Joneses couple, who sold luxury cars and houses for a living and have a daughter with a $400 a month credit card habit but landed in foreclosure on their house:

I want to know heard more about this couple's mindstate before landing in foreclosure. What the hell were you thinking?

In any event, if you didn't watch it, you should check out the re-airings over the weekend or more clips from the show here http://www.cnn.com/SPECIALS/in.america/black.in.america/

Should your bosses get to look at your credit score?

2010-10-21T10:57:00.000-04:00

Employers have been using credit reports as one way to evaluate potential employees for years. But the recession-that-won't-end is effing up thousands of people's scores, so now some states and Congress are thinking about banning the practice, according to this Wall Street Journal piece.

I think banning the use of credit reports in most (but not all) hiring is a good thing: anyone can be a good employee and have financial trouble along the way. For most of us, it'd only take one emergency or a couple months of unemployment to ruin a good credit report. Companies argue that the credit score is a good predictor of potential problem behavior with employees but I don't see how that argument carries weight in an era where all manner of personal information is available with a quick Google search, and criminal background checks are cheap and easy to conduct.

But I'm cynical: what took legislators so long to wake up to the fact that this is a problem? It seems to me that the only reason they're taking on this issue now is that it's affecting people more in the economic "mainstream" (read: middle class whites) who have been hurt by the recession. Poor people and minorities, especially blacks and Hispanics, have had their economic prospects hurt for years by this and other practices which unfairly and disproportionately impact their job prospects (see: using credit scores to determine insurance rates). It makes no sense to use credit reports to bar people from getting jobs when getting a good job in the first place can help improve the score.

It's amazing how something that's been harmful to a great number of people for a long time is ignored by politicians and regulators until it starts hitting their poll numbers. Then what's been a bona fide crisis for years becomes an official one and finally there's debate, if not action.

I have about 4K in credit card debt (12% interest, I think) and about 17K in savings in an acct that makes about 1.5% interest. Should I just pay off the credit card debt with the cash I have or try to pay it off slowly? Thanks!

2010-06-05T09:13:00.001-04:00

Normally I'd tell you to calculate the difference between what you're earning in interest and what you're paying on the card, and factor in how many months' worth of living expenses you have saved. But in this case it's an obvious no-brainer: pay off the debt!

You've got four times as much in savings than you owe, so you won't miss that $4,000, and since you've already got $17,000 saved I'm assuming you're a disciplined saver and will replace that money relatively quickly. Besides, there's a 10.5 percentage point difference between what you're paying in interest and what you're earning, so at this point, paying off the debt is a better investment from a return perspective. Pay off the card and get free.

Ask me anything

No question, just a comment. Good stuff! This is a ministry! You are really helping people out! -Pauli

2010-06-03T23:33:00.001-04:00

Thanks! I really appreciate that.

Ask me anything

Just found out mom, who died in 2005, had insurance policy. $300k spilit between me & bro. What the hell do I do? I only have car payment, little savings. Taxes?

2010-06-03T23:32:00.001-04:00

First, I'm sorry for your loss.

As far as the insurance settlement, my best advice is to start with a tax adviser, preferably a CPA. You'll need someone familiar with tax law to determine how much of your half of the insurance policy will actually come to you and how much will go to Uncle Sam,who gets his cut first. My guess is that if the money is to be split down the middle, $150k apiece, you're looking at 40 percent or better of that money going to the government in estate and or income taxes. (Of course I'm not a tax accountant so don't quote me on that).

After you've worked out the tax implications, you'll want to make sure you do some planning for what you'll do with that money. It's great that all you've got in debt is a car payment, so I'd start by paying that off. After that, beef up whatever savings you've got to the extent that you have at least six months worth of expenses in a liquid (cash) account.

With the rest, take a tiny, tiny, tiny fraction for a splurge, and put the rest toward some long-term investment (home downpayment, retirement, etc.).

Good luck.

Ask me anything

Thanks for that great answer. I do not have a credit card now, although I do have a Walmart money card. Is that enough for now or do I really need to have an actual credit card?

2010-06-03T14:27:00.001-04:00

You're welcome. As for your Wal-Mart Money Card, it won't help in rebuilding your credit. It's not a credit card; it's a prepaid debit card and as such there are no bills associated with it. You can only spend what you put on the card and after that it's empty and useless until you decide to refill it.

The key difference between that and a secured credit card is that the collateral you use to obtain the secured card won't be used to pay off the bill unless you fail to pay when your statement comes. You'll still get a bill each month and be responsible for paying that bill in full (or at least the minimum amount), and your payment history will be recorded and submitted to the major credit reporting firms. Since there's no bill with a prepaid debit card, there's no reporting and thus it can't help you rebuild your credit.

Ask me anything

I had past issues, but am now debt free. I got 1 of those Bank of America prescreened credit card offers and applied. I was turned down, but they offered me a secured card & want me to send them at least $300. They say it will help my credit scores and I

2010-06-03T11:03:00.001-04:00

Looks like your question got cut off but I'm assuming you wanted to ask whether the Bank of America card was a good idea. I can't give you a yes or no answer but I can give you some common sense advice on how to think about whether or not you need that card.

First, how severely did your "past issues" damage your FICO score? If it pushed your score into the 500s or lower, a secured credit card might be a good way for you to rebuild your credit. Your payment history is among the top factors in determining your credit score, which in turn helps determine whether or not you qualify for loans and on what terms. If your score is so bad that most lenders won't touch you (and being in the 500s is pretty close to that), one way to rebuild credit history is with a secured card, which is basically a credit card that is "secured" with collateral -- in this case, a $300 deposit, in many others, a linked checking or savings account.

That said, you may not need that secured card at all. If you've already got a credit card or cards in your name, you don't need to get a new one and in fact applying for additional credit after you've already had issues could further hurt your score. If you already have a credit card in your name, one way to rebuild your credit is to use that card for small purchases and to pay the balance in full monthly. For example, if you've budgeted $200 for groceries every month, you could use your existing card to pay for them, then immediately pay off that bill out of the cash you would've used normally. That will show up on your credit report as you paying your card balances in full every month and help your score. Just remember that this strategy relies on you paying the full balance every month and never carry a balance of more than 30 percent of your available limit.

One last thought: Personally, I've never been a fan of prescreened credit offers. As a consumer, I know when I have a need for new credit or to change lenders. I don't need credit card marketers to tell me that. Credit card issuers send those letters out for their benefit, not yours, and in my house they always end up in the shredder. Besides, the offer you got feels a lot like a bait and switch: if you were "prescreened", then the company should already know that you don't qualify for anything but a secured card, so why send you an application for something different?

Think about it.

Ask me anything

On ascots, oil spills and wealth disparities

2010-05-20T16:05:00.000-04:00

Today I taped an interview with Georgetown professor Dr. Michel Eric Dyson for his newly-relaunched radio show. It'll air Tuesday but here's a preview:

Dyson asked me about the long-term economic impact of the BP oil spill in the Gulf of Mexico and I said I thought we're already seeing it in the form of higher gas prices and that it would continue. A few weeks ago I was buying gas for $2.50 or less and a few days ago i filled up at $2.81 a gallon for regular. I also said I was skeptical of a report from Moody's Economy.com that said that the spill won't have a long-term impact on the US economy because the Gulf states only account for 1 percent of GDP.

We also talked wealth disparities in the wake of a new report that shows that the black-white wealth gap in the US has actually quadrupled since 1984. It's vexing because this is actually the period over which many thought that the black middle class was permanently expanding as the result of economic and employment gains in the decades following the civil rights movement. I've actually pitched a commentary to TheRoot.com about my take on those numbers so you'll read about that over there soon if they accept it. If not, I'll write it here no later than Monday.

And speaking of TheRoot, today they ran a colorful piece by yours truly called "We Had our Ascots Handed to Us." Its my take on black men's style cues and what we lost when Daily Show host Jon Stewart discovered that Roland Martin has interesting taste. Check it out and let me know what you think.

Can I save for a home and pay off my debt at the same time?

2010-05-18T10:05:00.000-04:00

Sorry for being gone for so long; the month of April was ridiculously busy at the 9 to 5. But I'm back strong and with a good question that came from formspring:

I'm almost debt free and I want to start saving for a down payment. How can I aggressively tackle the last credit card...and save at the same time?

My advice: Don't spread yourself too thin. You have a finite income and that money only stretches so far. If you're almost debt free, you should devote as much of your income as you can to paying off the debt until it's gone. That will help you as much as saving for a down payment (on a home, I'm assuming) because lowering your debt will help improve your credit score. When the debt's gone, take the money you were putting toward that and apply it to a down payment. Take your time and remember you can't do it all at once.

Also, how much money do you have in an emergency fund? If it's less than six months worth of your living expenses, that should be your priority over both a down payment and paying off debt. What you don't want to do is be in a situation where you've got to run up credit cards or beg, borrow and steal if you should lose your job.

Good luck.

Why you're probably paying too much in property taxes

2010-04-09T10:50:00.000-04:00

When did you buy your house? If it was in the last five years, chances are you're paying too much for property taxes and it might be tough for you to appeal to have them lowered.

(I have to credit CNN for inspiring this post, since they did a report on the issue this morning). The problem is that most municipalities only schedule property tax reassessments every three to five years. What was happening five years ago? You guessed it: we were in the middle of the housing boom. So if you own, your crib is almost certainly worth less than you bought it for, provided you bought in 2007 or before. And if your property hasn't been reassessed by local authorities since you bought it, you're paying taxes on the over-inflated value of the house, not what it's currently worth.

Don't own? Don't think this doesn't affect you. The rent you pay is directly tied to your landlord's cost of ownership, which includes the mortgage and property taxes. That's going to be especially true if you're renting from a private owner and not a large management company.

So what can you do? In most places, there's a formal appeals process you can go through to get your property reassessed. Check with your local authorities for the procedures. They'll have to follow whatever those steps are to re-evaluate how much you pay. But don't expect that to happen quickly, or for your local government to be eager to lower your taxes.

The recession has hit local governments hard, and nearly half their revenues come from property taxes. I live in Shaker Heights, which has Ohio's highest property tax rate and where the city is now asking voters to approve a hike in that tax to support the schools. In short, your appeal could starve them of money right when they need it most. That means make sure you have your ducks in a row before you shoot for that appeal.

Good luck and have a great weekend.

Financial Literacy Month

2010-04-07T10:53:00.000-04:00

February was Black History Month; March, women's history month? Anyone have a clue what April is? Hint: It's the title of this blog post!

I view the idea of Financial Literacy Month the same way I view the other "months" celebrating ethnic heritage, gender solidarity or any other cause or purpose. It's nice to take 30 days to emphasize the need for a basic level of financial smarts in this country. You need only look at our abysmal personal savings rate, how many adults live on credit and how many of our young people lack basic consumer skills like how to create and live by a budget to know that there's a serious need for financial education in this country. But having a "month" is only a start. What happens when April is over and all the marketing campaigns go away?

I'm a big advocate of making financial literacy a mandatory and integral part of the school curriculum from the earliest levels. No one should be able to graduate from high school without demonstrating that they can manage the wages they'll earn on a job. But more on that in a later post.

Here, I just want to create a list of links to Financial Literacy Month sites and other programs that are focused on personal finance education. It'll start short, and grow as people point me in the direction of more links, so be sure to tweet me any you have.

Financial Literacy Now: A campaign for financial literacy sponsored by The McGraw-Hill Companies, The New York Public Library, Working in Support of Education (W!SE), Literacy Partners, and Talking FinLit

FinancialLiteracyMonth.com: A site promoting the month, it's purpose and events from the nonprofit Money Management International

America Saves: "A nationwide campaign in which a broad coalition of nonprofit, corporate, and government groups helps individuals and families save and build wealth" -- from the site's "About Us" page.

More to come...

Saving for retirement vs. your child's college education

2010-04-06T10:04:00.000-04:00

A question from formspring:

What is more important-saving for my retirement or saving for the kid's college education?

A: That all depends on your financial situation but if you're like most people the answer is your retirement.

The reason is simple: your child can borrow for education but you can't for retirement. And depending on your age, the years between new and your children's college graduation could be critical for you in terms of building a nest egg and adding to it with the appreciation you earn on your retirement investments. For example, if you weren't investing in stocks or mutual funds at all from late last year through the first quarter of 2010, you likely missed out on huge gains that could have offset any losses you took in the 2008 market crash.

Every parent wants to see their child do well but you have to remember that life will go on after your child has finished school and started a career. Not having retirement savings could not only harm you, but harm the start you're trying to give your children in life -- imagine how hard it would be for them trying to take care of you in your later years absent the retirement savings you could have socked away?

Keep the used car or get a new one?

2010-03-31T09:30:00.001-04:00

Two interesting questions from one person I got on my formspring:

My 2003 Lexus runs reasonably well, has 83k miles. I think it will need about $2k in repairs & it will be fine. I do mostly city driving. I owe about $8k on it. I could pay it off, sell it, get newer used car & still have nice bit of cash left. Thoughts?

If your car is still running well and you only owe $8k , I'm baffled at why you want to get another one. Unless the plan is to sell the car for enough to buy a newer car in cash, then this plan doesn't make sense.

But to do that, you'd have to sell your car for $8,000 plus the price of the newer car. I know Lexuses have decent resale values, but I have a hard time imagining you selling a 7-year-old car with almost 100,000 miles on it and which needs $2,000 in repairs for enough to be able to pay off an $8,000 note AND still buy another car. Either you need to go into used car sales or that plan is seriously flawed.

Ok, you sold me. Keep car, pay it off, get it fixed. Done. So what do I do with the rest of the cash, around 40k? Can I have just 1 splurge? Please?

If you've got $40 grand in cash laying around, that's great and it's perfectly fine for you to buy yourself something. People get it twisted by thinking that folks who advocate frugality don't want you to spend ANYTHING. That's not the case; it's just that most people spend more than they take in, and don't save much at all.

Feel free to do something nice for yourself WITHIN REASON. Don't blow $25k of it in a weekend. Give yourself a (small) budget and have some fun.

After that, though, you need to consider what in the world you're doing with all that cash laying around? How much of an emergency fund do you have? If the answer's none, you need to stash enough of that money away in a savings or money market account to cover your expenses for several months in the event of a layoff or emergencies.

Already got an emergency fund? What about retirement? If you're not investing in a 401(k) and don't have an IRA, you need to start putting money away for your retirement.

If you've done both of those things, you're in good shape, but you can always afford to be in better shape by stashing most of that money away either for a rainy day or toward a home or some other goal you have.

Single mom wonders about tax withholding

2010-03-30T09:30:00.002-04:00

With April 15 around the corner, most of us are focused on getting our returns in on time or on getting whatever refund we're owed. But right now's also a good time to think about preparing for next year's tax season by adjusting your withholding for the current year. That's what one friend asked me about recently:

I'm never quite sure how to fill out my W2 forms. I'm not sure what number I should put down for withholding, although I was told not to put down more than 2 to avoid owing the government. Also, for the state, I don't know whether it is better to claim an exemption for my dependent or myself.

My first piece of advice here is that whenever you're unsure about a tax issue, it's always best to consult with an accountant. That doesn't mean you have to go out and hire one, but most people either know someone personally or know someone who knows someone who prepares taxes for a living and asking that person for five minutes of their time costs nothing.

Now, here's my totally (non-legal, non-cpa) opinion: instead of just punching in a 0, 1 or 2 on your W-4 (that's the withholding form; the W-2 is the tax statement your employer sends you at the end of every year), read the actual instructions and follow them. the W-4 is more than a form, it's a worksheet designed to help you estimate in advance which deductions you're eligible for and to structure your withholding around those. In short, it's a way to make sure that you're keeping all the money you should keep all year long, instead of giving it to the government, which is what happens when you get a big tax refund every year.

