Mar
14
Don’t Walk Away – You Have Foreclosure Options
Filed Under Loans, Personal Finance | Leave a Comment
Recently someone reached my blog via a term related to foreclosure. I don’t really have anything about that specific topic, so I thought I should add something. If you’re facing foreclosure, the most important thing to know is that you do have options. I don’t think people should just walk away from their mortgages - I’m a firm believer in personal responsibility and honoring contracts. Nevertheless, all the news about the mortgage meltdown has made some people decide that walking away is the only solution. Here are the other options:
Mortgage Refinance
I know not everyone is able to refinance, especially if their homes are underwater (the value is lower than the loan balance), but it should be everyone’s first attempt to resolve the situation. Although I’m opposed to the new mortgage bailout programs being proposed, you should look into it if they become law.
Forbearance
If you’re behind on a couple of payments, but can catch up, contact the lender for a forbearance. They’ll typically add the payments to the end of the mortgage. You may more in the end, but it’s better than losing your home and having to start over.
Loan Restructuring and Other Options
Some people have reported that their lenders don’t want to talk to them about restructuring or modifying their loans. If you can’t refinance and a forbearance isn’t enough, you may want to contact a reputable company to review your foreclosure options and negotiate with your lender. Lenders that won’t bargain with homeowners may be more willing to bargain with a professional whose emotions aren’t involved and who knows what to ask for.
Finding a Reputable Foreclosure Service
Once your notice of default is published, you’ll start getting phone calls, letters, and even knocks on the door from people offering to “rescue” you. Sometimes these are scams. Instead, you should be proactive and search for a foreclosure company on your own. I would start with a simple web search for “foreclosure services” or “foreclosure help.” Then I would investigate them with the Better Business Bureau and HUD. If you have an FHA mortgage, contact them to discuss your options.
Scams to Watch Out For
A scammer’s main goal is to steal whatever equity may be left in your home, or to find some way to profit from your loss. When dealing with a foreclosure service, look-out for the following things:
Signing over your deed. Never sign your deed over to anyone. Often the scammer will offer to pay off the property if you sign over the deed temporarily. In some cases, they suggest a lease-buyback scheme, but the amount you’d need to pay to buy it back is more than the original loan. In another situation, they collect your rent checks without paying off your mortgage, leaving you with both expenses. In a third situation, they’ll sell your house out from under you and take whatever equity existed.
Excessive fees. Some services charge very high fees for even the simplest of paperwork. If it’s something you could do on your own, don’t pay someone else to do it.
Pressure to sign now. Although you may have to act quickly, you should have at least a couple of days to think over the offered solution. If you’re told that the offer will be withdrawn if you don’t sign now, just walk away.
Repeated refinancing. Each scam refinance includes padded fees for everyone in on the scam, leaving you with a bloated mortgage balance and nothing left to pay it with.
Despite the scammers, you can still find reputable help. You can also go it alone. With mortgage defaults on the rise, more lenders and government agencies are willing to help you keep your home.
Mar
7
It seems like every blogger I read loves Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence
A Plan for People with Consumer Debt
I think it’s a very good plan, but it seems to work better for people with different goals than we have and less student loan debt. We can reduce our debt a certain amount, but until those loans are paid off, we can’t eliminate it. That means we can’t do much else with our lives or our money for the next several years. It’s also not worth it to pay off some of those loans. Mine are only at 3.85%, and we can make more than that in a savings account, definitely more than that investing!
Determining Your Total Earnings, Spending, and True Wage
I liked the idea of figuring out how much we made over the course of our lives until now. I found that I had more than I expected. They also suggested tracking spending closely, but we already do that. Just to give if a full test, I tracked my expenses for one month. The results weren’t all that surprising.
I very much liked the concept of calculating the value of your time and your true hourly wage to determine whether that wage is less than the value of your time. I found that my true wage exceeds the value of my time, which made me pretty happy. It also gave me something to consider if I’m offered other job opportunities - would the new wage be worth as much as it seems?
