Thursday, March 20, 2008

How to calculate net worth, how do you compare to others

How to calculate net worth, how do you compare to others

I ran across a cool little tool to calculate where you stand relative to you peers in regards to net worth?  Do you ever wonder if you are saving enough or if you are on the right track.  This net worth tool will compare your income, total net worth vs. other people in your age bracket.  Pretty cool little net worth tool.

Check out this video on how to increase your net worth by changes in your credit card interest rates.

Tuesday, March 04, 2008

20 Ways to Save More Money

20 Ways to Save More Money

I found and excellent ariticle over at Kiplingers magazine on 20 ways to save. Below is the article along with my comments.

You've heard of the saving crisis in America. You've probably even thought, 'yeah, I should probably save more.' But eking out an existence is tough on a starting salary and sometimes comfort takes precedence over cutting corners. Besides, if you can only save $50 or $100 a month, is it really worth it? The answer: absolutely.

I use to think that however almost 15 years ago I started saving $50 per month for my kids education. Each year when I could I would increase the amount of the monthly withdrawl. Overtime it has really added up and of course this is due to the miracle of compounding and the advantages of starting early.

By starting to save now, you're giving your money -- however little it is -- time to grow on its own. The magic of compound interest means that you can contribute less money for fewer years if you start when you're young and still end up with more cash than someone who waits.
For example, if Natasha starts saving or investing when she's 25 and saves $100 a month for ten years then lets the money sit, her stash will grow to $174,928 by the time she turns 65 (assuming an 8% annual return). If Anna waits to until age 35 to start saving, and socks away the same $100 a month for the next 30 years, she'll have only $135,940 by 65. Anna will have contributed three times as much as Natasha, but will end up with nearly $39,000 less.

It always amazes me when I meet young people who are not saving for their retirements. Start early and you will benefit greatly. Additionally, as you move along in your life you will find that even as you make more money you will spend more money. So get use to saving right away. Check out this book The Retired Millionaire Exposes Everything! Click Here! .

This week is America Saves Week, and it makes as good a time as any to get started. Think you don't have enough money to save? We've compiled a list of our best tips to find extra money in your budget to sock away. These strategies won't require you to take a vow of poverty -- we know money's tight already. Rather, they're small and simple cost-cutters that'll help you get started saving as soon as possible.

1. Give yourself a raise and bank it. Boost your take-home pay by adjusting your tax-withholding and have the difference in pay automatically transferred to an online savings account. Kiplinger's tax-withholding calculator can help you revise your W-4.

I have never been good at figuring out my with holding. So if you can do it great. What I do instead is use a special savings account which automatically pulls money out of the checking account and pops it into an account at is used for special items. For example, I use my special savings account for a Christmas fund, paying property taxes, paying for kids annual tuition bills. How many of us are still paying off our Christmas debt. If you had a special savings account your bill would be paid off or at least alot less.

2. Enroll in a 401(k). If your employer offers a 50-cent match for every dollar you contribute, even adding $60 a month will net you over a grand a year. Plus, you defer paying taxes on your contributions, giving you a bigger paycheck now.

Enrolling in a 401K is a triple whammy and that is a good thing. First of all most of the 401K have a matching plan so if you save 6% they match like 3%. Second the money you save in a 401K is tax free dollars meaning that you earned the money, banked it in the 401K without and taxes being taken out. It is the number 1 and in most cases the only tax deduction most of us have left. And finally, the third items is the money in your 401K grows tax free. Sweet!

3. Raise your car insurance deductible. Upping your out-of-pocket outlay from $250 to $1,000 can save you 15% or more off your premium.

I totally agree with the high deductible. However, I would add the following, first of all you can only raise your deductible once. I recommend that at least every 2 years you shop your car insurance around. My house insurance was $900 a year. I went to a new broker and they lowered my house insurance to $600. Then of course every year it went up, like $100 a year. So after 2 years of that I called the current broker and asked why it was going up so high and what they could do about it. The broker is an independant and they shopped it around for me. They were able to get the payment down to $575. That was even lower then where I started out 2 years ago. Pretty cool!

4. Pay off your credit card. Carrying a $1,000 balance at 18% blows $180 every year on interest that you could put to better use elsewhere.