As a single mother, it's entirely possible that you may be eligible for more than two deductions as you might qualify, for example, as head-of-household or for a child tax credit or earned income tax credit. You might also be eligible for a deduction for qualifying childcare expenses. Going through the worksheet and talking with an accountant or tax preparer might reveal that you should actually put a 3 or 4, instead of a 1 or 2.

Being concerned about owing the government is legitimate; in that case you could still do the worksheet and then subtract one or two from the number it suggests just to stay on the safe side.

Good luck.

image courtesy photoxpress

Are you getting a good deal on your credit card? Take our survey

2010-03-29T10:41:00.001-04:00

Credit card reform went into effect earlier this year with a number of significant restrictions on fees and practices that should benefit consumers. That was the good news; the bad was that before reform took effect, many consumers saw interest rates skyrocket on their cards, often with no explanation from the card issuer.

Were you one of the lucky ones whose rate stayed the same or were you whacked with a big interest rate increase? Take my survey on credit card rates and help me with later posts looking at how readers like you have been affected by the changes.

All responses are totally anonymous; I'm not collecting any personally identifiable information -- no names, no addresses, no email addys. Thanks.

Online tools to help with budgeting

2010-03-24T09:13:00.004-04:00

Q: I need to grow up and create a budget/spending plan. I'm a techie, so can you recommend some online/software to use to create a budget I can stick with?

A: First, congratulations on your decision to start budgeting. Here's a few tools you might want to look into:

Mint.com tracks and categorizes your spending so you can tell exactly where your money is going in real time. That's extremely helpful when you're trying to budget because you can instantly see if you're overspending on non-essentials like dining out or too many pairs of jeans. Mint can also keep track of spending from multiple bank accounts, track your investments and work with tax software TurboTax to help you find deductions.
One thing many people neglect when budgeting is the difference between their gross (before taxes) and net (after) incomes. Since no one actually lives on their gross income, it's necessary to estimate how much you'll pay in state and federal taxes, and other pre-tax expenses like some retirement account contributions, your contribution to healthcare premiums, etc. PaycheckCity is a free online tool that I've used nearly every time I've taken a new job to figure out what my actual net income might look like, and it's always been pretty accurate. It'll ask you for your gross salary, and then you'll plug in the state you live in and answer other questions about deductions likely to come out of your paycheck each month. At the end, it spits our what your net pay should look like. One thing it won't ask you for is any personally identifiable information, so there's no privacy concerns.

Those are two to get you started. I'm going to tweet this question to my followers and post any of their answers as they come in. Good luck.

Do the wealthy know what 'recession' means?

2010-03-23T09:11:00.003-04:00

Sometimes I get questions that make me scratch my head, like this one someone posted to formspring over the weekend:

Not all of us are living paycheck to paycheck and the word 'recession' ain't in some of our vocabs. How would you advise the significantly wealthy to increase their income and investments?

My answer: Who you foolin'? Truly wealthy people understand recession as well as anyone. The recession took a huge toll on investors in the equity markets and on business owners. Since wealth is measured by assets (the value of what you actually own), not income (how much you make), and since most wealthy people's assets are tied to investments or businesses they own, the idea that the wealthy don't have "recession" in their vocabulary is misplaced bravado at worst. At best it suggests a lack of understanding of the difference between assets and wealth, money and income.

Just because you don't live paycheck to paycheck doesn't mean you're not subject to the same economic realities that impact everyone else. They simply may not impact you the same way.

In terms of how to increase your income and investments, I'd need to know how you make what you make and how you invest what you have to give an informed answer.

*If you've got a question you'd like answered on my blog, tweet me here or post to my formspring here.*

Extended shoe giveaway; more on black women's wealth

2010-03-12T10:26:00.006-05:00

Today's super busy at the 9-5 so no full post, just a round-up.

First, I've decided to extend the deadline to get your questions in for the women's shoe giveaway until March 30 instead of March 15 because I've gotten so many great questions that I haven't had time to answer them all. So ladies, you've got the rest of the month to ask me a question here, tweet me or ask me on formspring.

I'm giving away a pair of the shoes pictured below from ShoesGotSole for the best personal finance question from a woman this month (March is Women's History Month). The shoes are being provided by CSN Stores, which also sells kids bedding, modern furniture and other things, so be sure to check them out in thanks for hooking up the giveaway.

Next week, I'm going to go hard some more on this data about black women and wealth. Earlier this week I posted the results of research that found single black women's median wealth was lower than that of married couples and that of single black, white and Hispanic men or women.

This morning I saw a report of new Federal Reserve data showing that net worth nationally rose slightly for the third straight quarter. That's good news during a deep recession but it begs the question of whether black women's abysmal net worth is following the trend. I'll get into that next week.

As well, the inevitable, which I hoped wouldn't happen did: people are using the black men-black women's net worth data to fuel more played-out "gender wars" conversations. Someone texted me last night about a conversation in which the data came up and some men were calling black women "greedy" and "too ambitious". So I'm going to do some thinking and a few interviews and dig into why the data is definitely NOT fuel for an "us vs. them" conversation.

Have a great weekend and check back in next week.

A Black Woman's Worth

2010-03-10T10:47:00.009-05:00

On Tuesday I wrote about this study which shows that single black women in the US have median wealth of only $100. The impact of that situation is so great that I can't cover it all in one post, so I'm taking this opportunity to convene a conversation around African-American women and wealth.

Over the next few weeks, I'll post more about the report's findings and try to put it in context: how's it affect black families, the ability of young, single black people to couple and marry, why does it seem to contradict with data that shows that for the last three decades, black women have had greater income, educational and professional gains (the study shows that despite all that, single black men have a median wealth of $7,900, compared with the $100 median figure for single black women).

First I'm posting my interview with Meizhu Lui, the director of the Closing the Wealth Gap Initiative at the Insight Center for Community Economic Development, which did the report.

Liu pointed to discriminatory financial practices of the US government still working against the efforts of black women and men today to build wealth. In particular, she said, white Americans benefited from the G.I. Bill and the lending practices of the Federal Housing Authority (FHA), which helped them get college degrees and buy homes after World War II. Education and housing are two of the largest factors in building wealth.

"It isn’t that (black) people didn’t want to get out and work, it’s that they were barred from many of these things," Lui said.

Of more than $2 billion in housing loans the FHA backed between the 1930s and the early 1960s, she said, about 96 percent went to whites.

"For whites, they were given those incomes and assets a long time ago," she said. "The historical legacy of the past is still very much with us today. There’s nothing wrong with that, but it should have been done for everybody.”

But it wasn't, and today black women more than any other group, are suffering because of it. Today, Single black women have less than 1 percent of the median net worth of black men, who themselves trail both white and Hispanic men.

Still, Lui says black men and women should resist viewing the wealth gap as divisive and remember that the same external forces hurt us both economically. Even for married families, the median wealth for black people is only 16 cents for every dollar of wealth whites have, and wealth for single black males is one fifth that for single white males.

“It’s not the fault of the men, either. If you look at those structural barriers to employment for men as well, we have to do things for both," Lui said.

"If we really want to lift up the women, we need to lift up the whole community. The people who make the rules in our society are mostly white men. The rules are still being made by white men of means and they’re being made to benefit that group."

Median Wealth for Single Black women: $100

2010-03-09T15:04:00.008-05:00

You read that right. According to a new report that studied wealth among different groups of women in the US, median wealth for a single, black woman in the US looks like this.

The report came from the Insight Center for Community Economic Development, a national nonprofit group focused on eliminating the persistent race-wealth gap in the US.

On some level, the study's finding about single sisters isn't that surprising. First, many African-Americans were raised in households where there was little to no legacy wealth, or in other words, many of us didn't inherit much of anything (or anything at all) from previous generations. Combine that with the fact that women still on average have lower incomes than men, that married people on average have healthier financial prospects than singles (two-income households still make a difference) and that black folks on average have smaller incomes and own fewer assets than whites, and the disparity starts to stack up quickly for black women.

But can it really be THAT low? $100? One thing to keep in mind is that this is a median number, meaning half of the single black women will fall above that amount and half will fall below. It's also taking a look at wealth, not income, meaning it factors in the sum of all the assets a person owns (house, checking and savings accounts, 401(k) accounts, other investments) vs. what they owe (student loans, credit card debt, mortgages, car loans). So it's certainly the case that many single black women have net worth far higher than $5, and that many of them who have high incomes could have relatively paltry net worth, as income isn't a factor in calculating net worth.

No matter the reasons, the study deserves discussion. What's this mean for the prospects of children being raised by single, black mothers (I was one myself)? If marriage helps improve economic standing, what are the prospects of getting married for someone who has so little wealth to begin with? What about all the recent talk about women becoming breadwinners, about black women leaving black men behind in career and finance? What can be done about it?

I'm interested in hearing all your thoughts in the comments section, on Twitter Formspring. I'll likely be devoting a lot of time next week to this topic.

When she makes more

2010-03-09T07:49:00.002-05:00

I got three questions yesterday from a woman who wanted my opinion on her friend's pre-marital financial situation. The questions paralleled yesterday's post about income inequity in relationships (i.e., who makes more and more importantly, who cares).

Long story short, in a couple that plans to get married soon the woman makes far more than the man. They have a joint checking account and the lower-earning man wants to use some of the money from that account toward starting a business (or as the questioner put it, for his "business schemes).

I don't know much about what kind of business he plans to do or exactly how much of an income disparity we're talking about, so I have to go on what I'm told is a very big income gap between the two. There are three questions here, and I'm answering them separately:

Do you beleive in pre nup/financial agreements between couples who are getting married? Especially if it is a significant difference in salaries?

I don't think your current financial situation matters to whether or not you get a prenup; I believe everyone should seriously think about having one.

Remember that prenuptial agreements aren't just about where you are before you get married. They're legal documents that are supposed to be structured to protect people's assets and interests in the (hopefully unlikely) event of a divorce. Everyone who gets married knows that divorce is a possibility, though most people, rightfully, don't want to focus on that.

A difference in salaries as an engaged couple might make someone more likely to want one, but that doesn't mean folks of the same income levels shouldn't also consider one.

If there is money left after monthly expenses in the joint account, should one partner use the leftover for personal reasons I.e starting your own business?

That should be a decision made by both partners. If the money is coming from funds that have been jointly saved, that technically -- and probably legally -- would give both people equity in whatever business venture was being started. In other words, if I take money from OUR joint account, I'm automatically making YOU an investor in whatever business I start.

So the other party should be as active in investigating and doing any vetting any business opportunities and if they're not comfortable, the business plan needs to be tweaked or scrapped.

What is a fair percentage for couples to put in joint account? If one spouse makes more should they put more in joint account? Should a percentage of individual bonuses be put in the joint account?

I think contributing to joint accounts on a percentage basis is a good idea because it makes both partners responsible at the same level of their contributions, regardless of income. If a couple were to contribute a particular dollar amount of their salaries, the partner making more money would obviously be able to contribute that more easily -- and perhaps at a smaller percentage of his or her salary -- than the partner with the lower income. But if both agree to save, say, 30 percent, both know that they're giving at the same level, though the partner with the higher income will be contributing more on a dollar basis.

But more important than how much is how the decision gets made. This is something to be talked about and agreed to together. If a couple can come to an amicable solution together about how much each person contributes to expenses, savings, investments and other goals, that's a good start for them.

I sincerely hope these answers reach the couple they're intended for and that they make the commitment to get some financial counseling before they leap into marriage. Unfortunately, the only thing that breaks up marriages more than money is infidelity, so making sure there's a solid commitment in romance and in finance is key to making it last.

Good luck in love.

Who should be the breadwinner

2010-03-08T09:10:00.000-05:00

Does it matter who the "breadwinner" is in your relationship?

It's a question personal finance guru Suze Orman asked her audience over the weekend. She was directing the question specifically at men, positing that when men say "it doesn't matter", that typically means it does bother us.

I disagree: I think it really doesn't bother most men if their SO makes more cash than they do. Anyone 40 or younger has certainly grown up in an era of high-earning career women, single mothers and, when people get married, two-income households. I can say with certainty that every man I count among my friends wants a woman who works -- at least while they're a childless as a couple. We're all fully aware dating a working woman means she might make more than we do, overall income disparities notwithstanding.

What men will resent is being disrespected because we make less money than our partner. I don't know anyone who would tolerate that, or who should.

What's your take? Men, do you prefer making more money than your girlfriend or wife? Women, does it matter to you at all?

A woman wonders if its time to walk away from a mortgage

2010-03-04T07:17:00.003-05:00

Last night I got a call from a friend who needed some advice. In good spirits but distraught, she related to me the story of the condo she bought in suburban Maryland a few years ago.

It was supposed to be the modest beginning of a new life with her then-boyfriend and a reflection of her readiness for some stability after landing a new job, in her chosen field and not far from her parents, after spending stints in New York, Los Angeles after college.

All was going well and she did, she thought, everything right. It was the height of the housing boom and with not much saved, she opted for a zero-down mortgage. Not the best decision in hindsight, but with property values literally doubling in the DC area, she thought it a good risk. Besides, her income was stable enough to take care of the place in the event of a breakup (which happened) and since then, she's made every payment on time.

In short, she's been a model first-time homeowner. But that's part of the problem. The housing crash happened and the DMV

The real problem, though, came when she started watching home values drop and new buyers scoop up comparable places for pennies on the dollar. A similar condo in her complex just sold for $125,000, a sign her place could have lost $75,000 in equity that's not likely to come back any time soon. That's made her question whether keeping the place is worth it -- or whether she should just suck up the hit to her credit by letting the mortgage go into default, and walk away.

"I'm starting to think about whether I should hold onto this place forever," she said.

I understand her frustration. Many homeowners are in the same position, watching people who made bad choices get bailed out while their own good choices have left them stuck in homes that are now terrible investments. The losses they're taking are accruing with every mortgage payment they're making because not only have they lost equity, but each interest payment is money they can't get back.

Moving and renting the place out isn't a solid option because she likely wouldn't be able to rent the place for as much as would be needed to cover her hefty mortgage payment. Staying in the place would mean sticking around at least a decade until maybe

But walking away isn't a good option either. A hit to your credit score can affect much more than the ability to buy another home; it could mean limited job prospects, higher insurance rates and potentially that a landlord won't even rent to you.

My advice to her was to give it some serious thought, and then inquire with her bank about a possible short-sale, in which the bank agrees to accept less for the property than they're owed on the mortgage. Short sales are common these days, though there's no guarantee the bank will accept that from a paying customer, which is rare these days.

If you were in her position, what would you do??

was hard hit. She borrowed $200,000 for a one-bedroom condo and hasn't missed a payment, only to watch others who borrowed more than they could afford get out from under their loans either through foreclosure or loan modifications. With a stellar payment history and relatively high income she's not a candidate for either. she breaks even on equity. Not a good look for a single woman in her early 30s.

What's worse: cheating or hiding debt?

2010-03-03T06:01:00.001-05:00

I'm stealing this question from CNN's Jack Cafferty who asked it on the air the other day.

My own opinion: neither is worse than the other. Both things are bound to ruin a relationship. Most marriages end over two things: infidelity or money, and it's easy to see why. A person who's dishonest about money is exhibiting the same character traits as someone who's not honest about what they're doing sexually. It shows a lack of trust, a lack of faith in the relationship and that that person doesn't have a level of commitment to the relationship that would allow it to work.

What's your take? Do you think your relationship has a better chance to survive cheating or your partner lying about how much debt they have?

Women's History Month giveaway: free shoes for the best women & money question

2010-03-02T06:50:00.007-05:00

Yesterday began Women's History Month, so for the rest of the month of March I'm emphasizing things that will help my women readers better manage their money.

This is important for any number of reasons that I'm sure I don't have to explain: despite shifts in attitudes about women in the workplace over the past two generations and huge gains in the number of women climbing corporate ladders, pay inequities for men and women in the US are still persistent. And that's made worse by the fact that increasingly single women are the sole breadwinners in many households -- my own mother was one of them as I grew up.

