Ruin My Credit The Dollar Stretcher by Gary Foreman gary@stretcher.com I am not a financial whiz. Never was and never will be. Therefore, I respect the advice of those who seem to be knowledgeable about financial matters. However, when it comes to knowing what is in your credit report, I have one question -- who cares? I am 54 years old, have purchased several vehicles, two houses and can write checks anywhere in the town I live or the surrounding smaller towns without any hassle. I have never been turned down for credit. In fact, if I sign up for a new credit card for a minimum balance I can assure you that within three years my credit limit has increased considerably. Given the above situation, when I am threatened by a bill collector (I don't pay for things just because someone says I owe them money) that they are going to "ruin" my credit, I just laugh at them and say "go right ahead" because it doesn't matter to me. Betty Betty is certainly an independent individual! I suspect that most of us admire that. But, if she's not careful, she could needlessly paint herself into a financial corner. There was a time when having a good reputation in your town was enough to get you credit when you needed it. And, no stranger could destroy a good reputation simply by making a claim against you. But, somewhere along the way companies began to collect information about borrowers. And they sold that information to potential lenders. It's progressed to the point that virtually every adult in the U.S. has a credit score. The FairIsaac Company created the credit score also known as FICO. Your score will be a number between 300 and 850. A higher number indicates a better credit risk. So higher is better. Most people have scores between 600 and 700. Not suprisingly lenders want to get their money back. And the best indicator of a borrower's ability to repay a loan is their credit score. Over 75% of mortgage lenders and 90% of credit card lenders consider your FICO score when determining whether to make a loan and how much interest you should be charged. Now let's look at Betty's situation. It appears that she has had some disagreements over bills and refused to pay them. That, plus the fact that she continues to get credit tells her that her credit score is unimportant. Is that true? Betty's credit score not only affects her ability to get credit, but also the amount that she pays for it. So, unless she pays her credit card bill in full each month, a low score will affect what she pays.She might want to check the fine print on her original credit card agreement. In some, if your FICO score drops below 600 you'll be charged the penalty rate on the outstanding balance. Those rates can be as high as 30%! But, the biggest potential hit from a low score comes when you finance a home or auto. MyFico.com is a website subsidiary of the FairIsaac Company. They estimate that a 200 point drop in your credit score could add 3.5% to the interest rate on a 30-year mortgage. Over the life of the loan that works out to over $80,000 in extra payments. And, unfortunately even if Betty never runs a credit card balance and has her home and auto paid off, she's still not completely independent of a bad credit score. Auto insurers and potential employers can access your score. A low score can affect whether you get auto insurance or that new job. Even utility companies and potential landlords are using credit scores. So should Betty just give up and pay bills that she doesn't feel she owes? Nope. But if the disputed bill is entered into her credit report she needs to contact the credit reporting agencies and have her side of the story entered. Even if you don't have disputed bills, it's a good idea to check your score annually or before you apply for a mortgage or auto loan. Recent studies have shown that 29% of credit files had errors significant enough to cause a 50 point swing in the score. To check or correct your score: Equifax, 800-685-1111, equifax.com Experian, 888-397-3742, www.experian.com TransUnion, 800-888-4213, transunion.com If you report an error the agency must investigate your claim and respond within 30 days.Philosophically I agree with Betty. I dig in my heels when someone threatens me. But unless she's unusually self-sufficient, she probably needs to periodically check her credit score and share her side of the story on any disputed bills. Gary Foreman is the editor of The Dollar Stretcher.com website. If you'd like to stretch your day or your dollar visit today! Permission granted for use on DrLaura.com More >>

Rent or Buy? by Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFPreg; www.WIFE.org www.MoneyClubs.com A tremendous sense of pride comes with owning your own place, and owning a home has financial advantages as well. You can deduct the mortgage interest and property taxes on your income tax return, your house may appreciate in value, and when you sell your home you#146;ll likely realize that gain tax-free. Those are pretty great perks for investing in property. But buying a house at the wrong time or spending more than you can afford are mistakes that can seriously derail your financial plan. Fail to pay your mortgage and you could lose the roof over your head. During a housing slump, renting is often your best bet, since property owners who are waiting for prices to rise will rent out their property, flooding the