Investing for Children The Dollar Stretcher by Gary Foreman We have 4 grand children that we have been purchasing stock for at Christmas for the last 10 years. The stocks are valued from $500 to $3,000. The brokerage house fees were running too high even though we had them under our account. We have just liquidated the accounts and our goal is to look for the best place to invest this money and continuing our yearly $150 contribution for each. Rich Rich is right. Investment expenses matter. The Securities and Exchange Commission calculates that a 1% difference in expenses on a $10,000 investment earning 10% annually would mean a difference of $11,133 in 20 years. Rich isn't investing that much, but clearly the difference is dramatic. And Rich is also right that beginning a savings program for children is a great idea. For instance, a public college that costs $12,841 per year today would cost $36,652 in 18 years if costs rise 6% per year. There are two things for Rich to consider. First, how will he invest. And, second, how will the investment be legally owned. Owning individual stocks is very hard unless you're going to be investing more than $150 at a time. Even a minimal $8 commission reduces your $150 investment by more than 5%. So it takes 6 months or so to earn enough to make up for the commission paid. Generally, mutual funds offer more flexibility for the small investor. The average expense for a mutual fund that invests in domestic stocks is 1.4% per year. That's a whole lot better than the cost of buying individual stocks. Owning a mutual fund allows you to reinvest dividends. Something that's almost impossible with an individual stock unless a DRIP (dividend reinvestment plan) is available. If a DRIP is available for your stocks in this situation it would be wise to use it. Rich will want to consider something called an 'index' fund. Those are funds where management does not try to pick stocks that will beat the market. The fund is managed so that it reflects the make up of an index. For instance an SP 500 fund would have shares in the same proportion that they were in the SP 500 index. Shares would be bought and sold to maintain that proportion. There are two main attractions to index funds. One is that their expenses can be lower. For instance, the Vanguard SP 500 fund has an expense ratio of about 0.18%. But check the expenses on any fund. Some index funds have ratios as high as 1.5%. The index funds also generally perform better than the average managed mutual fund. As it turns out, most managers don't earn more than they charge the fund. And that means that the average fund does not perform as well as the market. If you are going to consider a managed fund, look for one that has a good 10 year track record. A great one or five year track record could have been caused by some unique factors that had nothing to do with the fund's managers. And, that could actually work against the fund once you've bought it. How should the investment be owned? Ideally, Rich would set up a UGMA (uniform gifts to minors account) for each child. He (or any legal adult) could act as custodian until the child became an adult. Because legally the child owns the money, Rich would not be liable for any taxes on dividends or capital gains. The one disadvantage is that the child can use the money however they choose when they reach the age of adulthood. Using a UGMA account has another advantage. As they become old enough to understand, you can review the quarterly statements with them. It's a perfect opportunity to teach them the basic facts about money. There's another, non-financial benefit of talking to your kids about their investment account. Often children strive to achieve our expectations for them. Knowing that you're saving for their college could encourage them to strive for the grades that they'll need. Rich might also encourage his grandchildren to add to the fund themselves. Kids often receive cash gifts. If they take just a small portion of each gift and add it to their investment account they'll take a keener interest in the account. And, they'll learn how to be investors. Finally, one of the most valuable gifts that you can give a child is an understanding of how compound interest works. There's a huge gulf between people who are paying interest on credit cards and those who are collecting interest on investment accounts. Getting on the right side of that gulf is important. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.thedollarstretcher.com . The site has hundreds of ways to help you stretch your day and your dollar. Visit today! Permission granted for use on DrLaura.com More >>