The Motivational Debt Chart
I also liked the idea of the debt chart. A visual representation of debt can be a great motivator for reducing it, but we’re already very motivated. Making more cuts isn’t going to be easy for us. We’ve made some reductions, but we’re very close to the basics at this point.
Aspects that Don’t Work for Me
Many of the other ideas they mention to reduce debt and increase life value simply don’t work when you live in an expensive city like Los Angeles. Moving closer to work is a great idea, but whose work are we going to move closer to?
We also don’t overspend the way many of the couples in the book did, so our money values aren’t that far out of whack. Our debt generally isn’t from trying to keep up with the Joneses, overshopping to console ourselves, or poor money management. Instead, it’s largely a result of our graduate degrees not yet recouping their investment, but they will in time. We both understand that we’re working to get more value out of the rest of our lives, but we also receive some value from our work. We chose to get our graduate degrees later in life (late twenties/early thirties) because they have personal value to us, but we knew at the time that it would mean taking on additional debt.
Final Thoughts
Overall, I think the book can be a life-changer for people who need motivation to change, need a better understanding of the true value of money, and have a financial history that lends itself to the program. We don’t and given where we live, our goals, and our chosen career paths (which do require us to remain in California in high-income/high-cost areas), I don’t see it working for us.
Mar
4
February Debt Reduction Process
Filed Under Debt, Personal Finance | 4 Comments
One of my financial resolutions is to pay off $40,000 in debt. January was a good month for debt reduction, but February was a great month. Not only did I make good debt progress, but I also made progress in other goals.
Debt Reduction Successes in February
Due to a windfall, we were able to pay $11,500 in addition to normal debt payments this month. We will have to pay taxes on the windfall come April, 2009, but we decided to use all of it for debt now and then save for the taxes once the debt is gone.
That large a payment means our credit cards are more than 50% paid off. One credit card is at 0% until April, so we’re deciding whether to transfer again and take another hit on our credit, or simply pay it down with interest. By April, the balance should be low enough that the interest will be manageable. We are expecting one more windfall sometime in late summer, and hoping for a second within the next several months.
Debt Reduction Goals for March
For March, I would like to have one credit card completely paid off (about $1,000), and make a $1,500 dent in the remaining balance of the other debt.
Progress on Other Goals
I boosted my retirement withholding, but only because of a salary increase, not because I increased the actual percentage. The emergency fund hasn’t been started yet, but it’s getting closer.
Even without the debt, we would probably continue to wait until the end of the year to buy a house. Prices are falling fast in Los Angeles, but one lender is now requiring a 25% down payment. More lenders may follow their lead. By waiting until the fall, we can hopefully have more options in our price range and be dealing with less panicked lenders who understand that a 25% down payment is excessive for a first-time home buyer.
I also have a goal of losing weight that I haven’t mentioned on the blog before. My initial goal was to lose eight pounds. So far I’ve only lost three, but my clothes are fitting much better, so I suspect that I’ve lost fat and gained muscle. My new goal is to drop one dress size. I’m halfway there already.
If you have financial resolutions or debt reduction goals, how’s your progress? Tell me in the comments.
Feb
29
Financial Leaps for Leap Year
Filed Under Found Money, Personal Finance, Saving Money | 2 Comments
Leap day comes but once every four years. In honor of this rare occasion, I propose 29 financial leaps to take. Here they are, in no particular order:
Prepare your taxes now. Spend an hour preparing your taxes online. If you don’t owe, file them now and receive your rebate now. If you owe, now you’ll have several weeks to save the money to pay the bill instead of panicking on April 15.
Deposit $29 into an emergency fund. If you don’t have one, start one today with this small sum. If you have one, add a little extra.
Stop paper statements. If you still receive paper statements, call the issuer or go online to turn them off. (Washington Mutual won’t do this). It’s a quick, easy way to protect your identity.
Order one of your credit reports. I request one report every four months, usually on the 1st of the month.
Make an extra debt payment ending in 29. If you have any debt, make an extra debt payment of $29, or any other figure ending in 29 ($129, for example). If you can’t swing even an extra $29, go for $2.90. Anything to give your repayment a little boost.