market with rentals and causing rents to drop. Your decision to rent or own should be based on your own personal situation and finances. For a worksheet that will help you get a better sense of the financial and tax consequences of renting or buying, click here. http://www.wife.org/money-invest-rent-or-buy-home.htm . Cofounders of the nonprofit Women#146;s Institute for Financial Education ( www.WIFE.org ) and the new MoneyClub for women ( www.MoneyClubs.com ), Candace Bahr, CEA, CDFA and Ginita Wall, CPA, CFPreg; are trusted financial guides for millions of women. As owner of her own investment management firm, Candace was recently recognized as one of the top ten brokers in the country for 2003 by Registered Rep magazine. Ginita has been named to Worth magazine#146;s Top Financial Advisors for seven years. Both authors are nationally-recognized experts on women and money and regularly appear on CNN and CNBC and in national financial and women#146;s publications. This article is excerpted from their new book It#146;s More Than Money#151;It#146;s Your Life! The New Money Club for Women (John Wiley, 2004). Permission granted for use on DrLaura.com. More >>

Investment Returns The Dollar Stretcher by Gary Foreman I have read lots on saving money and retirement. In most of the articles it states you can get a return of 10% or 12%. Where do you go to find this kind of earnings? If you have to invest in the stock market, where do you find a person to help you do this without them getting most of your money for helping you? Thanks. Joy Joy asks two very good questions. What is a reasonable rate of return for her retirement savings? And, what does she need to do to earn it? We'll begin by looking at the return question. Is 10 to 12% per year a realistic goal? The first thing for Joy to remember is that as the potential return increases, so does the risk of loss of part or all of her investment. But, not all risks are the same. She needs to evaluate the risks. For instance, with a CD she'll have a bank guarantee that she can have 100% of her principal back any time she wants it (minus any interest penalties for early withdrawal). Or she could choose to invest in stocks. Greater risk, but also a greater possible reward. The risk is different, however. No one can guarantee that any stock, fund or market will go up in the next year. So there's greater risk for the next year. But, suppose that Joy is years away from retirement. If she'll be keeping her investment for ten years and is willing to own a variety of companies, the risk can be largely eliminated. For instance, the Dow Jones Industrials have gone up in every ten year period going back for over 100 years. Including the depression years. One other interesting item. What Joy really needs to know is what the Compounded Annual Growth Rate (CAGR) is. That's not the same as asking what the "average" return is. The difference is in how compounding affects up and down years. You could do the math manually, but a financial calculator is much easier. Back to Joy's original question. Is 10% possible? Yes, as a matter of fact it is. The SP 500 CAGR has been in the range of 10.5 to 11% per year for 10 year periods since 1926. So if Joy can just do as well as the historic market average, she should do ok. What about bonds? Over the long term stocks will outperform long risk-free bonds by about 6%. So if Joy wants to be in that 10% range she'll need to stay with stocks. Now to the second part of Joy's question. Where can she get advice in selecting investments? Selecting individual stocks is not a good idea. Finding a good broker will be difficult. When I was a broker we were instructed to find 200 clients who could produce $1,000 worth of commissions in a year. Very few retirement accounts are that large. So Joy would always be at the bottom of the broker's list. Joy will do much better investing in something called an 'index fund'. Not only can an index fund earn you the stock market average, it will do so with minimal expenses since it doesn't need a large staff to decide which stocks to buy and sell. The Securities and Exchange Commission (SEC) website describes an index fund as a "mutual fund or Unit Investment Trust whose investment objective typically is to achieve the same return as a particular market index, such as the SP 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index." Joy will need to do a little research before choosing a fund. But, it's not something that's too difficult for the average adult. She can find help online at The Motley Fool site . And there are numerous books on the subject. Any by John Bogle are excellent. He's the man who literally invented the mutual fund back in the 1950's and is a supporter of index funds. If Joy wants to take an active part in managing her retirement portfolio, she might want to select a couple of different index funds. Different indexes will behave differently in different economies and a changing world. NASDAQ will be more affected by technology stocks than the Dow Jones Industrials. For instance, if she's bullish on technology she should have more of a NASDAQ index and less of the Dow Jones one. Bottom line? Over the long term Joy should be able to earn about 10% on her retirement savings without spending a lot of time or money managing her investments. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher.com website and newsletters. Visit today. You'll find thousands of money-saving articles. Permission granted for use on DrLaura.com More >>

