Happy New Year! Now that it’s 2013, we’d thought we’d do a quick review of a post we first did in January 2012 (updated for 2013). We think everyone should take some time to review your finances at the beginning of every year.

Throughout the year, it’s easy to get distracted from your finances. Other things in life take up your time and energy, often leaving your finances in the background. As 2013 gets underway, consider setting some time aside to make sure your finances are in order. Working on the following now can help you avoid problems throughout the year when time gets away from you.

  • Review your budget – Take the time to review your budget, checking for any obvious changes that may need to be made. Research lower cost alternatives to expenses that seem to have crept up over time. Reallocate dollars that went unspent to expenses that had a shortfall. And if you don’t have a budget yet, create one!
  • Review and update your financial goals – Review the progress you made in the past year on your financial goals and add any new goals you may have. Take time to consider what your next step might be in advancing those goals. If your goals are no longer relevant in your life, think about what you want to do with any funds you may have collected for that goal.
  • Review your credit report – Help ensure that your identity is safe and that your credit report reflects accurate information. (www.annualcreditreport.com)
  • Prepare for tax filing – Even if you know you will be filing an extension, start collecting all the relevant tax information and documents as they start coming in. Ensure everything is ready and in order before you sit down to do your taxes or send the information to your tax preparer to avoid delays and mistakes. Also, if you find that you are getting a large refund or owe a large amount, take the time to review and adjust your withholding to put more money in your pocket throughout the year or ease the pain of a large tax bill next year.
  • Set up automatic bill pay – If you have not done so already, and it’s a service your bank offers, you should look into automatic bill pay. This will give you some relief during the year by paying your bills for you, so you won’t have to worry about setting aside time monthly to do so.

Obviously, doing the above will not make working on your finances during the year optional. You will still need to spend time on your finances, even if it’s just to make sure you’re avoiding mistakes and problems. But, the above steps will help set up your 2013 finances right.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.



A post over at Good Financial Cents this week, “Why You Might Not Want to be an “Average” American” by Miranda Marquit pointed to some “average” U.S. statistics that you should probably strive to be better than:

  •  “the average household credit card debt was $7,149” – Certainly not insurmountable, but with credit card interest rates typically high, carrying that amount of debt on credit cards can lead to large monthly payments. It also can mean many years of paying it down, assuming of course, that you aren’t adding new debt in the meantime.
  •  The average indebted household debt (this doesn’t include the mortgage) was $15,325” – More than double that of the average credit card debt. We would guess that in many cases, this would include debt for a car. Monthly payments on debt this size could be crippling to your finances, especially for lower income families, making it even more difficult to get out from under.
  •  “the savings rate at the end of September 2012 was 3.30%” – This amount wouldn’t even be enough to fund an emergency fund for many families, let alone allow them to save for other necessities and goals. It wouldn’t be unthinkable to say this savings rate is likely why the average debt is so high—when emergencies or other needs and wants pop up, families just don’t have enough cash saved to cover them, so they turn to their credit cards.
  • “According to the Social Security Bulletin, only about 1/3 of people aged 65 and older has an IRA or a 401(k)” – Since Social Security is often not enough to cover people’s retirement expenses, retirement funds are relied upon to cover the gap. However, for those who have no retirement funds, they have no choice but to make do. And with the savings rate so low, it unlikely they have funds elsewhere to turn to.
  •  “Those in the younger age bracket of 18 to 34 aren’t really saving, either: 56% are not saving at all” (referring to retirement) – These years are the best time to get started saving for retirement. Even though it is often the case that you will be making less during these years than later in your career, you will likely have less financial commitments. Maybe you haven’t bought a house yet, haven’t gotten married yet, or haven’t had kids. So, putting money aside may not hurt as badly as when you do these things. Unfortunately, the idea of “I have plenty of time” gets to many people. By the time you realize you need to get serious about retirement, it may be too late for you to make up the ground you lost during these years.

Obviously these statistics don’t tell the whole story. There are always mitigating circumstances: illness, job loss, disability, etc. However, the earlier you start taking these “averages” seriously, the better off you’ll be down the road.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Last week, we briefly touched on Dave Ramsey’s Baby Step program and Len Penzo’s commentary on it. This week, we’ll provide our own commentary on the program, step by step.