So this month, I'll be taking a look at statistics regarding pay equity, discussing the dynamic money plays in relationships (though this affects both genders, it's a topic many more women have asked me about than men), and especially encouraging women to write in with their questions about managing their cash.

With that last thing in mind, I've got a surprise -- a giveaway. This month, I'm partnering with CSN Stores, a company that has more than 200 web sites offering kids bedding, modern furniture, cookware and thousands of other things. I'm giving away a pair of shoes from their site ShoesGotSole. Yep, a free pair of strappy pumps with a 2-3/4-inch heel that you can rock as soon as the warm weather comes:

So here's the deal: the shoes are going to the person who between today and March 15 asks me the best question about women and money (and who follows a couple other rules):

1) Leave your questions in the comments page of this post (use that link -- there's no limit on the number of questions you can ask);

AND

2) Tweet about the giveaway with a link back to this post and include my handle (@k_dot_re) in the tweet so I know you did it;

OR

3) Include a link to this post on your blog or elsewhere, and let me know that you did it (it doesn't count if I don't see it!).

Also, be sure to visit one of CSN's sites, especially AllChildrensFurniture. By way of disclaimer, CSN is generous enough to sponsor this giveaway; I'm not being paid to review or promote them but the hope is to help them build traffic for their sites.

So go forth and ask good, intriguing questions. I'm looking forward to answering them all.

How can I save as much of my tax refund as possible?

2010-03-01T09:33:00.005-05:00

A great question from one of my formspring followers:
As one of the fortunate folks who MAY be getting a refund, what tips would you suggest to save as much as one can of said refund?

I can't say this enough to people: getting a refund only means you've paid the government more than you should have all year long. They take that money, use it for other stuff and give it back to you months later with no interest. Great deal for them, sucks for you.

Were I you, I'd readjust my withholding to make sure you're only paying what you should and hold onto more money throughout the year. That's a better way to save because you'd get that full year to earn interest on all that money rather than getting it all at once having received no interest from the government at all.

But that won't solve the dilemma of how to save the refund you already have coming. My advice would be to start wherever you can get the biggest return. Often that's by paying down debt as opposed to putting the money into checking, savings or investments. Sounds counter intuitive but it's not.

Think about it: if you have a credit card balance that you're paying 18 percent interest on, you save more -- at least in the short term -- by paying that balance down or off than you would by putting the same amount of cash into an account or investment that returns you five percent.

If you have no credit card debt, then look to beef up your emergency savings. You should have at least three months' worth of living expenses stashed away in cash somewhere (and by somewhere I don't mean under a mattress).

If you've done both of those things, you're in great shape and might want to try this little trick that would help you save AND reduce your tax burden for next year. Open an IRA or contribute to the one you currently have by putting the money you got from this year's tax refund into that account.

When next year's taxes come around, some of that money that you put in might be tax deductible, as is the case with many IRA contributions. Check with your financial adviser of the bank handling your IRA to be sure of the rules and exact tax ramifications. Good luck.

image: Viola Joyner/photoxpress.com

Fighting Sprint, and winning

2010-02-25T09:08:00.006-05:00

I'm not big on complaining except when I'm not getting what I paid for. Then I think it's an obligation. So two days ago when I stopped getting data on my BlackBerry, I was pissed.

I'm perpetually pissed about my cell phone service anyway because I think service providers like mobile companies, cable companies and the like are the devil. Their business is based on getting "incremental revenue" from each customer -- code language for how much they can pad their margins by charging you more while giving you less. It's why the cable company snatches away two or three channels a year while raising your bill and why those phony "fees" are tacked on to your cell bill every month.

So I called Sprint to complain about my data. They told me to remove the battery and reset the phone but I asked them to review my bill anyway. I rarely get an actual bill from Sprint, but they always hit me with a late fee and have even turned off my service for a day. What I found was an overly-inflated bill with all kinds of extra charges. The worst was an $18 "activation fee" charged to me when I upgraded my phone last month.

Paying a charge to "activate" a line that's already been active since 2008, on a phone that I've already paid for? Absolutely not. After making it clear that I was very unhappy with that position, I got some action: the fee was removed. But it makes me think twice about upgrading my phone again in a year or so: will they try tacking on the same fee?

And on top of that, there are the myriad other fees they tack on for no good reason:
-- a "spending limit program charge" of $4.99
--a late fee of $4.46 (this was another month when no bill came)
--"Sprint surcharges" of $5.64
-- "Government fees and taxes" of $9.66.

If you're adding, that's an extra $24.75 tacked onto my bill. Talk about "incremental revenue". I wouldn't be surprised if cell phone companies were the next in line for a bailout.

But in any event, I did win a minor victory in getting the $18 activation-for-a-line-that-was-already-activated fee removed. And the lesson I learned is one that applies to everyone: complaining is worth is when you're not getting what you paid for.

image: Gregory Szarkiewicz/freedigitalphotos.net

Is saving most of my pay realistic?

2010-02-23T07:00:00.000-05:00

Q: I had a few people tell me they save money by taking out a certain amount of cash a week & then putting the rest in savings. Is it realistic? Can you really save that way?
A: I say all the time that what works for one person's money won't necessarily make sense for another, and this is a clear example. This may be entirely realistic for one person and completely irrational for another person to try. Without knowing the specifics of those people's financial situations, I can't say.

My best educated guess is that arrangement would be ideal for someone who had little to no debt and very low living expenses compared with their income. For example, a working student who lived at home with parents should be able to live on a small amount of cash and put away the rest. Working people who live in houses they own with no mortgage or consumer debt should be in a similar position.

So the real question, in my mind, is about how low your expenses are. If your expenses are far lower than your income, you should be able to live on a small amount of cash and save the rest. Hope this helps.

photo: Simon Howden/freedigitalphotos.net

New credit card rules in effect today

2010-02-22T07:00:00.002-05:00

Today's a day credit card holders should celebrate. It's also one we should fear.

Strong new rules to protect consumers from predatory banks kick in today. As of now, it's illegal for your credit card to:

raise your interest rate for no reason;
raise your interest rate because you're late paying a different company;
raise your interest rate on new purchases in the first year you have the card;
play games with your monthly payment due date;
cut your credit limit then slap you with a penalty for going over;
charge you an extra fee for paying by phone or online;
issue cards with fees more than 25 percent of your balance.

Maybe the biggest change is that credit card companies now must tell you how long it will take you to pay off your balance if you pay the minimum. So if you're paying 18 percent on a $5,000 balance with a minimum monthly payment of $150, your lender now has to tell you that it'd take nearly four years to reach a zero balance.

Those are all good things, but now for the worrisome part: All the changes are going to cost the credit card companies billions in revenues, so they're likely to cook up some new tricks. Credit card companies are expected to keep dropping customers like they have been over the past year, to raise rates overall and start charging annual fees.

Frugal Valentine's Tip #4: Make Love, Not Bills

2010-02-12T10:54:00.006-05:00

I probably should've started the Frugal Valentine's Tips posts with this, since it explains why I thought they were necessary. The posts I made this week weren't to show men or women how to get out of spending money on their partners. I happen to think it's still trickin' even if you do have it but who's to say blowing your own cash on your own boo is wrong?

The point I wanted to make, though, was that like most 'holidays' (I doubt V-Day belongs in the same category as say, Christmas, Ramadan and Hanukkah) Valentine's Day is way too commercialized. If you're like me, your email inbox and snail mailbox were living proof this week.

Among the offers I got:

Victoria's Secret wanted me to know their wares were up to 70 percent off. If I waited too long or was too lazy to shop, I could wait all the way until 3 p.m. on Feb. 14 to send my (non-existent) boo an e-gift card! There's even a contest to win a $500 gift card.

Jo Malone, which sells fragrances online, also wanted me to know about its sale, that if I ordered by Feb. 10 the gift could still get there on time and oh yeah, they have e-gift cards, too.

Corporate Perks, a web site that aggregates corporate discount deals from retailers dropped in to remind me that they could still save me money from 1-800-Flowers.com, online jewelers Blue Nile and Ice.com or Ghiardelli Chocolates.

I even got a note in the mail from JB Robinson Jewelers, a mall shop where I bought a necklace for boo-gone-bye last year. They had pretty, sparklies for as cheap as $19.99 and they even made up a 25% discount card in my name! How nice of them.

The point I've been trying to make all week is that none of these things in and of themselves are evil. Ain't nothin' wrong with buying the beloved a little (or big) something nice and doing so at a markdown off the retail price. The thing to remember is that you don't have to show love by running to the mall or buying something online, and often the best gift ideas are those like my boy Sean's, which cost little but carry huge meaning.

It's also worth noting that nearly every retailer that sent me an offer in the past few weeks made sure to tell me that I could finance my purchase through them (quite possibly loan-shark interest rates). That's never a good idea, especially when you consider the possibility that your boo might not outlast the bill for that gift you bought them (thank God I paid cash for that necklace last year).

So no matter what you do for or with your SO this Sunday, remember that the better thing to make is love, not bills. Which brings me to this one last Frugal Valentine's Day Tip I got from a friend who I'll keep anonymous to protect the guilty:

I've been collecting sexy costumes from Halloween, and I'm going to try them on for him for Valentine's Day.

That's a frugal gift I'm sure he'll love. Happy Valentine's Day.

image: gruar razvan ionut/freedigitalimages.net

Frugal Valentine's Day Tip #3: Give her rocks

2010-02-10T09:07:00.007-05:00

My boy Sean married his until-then girlfriend Paaras last year. I gotta say, the homie chose well. Paaras is smart. She's gorgeous. She cooks, even for me when I come to town (can't wait till next week). I've never seen her complain or disrespect him and even though we got drunk together on a few occasions when he needed to escape her wrath (sorry for outing you, kid) he knew and I knew that he was happier to go home to her than I was to go home alone.

Sean cherishes Paaras and she him, so whatever advice he has to give on a great Valentine's gift for the wife is worth blogging about. So what's his suggestion? Get her rocks.

No, not shiny, mined somewhere in South Africa and marked up a zillion percent at retail rocks. Polished rocks. Check it out:

I got Paaras some polished rocks. Wrote past special moments & provided extra rocks to add new memories.

And how'd she like it?

I still get excited to add more things to the rocks! Love it love it! Sean is the best!

So just how frugal were the rocks? Sean says he bought the rocks at Michael's, but any craft store will do. They cost about $15. The silver pen he wrote their fondest memories on was $4, so total for the basics: $19.

He did go the extra mile though: he paid $60 for a special dish from Tiffany's to display the rocks in; it came wrapped in blue paper. Adding that would bring the total cost to close to $80, still relatively frugal but far from $19. That said, I'm sure a completely appropriate dish or other accoutrement could be had for much less and I'm guessing Paaras cares way more for the rocks and the memories they represent than the Tiffany dish.

Image: Suat Eman/freedigitalimages.net

Frugal Valentine's Day Tip #2: Strawberry Letters

2010-02-09T09:12:00.007-05:00

One of the best gifts I ever got was a card. It was hidden under my pillow early in the morning, with the bed made over top of it so that I wouldn't find it until I got home from work and was ready to go back to sleep. I can't remember what it said word for word, but I remember the best parts: "I've never been more proud of you...I'll always love you."

Of course, the card outlasted the relationship, but it was enough to keep me smiling until I fell asleep that night and that I sat it on my desk the following day so I could read it if I was having a rough day.

Words go a long way -- even further when they're supported by action -- and they don't cost anything but the sentiment behind them.

When's the last time you wrote a letter? Not an email or extra long instant messaging conversation, but an actual, pen-to-paper letter? If it's been a while, go out today and spend a couple bucks on some decent paper, grab a pen that writes smoothly and some colorful envelopes. Spend 15 minutes a day for the next few days hand-writing your thoughts to the boo, the misses, the beloved or whatever you call your Valentine. Then seal the letters and hide them in fairly obvious places come Valentine's Day.

It'll be a worthwhile surprise that will outlast flowers, candy or an expensive dinner, and it'll help you keep more of your hard-earned cash in your pocket.

Image: Simon Howden/freedigitalphotos.net

Frugal Valentine's Day Tip #1: Time is free

2010-02-08T09:17:00.011-05:00

Valentine's Day is six days from now. Since I'm booless in 2010, I get to keep all my cash in my pocket. But for those of you with obligations, this week's posts are for lovers, particularly lovers on a budget.

I asked my Twitter followers (follow me at www.twitter.com/k_dot_re) over the weekend for their best frugal Valentine's Day suggestions, so I'm going to post at least one a day between now and Friday, with a roundup on Friday.

Here's the first one, from @adriennewrites:

The best vdays gift is time.Flowers at work are nice, but a walk together or free ice skating is better. all women want, really, is time. Not sex always, but time. Not sure what men want for Valentines Day.

So pay attention fellas. If the wallet is slim, just plan to spend a day, or a weekend together. Gather up some movies (you don't even have to pay to rent them. If your local library's like mine, you can get the latest, sappy chic flicks for nothing), and lay a blanket on the floor. Or take her suggestion and go ice skating, which should be easy since half the country is frozen this week anyway. If you can't ice skate, don't trip: if you've got a good one who appreciates you spending the time, she'll pick you up and dust you off. Or take you to the hospital if you break something.

(If you fall and she does neither, she's no good and you should be happy you didn't spend anything on the date to begin with.)

That said, @adriennewrites does have a caveat for her frugal suggestion:

I'll never turn down dinner at a fab restaurant where i get to wear a freakum dress.

Fair enough, so long as you realize that that statement answers your question about what men want for Valentine's Day: we want what comes after the fab dinner when you're wearing the freakum dress.

Poor health is costing you money

2010-02-04T10:19:00.004-05:00

Congress is about to start debating health care reform again and I'm wondering if they haven't forgotten a huge issue that costs us billions every year. No, it's not the way the medical complex insurance rackets overcharge and hustles all of us out of our cash. I'm talking about the persistent health disparities that plague minority communities even in the era of a black president. (That that president has made health care his signature focus of the moment is a beautifully sad irony).

Check out this video, where Dr. Willarda V. Edwards, the president of the National Medical Association, breaks down the costs of health care disparities. In it, she explains that between 2003 and 2006 health disparities along racial lines cost $1.2 TRILLION in the US. What are those disparities? Higher rates of diabetes, cardiovascular disease, HIV/AIDS, infant mortality and other ailments in black and Hispanic communities compared with whites. Its even more frustrating to think about because many of those ailments are preventable or treatable as long as people have access to doctors or preventative care.

Clearly health care is a huge national issue that could sink our economy if we don't get it under control. But the fact that many of the diseases that cost us so much every year are preventable should make all of us think about what it's costing us if we're not eating right, exercising and seeing our doctors regularly (provided, of course, you have health insurance) already. How many times did you run or walk this week, and if you didn't, how much might you have to pay later in bills to treat hypertension?

Keep that in mind as you work on your finances in 2010.

Bank overdraft fees lead to lawsuit

2010-02-02T14:38:00.004-05:00

Do you get hit with high overdraft fees from your bank? Sick of it?

In most instances, I'd say that should make you pay more attention to how much you're spending. But what if your bank was charging you with fees even if you had enough money to cover your expenses? That's what one woman who is suing her bank, Fifth Third Bank in Cincinnati, is claiming. (Fifth Third sued over overdraft policies).

Since the suit was just filed, it'll be a while before we know how the court comes down on this, but I suspect many people feel vindicated just because of the lawsuit itself? How many times have you felt screwed by a bank with no recourse? I know I certainly have.

A few years ago I got a fat check for some freelance work and deposited into my checking account at an ATM machine. This was normal and I'd never had a problem doing so. A few days later, I wrote checks to cover some bills, and I'll be damned, they all bounced. Why? Because the bank never credited my account with the amount I deposited. A bank representative told me on the phone that that was because they didn't recognize my signature on the back of the check (as if someone working there KNEW exactly what my signature looked like, and never mind the fact that the name and address on the check matched the name and address on my bank account).