I have wrote about paying off you debts in this blog extensively, you have to learn how to stop using credit cards and payoff your debts. First of all, don't borrow money from a credit card company. Borrow money from a bank, you will find much cheaper loans at a bank. Second don't incurr debt on something that doesn't last like a dinner out or a vacation. Who wants to be paying for last years vacation this year and you are already thing about this years vacation and the bills.

5. Go green. Control energy costs with a programmable thermostat. Prices start around $50, but you'll cut your heating-and-cooling bill by 10-20%.

Another idea, just turn down the thermostat and where a sweat shirt. Also another great way to save on energy costs is to drive slower. I use to run up and down the freeway way to fast. I back it down to 70, and you would be amazed what is does for your mileage. Also, if you don't have a garage, don't pre-start your car in the morning. This wastes a ton of gas.

6. Bundle up. Getting a package of phone, Internet and cable from one provider can save you about $50 a month.

This one really pisses me off. Our stupid cable bill is $120 a month, phone is $38 and that doesn't include cell phones. One tip I have on the cell phones, consider using a pay as you go phone with no contract. My wife has one and her cell phone bill is only $200 per year. That is only $16 a month. We buy her a $100 card when she needs more minutes and it last almost 6 months. Also, cut the long distance service on your land line. We use calling cards. It is only $.04 per minute.

7. Use your employer's FSA. Flexible spending accounts let you pay healthcare costs with pre-tax dollars. If your company offers them, take advantage and save 33% or more.

This is your second largest deduction that you can take right out of the pay check. These are tricky though, because if you don't use the money you loose the money. They also tend to be a lot of record keeping. But I still use mine.

8. Get a credit card with rewards. Spending $80 a week on gas and groceries? Putting it on a card with 5% cash rebates will earn you nearly $200 a year.

I am a huge fan of cash back cards. The caution here is don't sign up for a cash back card and then not be able to pay off your credit cards. Additionally, make sure your cash back cards don't have an annual fee. No sense in paying $100 to get $200 back.

9. Kick the habit. Smoking is hard on your health and the wallet. Three packs a week averages $50 a month. Learn more about how getting in shape can fatten your wallet.

My work is even offering cash incentives to get healthy and stop smoking.

10. Brown bag it. Instead of spending $8 on takeout every day at work, bring a bagged lunch for $5. You'll save $60 a month and $720 a year.

Eating lunch out is expensive. I disagree with the math here. I think you can bring your lunch for less than $5 and when you eat out it is usually a lot more than $8. Huge savings here when you start to cut back on the number of family dinners out. Another thing to consider is to cut back on the drinking in the bars. Have a beer at home they only cost $.50 at home and they are $3 to $4 in the bar!

11. Negotiate your rate. Instead of paying an APR of 18% on your credit card, call your issuer and ask for a lower rate. If you have good credit, your lender might consider it and if you can provide examples of offers you've gotten from other companies, it'll strengthen your case.

I recently wrote a post on negotiating with credit card companies.

12. Travel on the cheap. Bypass the old trifecta of travel search engines (Travelocity, Expedia and Orbitz) and head straight for, which will search them all -- saving you money and time. For last minute deals, try And see our list of the 25 Best Travel Sites for more cost-cutting resources.

I recently wrote a post on finding cheaper flights. Vacations are expensive! Consider driving, not staying at a resort, you never spend time in the room anyway.

13. Insure yourself. Even if your company has a health plan, you may be able to do better for yourself. Pairing a high-deductible medical policy with a health savings account -- which lets you put away pre-tax dollars for out-of-pocket medical expenses -- can save money on premiums. Shop around at

14. Make media free. Dust off your library card and enjoy DVDs and books for free. If you'd normally rent a movie a week and buy a book a month, you can cut costs by $30.

15. Change your calling plan. The average wireless-phone user spends about $60 a month, including taxes and fees. If you talk for 200 or fewer minutes per month, switching to a prepaid plan where minutes cost 25 cents a minute could save you $10 a month. Compare plans at

16. Park your car. Why pay $25 a week in gas when you could pay half that to use public transit? Or check out carpooling at and

17. Ditch your gym. Forget the $40/month gym membership that'll cost you almost $500 a year and check out community centers in your area. Some may be free or charge a minimal fee such as $100 a year. Or buy a good pair of running shoes and work out the old-fashioned way.