Step 1: “$1,000 to start an Emergency Fund”

While Len disagrees with this step, we think it’s a smart move. The idea is to pay down your debt, and if you don’t have a safety net for a possible emergency, you could end up creating even more of a problem for yourself than you started with. However, we would say $1,000 should be just a guideline. Depending on your situation, this short-term emergency fund may need to be smaller or larger.

Step 2: “Pay off all debt using the Debt Snowball” (excluding mortgage)

Again, Len disagrees (as do many other financial experts). The Debt Snowball method pays off the smallest debt balance first and doesn’t consider interest rates. We agree with Dave Ramsey here. If you have 2 credit cards, one with a 15% interest rate and a $1,000 balance and one with an 18% interest rate and a $3,000 balance, we would say pay the lower interest card first.

Yes, that means you’ll be paying more in interest. But feeling successful is a great motivator and being able to cross that card off the list will help you feel even more inspired to pay down the second.

Also, paying down the smallest balance first will help you free up cash flow faster. The $200 you were using to pay down your first debt will be freed up in 5 months if you pay off the $1,000 balance first as opposed to 15 months if you pay off the $3,000 balance first.

Len says that the financial implications outweigh the psychological benefits of motivation. People who are truly committed to paying off debt will do so, no matter what and should pay down debt in order of highest interest rate to save money. Unfortunately, we think this doesn’t play out well in the real world. Even the most highly motivated people who want to change their financial situations completely can slow down or give up when they perceive all their hard work is having little payoff.

Paying off the higher interest card may save you money, but we don’t think it’s worth the risk of feeling defeated and giving up.

Step 3: “3-6 months of expenses in savings”

Len agrees, and so do we (to an extent). Depending on your situation, waiting until you’re done paying down debt to save an emergency fund may not be a great idea. If you’ll pay down your debt quickly, have a secure income, and little other expenses, you can probably wait. If it’s going to take you a significant amount of time to pay down your debt, have unsecure income, or many other fixed expenses, you may want to consider splitting your monthly debt payback allowance to begin funding an emergency fund sooner (as the $1,000 from Step 1 may not be sufficient).

Step 4: “Invest 15% of household income into Roth IRAs and pre-tax retirement”

This step is one where we split from Dave Ramsey’s thinking. First of all, 15% is often unrealistic, especially for younger people. We typically recommend 10% for retirement savings. It’s achievable and sufficient for many people, and leaves more cash available for other worthwhile pursuits.

Also, like Step 3, we disagree with waiting until your debt is paid off to fund retirement. This is especially true the older you are and the more debt you have. Suspending retirement funding may help you pay down your debt faster, but it may be too detrimental to your future if you’re not careful.

Also, if you’re lucky enough to have a company matched retirement plan through your employer, we would say always fully fund to get the match, no matter your situation, while you pay down debt. That’s free money, and while it may take you a little longer to get rid of your debt, you’ll likely be better off for it in the future.

Step 5: “College funding for children”

Len completely disagrees, saying his kids will pay for their own college degrees, since it won’t help him in his future. We would say this step is entirely situation dependant. If you don’t have kids or have no intention of paying for your kid’s schooling, this step obviously won’t apply.

We see nothing wrong with even fully funding you kid’s college education, especially if your debt is paid off and you’re sufficiently funding retirement. However, we would recommend putting stipulations on the funding (paying for a local, public university). Make it clear to your kids what is expected (if they choose to go out of state or to a more expensive, private school, they must pay the difference). Again, how you handle it is completely dependent on your situation.

However, we’d like to point our that not all college funding vehicles will go to waste if your kid’s choose not to use it all. We’ve written before about using your own Roth IRA to help fund your kid’s education.

We would also like to say that if your situation doesn’t allow you to save enough to cover your kid’s education, it’s not a good idea to go into debt to fund it, especially when you’ve worked so hard to payoff your own debt! Avoid that situation, even if it means not being able to help your children as much as you may have wanted.