Organize your financial papers. Buy a simple metal box and organize your financial papers, finally. Use simple categories like “bank statements,” “tax returns,” and “receipts.”
Open a safe deposit box. Visit a local bank to open a safe deposit box. Put a copy of your marriage license, house deed or mortgage agreement, birth certificate, insurance documents, home inventory photos or video, and a computer backup inside.
Consolidate your savings. If you have savings in several different banks, and they don’t total more than $100,000, consolidate them down to one account in one bank.
Confirm old accounts. If you have any old accounts, contact the bank to let them know you’re still aware of the account. Hopefully this will avoid any unclaimed property seizures.
Search for unclaimed property. See if any states are holding your money and claim it today!
Test online financial software. If you don’t use Quicken or MS Money, check out Mint or Yodlee to see if you like them.
Start tracking your finances. If you don’t have a financial tracking system in place, start one now. It can as simple as a lined notebook with a page for every month where you list your bills and deposits or as complex as software.
Discuss your finances with your spouse. If you’re not in the habit of talking about money with your spouse, do it today. Review all of your important financial documents, including your checking and savings accounts, retirement balances, portfolios, insurance policies, mortgage, and college savings programs. Discuss your personal spending habits and beliefs.
Set joint financial goals. Setting joint financial goals with your spouse can help you both curb your spending. Choose one goal, whether it’s saving for your dream vacation or remodeling the kitchen, and make a plan to work toward it.
Make a debt or savings poster. If you need visual goal reinforcement, draw a thermometer on a big piece of paper. Put your pay-off or savings goal at the top. Now color it in each time you make a payment or deposit. Use green ink to show your progress!
Track your spending for one day. If you’ve never tracked your spending before, tracking it for one month is best, but try it for one day just to see how easy it is.
Read a financial magazine. Even if you already read a financial magazine regularly, try a different one to see how you like it. Visit the library to read one for free.
Balance your portfolio. If you haven’t balanced your portfolio in the last twelve months, review it today and make necessary adjustments. Don’t make panic adjustments, if the fundamentals are still good, stay the course.
Read a personal finance book. Ask the librarian for a good one. Even if you disagree with the advice, it’s always good to get a different perspective.
Turn off the TV for one week. Stop watching TV for one week and see if it affects your spending. Do you want less stuff because you’re not seeing commercials? Do you enjoy life more because you have more time to do other things?
Research one stock that interests you. Even if you don’t invest in the stock market, research one stock in-depth just to get in the practice. See if it’s really as good as you think it is. If it’s really good and you can afford it, invest.
Invest in an index fund. This one will cost much more than $29, but if you have enough money, invest in an index fund today. Vanguard is one of the best fund families with the lowest expenses.
Don’t spend any money for one day. Brown bag your lunch, skip the coffee, don’t buy that snack. Go one day without spending any money. Now see if you can make it two.
Pay cash for everything for one day. Withdraw $20 from the bank in the morning, or limit yourself to whatever is in your wallet. Buy everything with cash for that one day. (Bonus points if you do this on a grocery shopping day.)
Set up automatic transfers to savings. If you’ve paid off your debt and are in saving mode, set up automatic transfers for the day after payday (just to be safe). If the money is whisked into your savings account automatically, you’ll never find excuses not to save.
Consider switching banks. If your bank charges checking account fees and you don’t have direct deposit, or if they charge for online bill pay, consider switching to a bank that offers both for free.
Purge your stuff. Go through your home from top to bottom and purge all the stuff you don’t want anymore. Sell it, donate it, or throw it out. Whatever you do, get it out of your home and your mind.
Set a one-in, one-out policy. Vow that every time you buy something, you will get rid of something else. Bonus points if you can make it one-in, two-out.
Get rid of your storage unit. If you have so much stuff that it has to be in storage, then you probably don’t need it. Visit your storage unit and do a full inventory. Then steadily get rid of the stuff. Once it’s empty, cancel the unit.
And now a special bonus leap because I’m a fan of Monk:
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Do you have any financial leaps you’re making in honor of leap year? Let me know in the comments.