Mother vs. Girlfriend The Dollar Stretcher by Gary Foreman gary@stretcher.com I am a 33-year-old man who recently moved in with my girlfriend. I am also the holder of an auto lease on a 4 year-old Ford Taurus, which has approximately 20 payments left on at $314 each. I leased this auto for my mother to drive, as I was living with her at the time and she suggested my paying for the lease in lieu of paying rent, utilities, etc. I have borrowed money to pay on a car for myself. My girlfriend and I feel that the money spent on the lease should be going toward our own rent and our own future. Besides, the lease is no longer affordable at the current payment, especially when I am no longer staying in my mother's home. She is unable to afford to pay the lease herself. I still want her to have a car to drive, but I don't want to be responsible for this lease any longer. What are my best options in this case? Curt in OH They say that loaning money to a friend is a good way to lose both the money and the friend. I doubt that you can lose your mother, but Curt sure is in a sticky situation. First let's see how he got into this mess. Then we'll look at what options he has to solve it. Curt made a couple mistakes. First, it's a good idea to keep financial transactions simple. He should have paid his mother rent and let her lease a car on her own. Now both deals are tied together. And that's a problem. Second, by leasing the car he made a long term commitment without thinking about how he'd fulfill it. It's a common problem. Curt isn't the first person to sign a car loan or lease agreement without making sure that the money to make payments would be available throughout the life of the loan or lease. Taken together it is almost as if Curt signed a five year apartment lease with his mother!So what can Curt do to keep avoid an un-civil war? He can begin by looking at what he hopes to accomplish and what resources he has available. He wants to do three things. One, he wants to have money to contribute to his current living expenses. Two, he wants to continue to make payments on his car. Three, he doesn't want his mother to give up her car. Apparently, he had enough money for both car payments, but that doesn't leave anything for sharing living expenses. So the solution is either going to have to increase the amount of available money or it's going to require sacrificing one or more of the three goals to some extent. One way to increase the amount of income available would be for mom to take in a border or Curt to take a part-time job until the lease payments are completed. It's possible that Curt and his mom won't want to try either solution. But then Curt must recognize that he probably can't meet all three goals. At least not without some adjustment. Curt might have to tell mom that he can't continue the lease payments and leave her the choice of taking over the payments or giving up the car. If mom chooses to give up the car Curt will need to close the lease early. He'll probably have to pay a penalty. He can't just quit making lease payments. That would damage his credit rating. If the termination penalty is too great, Curt might decide to sell his car and keep the Taurus for himself. Of course that means when the lease is up he'll be looking for a car again. It's possible that a lower lease payment might help. One way to do that is to refinance the lease. That would provide lower lease payments, but would extend the term of the lease. Still another option would be for Curt to sell his car and buy something that wouldn't require a car payment or would require a lower payment. It's also possible that Curt could pay part of his mother's lease and still have something to help his girlfriend pay rent. One thing for every one involved to remember is that in 20 months the lease will be up. Curt won't be responsible for paying it at that point. And mom will be without the Taurus. So what should Curt do? Only he can decide what option will keep mother and girlfriend on speaking terms. It's likely that there is no answer that will please everyone. Perhaps the best Curt can do is to be more knowledgeable next time he faces a similar situation. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website where you'll find hundreds of ways to stretch your day and your dollar. Permission granted for use on DrLaura.com More >>

High Definition TV The Dollar Stretcher by Gary Foreman gary@stretcher.com My husband and I are considering purchasing a new television set. We know there are some changes in the way the programs will be broadcast and viewed in the near future. We think we are right to wait another year or two to replace our existing TV, but we are getting some confusing information about what this new technology will bring. There are some great bargains now, but it seems like purchases today will be seriously outdated soon. Could you explain what consumers have in store for them with the new high definition TV and what they need to know prior to making new TV purchases. Susan In the beginning was analog TV. And we watched it happily for 50 years. But new digital TV technology will make analog obsolete. There are two main advantages of digital TV. It provides a clearer, sharper picture and it has a wider display much like a theatre. High definition television (HDTV) monitors can produce up to 6 times more picture detail because they receive and display much more data. Susan's right. Analog TV will be phased out. Originally planned for 2006, probably somewhat later. But, even when analog programming is no longer being broadcast, you'll be able to buy a set-top box that will make your old set usable. There are three things involved in getting true HDTV. First, you need a HD digital signal source. That could come from a DVD, your cable company or even an antennae. Next, you'll need a digital tuner. It can be a separate set-top box or be built into the receiver. Finally, you'll need a HD digital monitor. What you see will only be as good as the weakest component. If Susan buys a set now, she'll need to choose between an analog and digital model. Her