Sunday, November 27, 2005

US Goverment I bonds

Are you tired of low interest rates at the bank? Are you looking to make more than .6% on your money market account. How about earning 10 times that amount with virtually no risk? Sound too good to be true? Well look no further than the US government I bonds.

I bonds are sold at face value unlike Series EE bonds that are sold at 50% face value. I bonds can be purchased at your local bank and are sold in the following increments $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000, and earn interest for as long as 30 years.

I bond earnings are added every month and interest is compounded semiannually. They are state and local income tax exempt, and Federal income tax on I bond earnings can be deferred until the bonds are cashed or they stop earning interest after 30 years. Investors cashing I bonds before five years are subject to a 3-month earnings penalty.

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Did you know that you can even setup an account with the U.S. Treasury to purchase Series I U.S. savings bonds, just goto Treasury Direct. Through this process you can have the Treasury hold the bonds in electronic form in your Treasury Direct account. If you want to hold the bonds in physical form and can't find a bank in your area that sells them, I suggest that you contact the Federal Reserve bank that services savings bonds for your area of the country and ask about buying the bonds. This Bureau of the Public Debt's Web page will provide you with that contact information.

What if you lose your bonds, oh my! Bonds that are lost, stolen, mutilated or destroyed can be replaced free of charge as long as we (the Bureau of the Public Debt) can establish that the bonds haven't been cashed. To assure that the bonds can be traced, owners should keep records of bond serial numbers, issue dates, registration and Social Security or taxpayer identification numbers in a safe place separate from the bonds. (The Savings Bond Wizard is a great way to do this!) Just complete the Form PDF 1048 to get your bonds replaced. On this form, provide the approximate issue date along with the complete names, addresses, Social Security number that appeared on the bond and the bond serial number. If you don't know the serial number or denomination, just write "unknown" in the space provided.

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Certificates of deposit

Do you have money sitting in around in a bank account or money market fund. It isn't earning very much is it? Are you concerned about putting your money in a CD because of potential penalties for early withdraw? I had the same fear as well until I found out that the interest penalty for early withdraw is only 90 days interest.

For example: I was earning .6% interest in my money market and I decided to put some of the money into a 5 year CD. The CD was paying 4% per year. So even if I kept the money in for only a year I would have earn 3% on the money, 4% interest with a 1% penalty for the early withdraw.

So after finding this out I realized that there really wasn't any penalty for me to put most of the non checking account money in a CD for savings for the future vs. the money market.

Long term disability insurance

Does your company offer long term disability insurance? At most companies it is an optional insurance that you have to pay for. I believe mine is around $40 per month. I have actually had one company where is was free, but those I few an far between.

Why should you sign up for long term disability (LTD) insurance? Long term disability insurance is something that most young people don't want to sign up for. They figure I will never be disabled and won't need it. Long term disability programs vary, some pay 50% to 66% of your salary for life up to a certain benefit amount and life time amount. For the price of a cheap family dinner per month or roughly a cup of coffee per day it is worth the price to sign up for LTD at your company.

Can you purchase long term disability outside of a company? The answer is yes, however in most case it will be very expense for you to purchase this type of insurance on your own directly from an insurance company.

Rainy day funds - saving for the unexpected

It is always important to plan for the future we never know what will happen, loss of job, unexpected home repairs, car replacement etc. An important strategy for life is to start a rainy day fund. I know it is difficult to do when you have to pay for everything in your life and it seems like you never have enough money to meet the monthly obligations. However, whether you set aside $25 per month, $200 or $2000 per month a rainy day fund is important. After your fund gets to a certain size you may want to move it into a long term certificate of deposit.

How to save a rainy day fund
I don't know if you are a disciplined person or not. I always have good intentions to set aside something for the future but it doesn't happen. So I have found the best way to do this is through automatic checking account withdraws. Most banks and credit unions will setup an account for you that can be withdrawn from your account each month. This money is usually available to you through and online transfer or through and ATM or going to the teller at the bank.

If you are successful and the rainy day fund ends up growing to a good size you will sleep a lot better at night knowing that the money is there incase you need it.

Paying off your credit cards getting out of debt

Paying off your credit cards, getting out of debt!
Everyone says they want to get out of debt.  How would you like to be debt free?  Most people want to end the dependancy on credit cards and payoff their credit cards. Going bankrupt is not an easy thing to do and it is even harder to do now days since the law changed last October.  Another problem is even if you do go bankrupt your creditors sell the bad debt to a collection agency for penny's on the dollar and they still come after you and hound you for the money.

I purchased John Cummuta's Transforming Debt Into Wealth program on CD. I believe it was a $36 program, I ended up selling on it eBay after I was done listening to it. It was well worth the money and the time to listen too. Her are some of the strategies in his book:
  1. First of all cut up all your credit cards except the one with the lowest interest rate. Do not charge anything that you cannot payoff that month.  
  2. The second step is to payoff the highest interest rate cards first.  This makes obvious sense but most people don't do this.
  3. Pay the minimum amount on all cards except the one with the highest rate.
  4. Pay as much as you possibly can on the card with the highest interest rate.
  5. When this card is paid off switch to the next highest card.
  6. If you continue to payoff cards the extra $20 or $50 per month from each paid off card needs to be rolled into the next card.  This will create a snowball effect that will help you pay of your debts even faster.
  7. Continue to apply this strategy until all the credit cards are paid off.  Don't get discouraged it could take you years to accomplish this.
  8. Remember: You need to stop incurring additional charges are your credit cards.  If you want to go out to a nice dinner, don't put is on the credit card.  If you are going to go on vacation make sure you can pay for it prior to going on the vacation.
  9. After you have paid off the credit cards start the same process on the car payments, boats, toys, etc.
  10. Apply the same strategy to your house.

    Remember: your life style may appear to most people that you are making the big bucks and living the high life. However, one definition of wealth is a math question, how many months can you and your family last on your current savings. If your annual expenses are $40,000 and you have $20K in the bank you can last 6 months. However, a lot of people are not even in this situation.

    The best way for you to change this ratio is for you to lower the monthly expenses by paying off the high interest credit cards and stop buying things on time. When you get to a stable point in your finances you should be able to setup your credit cards to pay them off automatically by withdraw from your checking account.