November 2010

With Christmas just around the corner, planning for the shopping you will be doing is essential. Whatever you do, don’t go out on a whim and just buy the first thing you think your loved one might like. You should sit down before you buy anything and plan ahead so that you don’t go overboard and get yourself in a bad financial situation.


Some things that you should think about during this holiday season in advance of making any purchases:


  • Budget – Just like your everyday expenses, Christmas shopping should be budgeted. Look at your finances and decide how much you can comfortably spend total. Then make a list of all your family and friends you plan on giving a gift to and decide how much of the total should be spent on each. Don’t feel guilty about it either. If you can’t spend as much as you have in the past or as much as you know people are spending on you, don’t feel bad about it. Chances are your loved one will understand and you won’t have to be dealing with the headache of the December credit card bill when your guilt leads you to spend more than you can afford.


  • Look For Deals – This one sounds pretty simple, but it can require a lot of leg work. If you have your heart set on buying something specific for someone, especially if it’s a costly item, look around at as many different places as you can to find the best deal. You can do this by actually shopping around at different stores, or looking online. However, if you are shopping online for a great deal, don’t wait too long. A great deal won’t do you any good if it’s two days before Christmas and you have to pay more than you saved on shipping!


  • Homemade Gifts – This can be tricky. There are those people who would love to receive a homemade gift and others who would hate it. You’ll have to use your judgment on who to give a homemade gift to. But they can save you a lot of money (though usually take up more time). They can also be great if you receive an unexpected gift from someone. If you have some homemade gifts made up, you can reciprocate without spending a lot of money you didn’t plan for.


  • Reassess – After making a purchase, check it against your budget. Have you bought enough for someone? Do you need to find something for $15 to have enough for someone else? If you reassess after each shopping trip, you are more likely to stay on track and on budget.


  • Buy With Cash – The number one thing we would caution against is using credit cards. It’s much easier to lose track of how much you spend with a credit card. So, if you have the cash available (which hopefully you should since you are budgeting only what you can comfortably afford), use it instead of your credit cards.


Christmas shopping shouldn’t be stressful and you shouldn’t have to worry about how you’re going to pay for it all. That way, you can truly enjoy giving those gifts on Christmas.


For anyone who hasn’t read a Dummies book, you’re missing out. The series can be a great resource for information on many different topics. Personal Finance For Dummies by Eric Tyson is a great example of one Dummies book that really delivers.


This book covers a big spectrum of different financial topics from spending/saving, debt, taxes, insurance, investments, goals, etc. If you’re looking to learn more about personal finance and what you should be doing in your financial life, this book is the place to start.


Personal Finance For Dummies is heavy on information—it looks more like a textbook than a novel, and its current edition (6th) totals almost 500 pages. Not every section may be relevant to your life, so if you don’t feel a particular section applies, there is nothing to say you can’t skip it. It can help you build a great foundation as you get into more complex issues of financial planning. And while you’re at it, check out what other topics the Dummies series has to offer. With the selection the series has available, chances are you’ll find something to interest you.

When working out your budget, how do you handle your monthly spending money? Not the money used towards bills or savings or debt, but the money you actually allot yourself for entertainment, shopping, hobbies, etc.


We like the idea of giving yourself an allowance. Actually withdraw your spending money is cash so that it doesn’t get mixed in with the money budgeted for other things. You can manage that however you like, whether you want to take cash per paycheck or one amount for the month.


This way, you have the cash in hand to use for whatever you want, and when you have a finite amount of cash, you are much less likely to go overboard. If you use a credit card, or even a debit card, it can require too much tracking. You may go to the store and think “I couldn’t possibly have spent my budget yet” only to find out you actually had and the thing you just bought put you over. If you have the cash, you will know exactly how much you have left.


We don’t think it necessary to budget within your allowance ($30 for entertainment, $30 for shopping, $30 for hobbies, etc.). If you find it helpful you can, but that just adds an extra layer of tracking you probably don’t need. However, it could be helpful to plan ahead of time. Say there is a movie coming out later this month and you know you will be going to see it and going to out to dinner beforehand, along with the cost of tickets and concessions. It may be best to put that money aside so that when the time comes, you still have it. Also, if you have something expensive you want to do in a few months, like buying concert tickets or a new electronic gadget that you want to pay for out of your spending money, but won’t be covered by one month’s budget, you can put some of your cash aside in the months leading up to your purchase.


Some may say it’s better to use a debit or credit card instead of cash because otherwise how can you track your spending? Our point would be as long as you’ve budgeted for your spending allowance, you shouldn’t have to track what you spend it on. Even if you’re paying down debt, saving for retirement, and everything else in between, it won’t hurt you to have an allowance where you can spend the cash without feeling guilty or worrying about where the money is going. Just be sure to stick to your budgeted amount and make sure you can afford it!

Today’s post is going to be different than any post we’ve done so far, but hopefully useful to someone nonetheless! This tip comes exclusively from Dawn, since Keith doesn’t use the site.