decision will depend on how she plans on using the TV. If it is the home's main set and will be used for movies, she'll want to consider the more expensive digital sets. But if it's a second set that's only used to watch the news before drifting off to sleep, then an analog set should do the job. Susan might save some money by considering an EDTV (extended definition TV). It's less expensive than the HDTV and provides a picture that's similar to HDTV. She'll have a number of other choices to make. She can purchase an HD monitor and a separate receiver box or an integrated unit that includes both. An 'HD ready' monitor will not include a digital tuner. Next is the set's format. Some are made to the 720p standard and will only produce 720 lines of resolution. Others are designed on the 1080i standard and display 1080 lines. More lines means a better picture. Especially on the larger monitors. There are a number of technologies being used in displays. And, more are on the drawing boards. Unless you're a real videophile probably the best way to compare sets is with your own eyes in the store. There's no sense paying for a difference that you can't see. Even if you buy an HDTV monitor you will still have compatibility issues. For some time to come, the monitor will need to be able to produce a picture from an analog signal, for instance your VCR or video game. That means you'll need composite, S-video and component video jack inputs. Susan also needs to consider what type of sound she wants. If she's using a separate sound system, all she needs to buy is a monitor or monitor/tuner combination. Otherwise an HDTV receiver will include a stereo amp and speakers. Something non-technical to consider is how much and how long you'll use your TV. Many families have their main set on most of the day. And, they'll keep a TV for many years. So, unlike an item that you use infrequently, this might be the time to go for a little better quality. What about extended warranties? Ask about the warranty that comes with the set. Most are for one year. The newest technologies usually mean more problems until the design and manufacturing problems are worked out. That means extended warranties are more valuable. What about waiting? There are a couple of advantages. The trend is towards thinner displays. So, if space is an issue for you, waiting could produce better choices. Also, reliability is likely to improve. Especially on the newest technologies. Not to mention that prices are dropping. But those are hard to predict. Whatever Susan decides, we hope that she gets the maximum viewing pleasure per dollar spent! Gary Foreman is a former financial planner who currently edits The Dollar Stretcher newsletters and website TheDollarStretcher.com You'll find thousands of ways to stretch your day and your dollar! Permission granted for use on DrLaura.com More >>

How To Get Your Family To Save by Jonni McCoy www.miserlymoms.com How do you get your family committed to a budget? This proves to be one of the harder parts of the miserly lifestyle. If you are pinching the copperfrom each penny, but your family eats out for lunch or buys designer jeans, you have a hole inthe budget bag. Spouses and children need to be handled a bit differently, so I will address them separately. In order to get my spouse to agree to the spending changes that I wanted to try, I needed to convince him that those changes would be easy and profitable. The best thing I did to convince my husband was to annualize the savings that we could achieve. By reducing expenses and applying my guidelines to ourgroceries, I showed him that I could save $6,800 per year from our current budget. By quitting myjob, I could reduce other hidden expenses by another $8,600 per year. By doing both (quitting andapplying miserly ways), I was saving our family over $15,000 per year. Ask what they could do with an extra $15,000. Another thing that impressed my husband was the first major purchase made with the savings I had accumulated. After 2 months of miserly shopping and cooking, I had set aside enough money to buy 6 oak dining room chairs. That spoke to him. The icing on the cake was when I explained that it doesn't take me that much time, and is wellworth the trouble (it takes me about 7 hours per week). Many of us tend to have certain weak spots in which we spend freely. Be creative with anytrouble spots that your family has with money. If the problem is with buying books, learn to use the inter-library loan system to read any book in print for free. Do the same for music or videos.If it's the "gotta have a new outfit every day" attitude that is eating up the budget, learn wherethe best rerun and consignment shops are located. If computer software is the weakness, explore some shareware catalogs for cheaper fare. If eating out is the problem, make tasty lunches for them to take. The last tip that helped my husband "see the light" was to write down everything that we spentfor one month. Categorize what you spent entertainment, food, subscriptions, clothes,household, hobbies, bank fees for overdraft charges, etc.) and figure the total for each category. See how much was wasted on trivia. Show your spouse the damage. He/she might become a convert then. Convincing the kids to save can be equally as challenging as the spouse. The younger kidsseem to need a different approach than the hormonal