It took a few days and I finally got the issue resolved, but for about a week, my bills were unpaid, I had no access to my own cash and I'd been hit with more than $100 in overdraft fees. All of this happened after I deposited a check into my own account for more than double the amount of bills Id written checks to pay.

Needless to say, I switched banks. So I'm curious: what are some of your bank fee horror stories? Unfair overdrafts? Onerous ATM fees? What does your bank do that you hate?

Posted using ShareThis

Track expenses daily to keep the budget in line

2010-01-29T13:02:00.003-05:00

Last Friday was the final Friday of January and you know what that means: payday. Like I always do on payday, I woke up and texted my bank for a balance just to make sure I wasn't fired two weeks ago and hadn't been told. The good news is I still have a job. The bad news was that I had a balance in my checking account that was short of what it should have been after payday.

Fortunately, I'm not in a position where that means I can't make the rent. But it does mean I spent over my budget between this pay and the last and in fact, I've probably been less disciplined about my spending for a few months.

So this month I'm going back to the drawing board with an exercise I haven't done in a few years: keeping a running tally of all my spending for 30 days. This is something I think everyone should do at least once every couple years, or when you make a significant change to your budget. It's easy to make a budget by estimating fixed expenses like the rent, light bill, cable and car insurance. But seeing everything you spend on paper, including small things like the junk food you bought at lunchtime, shows you how much money you're really spending and more importantly, where you're wasting some money.

This past weekend, I spent about $220 that wasn't in the budget, for example. While that money came out of disposable cash that isn't set aside for any particular purpose, spending like that on a regular basis without tracking it can wreck a budget.

So if you're not tracking your expenses, you should try it. Get small notebook and keep it with you every day for a month. Every time you spend money, on anything, write down the item, the date and the exact cost. Add it up at the end of the month and find out how much you're really spending.

Q&A: Leasing vs. Buying Cars

2010-01-28T10:03:00.005-05:00

Q: Car lease vs own, what's your advice?

A: Personally, I'd buy a used car, preferably with cash but definitely with a significant downpayment.

I understand why leases are attractive: the choice of switching to a different vehicle every few years or to hang on to the one you have seems like a good one. But that's the thing: switching cars every couple years means locking yourself into a perpetual car payment, unless you have enough cash to pay the entire lease up front. Of course in that case, it's easy to argue that you could also afford to buy a used car outright.

If you decide to keep the car at the end of the lease, you're voiding another one of the advantages of leasing, which is that you don't take the hit on the car's depreciation. If you give the car back, the dealership takes that hit and makes up for it by selling the car to someone else. But if you keep it, you own the depreciated asset and continue paying on it until you've bought the car fully.

Again, this is not to say that there aren't some circumstances where leases make sense; this is just my opinion on why buying a decent, used car with cash if you can afford it, makes more sense.

photo: Susie B./freedigitalphotos

How she got out of debt - 3 times

2010-01-27T10:11:00.004-05:00

Yesterday, I gave an encouraging update on a reader who is taking my $0 Balance Challenge has has paid off nearly 50 percent more of her credit card debt in three months than she planned to.

Today, I want to share the story of a personal friend who, having read about the challenge, wanted me to use her as an inspirational example. She asked that her name not be used, but a few things I can tell you is that she's a single, professional woman with a solidly middle-income lifestyle who worked hard to rack up credit card debt and harder to get out of it.

Here's the rest in her own words:

I have always had an up-and-down relationship with money, including 3 rounds on the credit card merry-go-round. When I graduated from college in the mid-1980s, I was blessed to have no student loan debt. But I succumbed to the lure of easy credit cards. The first round wasn't too bad, and it only took a year to pay them off.

Then came the 1990s. I got my dream job and, thanks to a series of promotions and bonuses, I was flush with money. Back came the credit cards and large debt. I enrolled in Consumer Counseling Credit Service, and this time, it took three years to pay them off. At that point, I swore off credit cards and actually lived within my means. My only debts were my car (a reasonable car with a reasonable payment) and my mortgage.

Then in 2005, I found out two things: one, I eligible for a nearly $12,000 credit limit with 2 credit card companies; and two, I became pregnant. You can almost guess what happened next. I used the credit cards to take care of things while I was on maternity leave. The next thing I know, I was $10,000 in debt. I left my job to take another that came with a $10,000 pay cut. So in March 2005, I called CCCS again and joined the program.

The program had changed since the last time, and I had access to some great tools to help me stay on a budget and learn how to better spend -- and save -- my money. I made my last payment in December. This year, I managed to buy nice -- but modest -- Christmas gifts without having to break out the plastic. Not that I could, because I don't have plastic anymore.

My plan now is to double my car payments and have that paid off by the end of the year. I have a nice little rainy day fund, and have no plans to get another credit card anytime soon, despite the best efforts of credit card companies to tempt me. I have just called to opt out receiving any future offers. Can I add how amazed I was that even while in debt and the tight financial markets, credit cards were still trying to woo me?

I won't say the process was easy. I decided to be aggressive and pay $500 a month to get rid of my debt faster. I worked with the non-profit CCCS to negotiate my credit card interest rates. I had to learn to live on -- and stick to -- a budget. I had to tighten my belt and cut out some of the things I really enjoyed. But I kept my eye on the prize and once that car payment is done, I'll be completely debt free. I have a retirement to fund and a child to get through college.

And please -- don't tell me you can't live without a credit card. I have been doing it since March 2005. I've bought plane tickets, rented cars, paid for hotel rooms and handled everything else using only my debit card.

I paid 99 cents to download the Big Spender app on my iPod Touch and I'm tracking EVERY penny I spend in 2010. You can follow my adventure at http://spender2010.livejournal.com/. Sometimes you need to actually see where the money is going, people!

I challenge all of you, Keith's loyal readers, to make becoming credit-card free and getting your financial house in order a priority in 2010. Cheers!

Pay more than the minimum on your credit cards

2010-01-26T07:40:00.004-05:00

Today, an update to the $0 Balance Challenge:

Last October, a reader wrote in that her goal was to eliminate $8,157.48 in total debt she had on two credit cards over in twelve months. Not an easy goal given the payment arrangement she worked out for both cards has her sending in only $200 a month; at that rate, she'd have paid $2,400 in 12 months with some percentage of that being eaten up in interest payments.

Three months in, though, there has been progress: I've managed to pay off a little more than $1200 and I'm quite excited. Still, I have a long way to go and staying focused on paying down the cards is quite challenging. For the past few months I've stuck with the minimum payments but when I get "extra" money, usually from baby-sitting or freelancing, I always some put money towards the cards. I've put the most money towards the card with the highest interest rate.

Plan for 2010: Increase my minimum payments from 80 per month to 120 per month on card #1. Commit to contributing a set percentage of "extra" money to paying down the debt on top of regular payments. I'm not sure how much of my "extra" income should go to paying down debt though, guess that's something to think about.
First, CONGRATULATIONS! By finding a way to pay more than the monthly minimum, you've eliminated in three months what it would have taken you six months to pay. That's wonderful and it shows how one of the most important principles of paying off debt works: pay more than the minimum.

Paying more than the minimum on your credit cards not only means you'll get the debt paid off faster, but it saves you money by eliminating interest payments from the end of the loan. Remember: any interest you pay is compounded and tacked on to every monthly statement. That means the longer you take to pay off your credit cards, the more you're going to pay in interest.

As far as how much extra you should pay each month, pay what you can afford. Freelance income isn't necessarily steady, so don't budget for the same amount every time. That said, pay as much of that money to the card as you can afford to, but make sure you save at least 15 percent of it in a separate account so you don't wind up like I did: a $0 Balance on my credit card but a big tax bill.

Invest on behalf of a child

2010-01-25T09:10:00.005-05:00

Last week, a young reader wanted advice on investing for themselves after college. That prompted a different question about investing on behalf of someone younger:

What would be your advice on someone investing for their child? Is there a good long term low risk investment choice?

It'd be the same for anyone considering investing: do your homework first. Plunging money into anything you don't understand is a fail waiting to happen. Just ask anyone who got greedy during the housing bubble.

Second, you need to determine what exactly you're investing for: so the kid will have savings later? College? First house downpayment? Remember that different investment choices make sense for different goals, for example 529s & certain IRAs have tax benefits for education savings.

On the other hand depending on the child's age and when you'll want him or her to use the cash, you might want to buy stocks, which can be riskier but provide better returns over the long-term, or bonds or money market funds which have the goal of protecting your principal (the amount you initially invest) and could make sense if you want access to money in the shorter term shorter term.

I have to warn you, though, that I think looking for a long-term/low risk investment might be misguided. You always need to invest to your own sensibilities and risk tolerance and keep in mind the length of time before you'll want to cash out of your investment.

Remember, though, that as a general rule the longer the investment horizon, more risk you can afford. You can stand to have significant equity positions (stocks) in a portfolio if you're not planning on using that money until 10 years from now, because of the likelihood that long-term gains in the market will more than make up for short-term losses. But if you're trying to stash away some cash for something you want to buy next year, putting that money in the market would be foolhardy.

Take baby steps before you start investing

2010-01-22T07:00:00.001-05:00

These are the questions I get most: young people who want to become investors but aren't sure where to start. And typically my answer is always the same: begin at the beginning.

Q: I am interested in investing but I do not know where to start. Is it better to do online investing? Or have a financial advisor? How do you find out when upcoming new projects are letting people invest in their company? Is it better to invest money into mutual bonds? insurance policies?

A: That's actually several questions but I'll try to give a thorough answer. As I said, I often get questions about how to start investing but many people aren't really ready yet. Pouring money into stocks, bonds, mutual funds or other types of market-based investments isn't a good strategy if you haven't done the financial basics.

What are the basics? Budgeting, assuring you're living within your means, having significant cash savings and investing in your company's 401(k) or other retirement plan if they have one.

My question to the reader who asked the question is have you done ALL of those things? Do you live by a strict budget under which you can see that you have money left over after all your living expenses to devote to investing? Are you living within your means every month or do you have revolving credit card or other consumer debt that you need to pay off? How many months could you live off what you have stashed in savings? Are you putting a significant amount into your 401(k) retirement account?

If not, begin at the beginning. Remember that becoming an investor isn't about how quickly you can get rich, it's about building assets over time. Of course the earlier in life you can begin that process, the better, but trying to pour a large amount of money into stocks, bonds or mutual funds before you have enough money saved up to last even a month in an emergency is a lot like trying to run a marathon before you can walk.

Take your time, crawl first and be sure your desire to become an investor doesn't make you trip all over yourself.

Have we forgotten MLK was a champion for economic justice?

2010-01-21T07:00:00.003-05:00

I should've posted this on MLK Day or last week on King's actual birthday. But I must've been thinking the same thing as NYT columnist Bob Herbert with regard to the King holiday this year. Herbert writes that despite all the celebration, from the school & workdays off, to the speechifying to the ridiculous MLK parties thrown by promoters in every city, we all seem to have lost sight of the part of King's vision that's perhaps most relevant of our time: the fight for economic justice.

I've written numerous times that a man who once impressed me (but later disappointed) told me in the early months after my college graduation that "the civil rights movement of the 21st Century is economic." That turned out to be prophetic: with the first decade of the millennium in the books, a devastating recession is eroding gains made in home ownership, income and employment equity that for the better part of two generations were the legacy of Dr. King's civil rights era. In short, we're moving backwards and despite a Black prez, there isn't much in the way of progressive economic policy being done to help, Herbert argues.

Amen. He's right and that hints at the reason for this blog's very existence: As with other hard-fought social gains, the only true way to maintain economic gains is through education, and financial education is woefully inadequate at any level in our system, from pre-K through college. So, not to be too high-minded, but when you read this blog and think about how you can transform your finances, remember that there are people who marched, fought and died for your right to do that, too.

image: free-stock-photo.com

Beware of debt consolidation schemes

2010-01-20T07:00:00.002-05:00

As the $0-Balance Challenge goes on, I'm getting more questions from people who are committing to paying off their credit card balances and want to know the best way to go forward. Like this:

I'm in the process of eliminating my credit card debt. I don't use the cards anymore and I recently set up payment plans. I hear about these services that consolidate all your debt so you only pay one "low" amount a month. Seeing as though I'm paying off two credit cards and student loans, is something like that worth looking into or should I keep doing what I'm doing?

I'll answer your question with a slogan I saw on a bus billboard the other day. It said, "Danger. Debt consolidation could cost you your home." It was a warning about scam artists who target people in trouble with their mortgages with 'consolidation loans', but I think the DANGER message applies to ads about credit card debt consolidation every day on the sports talk station I listen to and I shudder.

Why? Because what most people don't know about these operations is that many of them are owned by the very credit card companies they claim to be helping you get out of debt with. Think about it: how else would some random company or 'nonprofit' be able to negotiate a settlement on your behalf with a behemoth bank? And that's just in the best case scenario; in the worst case, debt 'consolidators' are pure, outright scams who will take your payments and never turn over anything to a credit card issuer or worse: steal your personal information and perhaps make your credit worse.

While there are a few legitimate debt consolidators out there, the truth is most people don't need them. Unless you're buried under so much debt it's impossible for you to get out (in which consolidation wouldn't help but Chapter 7 might), you don't need a third-party to consolidate your debt. If you've already set up a payment plan with your card issuer that's affordable, stick to it and remain disciplined about not using the card any further. That pays off in the long run without the worry of being scammed.

image: freedigitalphotos.net - Michelle Mieklejohn

Avoid these top tax mistakes

2010-01-19T07:00:00.001-05:00

Last week I wrote about the unexpected $5,600 tax bill that's my 2010 debt burden. I did that to myself but you can avoid my mistake, and the top five mistakes that cost taxpayers each year, according to Michael Ellis, a certified public accountant and the new resident tax expert here on the Money Corner. I asked Mike to give you some tips since tax time is here.

Underpaying your taxes

As an employee:

1.) Underpaying taxes or under withholding taxes. Whether you're self-employed or an employee, your taxes are due throughout the year to the IRS and your own state. The IRS requires that taxes be paid as taxable income is earned, which is why instead of receiving your actual “gross” salary, taxpayers you get your “net", which is the amount you are entitled after state and federal taxes are withheld every pay period.

However, the amount of taxes withheld is determined by you when you fill out the W-4 with your employer. Claim too many allowances and you may underpay your taxes and find that you owe a significant amount more -- including penalties and interest for underpaying your taxes. The easiest way to fix this pitfall is to pay close attention to your W-4 when you fill it out and reassess your allowances every year to account for changes in your tax situation.

As a self employed taxpayer:

2.) If you're self-employed, you are responsible for making your own tax payments. The simplest way to do this is to make quarterly estimated tax payments to the IRS and state. Estimate your tax liability for the year based on either previous year's earnings or current year known taxable income and write quarterly checks to US Treasury and your state's revenue department. This is done with a voucher issued by IRS (1040-ES) and most state tax agencies. You may also make your payments online.

Failure to make these deposits usually results in substantial underpayment of taxes and subsequent penalties and interest. You will find yourself in a constant uphill battle to bring your tax payments up to date as you will probably still be earning taxable income as you try to catch up. The key to avoiding this issue is withholding at least 25% of every self employed check your receive in a separate account to use for paying your taxes. In some situations you may need to withhold up to 40% of your self employed income depending on your deductions and amount of income.

Missed deductions:

As a self-employed taxpayer:

3.) When self-employed, you are responsible for keeping your own records and receipts for business deductions that directly and indirectly relate to your business activity. Keep three things in mind when trying to determine what's deductible: Is the expense “ordinary” and “necessary” for your business to operate and is the expense “reasonable” in amount?

Use this criteria to be sure your expenses are deductible and you will substantially reduce your tax liability.