Feb
25
Money Market Accounts, Money Markey Mutual Funds, and Certificates of Deposit
Filed Under Money Management, Personal Finance, Saving Money | 2 Comments
Many people confuse money market accounts, money market mutual funds, and certificates of deposit. Although all three are considered the safe investments, they are not the same thing. Carefully consider all three before choosing the one that is right for you. In this post, I define each.
Money Market Account
A money market account, also called an MMA or a money market deposit account, is a savings account. These accounts are offered by banks and credit unions, but they are also used as holding accounts by brokerages until you use the funds to buy securities. Money market accounts offer these features:
- Slightly higher interest rate than savings or checking accounts
- FDIC-insured to $100,000 (or similar private insurance)
- Higher minimum balance than traditional checking or savings accounts (unless the account is part of a brokerage account)
- Limited withdrawals (usually a maximum of six/month)
- Limited check-writing privileges (usually a maximum of three/month)
In addition, if your account isn’t held at a bank or credit union, you may only be able to make deposits by mail, wire transfer, or electronic transfer.
Money market accounts are a safe place to keep savings, but also offer limited access. This might be good if you’re prone to nibbling away at your savings.
Money Market Fund
Money market funds, also called money market mutual funds, are fixed income investments sold in shares valued at $1. They are not savings vehicles. Money market funds invest in the cash market. In general, it means they buy very short-term debt securities, which banks, large corporations, and governments use to meet short-term cash needs. Short-term means maturities of less than thirteen months.
The amount of cash needed to invest in the cash market directly is so large that individuals can’t do it. Instead, money market funds pool the investments of thousands of people in order to buy these securities. They generally share the same features:
- Average maturity of less than 90 days (required by the SEC)
- Not FDIC protected
- Low return
- Low risk
When considering money market funds, you should also consider the expense ratio. As with any other mutual fund, the fund company charges expenses against the yield. An average is .28%. You should also review a prospectus before investing the money to make sure they choose investments you feel comfortable with. Each fund will hold a variety of short-term securities with different maturities, but the average maturity will be less than 90 days.
You can choose to invest in both taxable and tax-free money market funds.
Certificates of Deposit
Certificates of deposit are another very safe savings vehicle. They are also called time deposits, and are offered by banks, credit unions, and some brokerages. Maturity date range from three months to ten years. Each CD specifies an interest rate when you buy it. You can buy a CD in any amount, but most banks require a minimum. Banks also offer “Jumbo CDs” for deposits over $100,000. In general, higher deposits and longer terms receive higher interest rates. Most CDs share these features:
- FDIC-insured up to $100,000 (or similar private insurance)
- Steep penalty for withdrawal prior to maturity
- Fixed interest rate during the term
- Limited window to withdraw funds after maturity. If you don’t withdraw them, they roll into a new CD at the prevailing rate.
When considering a CD, first make sure that the bank insures its CDs. Next consider both the annual percentage rate and the annual percentage yield. The APR is the stated interest you will earn without compounding. The APY is the total interest you’ll earn with compounding. For example, a CD that pays interest once a year will have the same APR and APY, but a CD that pays interest quarterly will have a higher APY. The APY is the most important number to consider when comparing CDs.
CDs are good savings vehicles when interest rates are high and you expect them to fall. They’re also good if you can afford to have your money locked up for a fixed period of time. You can’t add to a CD, however, so they’re not good for incremental savings. They’re definitely not a place to keep emergency funds. They may be appropriate for college savings if your child will start college soon or is currently in school. Just make sure you choose maturity dates that will give you access to the money when the tuition bill arrives.
Choosing the Right Vehicle for You
When choosing between the three, consider three things:
- How soon you need the money
- Whether you’re willing to accept any risk
- The amount you hope to earn in interest
All three have benefits and drawbacks. Only you can decide whether a money market account, money market mutual fund, or CD is best for you.