Less is More this Christmas! By Jill Cooper and Tawra Kellam www.livingonadime.com After laying down my last women's magazine telling me how to be less stressed during the holidays, I'm even more confused and stressed then ever. On one page I'm told to take time for myself and indulge in a lovely spa bath. That sounds great, but I can hardly find time for a shower on a slow day in June let alone take a spa bath the week before Christmas. As I turn the page, I'm told to give all my friends and family homemade ornaments to which I have lovingly glued 500 beads, each the size of a grain of sand. OK I'll admit I'm not a rocket scientist, but I am baffled when I try to imagine how I could accomplish these two things even if I didn't have an ever growing list of Christmas preparation tasks. Hmmm. Maybe I could lay in my spa bath carefully gluing on beads to ornaments throughout the night. Oh, it gets better. As I read on, there are articles telling me how not to gain weight at Christmas parties. Isn't that like telling a three year old to not get dirty while making mud pies? Oh! But it gets better. They then tell you to eat a meal before you go to the party. What? Is that some kind of new diet where you lose weight by eating two meals in the evening instead of one? If it is then I'm all for it. I mean really - who eats four carrot sticks and five pieces of celery at home then arrives at a party where they have pecan pie, five different types of fudge, 10 dozen cookies and egg nog and says " Oh no, I really couldn't eat a thing. I'm sooooo full..?" Excuse Me! Doesn't anyone live in the real world any more? I think to top it all off (and the part I like the best) is after they tell us how to get rid of stress and not gain weight, they give us 10 pages of recipes for Christmas cookies made with real butter and cream that are decorated so elaborately in the pictures that it probably took a trained kitchen staff of 10 a week to make one cookie. If you are like me and can't stand that kind of stress, try some of these Christmas ideas from www.livingonadime.com to help you have a relaxed and Merry Christmas. Don't over-spend - It may be tempting to fixate yourself on the sparkling look in little Johnny's eye when he sees that $300 play car under the tree. Advertising people are really good at feeding many parents' fantasies of their children thinking that mom and dad are the peaches and cream for shelling out the cash and looking fondly back on the moment for the rest of their lives. The reality of it though is that most kids have lost all interest in that particular toy long before the credit cards are paid off. When we were growing up, my mom pulled out all of the stops at Christmas to make it as wonderful for us as she possibly could. The funny thing is that now that we are grown, the things we remember the most fondly are mom's red jello salad (made with red hots - yummy!) and sitting together and reading the Christmas story before opening our presents. I can't remember what presents I received, but I always look back on the Christmas story. Do a few things well - Instead of trying to do everything and ending up depressed with how it all turns out, focus your energy on a couple of things that are the most important to you. You may be tempted to extravagantly decorate every room in your house, but if you don't have the time or energy, focus on one room, like a living or family room. If your entire house is beautiful but you have to go see a therapist when it's all over, the romantic mystique will be lost. Trust me, I know about this one from personal experience. Limit activities - Think of the holiday season as triage for activities. Don't commit to do too many things. One or two parties during the holiday season will make you get all tingly in that "It's a Wonderful Life" kind of way. One or two parties a week may send you over the edge, especially if you have kids. (Refer to my therapist comments above.) This also applies to all of those appealing looking activities around town like Victorian Christmas events, Christmas celebrations at the zoo or winter carnivals. One or two can be a lot of fun, but too many will ruin the fun. Limit cookie baking. Don't try to make 15 different kinds of cookies like Martha. She may look like she is super woman, but did you know she has a lot of people that help her? How much help do you get with your baking? I mean real help, not your five year old who makes everything twice as difficult for you. This is great for grandma, but you have to see your daughter every day and grandma can send her back when the house is sufficiently covered in flour. Again, pick your two or three top favorite cookies to bake and celebrate the fact that you had few enough priorities that you remembered to put the sugar in them. Everything doesn't have to be homemade. I know that we advocate making your own stuff, but Marie Callendar's makes some great pies that you can pass off as homemade if you want to soothe your guilty Martha Stewart conscience. In 20 years, your kids will look fondly back on it as the best pie they ever had. But seriously, if you are making things homemade just to save money, remember that some things like candies and pies are often more expensive to make homemade, especially if you cut your finger while slicing the apples. Don't ask me how I know, just trust me on this one. These aren't the only things you can do to reduce your stress, but if you stick to doing a few things well, you can truly relax and enjoy the season with your family. In the end, they would rather have fond memories of their time with you than memories of how strung out mom was after she burned the cookies. Jill Cooper and Tawra Kellam are the authors of Not Just Beans . Not Just Beans will help you shop smarter, by cooking simpler meals and by making your own basic cleaning products. For free tips recipes visit www.livingonadime.com . Permission granted for use on DrLaura.com More >>