An easy way to avoid this problem is to always have a separate bank account for business activity that you use exclusively for business transactions. This way you will have a 12-month record of all income and expenses. Lastly, be sure to keep receipts for your business transactions and stay organized! Once the receipts get out of control, the likelihood of missed deductions increases.

Credits

4.) Tax credits are available for a variety of common expenses and situations that go unnoticed every year. Depending on your tax preparation method (tax preparer, CPA, boxed software, etc.) you may need to do a little research yourself to see what’s available.

The best way to do this is to simply Google “2009 tax credits” and you will find an abundance of tax credit-related articles that may help you plan and keep records for eligible spending like education, energy efficient property expenses, child tax credits or retirement savings credits.

Finally, if you use a qualified tax preparer, you may be able to plan for refundable credits such as the earned income credit and first time homebuyer credit by analyzing taxable income and delaying or accelerating income to help force you into eligibility. This is a tool best offered by tax professionals that may save you thousands of dollars.

Refunds

5.) The way you receive your refund may also save you money. Over the past 5 years, Refund Anticipation Loans, or RALs, have become very popular among eager taxpayers. These loans (usually issued by affiliated banks) will immediately issue your refund to you instead of waiting for the refund to be issued from the IRS or state.

But BE CAREFUL! The cost of these loans can vary widely but expect to pay between 3 percent and 5 percent interest for the benefit of a very short term loan. If you file your taxes electronically, your return could get to you in as little as a week. Meanwhile, the cost of a refund anticipation loan could be equivalent to a 97% to 2000% APR depending on the size of the refund and the actual refund dispersing date. In short, it's not worth it.

Michael C. Ellis is a CPA with Ellis and Company LLC in Germantown, Maryland.

image: Michelle Meiklejohn/freedigitalphotos.net

21 days without spending money

2010-01-15T07:00:00.001-05:00

Think you've got financial discipline? Could you go 21 days without spending a dime on anything besides necessities (and I mean real necessities, I-really-need-these-shoes necessities)?

That's a challenge personal finance columnist Michelle Singletary is issuing to her readers in promotion of her new book. I've done this kind of challenge before myself, although more out of necessity than trying to see how strict I could be on myself. It reminds me of what my friend The Frugalista did a couple years back that gave birth to her blog.

It's an interesting experience and definitely the kind of thing that builds a certain level of character. Most of us don't realize how much money we're wasting unless we stop spending altogether and look at how much money we have left over. This is also the kind of thing that can help you with making a decent budget and with shedding your credit card debt. Once you realize how disciplined you can be with your disposable cash -- and indeed that you actually have disposable cash -- you can start putting it toward the balances you have on your cards.

So how many of you are willing to try Michelle Singletary's
21-day challenge? If you do it, let me know how it's going.

How moms can help their kids be better with money

2010-01-14T07:00:00.005-05:00

Q: I am a mother and my daughters think money grows on trees. As a father with two sons are you currently teaching them the value of dollar? and how are you teaching them?

A: I'm constantly teaching my sons lessons about the value of a dollar, mainly by forcing them to work at wages that would violate child labor standards in Taiwan.

Seriously though, my philosophy on money is that as with other habits, children emulated what they've been taught. If they're not taught, they emulate whatever they see. So if your daughters think money grows on trees, it may be time to re-evaluate what you're teaching them about the value of money.

Are you prone to shopping sprees? Do they get an allowance? If they run out of their own money, do you still buy them the things they want or do you make them save? Teaching kids delayed gratification is hugely important.

I use every opportunity to teach my boys about the value of money, hard work and the difference between income and wealth. As a parent you can use ANYTHING to instill those values. For example: My sons are both Monopoly and chess freaks because I decided early on to teach them Monopoly to learn cash flow management, negotiation and real estate investing and chess to teach them to think ahead and strategize. My 13 year old could play circles around most adults in those games, and his business acumen is pretty high. He gets it.

There's other lessons: money they get for birthdays or holidays must be put in the bank. 15 percent of the oldest's allowance also gets stashed. If there's things they want, they have to earn it through their schoolwork or extra chores, or save for it out of their allowance.

Christmas gifts this year included shares of stock in the companies where they spend the most money: GameStop, the video game store for my oldest, and Heelys, which makes roller-sneakers, for my 10-year-old. I did the same for all my kid cousins and they were so enthralled by the possibility of making money from the stock that they made me sit down and teach them the basics of the market. If you want to do the same, you can check out OneShare.

My boys also have brokerage accounts for their college savings and I have them look at what's in them and how they're performing when I log in.

Your children's money habits start with you. They'll emulate what you do with your money and they have no choice but to follow your rules regarding their own. Take the lead as a parent and they'll follow.

photo courtesy photoexpress.com

Charity starts on my birthday

2010-01-13T07:00:00.001-05:00

Today's my 33rd birthday, and with the start of a new cycle in life I'm starting new things. This year's new thing is using my birthday as a day to encourage philanthropy and giving as opposed to encouraging people to do anything for me.

Giving, unfortunately, is something that many of us don't do at any other time of year besides the holidays and even then, only to those closest to us. But there's a world full good causes that need your support. And remember, that support doesn't have to come in the form of a huge monetary gift. Enough $5 or $10 donations add up to something big for most charities and are always appreciated. If you don't even have that much to give, volunteer your time to a cause that means a lot to you. It's worth it.

While you think digest that, check out this piece I did a couple years back, when I moderated a panel discussion on philanthropy in the African-American community at New York's Schomburg Center for Research in Black Culture.

And finally an appeal and a challenge. I'd like you to consider three nonprofits that are important to me: Catalyst Ohio, the magazine I edit, is a nonprofit focused on urban public education and embarking on a new campaign in 2010. The National Association of Black Journalists has been instrumental in developing me as a professional and has done the same for thousands of others since the 1970s. Lastly, my alma mater, Coppin State University, is a worthy cause as well.

I encourage you to click one of the links above and make a $33 tax-deductible donation (get it...my age), and to share those links with your networks. And if not those, be sure to consider whatever nonprofit cause is important to you. Make a difference.

More money, more problems

2010-01-11T07:00:00.000-05:00

Last year this time I started on a personal crusade to get rid of almost $9,000 in credit card debt. It took me less than a year, but I got it done, and used this blog to tell the story and challenge you all to get rid of your own burden of consumer debt.

I wish I could tell you that after you get rid of one big problem, no more pop up but we all know that's not life. And since I believe that the best way to deal with problems -- financial or otherwise -- is confronting them directly, I'm going to share my latest challenge with you. I found out last month that I owe the IRS to the tune of more than five grand. Yep, that much.

How I got there is fairly simple and all my fault: I had significant freelance income for a few years that I didn't have taxes withheld from and it caught up with me. The good thing is I'm not ignoring the problem anymore and since the credit card debt is gone I should be able to knock it out pretty quickly. The bad news is this pushes back some other goals I had for the cash I freed up by no longer having to make a credit card payment.

Since this is a new year, I'm going to use my screw up as a learning opportunity for you by doing a new series of posts on tax strategies, with the help of Michael Ellis, a certified public accountant who runs a tax preparation business in the DMV. I hope that that, along with my $0 Balance Challenge to get rid of your credit card debt, will help you all leave 2010 in far better financial shape than you came in.

image: Michelle Meiklejohn/freedigitalphotos.net

Advice for soon-to-be college grads

2010-01-08T07:30:00.000-05:00

If you're a college senior and you watched the video, you're probably not encouraged. When I graduated a decade ago, jobs were plentiful and although the dot-com boom was about to go bust, unemployment never reached anywhere near 10 percent during the 2001 recession.

Students, are you concerned about leaving campus for the last time with the economy and job prospects still in the toilet? At least one reader has two questions that showed she's worried about exactly that:

What's the best way to invest money if you're a student w/ no real job but have leftover money once expenses are taken care of? If you were a student and you got an absurd refund, would you save it all or pay down an undergrad loan?

Both are good questions. After doing a little interviewing I found out that the questioner has about $600 in savings and as of now, no solid job lined up after graduation. If she doesn't find one, she plans on living with her parents while looking for work.

With that little in savings and facing graduation in a tough economy, I'd be adding any extra cash to my savings. I'm not sure how much it costs you to live a month under your parents' roof, but $600 isn't likely to last beyond a month or two. You'll need more cash than you have to weather the storm until you find a job. You can worry about stocks, bonds and mutual funds when you have a job and a serious income.

As for the refund, use the money to pay down the student loan. Remember that the refund is only a check for the difference between what you borrowed for school and the cost of a semester's tuition. It's not free money and ultimately you'll have to pay it back with interest. Better to do that now while your loans are in deferment than in a few months when you'll be paying interest on it -- perhaps without a job.

Should couples have joint accounts?

2010-01-07T08:00:00.003-05:00

Q: Do you think it is smart for couples (married or not) to have a joint bank account? What are the pros and cons of one? (submitted via Formspring)

A: If they're married, yes. There many good reasons for married couples to merge at least some, if not most, of their money. Marriage is a life partnership and besides raising children together, managing finances is about the most obvious example how effective that partnership is.

At the very least, there should be a joint checking account from which regular monthly bills are paid (and both people should contribute to this account). Couples should probably also have joint savings accounts for specific goals, emergencies or major purchases. It's easier to save for a home, vacation, new car or any other toys when two people stack their money together. This is why I think marriages are the best possible example of cooperative economics (that's Ujamaa if you celebrate Kwanzaa.)

That said, there are good reasons every person should have personal accounts, too. Everyone needs his or her own cash for personal use in emergencies or just discretionary purchases. NO adult should have to clear each and every expenditure by another person (#cmonson, what I look like asking the gf/wife if I can spend $100 ~~on stuff I don’t need from Best Buy~~ to take the boys to have a nice day out?).

We've all heard horror stories about jilted spouses finding out that their exes cleaned out the joint account and left them with nothing. That's not where you want to end up, either.

I don't think it's a good idea to merge finances before there's a serious commitment to the relationship. At the very least, a couple should be engaged before they make financial commitments like looking for a house together or opening joint accounts. Before I give you access to all my money, I kindasorta wanna know that you actually, um, plan to be with me.

Is it 'trickin' if you got it...and want to give it?

2010-01-06T08:00:00.002-05:00

Another interesting question from Formspring:
How do you feel about relationships where one person financially takes care of the other (usually happens when there is an age gap)? Some would deem this as a Sugar Daddy/Mama type of relationship. What are your thoughts on it?
That depends. You know a rich miss looking to sponsor my 33rd birthday party this month? If so, she can call me.

Seriously, I'd be careful about labeling anyone's relationships since everyone does what works for their situations. Is a woman a "Sugar Mama" if she helps her man work his way through college or starting a business? Is a man 'trickin' if his wife or girlfriend is able to stay home to focus on her goals or help with family or household matters?

The point I'm making is that in order to make our financial and romantic relationships harmonious, people need to stop relying on tired, rehashed and stereotypical portrayals of how we behave toward each other when money is involved. Clearly no one wants to be used. No man wants to end up with a "gold-digger" attached to his wallet and no woman wants some lazy, deadbeat man attached to her purse.

But I think those situations lie so far outside the mean that most of us will never have to worry about being someone's Sugar Mama or Daddy (unless we want to be). Meanwhile, most of us have real, common issues in our financial lives that we really need to straighten out before we can be decent romantic-financial partners with anyone else. We'd all do better to focus on those.

Dating: when she makes more

2010-01-05T08:00:00.000-05:00

This question came in from Formspring the other day, anonymously. I think it was intended as a personal question, but it has implications for an issue that I think a lot of people deal with in their romantic-financial relationships:

Would you date a woman that makes more money than you? Do you think situations like that (where a woman makes more) makes a relationship more difficult than when a man makes more than the woman?

I would and have dated women with higher incomes than mine. Moreover, I don't think that income alone makes any relationship more or less difficult to navigate.

What does make a huge difference is people's attitudes and habits about money. If either person lacks financial discipline, there's certain to be resentment on the part of the other party about how much money is being spent. That's especially true if the less-disciplined person is the one who earns the least -- imagine the #cmonson look on your face when you brought home your $100k a year paycheck and found your $45k partner went on their third shopping spree this month.

A bigger problem is when one person views money as a proxy for power in the relationship. Neither men nor women should hold their higher incomes above their partners' heads. Both sides have to check their egos at the door where money is concerned. If you feel you have the right to belittle or disrespect your partner because you make more money than they do, you probably don't deserve their love regardless of whether you're a man or a woman.

By the same token, you're probably not mature enough to accept love and handle a serious relationship if you're not humble enough to accept that your partner makes more than you. But those aren't money problems, they're ego and personality problems.

Coming in 2010

2010-01-02T20:58:00.006-05:00

Hey, everybody! Sorry it's been a minute since I posted. The good news is I've been spending a lot of time planning what this blog will look like in 2010. Here are a few things you should look for:

More social, more Q&A
After experimenting with posting questions on Facebook and Twitter, I've decided the best approach to interaction is to let you ask the bulk of the questions. After all, you know what your biggest financial concerns are. I'll still be available for you to follow and ask me questions on Twitter but I'm also going to be using a new social tool called Formspring. Bookmark my page and leave your personal finance or economics questions for me to answer anytime. The best will wind up as blog posts here.

For the love of money
I don't know if it's because I'm in my early 30s and everyone I know is confused about cash and coupling, or if it's simply a sign of the times, but at least half of the questions people ask me concern how to handle money in relationships. Since there's so much interest in the topic, I've decided to make it an area of focus on the blog in 2010, putting it right up there with my $0 Balance Challenge. So if you're trying to figure out how to get your money and your honey together, this is the place to be in 2010.

Getting and staying debt-free
Speaking of that Zero-Balance Challenge, I plan on expanding and developing it in 2010. You'll see me partner with other bloggers and institutions to give you the best advice, support and information on how to reduce your credit-card debt to zero and keep it there. We'll also be selecting a few readers to tell their personal stories of how they got out of debt or stayed there. Check in often and keep that plastic in your pocket.

image courtesy of freedigitalphotos.net

Federal Reserve tries talking to consumers

2009-12-18T13:12:00.004-05:00

Sadly, most people don't know anything about what the Federal Reserve does, even though it plays a central role in our economy and has been controversial for its role in the recession and federal banking bailouts.

I won't bore you with all that stuff here but one valid criticism of the Fed is that for all it's regulatory power over the financial sector, consumers don't understand what it does and that perhaps it should do more to educate them.

Seems like at least one Fed branch is trying to change that. This morning I got an email from the Cleveland Fed about a new online publication called "Forefront". Written by three Fed staff economists, the headline on the first issue is "Making Financial Markets Safer for Consumers". The content is still policy-heavy but for the Fed, churning out articles that discuss how it might better regulate financial services specifically to the benefit of consumers is step in the right direction.

My personal favorite: this paragraph that uses exploding toasters as an analogy for the kinds of mortgages some consumers were duped into signing up for in the housing meltdown:

The exploding toaster holds a special place in consumer protection lore. It is obviously an unsafe product: If they knew about the danger, consumers would not buy the toaster and regulators would pull it off store shelves...Some believe that although consumers wouldn't knowingly buy an exploding toaster, in the past few years millions of them took out an "exploding mortgage."
Granted, this is a simplified analogy. But it underlines the observation that ordinary consumer goods seem a lot safer than some financial products. How do consumer goods markets—and their regulators—differ from consumer finance markets?

I emailed the Cleveland Fed public affairs staffer who sent the initial email to me (and other media, I assume) to ask if Forefront was aimed at consumers, media or economists but as of yet haven't gotten an answer. But you can click the link above to have a look for yourself.

A $199 Nintendo Wii for only $347!

2009-12-16T11:12:00.004-05:00

The holiday shopping season is in full swing, so it's appropriate to offer yet another lesson in why shopping with credit is an awful idea and in why you have to be careful when considering what seem like "easy" payment plans.

