Smart money management is crucial… especially during these economically challenging times. It is important to monitor how you spend your money.   

Take the following self-quiz,  taken from The Back to Basics Book of Money!  A Couple’s Guide to Financial Peace.  Then see how effectively you are managing your resources:

• Am I reluctant to sit down to pay bills?  Worse, do I ever get behind on my bills?  This is a telling sign of financial stress, and a clear indication that you may be living beyond your means.
•  Do I ever borrow money to pay bills?  Once again, this is a danger sign that you are living beyond your means…and on borrowed time.
• Do I use credit cards for routine purchases?  This makes it too easy to overspend, especially on things you simply do not need.  Best rule of thumb:  If you can’t afford to pay cash, you can’t afford to buy it.
•  Do I count on overtime or income from my and/or my spouse’s second job to make ends meet?  The answer is not always more money, but managing what you have more effectively.
• Do I spend every cent I earn and save little or nothing on a regular basis?  If you are living on the edge, it is only a matter of time before some big (or even small) emergency pushes you into a financial crisis.  Set up an emergency fund. Spend the next year building it up to the equivalent of at least one month of income (three would be even better). 
• Do I make unplanned withdrawals from my savings or checking account or go to the ATM whenever I need cash?  If you pull out just $20 a week more than you’d planned, that’s more than $1,000 a year in unscheduled withdrawals. It adds up.
• Do I consistently come up short the day before payday or race to the bank to cover checks I wrote the day before?  In addition to incurring overdraft fees, a few stumbles and your credit rating will begin to take a dive as well. 
•  Do I make purchases of $50 or more on impulse?  A good rule of thumb:  Learn to avoid all impulse buys.  Give yourself 24 hours to mull it over.  This avoids wasting money and suffering the guilt of buyers’ remorse. 
• Do I fail to keep accurate financial records or to balance my checkbook?  If you don’t know your financial condition, then it is most likely not all that good.  

How you did:  If you came up with no more than two check marks, you are doing a reasonably good job managing your money.  If you have three or four, you are doing okay, but you could do a lot better.  Five or six is a strong indication that you are skating on thin ice and heading into trouble.  If you check more than six, you are in financial danger.  Tear up your credit cards, stop adding debt, set up a budget, tighten your belt and change your spending habits immediately.

The good news:  Whether you are an ace at managing your finances or a disaster in the making, you can improve your spending and money management habits.  By doing so, you will get better and more value from the  money you do spend, actually boosting your standard of living.

Want to help your children build long, long, long-term wealth … maybe even be able to retire wealthy one day?  Consider setting them up with IRAs with the money they earn this from their summer jobs … and the rest of the year, too.   

Here are the rules:

·        If they earn any money, they can contribute (or you can contribute in their name) 100 %, up to $5,000 maximum, each year.  If you have the extra income, the idea is for them to keep the money they earn and you make the contribution, building wealth for their future.

·        It must be earned income.  Allowances do not count.  However, money from babysitting, mowing the lawn, shoveling snow does.  Just keep good records. 

·        Many advisors recommend a Roth IRA.  Contributions are not tax-deductible (but we are assuming that income is low), and 100% of benefits at retirement are tax-free.

How the money can grow:  Let’s say your child is 15 and earns $3,000.  You make an IRA contribution in his or her name for that amount.  If there are no additional contributions and assuming the money earns a 5% return, compounded quarterly, your child will have nearly $36,000 at age 65 … all from one $3,000 contribution.  If you continue making annual contributions, with your child eventually taking over the payments, the total at retirement will be nearly $704,000.

Increase the annual contribution to $5,000 and the amount at retirement comes to $1.73 million.  (And if we increase the assumed average interest rate to 7%, the total amount at age 65 will be more than $2.4 million.)

The bottom line:  Whether it’s just a few hundred or a few thousand dollars, you can help your son or daughter lay a solid foundation for long-term financial security.

* * *

First of all, all money is not equal … not by a long shot! 

Sure, in most cases, the federal government gets its pound of flesh in taxes on just about everything you earn … while the states slice off a few ounces as well.  This can be frustrating when you’re attempting to accumulate money for such long-term goals as retirement or your children’s college educations … or if you are simply looking for ways to maximize your net returns on money you put aside or invest.

Fortunately, taxes are not inevitable.  In many cases, they can be deferred or completely avoided, all quite legally.  The result can be thousands of dollars in savings.