Feb
22
Five Good Ways to Spend a Tax Refund, and Five Bad Ways
Filed Under Debt, Money Management, Personal Finance, Saving Money, Taxes | 2 Comments
Many people treat a tax refund as “found money” or “free money.” What they don’t realize is that it’s their money, and always was. The money was an overpayment of taxes owed, which the government was happy to receive as an interest-free short-term loan.
Once you start thinking of your tax refund as a portion of your income, and not as free money, you’ll rethink the way you spend your tax refund. Rather than wonder, “Why is my refund so low,” you’ll think, “Yay, my refund is low!”
Five Good Ways to Spend a Tax Refund
Here are my top five ways to spend a tax refund:
- Don’t receive one! The best way to spend your refund is to never receive one in the first place. No, I’m not suggesting you donate your refund to the government. I’m suggesting that you adjust your tax withholding http://www.soundmoneymatters.com/tax-withholding/ to ensure that you only withhold what you owe. This year my husband and are receiving less than $200 from our federal and state tax refunds because we managed to pay almost exactly what we owe. (It was an accident this year, but we intend to do it again.)
- Pay down debt. If you owe any debt, use your refund to pay it down. That’s where our tiny tax refund is going.
- Boost your emergency fund. If you don’t have any high-rate debt, then use the money to boost your emergency fund. Even adding a little bit to an interest-bearing savings account can help you out in a pinch.
- Invest it. The average family receives a $2000 refund. If you’re one of them, that’s a pretty sizable investment. If you were to deposit $2,000 in a Roth IRA at age 35 and average an 8% return, you would net $20,125 by age 65 without adding another cent.
- Spend a little and save the rest. If you’ve been frugal all year long, reward yourself with a nice bottle of wine or a nice night out, then save the rest. Don’t overdo it, but spending $50-$100 is a good way to treat yourself every now and then.
Five Bad Ways to Spend a Refund
I have to admit that I’ve been tempted to waste tax refunds in the past. Especially when I didn’t have any debt - I just spent it whenever I felt like it. Now I know better. Here are five bad ways to spend a refund:
- Blow it on a vacation. Many people use their refunds as vacation funds. There’s nothing wrong with taking a vacation if you can afford it, but it shouldn’t depend on whether or not you receive a tax refund. Instead, adjust your withholding to the correct amount and save the additional money you receive in your paycheck. Simply divide the amount of your previous year’s refund by twelve and deposit that amount into a savings account every month. Even if you only earn $20 in interest, that’s $20 more than you could have spent on vacation if you’d simply used your refund.
- Blow it on clothes. We all need clothes. No one needs a $2000 pair of shoes. Buy new clothes if you need them, but don’t go on a shopping spree just because you got a refund.
- Blow it on a big screen TV or another large, unnecessary purchase. If you wouldn’t buy it without the refund, then don’t buy it because of the refund. Instead, save up for it. If you still want it after months of saving, then go ahead and buy it.
- Fritter it away. Even if you don’t set out to waste it, not having a plan for the money could be just as bad. If you think, “It’s only $10. I got that refund, so it’s fine,” those purchases will add up quickly. You could wind up spending more than the refund.
- Stick it under your mattress. My friend’s father didn’t trust banks (he was from WWII Germany). When he died, his family found over $30,000 in cash tucked away in boxes and stuffed under the mattress. Imagine how much more money he would have had it if he’d put it in safe investments or a savings account.
Now that I’ve shared my tax refund strategies, how do you plan to spend a refund? Have you ever wasted it? Do you have any good ideas for spending it? Tell me in the comments.
Feb
16
Creating a Cash Flow Budget
Filed Under Budget, Expenses, Marriage and Money, Money Management, Personal Finance | 1 Comment
This month, the Money Blog Network’s group project is budgets. I’m not in the MBN, but I’ve decided to post a blog about my method for creating a cash flow budget. It’s far more effective for my husband and me than a traditional category-based budget. MBN lists several other budget posts on their site, if you want to test a few different budgeting, and anti-budgeting, methods.
The Monthly Budget by Category
My husband and I use Quicken to track our daily spending. About once a year, my husband and I run out a Quicken budget, just to see how our actually monthly category spending has changed. Then we copy it into Excel so we can play with the numbers: how much more we would have if we paid off this loan or reduced that expense.
