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Archive for December, 2006

Make your first million in 2007?

December 28th, 2006 at 10:06 am

I'm catching up on my reading this week. Piggybacking on my last entry What it takes to be rich, I just read another article on CNN Money's site called Make your first million in 2007.

The article talks about 5 ways to become a millionaire:

1. Make saving automatic - Sign up for automatic investing plans... That way the money starts compounding immediately. Plus, you'll never miss it.

2. Take advantage of Uncle Sam - Make full use of any tax-sheltered accounts that are available to you, such as a 401(k) or IRA.

3. Make stocks work for you - Stocks give you the best shot at high returns, having returned more than 10% a year since 1926, twice the return of bonds. If you don't consider yourself a stock picker, a broadly diversified index fund - tracking either the S&P 500 or Wilshire 5000 - is a perfectly reasonable option.

4. Boost your earning power - As the numbers show, the fastest way to amass seven figures is to pull down a big salary. If you're young enough, a professional degree such as an M.B.A. or a J.D. will pay off.

5. Don't stop saving - Remember, just because you've stopped doesn't mean inflation will. As the years tick by, a million dollars will become worth less and less - and you'll need more and more to lead the lifestyle you were counting on. So when you hit the seven-figure mark, keep going.

I actually think this is a pretty good article and recommend many of these strategies to my clients.

However, my first thought when I saw this article was that this won't make you a millionaire in 2007 (the title of the article).

But if you put these tips into place early, and persist each year, you will become a millionaire eventually.

And, if you're young, most likely you will need well more than $1M to retire, so the sooner you develop good money habits the better!

What it takes to be rich

December 27th, 2006 at 05:54 am

I was reading CNN Money and ran across an article titled 'What it takes to be rich'.

Of the 4 people profiled, 3 were business owners and the 4th invested in real estate to become rich.

Although I agree that entrepreneurism and real estate offer some great opportunities to build wealth, I don't think you have to be a business owner or invest in real estate to become wealthy.

As a financial planner I have met many people who are traditional wage earners, who have become wealthy (millionaires even) by saving money and investing wisely (most did so using just their 401K).

I think that 'what it takes to be rich' is good money habits and making good decisions with your money more so than how you earn it.

What do you guys think?

Holiday Spending Update

December 26th, 2006 at 10:49 am

I just added up my holiday spending for this year, and I did ok!

Although I don't stick to a strict budget, I did have a spending limit in mind - both a total limit and per person.

I have to say that I overspent on my two nieces (the two babies of the family - I just couldn't help myself!). But, thanks to a couple of really good sales, I saved quite a bit on gifts for my parents and sister, so I still met my overall spending limit.

Thrifty Ray blogged about Christmas Account 2007... Already?, and I couldn't agree more with him. Having a savings account/fund just for Christmas gifts is a huge stress reliever, so I will be starting mine soon.

How about everyone else? Did you meet or exceed your spending budget? Any tips/thoughts to make next year a better year?


PMI insurance deductible beginning in 2007

December 17th, 2006 at 08:21 am

I just noticed that the newest tax legislation will allow taxpayers to deduct premiums paid for mortgage insurance beginning in 2007.

Mortgage insurance is typically required when home buyers purchase a new home with less than 20 percent down.

Mortgage insurance premiums typically range from $50 to $150 per month, which could mean a $600 to $1,800 deduction on your tax return.

This deduction is only available to taxpayers who itemize, but if you're a home owner (especially if you've just purchased your home) you should have enough mortgage insurance, real estate tax, and other deductions to itemize.

Prior to this tax law, only the interest paid on a mortgage was deductible.

This deduction won't help everyone. The deduction will be limited to taxpayers with adjusted gross income below $110,000.

Finally, you're out of luck if you are already paying mortgage insurance. This deduction will only apply to mortgage insurance contracts issued in 2007, and it's set to expire on December 31, 2007.

Beware the high cost of payday loans

December 12th, 2006 at 09:05 pm

I noticed that a payday loan store moved into my neighborhood recently, then I looked around and realized there are several in my area.

This made me wonder... how profitable are these payday loan places, that they are popping up on every street corner? I've heard that payday loans charge high interest rates, but I had never really researched this info before now.

Here's what I found out...

First, if you're not familiar with payday loans, basically, they are short-term loans, usually in small amounts. Typically, you write a check for the amount of the loan plus fees, and the lender cashes the check on a specified date, usually one to four weeks later.

Here's an example: you need $100 to pay your bills so you borrow $100 from a payday loan company. You write a check for $115 and leave it with the lender, to be cashed in two weeks. Your fee for that loan is $15 - that is an annual percentage rate (APR) of 391%.

Although the Truth in Lending Act requires lenders to disclose the finance charge, including the APR, many consumers do not understand the true cost of a payday loan. To continue the example above, let's assume that you can't pay the $115 when it comes due. The lender allows you to roll the loan over for another two weeks, but you pay another fee each time you do this. If you rollover the loan in the example above three times, your total finance charges would be $60, for a $100 loan. That equates to an APR of more than 1000%!

As you can see from the example this a very costly way to borrow, even when compared to high interest credit cards. If you find yourself in a cash bind, here are some alternatives to payday loans to consider: a personal loan from a bank or credit union, a personal loan from family or friends, a cash advance against your credit card, a cash advance from your employer, etc.

Financial Tips for WAHMs - new blog

December 9th, 2006 at 08:16 pm

I just created a new blog, especially for work-at-home-moms.

The blog will feature articles, tips, worksheets and other tools on personal finance topics such as:

* budgeting and cash flow management
* debt management
* investing for beginners
* saving for college
* saving for retirement
* income tax planning

Since WAHMs can have unique financial needs, I wanted to create a blog that featured articles and tools just for them.

If you are a WAHM, what topics would you most like to see articles/worksheets/tools on?

I would love your feedback and comments on the new blog: Financial Tips for WAHMs blog ~ Thanks!

Quoted in Chicago Tribune

December 3rd, 2006 at 07:48 am

I was excited to see that I was quoted in the Chicago Tribune this morning, in an article on Health Savings Accounts.

Although I have been quoted in articles previously, this was the first time that a reporter sought me out specifically to contribute to an article (she read an article I wrote about HSAs a while back).

If you'd like to read the article, it's located at: http://www.chicagotribune.com/business/yourmoney/chi-0612030...