teenagers, so I will add some tips for theolder kids separately. While shopping, it is very easy to give in to a child's persistent whining about a toy or specialfood treat, especially when you are holding a toddler, a shopping list, and your diaper bag. It'seasier to just grab what is convenient or familiar and get out of the store as fast as possible. These are the times where your miserly skills are tested severely. The best way to solve this battle is to get your kids on your side. Get them to see the finances your way. If junior understands that there is a limited amount of money to be spent at thestore, then he will say, "Oh, yeah" when you remind him that you can't afford that impulse item or more expensive brand of cereal. With this in mind, I have made some tips that have helped get my kids involved: While at the store, explain the total amount that you plan to spend at this store. Give them a calculator and have them keep a running total for you ofwhat you have spent. It helps them see what it costs, and helps keep them busy. Control your own impulse shopping. If they are used to seeing you buy whatever you want when you go shopping, then they won't understand why they can't dothe same. Let them see you put some of your things back when you realize you have gonebeyond the budget. Use the opportunity to help them learn to make choices. Explain that if we buy this brand of cereal that we won't have enough money to do something else. Ask them if they want to use their allowance to buy it. They then realize the value of money. For the very persistent (and young), let them pick only one item that isn't budgeted for. Allother wants have to be traded for that one, so that when you get to the cash register, they only have one item. Teenagers are another story, with their own unique challenges. Here are some tips that have helped us: When shopping for clothes and the "name brand" bug bites the kids, give them their portion of the budgeted clothes money. This amount should beno more than what would pay for good off-brand clothes on sale or at a rerun store. Let them make up the difference for designer label clothes by using their allowance and job money. Show them how to shop for their name brand items at good resale, consignment and thrift shops. For food, try these kitchen tested ideas: Watch what is being snacked on. Snack foods and teenagers can be a costly combination. Make your own muffins, breads, pizza, drinks, etc. If you can't make something very well (such as potato chips), stock up on them when they go on sale. Also, since bulk eating is usually an issue, practice bulk cooking (cooking once a month,etc.) Happy Frugality! Jonni McCoy and her family live in Colorado Springs, Colorado. She is the author of Miserly Moms, Frugal Families - Making the Most of Your Hard-Earned Money, and Miserly Meals. You can visit her website at www.miserlymoms.com . Permission granted for use on DrLaura.com. More >>

Inheriting Debts The Dollar Stretcher by Gary Foreman gary@stretcher.com My children's real father is an alcoholic. He has some very old medical bills that he has only been paying like $10 a month - just to keep them off his back. If he dies are the children responsible for the leftover? He doesn't have any assets and doesn't even have insurance to pay for his funeral. He is in very bad health and my daughter has taken over his checkbook and pays his bills out of his disability check. She asked me and I told her that I didn't think they would be responsible but I would try to find out. Margaret Someone once said that you should try to spend your last dollar the minute before you die. Although it's an interesting idea, I'm not sure that it makes for a good financial plan! For most of us the best plan is one that provides enough money for our life and leaves something to our children as a legacy. Unfortunately, there are some who are not able to reach that goal. Sometimes through misfortune and other times through decisions that didn't work out. It would appear that Margaret's ex was one of those people. The good news for Margaret's children is that you cannot 'inherit' a debt unless you were a party to it prior to the debtor's death. You must accept responsibility for a debt. Here's a simplified version of what happens. When a person dies someone is assigned to handle their estate. Usually that person is mentioned as the 'executor' or 'personal representative' in the will. If none is designated the state will assign someone. The estate is used to close out all financial transactions of the dearly departed. First, all final bills are paid. If there are any assets left after that, then the remaining assets are divided according to a will, trust or state law. Be sure to check for life insurance policies. People often have policies that they bought decades ago that are still valid. If the debts are greater than the assets, then the assets are sold and used to pay as many debts as possible. Secured debts (i.e. mortgage or car payments) come first. Unsecured debts (i.e. credit cards) after. Old medical bills would be unsecured. Any debts that are left after the money runs out would not be repaid and the creditor takes the loss. Sometimes people try to give away their assets before dying in an attempt to avoid leaving the money to pay debts. Creditors have the right to try to reverse those gifts even after death. Although