This is an example of what that would look like. If I were studying this, I would see that I could cut the dining budget and might consider reducing utilities expenses if possible.
The monthly budget is a helpful way to get an idea of how and where we spend money on average, but it isn’t necessarily useful for planning our monthly cash flow. The budget averages out our expenses rather than showing the blips as they actually occur. For example, auto-insurance isn’t paid monthly, but it appears that way in a budget. We have to plan for the blips, not the even keel budget. Instead of a line-item budget, we use a cash flow statement to plan our monthly bills and spending.
The Cash Flow Budget
The cash flow budget is a much better picture of our expected income and expenses for the month. These are actual bills we must pay, rather than categories that may vary every month. For example, if it’s an auto insurance month, then we know to reduce our spending in other areas to make up the difference. It also helps us plan our debt repayment because we know how much we’ll have leftover at the end of the month.
This is a sample of a cash flow budget for February. You’ll note that the numbers above don’t match the numbers here. There are two reasons: 1. I made many of the numbers up, and 2. Most of our recurring charges (utilities, cell phone, gym, etc.) are on one of the credit cards, so we don’t pay them as a separate monthly bill through our checking account.
Expected bills with variable due dates (like a bi-monthly utility) go at the bottom because we know they’re coming at some point, but not when.
At the beginning of the month, we look at our Quicken account balances for variable bills like credit cards and ballpark the payment amounts in our cash flow chart. We adjust with exact figures as the month proceeds and the bills come in. At the end of the month, we take the end number and add it to our debt payments for the next month. Once our debts are gone (except some student loans), that end number will go towards other goals like savings or investments.
In addition, it helps us see where the bills fall in relation to our income. For example, if we plan to make a big credit card payment, but know that the deposit that covers it doesn’t occur until two days later, we can reduce the payment. Then we can schedule another payment after the deposit.
Creating a Cash Flow Budget
If you want to create a cash flow budget, follow these simple steps:
- Get out your checkbook register.
- Create an excel chart with payment dates and amounts for all expenses for the last six months. Rather than the generic terms I use above, use the names of the payments, like Amex, Discover, and Sallie Mae.
- Use three columns for each month like in the above chart. We go across the sheet for each new month rather than down so several months fit on the screen at once. Although you’ll have to tweak it as time progresses, this gives you a good overview of when your various bills are due.
- Just before each month, review the expected expenses for that month and make adjustments for changes in your finances. Also review the previous month and carryover any remaining balance to the next month.
- At the end of the sixth month, copy the last month over to new columns and update the dates and amounts for month seven.
Once you get used to this system, you’ll probably find that you feel more comfortable with your finances because you always have a snapshot view of them. It doesn’t require special software and no one else has access to your data. If you don’t have Excel, you can use an OpenOffice or GoogleDocs spreadsheet, instead. This is very different from the system I used when I was single, but I much prefer it. Give it a try, you might like it!
Feb
15
Pay Off Debt or Save for a House
Filed Under Debt, Money Management, Personal Finance | 1 Comment
One of the search terms used to reach this blog was “pay off debt or save for house,” which got me to thinking. If you don’t have someone to help you with the down payment, is it better to pay off debt or save for a house?I think it depends on the type of debt, the amount of debt you have, your income, and your target home price.
Type of Debt: If you have credit card debt or other high rate debts, you must pay those off before you can do anything else. Lenders frown highly on those debts when considering how large of a loan to give you. Not to mention that you’re just throwing away money by continuing to pay that interest. The most you can expect to earn on a savings account - which is where short-term house savings should be - is around 4%. That number could continue to drop if the Fed rate is cut further. If you save your money instead of paying off a credit card at 15%, you’re losing more than 10%.
