Joe's Money

The sooner you realize that any credit card debt is too much the better off you will be.  Most folks have to learn this the hard way.  Once you have acknowledged that you need to rid yourself of credit cards, start with these steps to get rid of them for good.

I have 8 credit cards.  Where do I start?

I have found that paying off the lowest balance card first makes the most sense.  You may have heard of something called the “Debt snowball.”  This was mentioned in one of Dave Ramsey’s books.  The idea is simple.  Start with the lowest balance first.  Apply the most you can to that card while making only the minimums on all the others.  This helps in many ways.  First, it helps you realize you ARE making progress.  Once one card is paid off you can see for yourself that you have accomplished something.  The bill stops coming and its one less thing to worry about.

Once the first card is paid off, take the money you were using to pay the first card with in addition to the money you were using for the minimum payment on the next lowest balance card.  Do this until all cards are paid off.  You will be shocked at how fast this can get things rolling.

But wait!  Some of my cards have much higher interest rates on them.  While you raise a excellent concern, people need constant motivation to stick to the plan at hand.  Unless all of your cards have similar balances, stick to paying off the smallest balances first.  If your cards have similar balances, then it would of course make sense to pay off the higher interest rate credit cards first.

And last but not least, once you are done paying off all these balances, cut up the cards and never use them again.  You can no longer use the excuse they are for emergencies.  If you have setup an emergency fund, you won’t need them.  Plain and simple.  Don’t fall back into the debt trap once your out.

The financial crisis hit individuals at all career levels.  The average 401k balance fell 30% to $45,500 from about $65,000.

The good news is, the recent rally has driven account balances back up to near pre-crisis balances.

The 401k hits affected everyone differently.  A 20 something that just started his of her career isn’t going ot be affected as much as someone nearing the retirement age.  Many people nearing retirement age didn’t have much focus on their retirement savings and never realocated to lower rusk securities.  This lack of action likely prevented many people from retiring as it was too late to correct the damage.

It also affected people in the middle age group.  Most of this group was also weighted heavily in stocks within their 401ks.

Unfortunately, many 401k contributors either lowered or stopped contributing all together when the markets started to drop.  While this seems like a good plan, generally 401k participants who continue to contribute at the same levels through down turns, make out better in the long run.  This is because you are able to but at a lower cost.  You get more shares for your money.  Over the last 100+ years, the market has made an average 11% return.  Based on statics, you can bet your accounts will grow again.  When you continue to contribute through a recession, your cost average per share goes down.  Example below.

You buy 100 shares of a stock or mutual fund for $10 each for a total of $1000.

You then buy another 100 shares or the same stock or mutual fund when the market is down.  Say the price is now $5 per share, or $500 total.

Your cost average is is now $7.50 per share.

Assuming the stock or mutual fund price continues to rise to say, $20 per share, you would have actually made more money on your investment by sticking in through the down trend.

Keep in mind that accounts like 401k are long term investment vehicles, usually 30 years or more.  Don’t let emotions drive your long term investment goals.  Stick with the facts.  The market on average, returns 11% per year.

Roth IRAs are great ways to save for retirement.  While your contributions are after tax money, they grow tax free, even when you withdrawal during retirement.

This the 2009 tax year, you can contribute up to $5,000 in your Roth IRA.  The greatest advantage of the Roth IRA is all gains are tax free.  You have complete tax free growth.  The only downside is, again, you contributions are your money after it has been taxed.  The contributions are not tax exempt like your 401k.

Since the Roth uses after tax dollars for contributions, this helps you diversify your portfolio since your 401k will be taxed upon withdrawal.  Since there is no way to tell what tax rates will be like when you retire, having both a 401k and a Roth IRA gives you the best of both worlds.

One of the other benefits of a Roth IRA is you do not need to distribute your account once you reach 70 1/2 years old.  The account can continue to grow if you don’t have a need to withdrawal the funds.  So in a nut shell, you can keep your money in the tax free growth account as long as you like.

With Roth IRAs, you can also withdrawal funds without penalty, but only your contributions apply.  Only gains are penalized for early withdrawal.  Also, the funds must be held for 5 years to be eligible for withdrawal.  Example:  You contribute $3,000 to your Roth IRA that grows to $3,500.  You can withdrawal up to $3,000 (You contribution) without penalty at any time, after 5 years have past.

Roth IRAs do have some eligibility requirements though.  In order to be eligible, your adjusted gross income must not exceed $105,000 and for married couples $166,000.

For 2009, the maximum IRA contribution is $5,000 unless you are over age 50.  If you are over age 50, you qualify for contributions of up to $6,000.

Buying a used car can save you loads over the price of a new comparable car.  Follow these tips to make sure you don’t get taken for a ride.

1.  Have a plan

Do some research first.  Narrow down your search by looking online at multiple dealers, private party sellers, etc.  Compare the prices and know about what the vehicle is selling for both at dealers and via private party.

2.  Know What You Want

Have all the features you need planned out ahead of time.  If you have a few kids, a third row seat may be needed, know how many miles you put on the car, etc.

3.  Do All Research and Shopping Online From Home, Not at the Dealership

There are way to many places online to research and find exactly what you need.  Don’t waste time by going into the dealership until you have narrowed down your search.  Look at the local dealers and find out which ones have cars you are looking for.

4.  Go to All of the Dealerships and Look before Making Any Offer

Check out all the vehicles on your list.  Get a asking price for all of them.  Since you know what you need, the salesman shouldn’t be able to ask you all the probing questions.  How many kids do you have, how much do you drive, etc should all be avoided.  Never let the salesman know if you are out of a car at the moment.  You want to stay clear of anything that makes you look like you can’t walk away.

5.  Don’t be Afraid to Walk Away

Even if you are in love with the car and know its the one for you, don’t be afraid to walk away.  Use your research to your advantage.  Let the salesman know that a comparable vehicle can be had elsewhere for less money.  If they don’t budge, walk away.  There are tons of cars on the market, you’re bound to find a similar one again.  Stay calm and don’t let the salesman get you.  Walk away.

6.  Leave Emotion Behind

Whenever you are shopping for a big ticket item, always leave emotion behind.  If you are sitting in front of your dream car, don’t let them know you fell in love.  If they know you want or need the car badly, they know they can probably get you for more money.  Keep a neutral face and attitude.  Let them know its the right car, but it needs to be the right price.

7.  Don’t Be Afraid to Be Rude

Salesman usually are, at least when it comes to getting the price down.  Being rude can show them you mean business and you are not going to tolerate the typical nonsense.  You are not there to make friends, you are there to get the best possible price on a very expensive purchase.  Again, don’t let emotion get in the way.  You only care about you, not how much the salesman makes in commission.  They will always say we can’t go any lower.  Its a lie.  Used cars have much more margin than new so there is much more leg room to negotiate.

Follow these steps and you will hopefully be on your way to a new set of wheels.

Well, it turns out no matter what income bracket you’re in, you probably still broke with negative net worth.

This book was a real eye opener for me.  It describes the perception and the reality of millionaires and how they got their millionaire status.  The truth is, the average millionaire is not driving a $100,000 sports car, or even a new car for that matter.  The folks driving the $100,0000 sports cars are usually just as worse off financially as the person making $8/hour if not worse.  They make more they spend more.  The doctors and lawyers may be book smart, but according to the author, they are decades behind on financial literacy.

Check it out, this is a good, inexpensive read!  Enjoy!

Link to purchase book – Used copies starting at only $.50