Margaret's children are probably in the clear, they need to make sure that they don't accept responsibility unintentionally. That can happen in a number of ways. If you put money into a joint account the money is available for either joint member. A common situation is where an elderly parent adds an adult child to their checking account to allow them to write checks to pay bills for the parent. Any money that either of them has put into the account can be used to pay the bills of parent or child. Joint credit cards are another potential danger. As far as the credit card company is concerned they can collect the entire account from either person on the account. So if Margaret's daughter has a joint credit card with her Dad she will be responsible for any balance after he dies. Even if she never used the card. And, if she doesn't make timely payments her credit rating will be effected. You don't need a joint account to be allowed to write checks or make credit card purchases. A signed request by Dad will get check writing authorization or a second credit card. If there's currently a joint credit card she should try to get it closed as soon as possible. If the account has a balance, try to transfer it to a new account in only Dad's name. Margaret's daughter also needs to be careful on how they pay her father's bills. She should not write checks from her account. It's unlikely, but there's no sense giving anyone the idea that she's accepting responsibility for his debts. If she wants to help him financially, she should write a check to him and deposit it into his account. It's probably a good thing for all of us that parents can't put their children in debt. A lot of us who survive raising teenagers wouldn't be opposed to a little 'post-mortem payback' for those troublesome years! Gary Foreman is a former financial planner who currently edits The Dollar Stretcher newsletters and website TheDollarStretcher.com You'll find thousands of ways to stretch your day and your dollar! Permission granted for use on DrLaura.com More >>

Watch Your Receipts By Cheryl Gochnauer Since my ability to stay home hinges on my financial status, I guard my money when I shop. I'm not talking about watching out for muggers, though that's a wise idea, too. It simply means I watch cash register totals carefully and point out discrepancies when I see them. You would be amazed how many times the totals are wrong, whether you are at the grocery store, the gas pumps or your favorite discount center. Here are some common shopping pitfalls to watch for: Sale items ringing up at regular price. "New and improved" packaging that charges the same price for lessproduct. Clerks forgetting to subtract coupons. Items being rung up twice. "We just ran out" excuses, when you're shopping on the first day ofthe sale. Perishables being sold past their expiration date. Substitutions that don't match the quality of the advertisedproduct. Damaged product (dented cans, slit boxes, broken seals, etc.) soldat full price. It's also important for the customer to understand the requirements of any special deals being offered. For instance, I may have to buy more than one of the advertised item to get the discount. Perhaps I have to make a minimum purchase or submit a special coupon before the savings kick in. Or maybe the markdown is only valid on certain days. Another thing to keep in mind? These hard-saved dollars are too precious to be spent at stores that don't respond positively to customers' requests and concerns. Smart managers understand they attract a lot more Momma Bears with honey than vinegar. So watch those receipts, and let both price and service be your guides as you shop for your family. Comments? Email Cheryl@homebodies.org or visit the active messageboards at www.homebodies.org . Pernmission granted for use on DrLaura.com More >>

A Lot of Debt, Some Cash and a New Car The Dollar Stretcher by Gary Foreman gary@stretcher.com I need some advice. We are buying a new car and have a lot of credit card debt. Should we pay cash for the car and own it free and clear? Or pay down some of the debt and finance half of the car purchase? Carrie Carrie asks a good question. And, she has plenty of company. Studies show that the average family now has over $18,000 in debts (excluding their mortgage). At the same time millions of those families will be car shopping this year. What should Carrie do? Let's start by comparing the cost of the two loans. We're going to have to make some assumptions about Carrie's credit rating and the interest rates charged. To get more precise she can do the calculations using her actual rates. For illustration, we're going to assume that she has $10,000 available. If she uses the money to pay for the car she'll have $10,000 more in credit card debt. At a rate of 14%, it will cost $1,400 per year in interest payments. A car loan will be a lower cost loan. About 8% lower than the credit card rate. It will run about 6%. That means she'll pay $600 per year in interest payments. So using the money to pay off credit card debt will save her $800 per year. Why is that? The auto loan is a 'secured' loan. In other words, the car guarantees the loan. If Carrie doesn't make her car payment the lender can repossess the car. That's not true with a credit card. They can't repossess yesterday's pizza. There's another advantage to using the