Back in April, I read a post over at The Simple Dollar about money saving websites (while there check out all the other sites he recommends, you might find something useful). That’s where I discovered PaperBackSwap. After looking into the site, I couldn’t believe I didn’t know about it yet. For a book lover like me, PaperBackSwap is an incredible resource, and if you ever spend money on buying books, this site will save you a lot of money.


It’s basically just a book trading site. You sign up for free and post books that you no longer want to keep (as long as they’re in good condition with no writing or highlighting – which I find to be the hardest part since I’ve highlighted in many of my books). They can be any type of book about any subject. After you first sign up, you will receive 2 credits for posting your first 10 books. Then, others can request a book from you, which you will mail to them, and then you will receive another book credit. You use those credits to request books from other members.


Like I said, if you buy books, this will save you money in the long run. From my experience, it typically costs about $1-3 to mail a book. Obviously, the more expensive books tend to be hardcover, but if you consider that you can also receive a $25-30 hardcover book for the postage price of mailing a small paperback (maybe $1), think about how much you would save over time (which the site will track for you). And many (though not all) of the books are in like new condition.


There are some downfalls though. One is that there are a limited number of copies available. So, if it isn’t a mainstream/popular book it may not be available. Also, if it’s a very popular book, it may not be immediately available. However, if you are willing to wait, you can put it on your Wish List and wait in line for it to become available, but it may or may not be a quick wait depending on the book. Also, it’s an issue if no other members request your books. If you aren’t getting anyone requesting your books, you can’t get credits this way. You can buy credits on the site, which are more expensive than paying for postage, but still much less expensive then buying a book outright.


Recently, the site has also added the feature of buying new books, where you can pay in all cash, or use some of your credits plus cash. I haven’t used this feature, and I’m not sure if the prices are better than buying new elsewhere, but it might be worth looking into if you do plan on buying a book new.


If you like the idea of this site, but are more interested in movies and music, there are two sister sites, SwapADVD and SwapaCD. They are less popular, with less members and less selection available, but they function very similarly. A feature that might be helpful is credit transferring. If you get a credit for mailing a DVD, but want to use it to get a book, you can transfer that credit to the other site.


Hopefully someone finds this site useful!

Roth IRAs are great investment vehicles for retirement. Funding a Roth IRA for yourself or your spouse is a good idea, and the younger you are when you start funding for retirement, the better off you’ll be. So why not consider funding a Roth IRA for your kids? Some may not know that this is an option, and while there are some rules about doing so, it makes a great gift for them (think the holiday season!) and it’s a good investment in their future.


The key here is that the child must have earned income (not investment income) from working. This doesn’t have to be from a W-2 wage paying job, it can be from babysitting or lawn mowing (though make sure you track the income for tax records); just a job the child is being paid to do. This is because a person must have earned income to fund an IRA.


So, if your kid has earned income and you’d like to consider funding a Roth IRA, you can contribute up to the child’s total earnings or the 2010 Roth IRA contribution limit of $5,000, whichever comes first. So if your son earns $500 doing yard work around the neighborhood, you can contribute up to $500 into a Roth IRA.


Your children may not understand at 14 or 15 what a difference funding a Roth IRA can have on their future (that’s money they can’t touch right now!). But as they get older and begin to understand more about how investments work, and that their retirement savings began when they were teenagers instead of in their 20s and 30s like when many people start, they will hopefully appreciate the gift you are giving.


However, keep in mind that a custodial Roth IRA will belong to the child you are opening for, so if you don’t want them to have access to the money when they reach the age of majority, a Roth IRA is not a good option. If that’s not a concern, investing money in this type of account for them can have a positive impact on their future financial situation.


In our talk about goals, we touched briefly on the idea of financial independence. It’s often stated as a goal that people wish to reach before they retire. While we said it was a great goal to have, and it is, financial independence can be complicated and personal. There is no magical number that once you reach it, you are financially independent. It very much depends on your personal situation and what you expect from retirement.


Financial independence means having enough resources to be able to live without help from anyone or anywhere else. But “living” is very relative and everyone will have different expectations as to how they should be able to live in retirement.


Each situation will be different. If you’ve maxed out your retirement plans and paid off all of your debt, it would be safe to say you are much closer to achieving financial independence than someone who invests little and has a $300,000 mortgage. But often the distinction can be much less obvious. How are you to know what financial independence looks like in your life?


Don’t get too obsessed with a number (I’ll be financially independent when I have $1,000,000). There is much more to it than that, and you have to decide on your expectations. Do you expect to live the same lifestyle as you were when you were working, therefore needing to produce the same income? Do you expect to downsize and cut expenditures to match a smaller retirement income? Do you expect to travel? There are a lot of things to consider.


One thing that should be a major consideration is debt. Entering retirement with a debt load (especially a mortgage) can have a big impact on the potential for financial independence. Having to pay down debt with the extra pressure of not bringing in income through working is not a good situation to be in. You should consider paying down your debt while you are working or making a change as you enter retirement (selling your current home to pay off the mortgage and downsizing to a place you can afford to buy outright).


If financial independence is your goal, take some time to decide what is important to you and how you expect your retirement to be. Once you do that, you’ll have a much clearer picture on how to achieve it.