Freecycle The Dollar Stretcher by Gary Foreman www.stretcher.com Dear Dollar Stretcher, I found a website that you will love. It's called Freecycling. People post stuff they don't want, other people contact them to get it. It started in Tucson in 2003, I think, and there are now groups all over the world. I'm in Cincinnati - our group has 3,000 members. Please check this out - this is the ultimate in frugal living! Mary Lynne Mary Lynne is right. She's onto something that a lot of people would find interesting. The Freecycle.org website describes the project this way: "Freecycle is a project of RISE, Inc., a 501(c)3 nonprofit organization whose mission includes reducing the amount of waste sent to landfills and fostering cooperation between other nonprofit organizations and the public." It works fairly simply. People join a list of freecyclers in their city. When they're ready to dispose of an item or looking for something they send an email that goes out to the entire list. If you have an interest you contact the original poster and make arrangements to exchange the item. No money changes hands. The freecycle site will allow you to look for a group in your city. If you don't find one, the site will give you step-by-step instructions on getting one started. The site claims that just under 600,000 people are part of the groups. They're not limited to the U.S. but can be found worldwide. Twenty five different countries are shown on the list of international participants. They range all the way from Brisbane, Australia with nearly 500 members to a number of cities that have one lone member trying to get things up and running. Portland has the largest group with over 11,000 members. The 2002 census put Portland's population at 538,000. So clearly it's an idea that's caught on there! Nonprofit organizations are encouraged to use Freecycle to get things that their clients need. Members are requested to give priority to nonprofits if more than one person wants their item. So how does it work from a practical aspect? I joined about two months ago. Our list has 600 members in a city of about 50,000. To avoid a lot of email I chose to use the 'digest' mode. That means that I get one email each day that includes all the individual emails to the list over the last 24 hours. I could also have chosen to not get any emails and used the webpage to view postings. A couple of things are important to the program. Everything offered must be free. Lists are monitored and they claim to maintain a '2 strikes and you're out' philosophy. That means that if you break the rules once, they'll assume you didn't know and warn you. But, if you break them a second time you'll be banned from the group. Our group seems to be controversy free, but the moderator has included a reminder of the rules once or twice. One weakness that I've noticed is that there seems to be a lot of 'wanted' postings. And, while that could trigger someone to clean out a closet, my experience is that rarely seems to happen. A second weakness is that the size of the group is both an advantage and disadvantage at the same time. A larger group will have more items available and more people who could be interested in an item. But, as a group gets larger the amount of mail it generates also increases. Giving items away seems to work well. I tried it with some household items and it worked without a flaw. One posting elicited two email responses. I connected with one by phone and they came and picked up the items the same day. Like most projects, the biggest trick is to get it started. A group with a very few members will have a difficult time finding matches between those offering and people wanting goods. Probably 100 or more members are needed for a well functioning group. One thing leading to the success of Freecycle is that it is free. There are no dues to belong to the group. You only risk a few moments of your time to try it out. The project appears to be very much a grass-roots effort. The freecycle.org webpage doesn't have a 'contact us' link. So beyond the initial instructions on how to form and group and get the computer list running, you're pretty much on your own. Take Mary Lynne's advice. If you like recycling and getting the most for your money, you should check out freecycle.org. At the very least you'll have an interesting, free experience in how the internet is impacting our world. Gary Foreman is the editor of The Dollar Stretcher.com website. You'll find thousands of articles to help you stretcher you dollar and your day! Visit Today! Permission granted for use on DrLaura.com More >>