Step 6: “Pay off home early”

Again, this is entirely situation dependent. There are situations where paying off your mortgage early makes sense and situations where it doesn’t. Some people chose to do it simply for “peace of mind” as Len says.

Step 7: “Build wealth and give!”

This is not everyone’s ultimate financial goal in life. If it is, then that’s great, you would hopefully be able to do so after following the program. However, if it’s not your goal, you should spend some time thinking about what your goals are, and what you need to do to achieve them.

Ultimately, like any financial plan, Dave Ramsey’s Baby Step program is designed to simplify. Each step when completed, should make the next easier to manage. And the hardest part is usually getting started.

Would we recommend the Baby Steps program?

As you can see, there are some aspects of the program we agree with. But we would say it’s much too uniform. There are too many variables not considered, and not every universal step is the right thing for everyone following the plan. Yes, it provides a good guideline for people who need to start somewhere. But as we said last week, many people take Dave Ramsey’s word as law and fail to consider what else might work best for their situation. Our recommendation would be that anyone who chooses to follow the plan should carefully consider each step to decide what the right move would be.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

This morning, over at Good Financial Cents, Jeff Rose did a post titled “YOUR attitude IS Everything – Don’t Quit on Yourself.” The idea is once you give up hope on being able to accomplish something, then you are going to fail at doing it. If you have no hope, you won’t try, and if you don’t even try, you won’t succeed.


This idea that “attitude is everything” is very important when dealing with your finances. Unfortunately, many people who are dealing with financial problems have a hard time staying positive. It can be very difficult to stay hopeful when you are dealing with a job loss or seemingly insurmountable debt. Then, as time passes and you see yourself making little or no progress, you start believing that the situation really is hopeless. That you’ll never be able to move past your financial difficulties, so why bother trying at all?


There are so many different aspects to finances that hopelessness can affect. You may think you will never be able to retire comfortably, so why bother saving? Or that you’ll never be able to fix your credit problems, so why does it matter if you stop paying on your debt? Finances are stressful to deal with, and it’s very easy to lose a positive attitude while working through them.


As Rose states:

  • Once you have given up hope, you have failed.
  • Once you truly believe that there is not better outcome for your life, things will never improve.
  • Once you make that mental shift into permanent negativity, all is lost.


So how can you stay positive? Part of the reason we spend so much time talking about goals is that they can go a long way to helping you stay positive. While one big goal, like paying off all your debt, can seem hopeless, turning that goal into smaller steps you can work your way through, like pay $100 extra towards debt this month, can help keep you positive. You’ll have a feeling of accomplishment at completing the small steps while still working toward your big goal. If you try tackling everything at once, it would be very easy to become overwhelmed.


Also, as Rose discusses, even if you think your own situation is hopeless, don’t give up on your kids or grandkids. Do you want them to see you hopeless? Or would you rather use your financial burdens as an example to your family, to help them? Rose states, “What about younger people that you could influence to make sure they aren’t faced with the same dilemma.”


We realize that keeping a positive attitude may be very difficult for some, and that it’s easier said than done. However, it can make a big difference on how you deal with your finances, so try to find ways to push out negativity and keep moving forward.



  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Sorry we missed last week’s post. We extended our Holiday vacation!


Now that 2012 is here, have you thought about what you want to occur this upcoming year? Have you considered any goals you’d like to set for yourself and how to start working toward them?


Resolutions are always big this time of year, though as many people will admit, they often only last a few weeks, maybe even a few months, but they rarely lead to permanent changes in your life. Why do you think that is? There are a couple of different reasons we feel like New Year’s resolutions often fail.


  • Too Broad – If your resolution is to exercise more, have you decided what that entails? How many times a week are you going to work out? For how long? Doing what activity? At what time of day? If your resolution is too broad, you won’t have any real, tangible way to make a change.
  • Too Big – People often make huge resolutions and try to jump in 100% and get everything done at one time. Then, as time passes, enthusiasm starts to fizzle out, either from lack of results, lack of true commitment, or any other possible excuse people make. Weight lose is a great example since it is a popular resolution. Instead of immediately cutting out everything bad to eat and going crazy dieting and exercising (which often leads to either giving up completely or losing weight and gaining it all right back) think about small, truly sustainable things you can do to realize your resolution. Make one small change at a time and you’ll be more likely to succeed. The weight may come off more slowly, but you’ll be less likely to give up because you feel deprived or frustrated.