18. Reshop your auto insurance. Using a comparison site like InsWeb can help you determine if you've got the best deal.

19. Learn to cook. Cooking at home saves on your food budget and it could even improve your dating prospects -- who isn't impressed by someone who can prepare a great meal? Check out Nine Ways to Get Ahead for more practical financial advice.

20. Keep track of your money. The best way to save is to know what you spend. It might not be pretty, but detail every expense for a month to get an idea of where you can cut back. Nearly everyone has some fat they can trim from their spending to put toward a savings goal.

Thanks for visiting and feel free to leave a comment or idea. By the way I am running a little survey to get my readers opinion on what items I should write more about so please take the survey, it is over on the left hand side of the page. Also for related articles check out the tags below. You might find something usefull. If you enjoyed this post please Subscribe to Strategies for Life.

Sunday, March 02, 2008

Reverse Mortgage Troubles and Caution and how to avoid them

Reverse Mortgage Troubles and Caution and how to avoid them

I found and interesting article in the New Your Times called Tapping Into Homes Can Be Pitfall for the Elderly here is what the article said along with my comments.

Erika Baker was 67 years old, divorced and worried about her job when a saleswoman showed up at her door in late 2006. A reverse mortgage, the saleswoman explained, would give Ms. Baker instant access to hundreds of thousands of dollars tied up in the value of her home. Such a loan, typically available only to homeowners in their 60s and older, would not have to be repaid until Ms. Baker moved out, the saleswoman said. And if she never moved, the loan would be settled by selling her house after she died. “Your Home Pays You Cash!” read a brochure the saleswoman left behind.

I guess the first red flag is don't believe any sales person that shows up at your door. Also another caution is if this is your first offer as in any transaction such as a purchase or and investment you should get at least 2 and hopefully 3 offers.

Ms. Baker, who lives just outside San Diego, jumped at the offer, borrowing a little more than $200,000 through a company called Senior American Funding. Then the problems began. The saleswoman pressured her to put the proceeds of the loan into complex investments that put her money out of reach, Ms. Baker said. She received only about $33,000 in cash, far less than she needed for her final years. “I thought this was a safe way to make sure I’d never run out of money,” Ms. Baker said. “Then everything became so confusing. No matter where I turned for help, it seemed like things got worse.”

At this point the second red flag should have been waving frantically. She needed money not new investments. This started to smell like a scam very quickly.

As the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier. In surveys, many borrowers say reverse mortgages have improved their lives and provided money they needed for retirement.

For most people their home is their largest asset. I don't like to call it and investment because if you sell it you need to find somewhere else to live. However, it is worth something. However, most of us, especially with the recent ups and downs in the real estate business will not be able to depend on our home for a significant portion of our retirement.

But hundreds of people who have sought reverse mortgages — in lawsuits, surveys and conversations with elder-care advocates — have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions.

I feel sorry for people in these situations. You would think they would have an adult child or a friend that could review the contract with them to help them determine what they were getting it. In this case they should have consulted a real estate attorney to review the contract. I have trouble understanding terms and conditions and I would have hired and attorney for a few hundred dollars to review the contract and tell me what I am getting into.

“Every scam artist is getting into this business,” said Prescott Cole, an elder-care advocate who has worked with numerous reverse mortgage borrowers. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”

Again focus on the term So complicated. That sounds like you so need a lawyer. Getting a lawyer involved first would have prevented the need for one later when you have to sue the company that offered you the reverse mortgage.

Reverse mortgage lenders and brokers dispute those accusations, noting that the loans are heavily regulated and have helped hundreds of thousands of people. “For a lot of elderly people, their only real asset is their house,” said Peter Bell, president of the National Reverse Mortgage Lenders Association, a trade group. “A reverse mortgage is one of the few ways someone can access wealth that’s otherwise out of reach, while still living in their house for as long as they want.”