Today I was in my gmail account and up pops an ad for a web site called AffordIt.com. "Buy a Wii for only $16/wk", it said. I gave it the instant #sideeye and out of cynicism clicked over to see what the rest of the terms were. Here's what I got: AffordIt will give you "low weekly payments" and "Instant Approval" to buy your Wii (and ostensibly whatever else they offer.

The devil, of course, is in the details. In this case, you start by making a $59 downpayment after which you make $16 payments each week for $18 weeks. I'll spare you the time doing the math: it all adds up to $347, nearly double the cost of the same Wii in stores. You'd actually come out better buying the thing all at once, even if you used a credit card, so long as you paid it off before you got hit with too many interest payments.

Oh, and speaking of that: since you'd be buying online from AffordIt, you'd still be putting that $347 Wii on a credit card anyway (unless you used a debit or check card), which means your actual cost could still skyrocket with the added interest you'd be paying your bank.

Folks, if ever there was a lesson in the value of delayed gratification, spending within your means and not trying to take shortcuts, this is it. If you can't buy it outright, you cannot AffordIt.

Obama lays more stimulus plans

2009-12-08T11:53:00.004-05:00

Is the economy moving in the right direction, and if so, does it need more government help to keep it going that way?

President Obama said this morning that the economy swung further from recession toward growth than at any time in the past three decades, but that a recovery is still so feeble that more stimulus help was needed. His plan includes:

eliminating the capital gains tax on and giving other tax breaks to small businesses;
more spending to upgrade transportation and communication infrastructure;
incentives for individuals to upgrade their homes to make them more energy efficient.

In this or any other recession, I've long said that there can be no recovery without jobs, so I'm a fan of the small business tax breaks and the infrastructure plans if they boost hiring. It'd be a failure if businesses take the tax breaks and run without hiring anyone, so hopefully there will be some safeguards in place.

I also like the infrastructure spending, but I desperately hope that includes significant funding for high-speed rail and other projects that move our transportation grid into the 21st century and away from fossil fuel dependence.

Your thoughts on the plan?

World AIDS Day: Please Get Tested

2009-12-01T09:30:00.005-05:00

I'm taking a one-day break from personal finance to talk about something way more important: life. If you didn't know, Dec. 1 is World AIDS DAY, a 24-hour period of worldwide events and focus on the HIV/AIDS crisis. That's why this post is in red font, and all my tweets today are tagged #red. I won't get preachy, but I will leave you with a few facts and an admonishment:

There are 33.4 million people on Earth living with HIV;
15.7 million are women; 2.1 million are children under age 15
2.7 million new HIV cases were diagnosed in 2008
2 million people died of HIV/AIDS-related illnesses
About 1 million people in the US have HIV; nearly half are African-American
If you're a black male, your chances of contracting HIV are roughly 1 in 16
If you're a black female, your chances of contracting HIV are roughly 1 in 30
The odds are 1 in 104 and 1 in 588, respectively, for US white men and women
The bottom line: HIV/AIDS is a health crisis not to be ignored. It's almost entirely preventable through use of condoms, abstinence and staying away from inter-venous drug use.

Beyond that, the best thing you can do is know your status. I was last tested in September. When were you?

Black Friday: The day debt takes over

2009-11-30T10:22:00.004-05:00

"Black Friday" is over, but that's only the beginning of the holiday shopping season. And that means it's only the beginning of a lot of trouble with debt for some consumers.

Black Friday is a great name for the start of holiday shopping not because it's the day that most retailers turn a profit for the year (which is actually no longer true), but because ominously, so many people doing their holiday shopping start plunging into credit card debt when the doorbuster sale ads start appearing.

Consider: The National Retail Federation said that holiday shoppers spent a total of $41.2 billion last weekend, with the average per-person being $343.31. That's less than the $372.57 per person consumers spent last Black Friday weekend but still, more people plan to use their credit cards for holiday shopping --28.3 percent -- than cash --about 25 percent.

Last year the numbers were worse, with more than 30 percent using credit cards for their holiday shopping. But think about it: even in this economy, even with credit card issuers jacking up rates sky high, nearly a third of consumers are buying holiday gifts on credit.

Since most people don't carry around as much cash as is available on their credit cards (and many don't even have that much in the bank). That makes it easy to overspend especially when every store you walk past has a sale going on.

So if you're shopping this year, try to live by two simple rules: 1) Make and stick to a budget and 2) spend it all in cash. If you can't pay for it up front, you don't need it, no matter how cheap it is.

Is your 'ideal mate" checklist keeping you broke?

2009-11-24T10:17:00.004-05:00

I'm stealing today from another blogger. Adrienne Samuels is Ebony magazine's senior writer and someone I count among my best friends and favorite people on earth. Yesterday she blogged her take on the flaws with many young people's approach to coupling.

Why's that relevant to a blog about personal finance? Because like I've stated before, even in my own singleness I understand the connection between marriage and accumulation of long-term wealth. But Adrienne takes it a step further, drawing a connection between how you date and how you think about choosing a partner and your long-term wealth potential:

Look around at folks in their 50s, 60s and 70s. The reason why many of them...drive Cadillacs, have big houses, tithe thousands of dollars to church and can take fab trips to Athens or to Jamaica now that their kids are out of college is because they pulled their money together and made their finances WORK when they were a young couple.

Everybody wants the perfectly perfect mate with the perfect social status, income, car, home, brains and physical looks. Everyone wants to marry up. But guess what? Marrying up is a fairy tale ideal that doesn’t really translate well to today’s society. You want up? Get up there yourself.

One caveat to a point she made: Baby Boomers didn't all get the trappings of success because they married and worked real hard. Our parents' generation also left a legacy of messy, costly divorces and financed much of their lifestyles with credit, a legacy that we're all paying dearly for now.

Still, Adrienne's point holds. Too many people want for insta-fab relationships that come with all the luxuries of a romantic comedy where everybody lives fab and has no wrinkles (think The Best Man, "The Brothers"). She offers a much simpler, more workable approach:

Rather than looking for a rich mate, why not look for a mate to get rich with?

Read Adrienne's blog here.

College students' credit card debt soars

2009-11-23T10:06:00.008-05:00

A comment to a previous post about college students and credit card debt inspired today's post. "Student" writes:

Credit card companies typically employ a very sly tactic in getting college students to register new credit cards. They usually give a very low interest rate for the first year. After the first year, the interest rate will begin to increase. Fortunately, since college students are still very young, their credit cards' limits are a lot lower than their adult counterparts who are in the corporate world.

You're absolutely right, and I'd add that credit card companies use many shady tactics to get students to sign up. In a previous post I wrote about how one of my college hustles was working a table giving away 'free' t-shirts to get students to sign up for credit cards. I got paid in cash and my classmates got shirts they never wore and a mountain of debt.

One thing I will challenge is your statement that students' credit limits are necessarily lower than working folks. It is true that students have lower incomes and should have been given very low credit limits but lending standards were so lax for so long that many students left school with just as much credit card debt as working professionals. College seniors with at least one card last year graduated with an average of more than $4,000 in credit card debt.

Nightly Business Report & a Question About Credit Cards

2009-11-19T08:32:00.007-05:00

My appearance on Nightly Business Report went well: I took credit card companies to task for their arbitrary rate hikes and challenged the notion that they're good for the bottom line over the long-term, especially if consumer confidence is damaged.

I couldn't embed the video, but click here and scroll to the 22:30 mark to watch my commentary.

In the meantime, my twitfam had questions sparked by the commentary. @futurechefbelle asked, "What do you recommend a student to do as far as credit cards are concerned? Should we wait for the economy to bounce back?"

Answer: Most people should have a card for STRICTLY emergencies or when you absolutely need one. Even some discretionary activities like renting a car or a hotel room or even getting an airline ticket are hard to do without a card.

Keep in mind that credit cards in and of themselves aren't evil, (although @grahamesq tweeted me this gem: "My dad has been preaching to me since I was about 8 that credit cards are 'economic suicide' "). What is evil is the abusive relationship most of us have with our cards, buying things we know we can't afford under terms we know are to our disadvantage using money we borrow from modern day corporate shylocks.

You can, and probably should have a card, but like insurance, it's something you want to have but rarely, if ever need to use.

Jacked up rates: Reason #1 to pay off that credit card

2009-11-18T09:16:00.006-05:00

When I decided to challenge you to get rid of all your credit card debt, I had no idea that the banks would hand all of us a built-in motivator. But they have: jacking your interest rates up sky high for no reason.

Months ago, a few stories warned that these kinds of rate hikes were coming but at that time I didn't know anyone it'd happened to. But now? Just this morning, I asked the question on Twitter and within three minutes, three of my followers said that their card issuers had jacked up their rates without warning and with little explanation.

That's not counting the real-life people I know: one whose rate was kicked up 14 percentage points though he's paid on time for four years; another with a FICO score above 800 who got a note saying her rate was climbing to a whopping 37 percent. Yes, 37.

I point all this out to answer the question I got from friend who wanted to know if he should pay off his $1,300 Citibank Visa balance. Though he recently lost his job, he and his wife have significant savings. Should he pay the balance off completely or pay half of it?

In most cases, I'd argue pay just the half: the balance isn't that high and being unemployed, you want to preserve cash. But with banks killing cardholders with rate hikes, keeping any credit card balance that you can otherwise pay off is too risky, especially if you have enough cash on hand to pay it off and still have significant savings left over. Since your wife is still working, cut back on other kinds of discretionary spending and make the single income work for as long as you can while looking for a job, but pay that balance off!

And that goes for the rest of you: this is NO time to be keeping a credit card balance. The banks have shown that their bottom line is the bottom line. They've taken all the bailout money we gave them from our taxes and paid us back by taxing us more via higher interest rates. They ain't playin', nor should you be.

Today on Nightly Business Report

2009-11-17T09:03:00.005-05:00

Today I'm taping a commentary for Nightly Business Report, which airs nationally on PBS (click here to find out your local airtime).

I'll let you know when it's scheduled to run, but until then, you can read what I have to say below:

I've got a deal for you: I'll buy you whatever you want, no questions asked. Just pay me back over time, plus a little extra for my trouble.

Make that a lot extra. American consumers are saving a decent percentage of our incomes for the first time in decades but those savings could be overtaken by payments on our consumer debt given the arbitrary interest rate hikes being imposed by our friends, the credit card industry. I say "friends" because taxpayers have given credit card issuers billions in bailout money and I tend not to give money to people I don't like. You'd think they would be decent enough to let us off the hook for some of what we owe them.

Instead, they're slapping around people like the guy who emailed my blog complaining that he hadn't missed a payment in four years but still wound up with a 14 percentage point rate hike on his Visa card.

Not that consumers are innocent; I just finished paying off a $9,000 credit card bill from stuff I bought too long ago to remember. Still card issuers need to consider whether slamming already strapped consumers is really good for business. The economy wont fully recover until consumers are confident enough to spend, which fuels the credit card business. I don't know about you, but having a card in my pocket and an anvil over my head doesn't make me feel all that confident.

I'm Keith Reed.

Uptown magazine publisher talks about getting what you want

2009-11-13T08:27:00.007-05:00

I believe in learning from everything, particularly my own mistakes. But when it comes to accomplishing my vision for my own professional and financial life,nothing quite puts my experiences in context like hearing from people you admire or who have done things that you haven't.

So as you head into this weekend, check out this video where my mentor, Sakina Spruell (on twitter) and Uptown Magazine publisher Jocelyn Taylor about being smart and getting what you want. (Note: embed link for this video wasn't working, so to watch, visit www.northstarnews.com. I'll fix later.)

Have a great one and see you next week.

It's Payday!

2009-11-12T12:15:00.004-05:00

Not literally, but that's the name of a radio show I taped last week. The host, Zachary Rinkins (on twitter here) is a phenomenal young business journalist who's hustled enough to get his own show on air. We talked for about an hour about how the recession has affected young professionals and young people should be doing to find the best opportunities in a continued downturn. Check it out.

Should I use a student loan refund to pay off my credit card?

2009-10-29T05:08:00.003-04:00

Today a credit card debt question from @miss_mielle on twitter:

There are a lot of personnel changes at my job, so I'm getting back in school ASAP. I've been putting it off to pay off some cc debt but it's gonna take a while and I don't want to wait anymore. A friend of mine suggested taking the max on an edu. loan and paying off my debt with the refund checks. It sounds viable, esp. since my debt isn't extravagant(<$7500). What do you think?
I'm on payment plans on both cards, but they will still take a while, and I'm unable to get some things I REALLY need meanwhile

.
First, thanks for the question. I'm glad you're committed to paying off you debt and for being proactive about the situation at your job by seeking more education. (MESSAGE: Learn to feel which way the wind is blowing at your job and never wait for a layoff to be looking for new opportunities!)
Still, I have to challenge some things you said. First, I can't tell what your debt-to-income ratio is because I don't know how much you make but I'm not sure I'd say $7500 on credit cards "isn't extravagant". I had about that much last year and I was stressed as all hell trying to pay it off. True, it might not be as much as may others have, but you're not paying their bills, you're paying yours, right? Can you even remember everything you bought with that $7,500? I say all this not to berate you but to get you to rethink you habits after you've paid this debt off.
As far as the debt payment strategy your friend suggested, I think you need to consider a multitude of factors. On the surface it looks like that would be the simplest thing to do: by paying the credit card debt with your student loan, you're basically consolidating all that debt into one payment. But will that payment be less than you'd pay with a separate student loan and credit card payment? What's the interest rate on the loan compared with the rate you're paying on your card (it's almost certain to be lower than the card rate, but still, check).

Also, are you getting a federal student loan or one from a private lender. Private lender loans tend to come with higher rates and tougher repayment terms than ones given or backed by the US Department of Education.

Lastly, whether you take the larger loan or not, how are you going to make the payments if you're not working (or working less) to accommodate school?

Think about all those things before making a decision.

A freeze on credit card rate hikes?

2009-10-28T09:26:00.006-04:00

How would you like it if your credit card rates were frozen so that your card issuer couldn't raise them for a few months? Most of you would love it, I'm sure, especially if you're taking the Zero Balance Challenge or if you're like the guy who wrote me last week about his credit card jacking up his rates:

I'm usually good about knowing how much interest I've accrued on a credit card in a given month. So when the balance of a card I've been furiously paying down was about $6 more than I expected, I wondered what was going on. It was too much for it to be simply that an introductory rate had disappeared.
Come to find out my APR had been increased. That one went from 15.40 to 21.74. According to HSBC, which holds the card: "Your interest rate structure is changing because everyone that has your current interest rate structure is being increased to the pricing terms listed below."
I can exercise my right to reject the changes before 12/09/09, but, as of my last statement, they're there.
I have another card that I've now been told had an introductory rate of 9.9, then went up to 16.99 after that intro rate was done. I don't keep a high balance, so I didn't really notice.
Then I put a big purchase on it. I figured what the hell, right?
Yeah, til I got like 35 bucks in interest added to my account. The new APR for that account is 23.74% The lady in India who answered my call -- this is a Chase account -- said I'd been sent a notice in the mail in late June-early July. I never got it as I was in the middle of moving.

Damn. there's a lot that bothers me about this story on both sides: someone who's carrying a balance on his credit cards absolutely needs to pay attention to the notices they get in the mail from the card issuer to avoid missing fine print about rate increases and other new fees and tricks the companies play. I'm also a little astonished that the writer would add a new, major purchase to a card that already had a balance on it with such a cavalier, "what the hell" attitude. That's simply ASKING for it from your credit card company. Whatever you bought, did you really need it that bad that you were willing to make installment payments on it at a high interest rate? So many people talk about going on debt diets when what we really need is debt rehab. Get off the card!
On the other hand, if what the writer is saying is true (and for the record, I haven't called HSBC or Chase for their take), the card issuers don't deserve any slack here, either. Since credit card reform was passed earlier this year, credit card issuers have been using any excuse (and sometimes none at all) to jack up customers' rates, add new fees and in some cases cancel cards altogether before the new law takes effect.
Which brings me back to the proposal in Washington of a moratorium on new rate hikes until credit card reform takes effect next year. The proposal, from Sen. Chris Dodd, isn't supposed to have much chance of passing.