Do you have a resolution that involves your finances? Maybe there’s something you want to save for or maybe you want to pay down your debt. Does your financial resolution fit one of the descriptions above? Do you have a plan on how you’re going to realize it?


Why not turn your resolutions, financial or otherwise, into goals instead? A goal is something much more tangible. It’s something that you’ve planned for and that you have steps in place to realize.


How do you turn a resolution into a goal? Just think about it. If your resolution is paying down debt, think about what that entails. Decide on the best debt repayment plan for you life, decide how much extra a month you can afford to use towards paying it down. Then, once you’ve decided on a plan, begin taking small steps to start moving toward that goal.


Of course, not all goals are successful just because you’ve planned them out. However, they will be much more likely to be successful than unplanned resolutions. If your New Year’s resolutions are important to you, don’t set them aside until 1/1/13.



  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

There was a great post last week over at The Simple Dollar. Trent Hamm wrote “A Mindful Life,” a post about curbing your impulses and really thinking about how your decisions will affect your life.

This post reminded us of the book we reviewed her a few months back, The Real Cost of Living. Both underline that many of the choice you make in your lives will have a major impact, either personally or financially, often both.

Hamm discusses how in his younger years, he let impulse drive his decisions without consider how it would affect his future. Because of this, he ended up in a very bad place financial and unprepared for many of the roles he ended up playing in his life (like parenthood).

However, he made the decision to live “a mindful life,” where he made decisions after considering how the decision would affect his life. Doing this helped him to live a more fulfilling and success life, both personally and financially. Hamm says: “The biggest change that I’ve made in my life over the last several years is to simply start thinking about all of the little actions I take.”

Going back to The Real Cost of Living, you will often find that when you really think about the decisions you make everyday and consider the pros and cons, you will often find that the outcome is just not worth it. Even if it seems like something you should do based on your lifestyle, be mindful of all the consequences as well as the positives before acting and you’ll be more successful.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

While talking about budgeting in the past, we’ve made mention of the fact that we’re believers in overestimating the cost of something, especially when it comes to big purchases (like vacations and home projects). At LenPenzo.com, there was a post that illustrated why we believe in overestimating: “Why the Dirty Details Matter When Planning Your Vacation.”


Many people have a dream vacation as one of their financial goals. Vacations can be amazing, fun, relaxing, and they give you the opportunity to see and experience things you can’t at home. However, vacations can also be expensive, and they are the perfect example of why overestimating the cost while planning can be very useful and financially beneficial.


There are always unexpected costs involve with travel. Len Penzo describes these unexpected costs perfectly. His ideal vacation to Maui that he estimated to cost $2,700 ended up costing him over $4,300!  And where did those extra dollars go to? Unexpected costs like additional travel fees on the hotel room and airfare, tips, etc. Luckily for Len, he had enough in his “mad money” account to cover the difference in expense. But how would he have paid for it if he hadn’t?


If it’d have been you, how would you have covered the unexpected $1,600 cost? Unfortunately, too many people turn to their credit cards when something like this comes up. Then you will be coming home from your relaxing vacation to that pesky credit card bill that will likely cause you more stress.


How do you avoid this situation? Overestimate! When planning and saving for your vacation, overestimate on every expense you expect. Think it will cost $500 for food and drinks? Budget for $700. Think airfare will be $700? Budget for $1,000. Doing it this way will definitely take you longer to save, but you won’t regret it! It will feel so much better to come home from that relaxing vacation knowing that you stayed under budget and won’t have to pay off your credit card bills.


And what if you overestimate too much? Apply the extra toward your next vacation or goal. So, if you think your vacation is going to cost $3,000, it actually costs you $4,000, but you saved $5,000, you will not only avoid the credit card bill, but you also have $1,000 to spare that you weren’t counting on. Overestimating the cost is definitely a more financially beneficial way to go.


  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

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