money to pay down credit card debt. It could improve Carrie's credit score. The amount of money that you owe makes up 30% of your credit score. The only thing more important (35%) is how good you are about paying your bills on time. And, it's not just how much Carrie owes. How close she is to the account maximum is considered, too. So, by paying down the accounts that are the closest to being maxed out, she'll not only be spending less each month on interest, but she could lower the rate that she'll pay on the auto loan. While she's thinking of her credit score, Carrie should also check for errors in her report. Studies have shown that about one in four have an error large enough to affect the rate you pay to borrow money. When she's car shopping Carrie shouldn't let every dealer access her credit file. Too many queries over a short period of time will actually reduce her credit score. In fact, if Carrie is going to make car payments, she'd be wise to line up her financing before she goes car shopping. Her bank or credit union is likely to give her a better rate than a dealer. It's hard to be sure whether Carrie really means to buy a 'new' car or simply a 'newer' car. Hopefully she'll consider the newer car. The reason is simple. A new car loses it's value much quicker than a used car does. For instance, according to KelleyBlueBook.com , a new Ford Taurus will lose approximately 50% of it's value in the first three years. Depending on options, that's roughly $10,000. But, that same Taurus will lose a little less than $4,000 from years four through six. Sure Carrie would be driving a little older car. But she'll save $2,000 per year for the sacrifice. Another option would be for Carrie to consider delaying the car purchase for a year. Let's look at how much cash that could mean to her. By applying $10,000 to reducing credit card debt she'll save $1,400 in interest during the year assuming a rate of 14%. Sure she might need to put a little of that money into repairs. But, she'll still be richer when she does go car shopping a year from now. As a general rule, if you have 'a lot' of credit card debt the best thing you can do is to pay it off first. It's usually the most expensive debt. And carrying large card balances can come back to haunt you in a variety of ways. Especially after an auto purchase has taken most of your cash reserves. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website: www.TheDollarStretcher.com You'll find thousands of articles to help you stretch your day and your dollar. Permission granted for use on DrLaura.com. More >>

Payday Loans The Dollar Stretcher by Gary Foreman gary@stretcher.com www.TheDollarStretcher.com I'm in need of some money and cannot get a loan. I have several payday loans, that I cannot get paid off. I've be trying for several years and I only have enough money to re-new. If I cash out my 401k to pay these loans off I will have plenty of money each month to put back in my 401k plan. Will I still face the extra 20% penalty at tax time? I've learned my lesson and I will never get mixed up with paydays again. I think they should be outlawed. Michelle They're also known as cash advance loans, check advance loans, post dated check loans or deferred deposit check loans. The Federal Trade Commission has called them "costly cash". There are over 10,000 payday loan 'stores' operating and it's estimated that they collect over $2 billion a year in fees and interest. Typically the borrower, in this case Michelle, would write a check for the amount of the loan that she wants plus a fee. The size of the fee is based on how much money she's borrowing. The lender agrees to hold the check for one or two weeks. Typically until Michelle's next payday. At that time Michelle can come in with cash to 'redeem' the check, she can let the lender deposit the check or she can 'roll-over' the loan until her next paycheck. If Michelle chooses to roll the loan, she'll incur another fee. Payday lenders have the upper hand in collecting. If Michelle can't redeem the loan or refuses to roll it, she'll be informed that they'll deposit her bad check. If it bounces she'll face criminal charges of intentionally writing bad checks. Not to mention bounced check charges from her bank. Many payday lenders don't want Michelle to know how much she's paying. A Public Interest Research Groups survey found that only 37% of the lenders quoted an accurate Annual Percentage Rate even though the federal Truth In Lending Act requires it. Most loans are governed by 'usury' laws. Those laws limit the amount of interest that can be charged on a loan. The PIRG survey of payday lenders found interest rates that ranged from 390% to 871%. The average APR was 474%! The same study showed that in one state 77% of the loans were roll-overs. Presumably Michelle wouldn't be taking a payday loan if she could have gotten the money somewhere else. She would have paid less interest by using a credit card cash advance or borrowing from friends or family. A cash advance on a credit card would cost Michelle between 35% and 50%. She's considering taking money from her 401k plan. Any withdrawal will be subject to a 10% penalty and will be added to her taxable income for the year. So she'll probably lose 20% of the withdrawal to the federal government. But that's better than paying 400% APR. Michelle may have a better choice. Borrowing