Tax basics:  Income can generally be divided into three types:   

1. Taxable income.  This includes earned income from work and growth on many investments.  Depending on your tax bracket, you could pay as much as 35% of this income to Uncle Sam.
2. Tax-deferred income.  Tax deferral means no tax is due currently; however, taxes will be payable when earnings are distributed or the asset is sold.  This includes interest credited to U.S. Savings Bonds and earnings in most qualified retirement plans.  (Though the money may be taxable when taken out of the plan, it is not taxed each year while it is accumulating.)  It also includes earnings on annuities and the cash value in life insurance.  One of the advantages of these vehicles is tax-deferred accumulation.
3. Tax-free income, such as that from most municipal bonds and qualified distributions from Roth IRAs.  This money is never subject to federal tax.

The tax savings on tax-free growth can be significant.  Example:  Let’s say you are in the 28% tax bracket and put $300 a month into a tax-free Roth IRA that earns 8%.  Your friend in the same tax bracket does the same, with one exception — your friend’s vehicle is fully taxable each year.

At the end of five years, you will be $1,290 ahead of your friend.  After 10 years, your advantage is $6,490.  The difference is a direct result of the tax deferral.  You earn interest on principal, interest on interest and interest on money normally lost to taxes. 

For more on how to use the tax rules to build wealth, talk to your financial advisor. 

[The following is an excerpt from The Back to Basics Book of Money! A Couple’s Guide to Financial Peace]

[Don't forget to look at the special offer below.]

I have always found money interesting and challenging. I have written about and taught money management skills for 30 years.  Three major things I have learned about people and money during those three decades:

# 1:  Most People Struggle with Money

First, many people struggle when it comes to using money as an effective tool to achieve their goals.  (For that matter, many people have no goals.  They just earn and spend in a relentless cycle.)  This is mostly because they have not given much thought to money, except to spend it and then worry about it on a daily basis.  In fact, to be painfully blunt, there are those among us who are flat-out ignorant when it comes to money. 

I have met people over the years who see no connection between the income they earn and the lifestyle they live.  That is not meant to be a blame or judgment statement, just a fact.  They do not have a clue how to use money, manage money, do much more than work like dogs 40 or more hours a week to earn money, and then turn around and spend it like drunken sailors on shore leave.  They earn it and spend it and borrow it.  The bank and the credit card companies  – everyone but themselves – are in control of their financial lives. 

# 2:  Money Problems Can Destroy Relationships

Second, while money cannot make people happy, the lack – or mismanagement – of money can make them miserable.  Because of their financial situation, many couples find that their lives are out of balance, if not completely out of control, not just financially but in every respect. Keep in mind that there is a close correlation between money problems and domestic problems.  Look at most divorces.  When we get beyond “He’s a jerk” and “She’s impossible to please,” the real reason behind most divorces and marital problems is MONEY.  Worry over money can eat away at couples in subtle ways, producing terrible stress that can tear families apart.

Financial problems are almost always part of the mix – in there somewhere — when it comes to divorce and marital discord.  Studies differ as to whether money comes in first, second or third (competing with sex and how to rear children as the top argument topics), but it seems to be always present in some form.  One study found that money was a source of tension between 84% of couples, with the number one cause of dissension being priorities about how to manage or allocate money.  Another showed that 70% of couples have the “money talk” at least once a week (“Honey, we have to cut back somewhere.”  “Okay, let’s go out for pizza and talk about it.”) and that 40% say they have lied about how much they spent on an item they recently purchased.  One thing is certain:  Money is the most common reason for arguments, what couples fight about the most, and the number one reason divorcing couples say is the cause.

On the other hand, money can be an amazing source of marital harmony and unity.  When finances are in balance, when couples are in agreement and pulling together in unison, this common cause serves to strengthen the bonds of the relationship.  At the very least, it provides a stable platform upon which to build harmony and settle other differences.  Perhaps that’s because being financially in control and secure makes people happier and more confident.  Take away ongoing money concerns and most folks would walk through their days with heads held higher.  They’d sleep a lot better, too. 

I’m not a psychologist, but I do know that when I’m not worried about money, I enjoy every other aspect of life more fully, and I’m much more pleasant to be around.  I suspect you are the same.  If you doubt it, ask yourself how worrying about paying an overdue bill, using a credit card when you know you are already having trouble making payments, or finding that you have a 31-day month but only a 28-day paycheck — how all these distract you and reduce your ability to enjoy your life.

In that same vein, did you ever notice that you often can spot people who have money in the bank?  We sometimes see them as having arrogant attitudes, but the fact is that (for many, at least) they simply have a quiet calm about them.  They seem more relaxed than those of us who are wondering about how to pay next month’s mortgage or pulling out the sofa cushions looking for change to pay the pizza delivery guy.  Money makes a difference in our attitudes and our confidence.  It is a powerful tool.