On the other hand, if you have low-rate student loans (below 6%), then you should save for a house instead of pushing to pay them off. Student loans are considered good debt, so lenders look upon them more favorably. In addition, much of the time you can earn a better return on investments. And finally, those loans can be deferred or put into forbearance if times get tough. I plan to pay off our credit cards and two student loans before we attempt to get a loan, but we won’t wait to pay off our entire student loan balance because we have two graduate degrees between us and a lot of student debt.
Debt Total: Of course there is an exception to this policy. If you have a large amount of debt, say more than 30% of your income goes to debt repayment of any kind, then you need to start paying down debt. These days, most lenders will not issue a loan that will bring you above the 43% debt-to-income ratio unless you have a very high income potential (e.g. you’re a surgeon with medical school loans). So, even if your loans are low-rate, pay down the principal until your debt payments and expected housing payments are less than 43% of your income. With the new underwriting standards, more lenders are pushing for DTIRs of 36% or lower if you want the best rate. The higher your DTIR, the larger the down payment you’ll be asked to put down.
Income: Another exception occurs when your income is higher than the amount you need to pay down debt and save for a house. In this case, you can either spend a few months shoveling all the money you can into your debt, or you can split your goals and pay towards each. I would choose the former, but the latter would also provide you with a nice emergency fund while you save for a house.
Target House Price: Again, this goes to your debt-to-income ratio. In Los Angeles, home prices have now fallen to December 2004 levels, but that was near our peak, so they still have further to fall. If you live in a state like California where home prices are outrageous, then you need to work harder to pay down your debt so your debt-to-income ratio is manageable. It’s ideal to be below 33% DTIR total, with 28% max going towards housing. That may be nearly impossible for first-time buyers in California and other high-value states, but it’s a goal to work towards.
There’s no one right answer to the question, but once you consider your situation in light of the following factors, I think the best answer will be pretty clear.
Feb
5
January Debt Reduction Progress
Filed Under Debt, Personal Finance | Leave a Comment
One of my financial resolutions is to pay off $40,000 in debt. Obviously, I haven’t completed that goal in month one. I haven’t even gotten close. That doesn’t mean we haven’t made some progress yet.
Debt Reduction Successes in January
In addition to our standard monthly debt payments, we paid an additional $1500 toward debt in January. We were able to keep our holiday spending low, which definitely helped. We also received some unexpected money and reductions in expenses, both of which allowed us to pay more.
Debt Reduction Goals for February
Going forward, I plan to set a monthly debt reduction goal in addition to the big goal. The big goal is so big that it seems overwhelming. My goal for February is to cover the unexpected $2600 in auto expenses we incurred this weekend (most of it was routine, but we didn’t expect to have it all at once). I would also like to pay $2500 in debt on top of that.
My other goal is convince my husband to track his spending for a month, but I’m not convinced I’ll accomplish that.
The other goals: boosting the emergency fund and boosting my retirement withholding will have to wait until I make more progress on my debt. I need that to come first so that we can buy afford a better mortgage.
Jan
29
In response to my life insurance post, a reader emailed to ask whether I’d recommend life insurance for children. In general, no.
When my husband was a baby, his mom bought a Gerber children’s life insurance plan to cover funeral expenses if he died. He continued to pay for this $10,000 coverage well into his late-twenties, until I pointed out that he’d probably paid more than it was worth. He was able to cash it in and get a little money, but not much.
Why Buy Life Insurance for Children?
There are two main instances when you might want to buy life insurance for your kids:
- Your child contributes income to the family. This is a pretty rare occurrence, but it’s a possibility, especially for child actors, models, and other performers. In this case, you might consider buying insurance to replace your child’s income if you have no other sources of support and are a full-time stage parent.
- You have a strong family history of diseases that make acquiring insurance later difficult. Examples would be Type 1 diabetes and other debilitating, lifelong illnesses. If you buy your kids whole life insurance when they’re young, you guarantee them coverage later in life, as long as you or they continue to make the payments.
Preparing for Funeral Expenses
Unless either of the above applies to you, there’s no reason to buy your child a life insurance policy. If you’re worried about funeral costs, deposit the premium amount into a college savings plan of some kind. You can still access the money if the unthinkable happens, but your child will have additional money for college if it doesn’t.