How many of you think it's a good enough idea that you'd be willing to call your own Senator to make your voice heard?

image: freedigitalphotos.net

Kids get cribs in homebuyer tax credit scheme

2009-10-27T08:00:00.000-04:00

I would love to have taken advantage of the $8,000 homebuyer tax credit the government was giving out this year. All you needed to do was make below a certain income and have not owned a home in the last three years and the credit was yours if you bought a new crib (which you were already likely to be getting at a steep discount and with a mortgage with a low rate). I fell back because I wasn't ready to buy yet but apparently, there were some pretty affluent children who were. That's right: more than 580 people under age 18 received tax credits worth more than $4 million under the program, which was meant to help legitimate first-time homebuyers and to prevent more foreclosures. Of course those homes weren't bought by the kids themselves but by their parents who wanted to get around the government's income guidelines by committing fraud. Of course that was revealed last week, as Congress is in a debate over whether to extend the credit beyond this year. Check out some of these stories on it: ABC News Wall Street Journal Bloomberg

photo: freedigitalphotos.net

Do your estate planning while you're young

2009-10-26T08:00:00.002-04:00

You're young and getting your finances in order. With so much promise and life ahead of you, why worry about dying?

It's not something most of us want to think about in the least, but in the video below, my friend and mentor Sakina Spruell visits her financial planner to show you why now is the time to think about estate planning. Yes, right now.

A $7 million, Big, Hairy, Audacious Financial Goal

2009-10-20T07:43:00.005-04:00

Have you set your big goal yet?

A few weeks ago, I wrote about the need to continuously set new goals so that when you accomplish one (like paying off your credit card debt), you immediately move forward and avoid getting stuck.

My big goal, after paying off my credit card, was to stash away $25k in cash over the next 12 months. But after talking with a friend last week, I have to up the ante. For this, I'm stealing a phrase from one of my old bosses, who believed in Big, Hairy, Audacious Goals (BHOGs).

My friend, an attorney in DC, says her financial goal isn't merely to stash away a certain amount of cash, it's to be "independently wealthy". Her definition: having enough liquid assets (liquid = cash, as opposed to investments or property) that she didn't need to work, or could do so at her leisure. How much would that be for someone already making six figures, owning a home and living comfortably? About $7 million would be nice, she said.

Hmm. Out of reach for most working folks? Yep. But that's not the point. My friend dared to set a goal that was a stretch, but still within her own reach. It wasn't a small goal and it's notable that though there was a dollar amount attached, her primary motivation was being enabled to live the life that she wanted. The $7 million figure was the answer to the question "How much do I need to be able to do what I want to do without worrying?"

This has me rethinking my $25k saved goal. It's a good number, and having a decent amount of cash put away IS a good thing. But the number is arbitrary and didn't really come about because of any thinking about it's impact on my own lifestyle or what it'd enable me to do. So if you've set a big goal, maybe you need a BHOG instead.

Expand your earning potential with board service

2009-10-19T09:12:00.006-04:00

I spent the end of last week in Baltimore at a board meeting for the National Association of Black Journalists (which is why I didn't post here much). As a matter of career advancement, there are few ways outside your 9-5 gig to build your professional repertoire than serving on the board of a professional organization, so if you're looking to climb the ladder or build your skills, consider taking this route.

I joined NABJ's board in August as Region IV (Midwest) director. That puts me in charge of an 11-state area that includes some of the country's largest cities: Chicago, Indianapolis, Detroit, Cleveland, Cincinnati and Minneapolis. My job is to make sure our professional and student chapters have the support they need and to raise money for the organization, which means my professional network has expanded tremendously in the last few months. And since I had to win an election to get on the board and through campaigning, I shook countless hands and exchanged cards with people I may never have talked to otherwise.

Since joining the board, one of the most important benefits has been access: Last week alone I met privately with four of the top editors at the Washington Post and three top editors at the Baltimore Sun; I've also had an audience with the Chairman of the New York Times Co. and conversations with the dean of the Medill School of Journalism. That's all within the first three months of a two-year term. The benefits go the other way, as well: by being on the board, I'm also able to serve others. I was able to invite students, recent graduates and the vice president of institutional advancement of my alma mater, Coppin State University, to have lunch with and network with our board. My meetings at the Sun and Post were "advocacy meetings" where I got to address the issue of workplace diversity with top executives who can make hiring and promotion decisions.

Lastly, there's almost no way to serve on a board like this and not expand your skills. I'm learning about event planning, fund raising and Roberts Rules of Order, which is the standard operating procedure for boards of directors and government bodies (including the US Congress). In short, the universe of jobs I'm qualified to do and my connections to potential opportunities are way up. You should consider getting on the board of a professional organization or nonprofit if you want t make the same happen for yourself.

photo: Keith Reed & the NABJ Board in Washington, DC (credit: Benet Wilson)

$0 Balance Challenge: Paying off $8,157 in credit card debt in 12 months

2009-10-12T09:33:00.005-04:00

Hope everyone had a GREAT weekend. I'm starting off this week with a little update on the $0 Balance Challenge. I got an email a little while ago from a woman who's looking to get rid of $8,157.47 in credit card debt over the next 12 months:

In June 2008 my graduation present to myself was Suze Orman's Young, Fabulous & Broke. I was constantly being harassed by creditors. Suze said I should pick up the phone and talk to them, so I did. I set up a payment plan $80 per month on one card, $120 per month on the other. I haven't missed or been late on a payment.
The great part of the arrangement was that they cut my interest rates and there are no late fees. The bad thing is that the cards are closed. At the time I didn't realize that they would be closed or what that would mean for my credit score. I am now working to pay the cards off and since my score is too low to get a credit card, I am thinking of getting a secured card to help rebuild my credit.

Card #1 $3,175.49
Card # 2 $4,981.98

I will definitely have the 1st card paid off w/in the next year. If I have most of the 2nd one paid off by then I will be extremely happy. The goal I'd already set for myself was to have 0 credit card debt by my 25th birthday. Also, I ran up my cards on books, flights back home for the holidays, a car that kept breaking down, etc. Eventually, I stopped using the cards, but since I couldn't pay, the interest rates and late fees kicked my butt.

This is a great example with a lot of lessons in it for those taking the challenge. Among other things, the writer noted that she is working part time and has student loans to pay, as well. This is a pretty common situation for recent college grads, many of whom find themselves underemployed and stretched with debt once getting out of school.

First, it's a great thing that she got proactive and worked out a payment arrangement with her creditors. I'm hoping that in addition to that, she got everything in writing, in case there are any problems later. She might also want to write the three credit reporting agencies (Experian, Equifax and Trans Union) and ask that a note be inserted in her file explaining that she's worked out a payment plan with the creditors who she's been delinquent with. It won't help her numerical score immediately but it could help if for some reason another lender pulls her report anytime soon.

For someone working part-time and living on their own, it might be a bit of a stretch to pay off nearly $9,000 of debt in 12 months. According to Bankrate.com's credit card calculator, it would take monthly payments of $279.55 to pay off the first card in a year's time, assuming an APR of 10.25 percent and no other fees, and $438.57 to pay off the second card. Right now her payment arrangement calls for far less than that, so getting to zero won't happen unless there's extra money in the budget for more payments.

Still, that's OK. There's a workable plan in place and since the cards are closed, there won't be anything new added to the balance. If she's diligent, she'll be celebrating a zero balance before too long. Good luck.

image courtesy freedigitalphotos.net

Talking love and money with black girls

2009-10-08T09:54:00.003-04:00

Yep, I held it down. Took on not one, but two women in a live discussion about love and money, and of course, the kid won.

No, seriously, folks, on Tuesday I was in a lively discussion on That Black Girl Radio (become a fan on blogtalkradio) about the complexities of talking and managing money in our relationships.

We discussed everything from how your parents' relationship to money will affect your relationships with your partner, to planning for a financial future together to whether women really will go out with a guy with nothing more to offer up than a picnic basket. We also took live comments via chat.

Great fun. Thanks to host Corynne Corbett of ThatBlackGirlSite and S. Tia Brown, who now knows I'm always right! Looking forward to doing it again.

Money & Relationships on BlogTalkRadio today!

2009-10-06T07:10:00.005-04:00

Is discussing money more or less important than discussing sex in a relationship? It's an interesting question that I plan to bring up today on That Black Girl Show, the blogtalkradio show I'm doing at 1 pm eastern today. If you know anything about me as a person, you know my conversation with host Corynne Corbett and her guest S. Tia King will be entertaining at the least, so you don't want to miss it. Click here to listen and dial in at (347) 996-3308.

Is it hard for couples to talk money?

2009-10-04T22:36:00.010-04:00

Hope everyone had a great weekend and got a good start on your $0 Debt Challenge. By now, you should have taken account of how much total credit card debt you have, looked at your own budget and decided whether you're going to pay off one card or all of your credit card debt over the next 12 months. You should have found some image - whether it's your last bill or something you'd like to buy or do when the card is paid off -- that will motivate you to stay on task. If you're already credit card debt-free, you should be envisioning your next outlandish goal. Either way, I'm looking forward to hearing from you with you all with stories of your progress. Good luck.

Now for today's topic: money and relationships. On Tuesday at 1 pm Eastern, I'll be on Blogtalkradio talking with Corynne Corbett of ThatBlackGirlSite and journalist S. Tia Brown, answering the question of why it's difficult for couples to discuss money. We're taking your calls, so jump into the conversation at (347) 996-3308. If you just want to listen in, here's the link. Be sure to tweet that.

I'll be as fair as I can, but mostly I'm there to represent for men, so ladies, don't hold it against me. I'd love to hear your stories and thoughts on the topic, so post away in the comments or tweet me @k_dot_re.

Have a great week.

photo courtesy Lucell Trammer

I paid off the credit card! Now on to the next goal!

2009-10-01T10:15:00.010-04:00

I'm a fan of big, audacious goals and try to live by this rule: if you shoot for the stars and miss, at least you get the moon. That philosophy was a big reason I was successful in paying off my credit card debt in less than one year. If I dedicated myself to paying off every last dime but didn't make it, at the very least I'd have much less debt than I started with.

And so it is that one day after I made the final payment and reached my $0 Balance Goal, I'm immediately planning my next big, audacious financial goal will be. My immediate thought was to beef up my emergency savings and investment accounts and that's certainly doable given the amount of free cash flow I now have (since I'm not making a credit card payment anymore). But why not think bigger than that, and eye something else that will push me to stretch for the stars again?

So I've decided that my next goal will be that over the next year, I'm aiming to save and invest at least $25 grand. That's right. At least that much. That means I'll have to push myself to do more than just stash a portion of my paycheck: I'll have to continue to limit spending, network and be creative enough to create new income streams and be diligent enough to live off only the money I make at my nine-to-five and stash any extras away. It'll also mean I'll have to figure out some new tax strategies so Uncle Sam doesn't come and take it all. Wish me luck.

In the meantime, I'm going to continue to write about eliminating credit card debt and keep up my $0 Balance Challenge push. If you've already eliminated all your credit card debt, great. Start thinking about the next goal (and post it here in the comments section so you can encourage others.) If not, think of eliminating that debt as your first big, audacious goal and get to work.

Good luck!

$0 Balance testimonial: How she paid off a $2,900 credit card bill

2009-09-30T10:24:00.003-04:00

I've heard from many people this week congratulating me on reaching my $0 balance goal or telling me their own success stories in paying off credit card debt.

But yesterday I got a comment from Lechelle, who like many who are contemplating taking my $0 Balance Challenge, is concerned about making it happen in just one year:

I do see myself becoming debt-free, but I need a few things first to take place to see my dream come true...more revenue or additional revenue. Things are just tight, but I know I need to start somewhere. Therefore, I have been brings my lunch more and more every week.

I think your concerns are realistic Lechelle, but I need you to not give up or give in because of the tight times. There will always be reasons why not, but your imperative is to be motivated by and think of the reasons why. Also, if you're a spiritual person, remember that like everything else in life, there will be negative forces that seem to crop up more and more the closer you get to your goal (I'll talk about how that affected me more in a later post). DON'T LET THEM STEAL YOUR VICTORY!

So this post is for Lechelle and anyone else with doubts about whether you can do it. Here's the story of someone who committed herself to pay off a card and succeeded. If she did, you can!

- Adriennewrites, 30, Chicago, who blogs at http://www.adriennewrites.net

I owed Discover card about $2,900...a lot of money for me, since I'm not really a credit user. Then, they raised my 5 percent interest rate to 9 percent two years ago and then to 11 percent last year and now to 14.99 percent. I was livid because I've got an awesome credit score, so I decided to pay it off and never use it again. I gave myself a year to pay it off. I got pissed seeing that I was paying $40 in interest a month and that the interest was compounding.

I set my auto-pay with my online bank to just pay $300 a month and I started bringing my lunch to work so I could afford it. I did this because I was tired of paying money to this credit card company who was doing me wrong and refusing to lower my rate again to 5% even though it had pretty much hovered between 5-9 percent for the last 7 years or so.
When I got an extra $50, I added it to the pot. Now I only owe $50. That'll be paid off , um, today!

My tips on making it down this far? Set up autopayments with the bank. Think about how cutting back on just one hairstyle or one pedicure can remove debt forever. I thought about how I wanted to go to Paris, and needed my money for Paris, not to be paying off some clothes from The Gap that I bought 5 years ago. How lame is that?

I also cut back on my savings so I could pay this off. I figured that once I get it paid off, I get to put the full amount into savings. So now that same $300 a month is being switched into both savings and paying off the next credit card bill. It will take me another year to get rid of this Visa bill, but I'll do it. I'm worth it.

This is what debt freedom looks like

2009-09-29T10:01:00.009-04:00

That grainy BlackBerry pic is the account summary from my last credit card statement. In case you can't read it, is says that I started with a balance of $679.45, I made $853.83 in purchases (had a business trip that was reimbursed), then paid that off, plus some to the tune of $1,015.28.

The end result is that I'm $500 from freedom, and that $500 will be gone tomorrow. So why'd I post that, besides the fact that I'm ridiculously excited to see the balance drop to zero? Because images are among the most powerful motivating tools you can have when working toward a goal. So for those of you accepting my $0 Balance Challenge, I want you to think about the most powerful images you can think of that would motivate you toward paying off that card and using credit more responsibly in the future.

For me, motivation was as simple as seeing the balance slowly come down from nearly $8,000 to almost zero over the course of a year. Anytime I was having a bad day, I'd log in to my account online and see where the balance was, reminding myself that I was inching closer to my goal. That's a good tool I'd recommend for most people: take the account summary from each month's statement, and tape them in order to a piece of posterboard, and hang the poster somewhere you can see it. You'll soon be looking at a visual history of the debt going away and know you're making progress.

For others, it could be looking at a picture of your family and knowing you're giving them greater financial security, of finding a picture of your dream house, car or TV and knowing the less credit card debt you have, the closer you are to obtaining those things.

Whatever your visual motivation is, find it today, put it somewhere prominent and look at it often. Stay motivated!

The $0 Balance Countdown

2009-09-27T23:09:00.005-04:00

This is it: the big week when I'll be making the final $500 payment on the credit card balance I've been carrying since college.

I can't wait to feel the exhilaration of hitting the "make payment" button, logging in the next day to see the balance reflected as $0, and knowing the liberation of having hundreds of suddenly available cash flow in my budget every month after that. In fact,it's such a great thought and a great feeling, I want you to have it, too. So I'm issuing a challenge: how many of you believe you can eliminate all of your credit card debt in the next 12 months, using nothing but sheer financial discipline and sound budgeting?