# 3:  Financial Health & Stability Can Start TODAY!

Finally, I learned that no matter how bad a person’s financial situation may be, it is NEVER hopeless.  It can be turned around and fixed.   Depending on how deep the hole, it may take some time to crawl out of it, but every day can show some improvement in standard of living. 

No, the cure is not always easy and can rarely be completed in a flash, but if you are determined to improve the quality of your life and your relationship, you can start today, and you will be amazed at the positive changes that will begin almost immediately to flow into your life.  Most of all, every day that your finances can be improved by a fraction, an inch, and then a foot (or perhaps better stated as a penny, a nickel, and then a dime), brings you that much closer to financial security, strength and peace.

What is the alternative?  Ignoring financial problems is like speeding a hundred miles an hour down a highway with a brick wall around a bend.  You may not know which bend, but that wall is there, and the crash will be a messy one.  Guaranteed.  So, the time is now to slow it down, turn it around and head in the opposite direction.

That’s why I wrote this book andworkbook, to help men and women who may be struggling with money matters.  Maybe it’s for you.  Maybe it’s for your children.  (I was amazed when the book first came out and the major buyers were parents of adult children, buying the books as anniversary, birthday and Christmas presents.)  Either way, this book will provide a roadmap and the tools needed to do the job and help you turn around your financial condition and the overall quality of your life. 

++++++++++++++++++++++++++++++++++++

Special offer, good through August 20th!  Order the two-book set of The Back to Basics Book of Money directly from my office, and I will split the middle-man savings.  The set retails for nearly $31, plus shipping.  If you order directly from me, send a check for just $22.95 (a savings of more than 30% when you consider shipping).  Checks only, please.  Send payment to:

John Ingrisano, Director

Family Finance Conference Center

204 Lakeview Drive

Algoma, WI 54201

Chronic overspending can disrupt a family’s financial stability.  Just as bad, it can lead to guilt and depression and even undermine otherwise happy marriages.  Danger signs include high debt loads, closets full of unused clothes and gadgets, shopping as an escape when feeling down or to cele­brate when feeling good.   

Self-quiz:  How about you?  Do you — or does some­one you know — have shopaholic tendencies?  Print out this page and answer the following questions, using a rating scale of 0 (ALWAYS) to 10 (NEVER).

____I shop for recreation or re­laxation. 

____I’m not sure how much I will spend when I shop.

­­­____I use credit cards when I shop. 

____My credit card balances are near the maximum. 

____I spend on luxuries, even if it means depriving myself and my family of necessities.

____When my bills arrive, I cannot account for one or more charges. 

____I buy items that I do not wear or use.

____My spouse and I quarrel over my spending.  (If single: Friends comment on my spending hab­its.)

____I spend money when I’m de­pressed or unhappy. 

____I find it difficult to walk into a store without buying something. 

____                                              TOTAL

Rating yourself:  If you scored 50 or below, your spending is out of control; 51 to 70 says you are “average,” but you could be more disciplined in your spending; a score 70 shows that you control your spending rather than the other way around. 

Suggestion:  If your spending is out of control (or even just a little out of line), try the following:

1.     Be honest with yourself.  Acknowledge that your spending is creating affecting your life…or that you could be doing better things with your money.

2.     Look for patterns.  Do you shop because you’re unhappy, angry or bored?   If so, find a new and more productive outlet for your feelings.

3.     Put yourself on a budget.  Figure out how much you can afford to spend each month and what you can afford to spend it on.  Then stick to that amount. 

4.     Leave your credit cards home when you shop.  Live by the motto: “If I can’t afford to pay cash, I can’t afford to buy it.”  If you’re easily tempt­ed, carry little, if any, cash.

5.     Practice premeditated shop­ping.  Shop only with a list.  Sound advice any time of year, this is especially appropriate when we approach the holidays.  Shop with pur­pose, not just for the fun of spending money. 

6.     Avoid temptations such as killing time at the mall or cruising the shopping sites online.  If you’re bored and need a pick-me-up, go for a walk or visit a museum. 

If all else fails, consider profes­sional help.  Spending can be an addiction.  There are a number of “Shopper Stopper” organizations around the country to help the shopaholic.  Final reminder:  The better you control your spending, the more value and satisfaction you will get from the money you do spend. 

                                                                     * * *

If you’re like most people, your home is not just your most valuable possession and biggest asset, but it is also your family’s shelter.  If anything should happen to your home, you want to be sure losses will be repaired or replaced without unexpected financial surprises.  That’s why you carry homeowner’s insurance.

Here are ten reasons to get together with your agent and review your coverage periodically:

1.     You want to make sure that new possessions are covered, including and electronic gizmos, jewelry, new dining room furniture, etc.  Find out if you need additional coverage.