They could also sell their house to an investor and rent it back from him. They could outright sell the house and move into an nice senior community. Lots of options you would hope. Again where is the family to help out with these decisions?

However, some borrowers find their wealth is still out of grasp, even after they have sought a reverse mortgage. For example, Senior American Funding, the company that sold Ms. Baker her loan, has been sued three times in the last 13 months by clients who said they were misled. (Two of those cases were settled out of court for undisclosed sums. The third, filed by Ms. Baker in California state court last month, is pending.) The company, which is licensed in 16 states, has originated mortgages worth more than $100 million since 2004. “We never pressure clients,” said one of the company’s founders, Matthew Copley. “We just try to make sure they know about their options.”

I don't know if I believe this, "we have never pressured clients".

However, a former sales agent, Hani Shenoda, and an agent who still works at the company who spoke on the condition of anonymity because of fear of retribution, said in interviews that managers at Senior American Funding encouraged them to pressure older homeowners into unwise loans and investments. The company disputes that assertion. On Tuesday, after being contacted by a reporter, Senior American Funding announced it would no longer sell combinations of loans and investments like the one Ms. Baker had bought. “When we make mistakes, we address them as responsibly as we can,” Mr. Copley added. Ms. Baker owned a home worth about $600,000 but was living paycheck to paycheck, teaching child-rearing skills to low-income mothers for about $400 a week, when she was told in 2006 that her job was ending.

We you see here is a problem right off the bat, a $600,000 home. Holy moly! The taxes alone on the house has to be more that she is bringing home with her $400 a week job. She should have sold the house long ago. What ever time in her life when she was able to afford that house is gone.

Months earlier, she had received a mailing from Senior American Funding, one of the hundreds of reverse mortgage companies that have emerged in the last several years. She scheduled an appointment with a saleswoman named Laurie Spencer. (Ms. Spencer no longer works at Senior American Funding, according to the company, and could not be located.) “This saleswoman was so friendly and personable,” Ms. Baker said. “It was like God had sent me a friend to tell me how to survive.” In the kitchen of the home, where Ms. Baker displays watercolors of dolphins and flowers she has painted, the saleswoman recommended a loan of $218,900, with a variable interest rate initially set at 6.57 percent.

Again what was the house worth? $600K and they were recommending $218K. I don't like the math.

Because reverse mortgages do not require borrowers to make immediate repayments, the interest charges are added to the debt every day, and the total amount owed grows over time. The saleswoman did not explain that within 10 years, Ms. Baker’s $218,900 loan could grow to as much as $400,000, Ms. Baker said. That debt would be paid by selling the house when she moved out or died.

The saleswoman also did not emphasize the high fees, Ms. Baker said. The loan’s fees cost her $17,100 — almost 8 percent of the total loan — which was paid out of the proceeds as soon as the loan closed.

To ensure that borrowers know such details, the federal government requires them to speak to an independent adviser before closing a reverse mortgage. “We make potential borrowers talk to a counselor to make sure they understand what they are doing,” said RenĂ©e Shadel, an investigator with the Washington state attorney general’s office. “These can be great loans for some people, but only if they understand them.”

But critics say these counseling sessions are often brief and unhelpful. Some elderly borrowers, for instance, said their sessions lasted only 10 minutes, rather than the 60 to 90 minutes most counselors say they need to explain the loans. Critics say some sessions are so brief because reverse mortgage companies are paying for the advice. One of the largest reverse mortgage counseling companies, Money Management International, often asks lenders to pay for providing advice to the lender’s clients, according to a company spokeswoman. Money Management International, which is a nonprofit company, received $900,000 from reverse lenders last year. By regulation, counselors may not charge clients, though they are allowed to seek support from lenders.

“Anytime anyone gives a counselor a donation, they expect a quid pro quo,” said Buz Zeman, a reverse mortgage counselor with Housing Options Provided for the Elderly, a nonprofit group financed by government grants. “The point of counseling is to make people consider other options. That’s difficult if you feel like your next paycheck relies on convincing someone to get the loan.”

A spokeswoman for Money Management International says it seeks payments from lenders because government grants do not cover costs. The group’s counselors educate clients only about how loans work and do not recommend whether to proceed, she said, adding that the average time a counselor spends with a client is 58 minutes.