If you think so, hit me up with your story (keithtr(at)gmail(dot)com or on twitter). I'll pick a few people to follow and chronicle here monthly as they work toward their goals.

In the meantime, I'm devoting all this week to posts about credit cards and debt elimination, be sure to check back.

photo courtesy freedigitalphotos.net

I have a little bit saved. Is it time to think investing?

2009-09-25T11:06:00.007-04:00

Question of the day from @ayyitsrawb on Twitter:

I have a little money saved, is it worth learning about investment and stocks, or should I just keep saving it?

The short answer: learning is always worth it, whether it's about investments or anything else. The more you know, the better you can figure out which tools work best for you. Think of it this way: if you're going to be without any investments in stocks, would you rather that be simply because of ignorance of how the market works or because you made an informed decision that that kind of investing isn't for you? I know which I'd choose.

All that said, your question seems to also be a little about whether or not you're prepared to take the plunge, since you can start learning about any subject at any time. That's not an answer I can give, you but here are a few things to think about:

When you say you've got a little money saved, how much is a little? Are we talking about a few hundred bucks or enough for you to live off of for several months if you lost your income? Most financial advisers will recommend you have between three and six months living expenses saved for a rainy day and that's pretty sound advice given the recession we're going through.

Secondly, you shouldn't consider investing and saving money as an either/or proposition. They each have different purposes and the money you put toward them should be for different things. If I were to look at my own budget today (do you have one of these that you adhere to? If not...THAT'S what you should be learning how to do!), I'd see that every time I get paid I have money going into a savings account, a brokerage account, and my sons' college funds. Of course, not everyone has my resources or circumstances, but the point is by having a realistic picture of how much money you actually have coming in, you can realistically allocate it toward saving for all of your goals, not just one.

Good Luck.

image courtesy of freedigitalphotos.com

Things for new investors to consider

2009-09-24T10:30:00.000-04:00

Today's question from tweeted to me by @JNeedHisScrilla (love that handle):
What is the best direction to go for a first time investor with limited funds?
That's a tough question to answer, because like choosing a mate or a place of worship,choosing a smart investment strategy is intensely personal. Where you put your money, and how much of it you put there, should reflect your own goals, resources and time frame. There are as many reasons for investing, and kinds of investments, as there are people with things to spend money on.

But here are some common reasons first-time investors get in the game and things you should consider:

To save for a first home. Usually, putting your downpayment savings into stocks or mutual funds doesn't make sense because of the risk of losing money. But if you're young and not planning on buying for 5-7 years, you might be able to weather a downturn and still see a return on your principal before you have to touch that cash. You probably still want to keep those holdings separate from any other investments.
To save for retirement. This is likely to be the first introduction to investing that most young professionals will get. You start your first job and they hand you your benefits packet and that includes information on the company's 401(k) plan and an enrollment form. Read that information from first word to last, and then enroll at the maximum level you can afford to. If you're working and not in your company's 401(k) or other retirement plan, there's really no point in thinking about any other kind of investing.
To save for a business. To build capital for a business. The same rule as saving for a home downpayment applies: don't put money into the market that you're going to need over a short time frame. But if you don't think you'll be hanging out your own shingle for at least five years or more, this might be an option.

In any event, the best thing you can do before you begin investing is to learn as much as you can about investing. Do you know the difference between equities (stocks) and fixed income investments (bonds)? Do you know what a mutual fund's expense ratio is (and do you even know the difference between funds and individual stocks?). Before diving into any major endeavor, you need to know as much as you possibly can to mitigate your risk.

Good luck.

photo courtesy of freedigitalphotos.net

Identity thieves just tried to get me

2009-09-23T10:40:00.008-04:00

Today's post was supposed to be the answer to a question from a Tweeter.Then I got a robocall from some company obviously trying to run a scam on credit card holders, so I'm going to give you all a warning.

The call came from 228-209-9560. A recording says they're calling from "account services" and want to help holders of Visa, Master Card or American Express cards lower their interest rates. First tip off: a legit credit card company would NEVER call you like this. If you're doing business with them, they wouldn't use such a generic message. They already know what kind of card you have. Secondly, credit card companies these days aren't in the business of calling anybody and volunteering to lower their rates.

The recording asks you to press 1 to have your rates lowered or press 2 to be dropped from their list. When you get to this point: HANG UP. A common trick of tele-scammers is to ask you a question and have you press 1 or 2 in reply to that question. They record your reply and use it to "slam" you, changing account information on your phone or credit cards. Giving them any information could, and likely would, result in identity theft.

For the benefit of the blog, I took the risk and pressed 1 to see if I'd get a live person. I did. That guy, "Steve", asked me, "Did you press 1 to have your rates lowered today?" No, Steve, I pressed 1 to find out who was calling me.

Click. Steve hung up. Must not have been in his script. I Googled the number and found out that these folks have been running the same scam on others. Here's a message board with people who have gotten the same calls. I also called the number back from a landline and got a recording that said it was disconnected.

Remember, if you get this call or a similar one, don't answer it or hang up immediately. It is a scam. If you're so inclined (and you should be), call your state's attorney general's office and register a complaint. These people are predators out to steal your money. They need to be found and locked up.

images courtesy of freedigitalphotos.net

What to do when your creditor disappears

2009-09-22T09:00:00.004-04:00

Twitter question of the day is from @djamesUBMS:

What should one do when paying a creditor and the company (whoever owns your overdue account) disappears or folds?
Background is: Visa credit card that went to collections, we made the effort to find the account after checking our credit, payed it down very quickly. Then all of a sudden, there was no working number and the website was useless. We still owe some cash, but can't pay it down because we can't find the company.

Be careful here and don't assume you're off the hook because you can't find the company. Often when a company folds, it keeps a collections arm open to recover money that it is owed so that it can pay off its remaining debts. In other cases, those debts are acquired by a collections firm for pennies on the dollar, and they in turn spend their time hunting you down. By paying little for the debt and collecting as much as they can on it, they make a profit.

With that in mind, you need to be proactive by making as much of an effort as possible to find the creditor and pay the bill off. If you can't get in touch through conventional means, Google the collection agency to see what you can find out. Pull your credit report again in a month or so and see if there are any new delinquencies being reported. If so, call the creditor that reported them; if not, call the credit bureau and ask someone if they know whether the company you owe has gone out of business.

As a precautionary measure, you might want to write the three credit reporting agencies (Experian, Equifax and Trans Union) a letter to add to your credit file explaining that you've made significant attempts to contact the creditor but haven't received a response back.

In the meantime, in lieu of making monthly payments, set aside the money you'd be paying on that bill in an account where you won't touch it. If and when the creditor shows back up, you don't want to be without the money to pay them off. If they don't show back up, you've stashed away some extra cash for other goals. Good luck.

An answer to a question about investing

2009-09-21T07:25:00.002-04:00

A question from @lastmojican on Twitter:
What are your thoughts about investing in the stock market? I want to invest but I have lost faith knowing that greed and ignorance created this problem. How do we trust again?
Great question.

I understand your fear about being in the stock market right now. The simple answer to your question is in the question itself: "greed and ignorance created this problem." How do you combat greed and ignorance in investing? You do so with knowledge that informs a well-crafted plan focused on your own goals rather than simply the accumulation of more.

The truth about what happened in the meltdown is that many people jumped into investments they didn't understand. And you're right, they did so out of greed. The unfortunate part is that all of us suffered to some extent because of that greed.

The silver lining, though, is that on the other side of a stock market drop is essentially a fire sale. Just like when your favorite store has a clearance, prices on shares of many solid companies and funds are well below where they should be. That means investors can buy more and make steady gains, especially if you follow dollar-cost averaging strategy (which just means you invest a specific amount at regular intervals over a given amount of time).

The most important thing to remember is that investing is not gambling. Many novice investors make the mistake of letting the word "investing" conjure up the image of some guy locked in his home office, risking his kid's tuition money trying to time the market. Before you dive in, arm yourself with as much knowledge as you can about the basics of investing by going to the library and checking out something as simple as "Investing for Dummies". There are all kinds of resources out there to help novices become literate about investing and the more literate you become, the more confident you'll be. Take your time and take it slow.

I cancelled my credit cards. Will it hurt my credit score?

2009-09-20T20:01:00.006-04:00

I'm staring off the week with some of the great questions I got my new Twitter followers (thanks to @jemelehill):

I paid off and canceled my two credit cards about seven months ago. I don't want to get another one. My friend's mom told me I need to have at least one credit card and use it regularly to build credit. She made it sound like I was actually messing myself up as if nothing else mattered. Is it really that big of a deal? I don't want another credit card.

Yes, it really is that big a deal for three reasons:

1) The ratio of your available credit to your actual debt is a huge factor in your credit score. Once you close a card, you immediately lose the available credit part of that equation. Follow me here:

I have two cards with $10,000 limits and I'm carrying a $2,500 balance on one of them. I'm using just over 10 percent of my available credit of $20,000. That's excellent because the credit bureaus and lenders like to see that you're using as little as possible of your available credit. It's supposedly a sign that you're not overextending yourself.

If I close one of the cards, I have the same $2,500 debt but with available credit of only $10,000. That's a ratio of 25 percent of your available credit. In other words, it looks to the credit bureaus like I'm suddenly borrowing more than twice what I was just a month before.My score takes a hit.

2) Also, since the length of your credit history is a factor in your credit score, closing both your credit card accounts hurts because it erases any good credit history you've built up by using those cards responsibly. If you had those two cards for 10 years and a car note from a year ago, suddenly your the oldest active account you have is a year ago, not 10 years old.

3) You really can't afford to not have a card unless you're wealthy enough to be certain that you can pay for any and every expense that comes up in cash, all the time. You need it for basics like getting a plane ticket or renting a car. True you could use a bank debit card, but some companies will charge you a fee to use a debit card instead of a credit card. And of course, there's always emergencies.

Thanks for the question and good luck.

photo courtesy of freedigitalphotos.net

I'm unemployed. Should I take money from my retirement account?

2009-09-18T15:29:00.005-04:00

Another good question from twitter:

Don’t raid your retirement even to put food on the table when you’re out of work. Agree or disagree?

For the most part, I agree. That is if by "raid your retirement", you mean take an early withdrawal from a tax-deferred account like a 401(k) or 403(b). With a few exceptions like taking cash for a downpayment if you're a first-time homebuyer, early withdrawals from these plans do far more long-term damage than short-term good. For one, you lose the principal (the amount you take out) and thus any interest you'd make on that money over the years. That could be a substantial loss if you're in your 20s or 30s and still have two decades to pile on that interest.

Second, by taking an early withdrawal, you'll pay a heavy penalty on top of being immediately assessed taxes on money that you otherwise wouldn't pay until after you've retired, when your tax rate would be lower anyway. If you're in dire straits now, think how you'll feel when the government's tax bill comes at the end of the year.

That said, if taking money from your retirement is your only option and you're really, seriously on the verge of starving, it's probably better to not starve. But for most people who are still capable of finding some kind of way to put food on the table (have you filed unemployment or sought part-time work??), this is an absolute, positive last-resort of all last-resorts.

Why the homebuyer tax credit should be extended

2009-09-17T07:15:00.004-04:00

I saw this question on Twitter yesterday and had to post it: Do you think the 1st time homebuyer tax credit should be extended past November?

The credit was approved by Congress last year to try and fix the foreclosure problem. It expires soon, so Congress is debating whether to extend or even expand it to a $15,000 credit.

My answer is it should be extended for another year. Here's why: though some are optimistic the recession is ending, we can't afford another "-less" recovery -- as in "job-less" or "homebuyer-less". The economy needs housing stability to be really strong and that's not possible until people have jobs again. Employment will likely be one of the last things to recover, so without help, people still won't be making major purchases like homes.

Note to haters: I'm NOT suggesting that the government subsidize home purchases for the unemployed. My point is that average people don't judge the economy's strength like economists do; we go by what we see in our checkbooks and what's happening around us. If a lot of my friends are still out of work or being laid off, I'm not likely to be comfortable borrowing a few hundred grand for a new crib.

On the other hand, the one good thing about the recession is that it caused working people to re-evaluate their financial habits. I believe a year from now, many people who weren't previously able to save enough for a down payment and to clean up their credit will have done so, and at that point there won't be a real need for an $8,000 or $15,000 tax credit anymore.

But that's a year from now. Until then, I fear for people like my friend who's home in suburban Cincy has lagged on the market for more than a year without a single offer, despite repeated price drops and an attempted short sale. Congress should renew the credit.

If I'm paying off my credit card; can Ann Minch bail out on hers?

2009-09-16T09:47:00.006-04:00

This morning I made the penultimate (next-to-last) payment on my credit card, a $176.23 testament to beating the debt monster I've been carrying in my wallet since college. I'm quite proud of myself for the obvious reasons (a PF writer with a mountain of unsecured debt is not a good look; looking forward to that TV that's been at the top of my 'reward yourself' list for three years) and the not-so-obvious (freeing up cash flow for investments, savings and a sprucing up of the crib that is in great demand from certain quarters).

But my fortune at being disciplined and financially stable enough to pay off my Visa makes me consider the millions of people in the US who are neither as disciplined nor as fortunate; people like Ann Minch, who the HuffPost profiled for her refusal to pay off a Bank of America credit card because, she says, they've gone too far in jacking up her rates. Here's Minch on video talking about her "debtors revolt":

Is Minch right? Should we have the right to just say "screw you" to lenders who are treating us unfairly, or is this the rant of someone who made irresponsible choices with credit and needs to do what I did and just pay up?

Should I sue my condo association?

2009-09-13T08:38:00.004-04:00

I received this question via email:

Hi Keith, I have a question regarding a condo association. We have recently experienced a building fire and are now all displaced. The condo association is requiring all owners to continue to pay monthly assessments. Is this legal? We have been told that we will not be able to live in the building for one year. The building has 80 plus units, imagine all of that money not being used! Help! Do we have any grounds to sue for these assessments back? Any input will be greatly appreciated. I have no where to turn. Also, any suggestions on how we, the homeowners, can get the ball moving? It has been 3 months since the fire and no work has been started. We are all worried that our individual insurance will run out before the building is finished, and then what? By the way, our condo association is not pleased that we are contemplating the possibility of litigation.

Thank you for your assistance

Since I'm not a lawyer and I'm assuming the reader (who didn't want her name used) isn't either, my first and best piece of advice is that she needs to consult an attorney before proceeding with anything. Litigation may or may not be a good option, but qualified legal advice is certainly a great option.

One thing to remember is that as an owner, you are a member of the condo association and technically part of your building's management. In other words, if you brought suit against the association, you'd in part be suing yourself.

Otherwise, I wouldn't necessarily assume that your condo fees aren't being used. The association must continue to operate after a catastrophe like a fire. Expenses like filing insurance claims, getting estimates and yes, legal fees, have to be incurred whether you're living in the building or not. Look into what kind of cash reserves your association has and what kind of insurance policy as well. That will be important.

Good luck.

Credit card debt almost gone

2009-09-01T15:38:00.004-04:00

If you've been following me for a while, you know I'm a big advocate of getting rid of any and all credit card debt. While it continues to be the bane of most Americans' financial existence, it's particularly crippling to young people who are just starting out in their careers and families.

So as to lead by example, I've been keeping tabs -- publicly, on how my quest to get rid of more than $8,000 in credit card debt has gone since last year and today I'm happy to report that the magic number is down to a mere $679.45!

No secrets, no tricks, no gimmicks or TV commercials, just common sense budgeting and consumer discipline is all it took. And even though a trip to Florida (for business) and school shopping for my son were a setback in August (I was supposed to pay the whole thing off last month but wound up adding more than $700 to the balance); I used the same discipline to quickly pay every penny off and keep the balance right where it is. $679.45.

Can't wait till the first week of Oct. to blog/tweet that zero balance.

Keith Reed's Money Corner

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No question, just a comment. Good stuff! This is a ministry! You are really helping people out! -Pauli

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