Choosing a Space Heater The Dollar Stretcher by Gary Foreman www.stretcher.com Last year when the price of natural gas went up, I was shocked at my heating bill. Almost one week's paycheck a month was going to keeping my house at only 65 degrees. I decided a change had to be made. I sewed a heavy floor to ceiling curtain and hung it in the hallway separating the bottom floor of my house from the upstairs. That way I wasn't heating empty bedrooms and a second bathroom all day long. I turned my furnace thermostat down to its lowest setting and bought a small electric heater to heat the bottom floor of my house during all but the time we were sleeping upstairs. My heating bill went down almost 35 percent! This year gas in my area is going up 12 percent and electric is actually going down. I am thinking about not using gas heat at all and getting another electric heater for upstairs at night. I am confused about what kind of electric heater to get. Which is the most efficient? I've seen quartz, ceramic, coil, and oil filled but I don't know which one works best? No matter which one I get I will try and get one with good safety features. Mary Mary has discovered one of the best ways to reduce your home heating bill. Only heat the rooms that are occupied. Especially when there's only one person at home and they're only using one or two rooms. And the simplest way to heat a room is to use a portable electric space heater. Space heaters convert almost all of the electric used into heat. In that, they're very efficient. Unfortunately, electricity is often made from gas, oil or coal. And only about 30% of the energy used goes into electricity. So while you probably wouldn't want to use electric to heat your whole house in a cold climate, it's often the most cost efficient method for heating a smaller area. According the Central Maine Power Company the average cost of an electric heater is 13 cents per hour. Mary is also wise to be concerned about safety. Space heaters can be dangerous. Even deadly, especially if you have small children. Safety features are an important part of the purchase decision. Make sure that you read and follow the instructions. Space heaters generally provide heat in one of two ways. Radiant heaters actually heat the objects at which they're aimed. They do not heat up the air in the room. The other type, convection heaters, warm the air around them. Not heating the air is an advantage for radiant heaters. There's no drafts from moving air. And radiant heat is great for heating just portions of a room. You're only heating the areas where you want heat. Just point the radiant heater at the chair that you're sitting in! Radiant heaters use a variety of heating elements. Many use quartz tubes. Quartz heaters generally cost less than $70 and are rated between 750 and 1500 watts. Parabolic heaters use a ceramic core. They cost a little more than quartz and put out about the same amount of heat per watt used. Ceramic element heaters are safer than heaters with coils. They use a larger heating area so it doesn't need to be as hot. Halogen or reflective heaters use an energy saving halogen bulb to produce heat which is reflected on nearby objects. The feeling is much like having the sun shine on you. Convection heaters can heat a whole room more quickly than a radiant heater. That works well if there are a number of people in the room or they're moving about within the room. Some convection heaters also have fans to circulate the air in the room. Convection heaters are inexpensive. You'll get one rated up to 5,000 Btu's for less than $50. Like radiant heaters, convection heaters use a variety of heating elements. Ceramic disc heaters cost up to $150 and produce up to 5,000 Btu's per hour. Oil and water filled units are the most efficient convection heaters. They utilize a heating element in a bath of oil or water. Like a water heater, the element cycles on and off. The water or oil stays warm in its container and heats the surrounding air. So which heater is best for Mary? Since she's considering a nighttime application people won't be moving around. So she's probably best choosing a radiant heater for each occupied bedroom. And, unless she has young children with inquisitive hands, the halogen or ceramic heater will provide more heat per kilowatt hour of electricity. Whatever Mary picks we hope that her utility bill won't be the hottest thing in her home this winter! Gary Foreman is the editor of The Dollar Stretcher.com website. You'll find thousands of articles to help you stretcher you dollar and your day! Permission granted for use on DrLaura.com More >>

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That's The Ticket: Discount Night At The Movies By Cheryl Gochnauer Cheryl@homebodies.org Copyright 2004 In less than a month, #147;Lord of the Rings: Return of the King#148; hauled in more than $300 million from moviegoers. Ecstatic reviews propelled audiences into theaters across the country, eager to enjoy Peter Jackson#146;s talented team delivering Oscar-caliber performances. Not to be an Orc about it, but the ca-ching of the Ring could have been held to only $298 million or so if ticket buyers had taken advantage of a multitude of discounts available to them. It only takes a change of hobbit #150; er, habit #150; to save money the next time you storm the walls of your local cinema. GO BEFORE 6:00 PM. Matinees ticket prices are usually a couple of dollars cheaper than for