“There is no quid pro quo relationship with lenders,” a Money Management International spokeswoman, Catherine Williams, said in an e-mail message, adding that clients receive the same advice whether a lender pays for the session or not. “Funding is not tied to the outcome of any case.”

Even when lenders do not pay for counseling, it can still prove unhelpful. Ms. Baker’s counseling session, which was provided by an agency that does not accept money from lenders, lasted only about a half hour, and she walked away from the conversation still confused, she said.
Then the saleswoman persuaded her to sign the loan forms.

After the reverse mortgage closed, Ms. Baker used the proceeds to pay off a $68,000 traditional mortgage on her home, and she put about $33,000 into various savings accounts.
The remaining $100,000 was used to purchase, at the saleswoman’s urging, two deferred annuities — complex contracts that offer monthly income in exchange for a large lump-sum payment. Those annuities prohibited Ms. Baker from gaining access to most of her funds for seven years unless she paid a stiff penalty.

Moreover, the annuities were likely to cost her money rather than pay her. Annuities are so complex that it is impossible to forecast precisely how much Ms. Baker will receive from them. However, based on recent payout data for similar products, she will probably earn about $520 a month from her annuities for the rest of her life. Ms. Baker’s mortgage debt is increasing by about $600 a month as the interest compounds on the money she used to purchase those annuities.

If Ms. Baker collected monthly income from her annuities for 10 years, she could receive $62,400. However, the debt she would owe over that period would likely increase by $79,000 to $300,000, depending on how her loan’s interest rate changed.

“Buying an annuity with the proceeds of a reverse mortgage is incredibly dangerous,” said Mr. Cole, a critic of reverse mortgages. Indeed, the practice is so troublesome that many annuity companies and states either tightly regulate or forbid it. The salespeople at Senior American Funding were richly rewarded for their sales: the company received about $8,750 in commissions from Ms. Baker’s annuities, and $7,200 for processing her reverse mortgage.

Last month, Ms. Baker sued Senior American Funding, accusing it of fraud and elder abuse.
Mr. Copley, the Senior American Funding co-founder, defended the company’s actions and said Ms. Baker consented to every transaction. However, Mr. Copley conceded that Ms. Baker was given documents with inaccurate numbers and that sales agents, including him, at the time did not fully understand the products they were selling her. “If we made mistakes, I’m sorry,” he said.

Other lenders have also been accused of pushing older homeowners into unwise deals.
A survey released last year by AARP, formerly known as the American Association of Retired Persons, of more than 1,500 reverse mortgage borrowers found that almost one in 10 were urged to buy other financial products, like annuities.

Lawsuits against reverse mortgage companies, including the nation’s largest, Financial Freedom Senior Funding, contend that those firms helped pressure older Americans into bad investments. In court filings, companies have denied those claims. “Financial Freedom is not involved in selling annuities, does not recommend annuities, and won’t even allow borrowers to use reverse mortgage proceeds to buy an annuity at closing,” said Joel Schiffman, the company’s general counsel. “We only pursue a reverse mortgage when it is in a senior’s best interest.”
Some regulators and lawmakers, however, have said that more safeguards are needed, including giving borrowers more information about alternatives to reverse mortgages, disclosing fees more clearly and providing more government money to counselors, so that they do not seek payments from lenders.

New laws governing reverse mortgages are under consideration in Congress, though lobbyists for some lenders are mounting strong opposition, Congressional staff members say.
For Ms. Baker, now 68, such safeguards would come too late. She says she wakes up in the night, terrified there will not be enough money for food, gas or anything else. To cut her grocery bill, she stopped buying meat and fresh vegetables. “Before, at least I knew my house was safe, and that no one would take that away from me,” she said. “Now, I don’t know if there is anything I can count on.”

Related reading:

  1. Reverse mortgages pros and cons
  2. How do reverse mortgages work

Thanks for visiting and feel free to leave a comment or idea. By the way I am running a little survey to get my readers opinion on what items I should write more about so please take the survey, it is over on the left hand side of the page. Also for related articles check out the tags below. You might find something usefull. If you enjoyed this post please Subscribe to Strategies for Life.