from her 401k plan would provide the money she needs now and allow her to pay it back through payroll deduction. She should speak with the human resources department to find out the details about a 401k loan. The biggest advantage is that money borrowed is not subject to tax penalties or added to her income for tax purposes unless she doesn't repay it. Other options that don't involve her 401k should also be considered. If she's eligible for overdraft protection at her bank she may want to sign up. The bank fees would be less expensive. Payday loan companies have sprung up primarily to serve clients who don't qualify for a credit card. If Michelle is among this group she should check her credit report for errors. Roughly one in four reports contain a significant error. A corrected report might qualify her for a credit card. And cash advance privileges. If Michelle has other monthly payments, she might be able to have one or more of them either reduced or delayed. A call to the creditor might be all it takes. Another alternative, if she has other debts, would be to see if credit counseling or debt consolidation would work for her. Either could reduce her regular payments and free up some money to pay off the payday loan. Finally, Michelle should cut any expenses that aren't absolutely necessary. This is a time for drastic measures. Michelle is in a tough spot. She needs to get these loans paid off before they force her into bankruptcy. Hopefully one of these tools will help her dig out of debt. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website www.TheDollarStretcher.com and newsletters. The site contains over 5,000 articles to help stretch you day and your dollar. Permission granted for use on DrLaura.com. More >>

Young Couple Finances The Dollar Stretcher by Gary Foreman www.TheDollarStretcher.com Copyright 2003 My husband and I married young. I am 21 and he is 23. In a couple of years we want to own a home and have children. What are some things we can do now? My husband is working full-time and going to school full-time. I work full-time. We do have about $2,000 in credit card debt and are working on getting out of it. We live in an apartment and we are starting to learn about what it takes to own a home. What should we know about CDs, the stock market and mutual funds? Should we be looking at those options as a young couple? Diane Diane and her husband appear to be off to a great start. They've set some goals and begun to work towards reaching them. Plus, it would appear that they're willing to make some sacrifices along the way. Hubby's college education is a great investment. The U.S. Statistical Abstract for 2002 indicates that the average household headed by a college graduate earns 93% more than one headed by a high school graduate. Right now that amounts to a difference of over $25,700 per year. And Diane is wise to pay off her credit card debt as soon as possible. If they never charged another cent and paid just the minimum each month, they'd still be making payments well into their 50's! Being debt free will give them a better credit score which will translate into a lower mortgage rate when they buy a home. Diane and her husband should make an attempt to live on just one salary. Or as close to it as possible. Clearly that will be easier once Hubby has graduated and begins to earn more money. Living on one income will allow them to save a sizeable down payment in a relatively short period of time. It will also put them in financial position to start a family. Whether both parents work or one stays home with the baby, they'll find that living on one income now is very similar financially to what it's like after a baby arrives. Many young families make the mistake of spending everything they make. That might seem like fun now, but they'll find that it's hard making a downward adjustment in lifestyle later. Remember that a house and baby will increase family expenses. And the baby could also decrease family income. Now that Diane and her husband are working and saving, the next question is how should they invest in anticipation of buying a home? CDs are a good tool for savings when you might need the money immediately. Or if you plan to need it in a couple of years. That sounds like the situation that Diane is in. If Hubby has the opportunity to contribute to a 401k plan they should make every effort to participate. Not only will their money grow faster since the earnings aren't taxed, but his employer may match part or all of his contribution. As an added benefit, they may be able to borrow money from the account to use for a down-payment on that first home they're planning. Check now to find out how the loan provisions work. Not all plans allow for loans. They should try for some diversification within the 401k plan. A mixture of guaranteed investments (like CD's) and more aggressive choices (stock mutual funds). Stocks will earn more over a longer period, but they can have a bad year or two with a negative return. Normally that would be unacceptable if you were saving for a down payment. But if Hubby's employer is matching at a 50% rate that should cushion any drop in a mutual fund. The next step is to prepare for a mortgage. The Federal Trade Commission advises checking your credit report before making any major purchase. That will allow Diane to correct any errors. About 1 in 4 people have an error in their report that's significant enough to increase their mortgage rate. How much could that error cost? A difference of one half percent will add $500 interest on a $100,000 mortgage each year. Credit reports are kept by Credit Reporting Agencies (CRA's). They collect information from lenders. The three major credit reporting agencies are: Equifax, PO Box 740241, Atlanta GA 30374-0241; 800-685-1111 Experian, PO Box 2002, Allen TX 75013; 888-experian Trans Union, PO Box 1000, Chester PA 19022; 800-916-8800 You can expect to pay approximately $10 per report. It's money well spent. Congratulations to Diane and her husband for laying a foundation today that will allow them to build a bright financial future. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website www.TheDollarStretcher.com and email newsletters. You'll find thousands of articles to help stretch your day and your dollar! More >>

Investing Small Amounts The Dollar Stretcher by Gary Foreman I am 55 years old and will begin receiving a small pension from one of my old jobs. The amount will be only $55 per month until I die. What would be the smartest thing to do with it? Pay down credit card debt, invest it, sock it away in the bank as a rainy day fund? I lost 85% of my portfolio when the stock market tanked and have very little left for retirement, so I'm afraid to get back into mutual funds. Does anything else look good these days? Erica Sioux Falls SD Erica has a good opportunity. While $55 a month isn't a huge amount of money, it can add up. For instance if Erica manages to save the money and earn just 2% it will be worth $7,300 when she's 65. Or if she manages to earn 10% it will be worth over $11,250 in ten years. So it's important to get a good return on the money and not let it disappear each month. She should consider two factors in making a decision. Her time frame and ability to take risks with the money. Erica's goal will determine her time frame. If she wants to save for retirement, she'll have a ten year horizon. However, if she wants the money ready for the next budget crunch, she'll need to think in terms of having the money readily available. If she takes a longer view she'll be able to choose a riskier investment without actually taking on more risk. Let me explain. A stock mutual fund is unpredictable in any single year. You wouldn't choose the mutual fund if you wanted to make sure that you could get all of your original investment out at any time you wanted. On the other hand, a money fund is very predictable. Your principal is always available. But suppose that Erica's horizon is ten years. The mutual fund becomes much more predictable. That's because ten years is long enough for good years to overcome any bad years. And the mutual fund will average a higher return than the money market fund over a ten year period. Erica's willingness to take risk is also a consideration. Some people can't handle a mutual fund loss. Even if past results suggested that it would only be temporary. As a rule no investment should cause you to lose sleep. If you are not comfortable with an investment you shouldn't make it. Now that we've set a framework, let's look at some of Erica's ideas. Using the money to pay off credit cards could be her best option. First, she has access to the money any time she wants. Paying down her balance will leave more credit available for new charges. The other advantage of paying off credit cards is knowing exactly how much she's earning. Erica will earn the interest rate of the loan that being paid off. So a credit card that charges you 14.5% will earn you exactly that. If she used the $55 each month to reduce debt she could eliminate a $14,900 balance over ten years. And that would eliminate over $200 of credit card minimum payments each month. Erica could invest the money in a variety of places. One problem is that it's hard to invest smaller amounts. Even if she saves up the money and invests it once a year, there's still only $660 to work with. She'd probably need to select a mutual fund. They're designed to handle small dollar investments. Erica may think of stock investments when mutual funds are mentioned. Given her stock experience she might be concerned. But not all mutual funds invest in stocks. Some invest in bonds, or a mixture of stocks and bonds. She also shouldn't confuse her recent stock experience with the performance of most mutual funds. A general purpose stock fund will not lose 85%. Certainly not before you have warning and time to get out. What 'looks good these days' usually isn't a good way to invest. Very few people are able to predict the future well enough to time markets. Most of us are better off taking a slow, steady and predictable path to wealth accumulation. As a general rule, it's usually advisable to pay off debts before investing. That's because the interest rates for borrowing money are usually higher than those paid for investing money. One exception to paying debt first is when you can invest in a 401k plan where your employer matches part or all of your contribution. That match significantly boosts the return. Gary Foreman is a former financial planner who currently edits The Dollar Stretcher website www.TheDollarStretcher.com and ezines. You'll find hundreds of articles to help stretch your day and your dollar! Permission granted for use on DrLaura.com More >>