prime time shows. That means a family of four can visit the concession stand with $8 extra dollars in their pockets if they head for the theater after school instead of after dinner. LET AGE WORK FOR YOU. Children and seniors pay lower rates, as do students with current ID cards. Some drive-ins admit kids under 11 free. Don#146;t forget seasonal programs like Regal Cinema#146;s ( www.regalcinemas.com ) Family Film Festival and Dickinson#146;s ( www.dtmovies.com ) Summer Kids Movies pass featuring past G and PG-rated films. Sure, they#146;re already out on video, but it#146;s still great to see favorite films on the big screen. And at $1.50 or less per ticket, it#146;s a cheap way to entertain the tots. CHECK THOSE COUPON BOOKS. The next time a fundraising student appears on your doorstep selling Entertainment or Gold C books ( www.entertainment.com ), invite them in. Recent Gold C books included coupons for Cinemark ( www.cinemark.com ), AMC Theatres ( www.amctheatres.com ) and Regal Cinemas. The Entertainment book tends to expand these listings, adding even more movie houses. Also flip through those coupon pages in your phonebook to seek additional discounts. REWARD CARDS. Just like grocery stores, several nationwide theater chains reward repeat customers. Membership is free; ask for card applications at the box office. AMC MovieWatchers accumulate 2 points for every ticket purchased (limit 4 points per visit). As they hit 10-point thresholds, customers receive coupons for free drinks, popcorn or tickets. MovieWatchers also get free popcorn on Wednesdays, and can order advance tickets with no service fee. Many Dickinson Theaters feature the DT Movies Bonus Club Card. One point is awarded for each ticket purchased; moviegoers get free popcorn at 5 points and a free ticket at 10 points. Saving this much money may put you in the mood to return to the movies again. Have fun, and may the Frodo be with you. Comments? Contact Cheryl by writing Cheryl@homebodies.org . Also stop by www.homebodies.org , where you can interact with other parents on a variety of lively message boards. Permission granted for use on DrLaura.com More >>

Lost Opportunities The Dollar Stretcher by Gary Foreman www.stretcher.com Sometimes it's helpful to take a concept out of its original environment and see how it fits someplace else. Today we're going to examine an economic theory and see how it might apply to our personal lives. The Economist website ( economist.com ) defines 'opportunity cost' as "The true cost of something is what you give up to get it. This includes not only the money spent in buying (or doing) the something, but also the economic benefits that you did without because you bought (or did) that particular something and thus can no long buy (or do) something else." To put it simply, for everything you get, you give up something else. That's an important concept. Let's consider an easy example. If you spend $15 on a pair of jeans, you do not have that money available to buy a pizza. The 'cost' of the jeans is not only $15. It is also giving up a pizza. Another way to look at opportunity cost is the amount of time we give up working to buy a product. Suppose you make $12 per hour. Our tax rates are all different, but you can pretty much expect to pay about 1/3 in Social Security and federal, state and local income taxes. That leaves you with $8. Let's further suppose that you go out to lunch with co-workers every day. And a typical lunch costs you $6. Add a tip and sales tax and that lunch brings the total to $7.20. So you give up 54 minutes of your life every day to work just to pay for lunch. How about a different situation. Remember that an opportunity cost is what you give up by making another choice. For instance, suppose that you choose to spend $100 on a credit card knowing that you'll pay the minimum when the bill comes due. In effect you've given up about $140 in the future to make that purchase today. That's because finance charges will be added to the cost of your purchase. We face opportunity costs with our time, too. I can choose to spend an hour watching TV. But that's an hour that I won't be talking to my wife, playing with the kids, doing home projects or sleeping. Of course, watching TV might be the best use of that hour. Still, it's a good idea to think about it before you spend the hour. Sometimes the difference between choices is surprising. Suppose you spend $1 at break time five days a week. No big deal. Right? But if you didn't spend that dollar every day and put it in a bank at 3% interest, you'd have $3,000 in ten years. Or $7,100 in 20 years. Or $20,000 in 40 years. So by choosing that $1 snack each day you've given up a new car when you retire. A good trade-off? Only you can decide. There's also the possibility of trading money today for time tomorrow. For instance, you could use the money from those work day snacks to allow you to retire 3 or 6 months earlier than you would otherwise. Is it unusual to think of 'banking' a few minutes each day towards an early retirement? Perhaps, but it does give you a new perspective on spending. But, what about credit cards? Don't they make it possible to buy both things that we want? Yes, you can use your plastic to do that. But credit cards are deceptive. They lead you to believe that you can spend more than you make. And, for a short time that's probably true. But eventually you get to a situation where you can only afford the minimum payment each month. Once there, you're back where choosing to spend on one thing prevents you from buying something else. And, you've also made the choice of paying interest to the credit card company on the monthly balance instead of having that money for other uses. So how can you use opportunity costs to help you live a happier life? By thinking of the alternatives before you spend your time and money. Even though something looks good, if you stop to compare, you might find something else that you'd prefer to spend your time or money on. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website /www.stretcher.com You'll find thousands of articles to help you make the most of your time and your money. Visit today! Permission granted for use on DrLaura.com More >>

Replacing a Leased Vehicle The Dollar Stretcher by Gary Foreman I have a 4 year-old Toyota 4Runner with 33,000 miles that will be at the end of the lease next July. I have never had any problems with the truck and I would love to keep it, but it would cost approximately $17,000 at that time and I will only be able to pay $4,000 in cash. Is it smarter to finance $13,000 on a lesser vehicle that is brand new or only slightly used with a warranty? I have checked into financing the $13,000 for 36 months and can afford to make those payments but that will mean paying for this vehicle for 8 years, yuck. I knew this was a mistake from the moment I did it, but now I have to get out. Thank you. Jill Jill is right. When she signed the lease three years ago, she set herself up for this problem. Leasing is attractive because allows people to drive cars that they really can't afford. That's because you're only paying to use the car. During the course of the lease you build no equity in the car and have to return it to the dealer at the end of the lease. Using Kelley's Blue Book (www.kbb.com) for pricing info, we found that a 4Runner depreciates nearly $12,000 in the first four years. That's the portion that Jill was paying for. Unfortunately for her, the first few years are the most expensive years for any vehicle. That's one reason dealers push leases. It is very profitable business for them. Jill has four basic options available to her. She can buy a new car, lease a new car, buy a used car, or buy her existing 4Runner. Let's look at each choice. Buying a new car will be the most expensive option. A new car will mean the highest yearly depreciation and the highest monthly payments. But, the biggest advantage is that once the car is paid for it belongs to Jill. Once she's finished with the payments she can drive the car payment-free for as long as she likes. She'll also have the benefit of the new car warranty. If Jill chooses to buy a new 4Runner or similar vehicle, she'd be borrowing $25,000 ($29,000 purchase minus $4,000 down payment). On a four year loan the average payment would be $588 per month. That means that the new car payment is nearly 50% higher than the used car payment. And she'd have an extra year's worth of payments on the new car. A sharp dealer could reduce Jill's payment on a new car by showing her a 6 year loan. That would reduce her payment to $403 per month. Basically the same as the used car payment. But, that would mean paying over $4,000 in interest over the life of the loan and making six long years of payments. Another new car option would be to buy something less expensive, like a Toyota Carolla. For $17,000 (the same price as her used 4Runner) she should be able to get good, reliable transportation. Plus have the warranty. Leasing a new car would get her a lower payment. But, after a few years of lease payments she'd be right back where she is now - without a car. Buying a used car would keep her payments down and allow her to own a vehicle once the payments are complete. If Jill finances $13,000 on a used car or buys her present 4Runner (figuring $17,000 purchase price minus $4,000 down payment) her monthly payment would be $401 for 36 months. The disadvantage, as Jill pointed out, is that she could be making payments on a 7 year-old car. But, at the end she'd own a 4Runner worth over $11,000. And, if she were worried about repairs she could buy a 4-year extended warranty for about $1,000. Probably the best long-term choices for Jill would be to buy her 4Runner or to find a used vehicle. The payments are affordable and she will own her vehicle when they're done. With her 4Runner she'd be buying a used car that she's very familiar with. It is also a car with lower than average mileage. If Jill decides to buy her car she can negotiate with the leasing company. Depending on the circumstances they may be willing to let her buy the car for less than the price in the original lease agreement. Ultimately Jill needs to decide how much she enjoys that new car smell and the comfort of a new car warranty. The safest financial deal would be to buy her leased truck or a similar used truck depending on where she can get the best deal. Next best would be to buy a less expensive new car. No matter what she decides we hope that she enjoys many trouble-free miles. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website and newsletters. You'll find thousands of articles to help you stretch your day and your dollar. Visit today! Permission granted for use on DrLaura.com More >>