2.     You don’t want to waste money insuring items you no longer own or have in your possession.  If you gave your grandmother’s diamond ring to your daughter, or sold your first-edition book collection, you may be eligible for a premium reduction.

3.     Safety pays.  You may be in line for discounts if you’ve added safety devices.  Even something as simple as installing deadbolts may reduce your costs.  The same goes for burglar alarms, as well as carbon monoxide and smoke detectors.  Tell your agent. 

4.     There is a good chance your home’s replacement cost has increased, even if the fair market value has declined in the past several years. 

5.     It’s never a bad idea to review your deductible.  A few years ago, a lower deductible might have made sense to you.  However, today, if you can afford to cover more expenses yourself in a loss, you may be able to reduce your premium by increasing your deductible. 

6.     If you’re getting older, your premiums could be getting better.  If you’re 55 or older, senior discounts at motels and restaurants aren’t the only perks.  You could be eligible for a discount on your homeowner’s premiums.

7.     Don’t assume your policy’s cost-of-living provision matches your needs.  Automatic increases protect you from unexpected surprises.  However, they are not tailored to your individual situation.  It often requires a look at your actual policy and home value to determine if you need additional coverage or a reduction. 

8.     Make sure you’re not insuring dirt.  Your home’s value includes the land under it, which should not be insured.  Check your policy to be sure only buildings and personal property are covered.

9.     Don’t cut corners on any home-business assets you have on the premises.  More and more people today are turning that spare bedroom into an office.  If you’re self-employed, even part time, your business assets may not be covered under your homeowner’s policy.  Consider a business rider.

10.                        If a year has passed since you last reviewed your coverage, regardless of other factors, it just makes sense to meet with agent and go over your policy.  There is no cost for this review.  It might even lead to a reduction in your premiums.

                                                          * * *

Director, Family Finance Conference Center

Times are tough.  A lot of folks these days are upside down on their auto loans, under water on their mortgages, and way in over their heads in credit card debt. 

So, what about bankruptcy?  In a word … don’t.  There may be times when declaring bankruptcy is a good decision, usually if you are inundated by medical bills or have been out of work for two years or so, with no job prospects in site.    

However, in the vast majority of circumstances, bankruptcy is a sign that people have been living way beyond their means, got caught, and have learned nothing.  In other words, it solves nothing.  Plus, even with bankruptcy, you cannot walk away from student loans, tax liens or back alimony.

So, before you jump into bankruptcy, make sure all your other options have been exhausted.  And then only do it after you have shredded your credit cards and learned a new way to manage your money. 

***

Want to learn more about how to manage your money and your life?  Check out The Back to Basics Book of Money! A Couple’s Guide to Financial Peace.  The book contains 10 valuable Couple Money Skills.  Plus, the Back to Basics Book of Money Workbook (which dovetails with the main text) offers 31 practical, hands-on Wealth Builder activities that can help you and your partner build financial and domestic stability.  Both the book and workbook, which retail for $31.98 plus S & H, are available at the Family Finances Conference Center website for $27.99 total.

The Family Finances Conference Center tailors programs to the unique and individual needs of client organizations and their members and employees, based on the principles of the book and workbook set, The Back to Basics Book of Money!  A Couple’s Guide to Financial Peace. 

For more information, contact me at the Family Finances Conference Center by email (john@b2bbookofmoney.com) or my direct phone line (920-559-3722).

John Ingrisano

Director

Family Finances Conference Center

204 Lakeview Drive

Algoma, WI 54201

(920) 559-3722

john@b2bbookofmoney.com

Director, Family Finance Conference Center

Ben Franklin was cited as saying:  “Watch the pennies and the dollars will take care of themselves.”  In the same respect, minor differences in interest rates can make big differences over time.

Example: If you ring up a $1,000 bill on one credit card and the annual interest rate is 3.9 %, but 15% on another, you will end up paying $21.25 in interest in one year on the 3.9% card, but $83.10 on the 15% card. So, unless you plan to pay off your card each month, the interest rate does make a difference.

Now let’s look at how the interest rate you EARN makes a difference over time.  Let’s say you deposit $5,000 a year into your IRA at the start of each year and your spouse also does the same.  One of you earns a fixed rate of 2.3%.  The other, which pays a variable rate based on investments, averages 8% over time.  

If you keep depositing $5,000 annually into each account for 40 years, the one account earning 2.3% will have grown to $342,285.  The IRA averaging 8%, over that same period of time, will grow to $1,507,527.81.  That’s a $1.2 million difference.  

The bottom line:  The interest rate does matter … BIG TIME!  When selecting a credit card, make sure you push for the lowest rate possible, and if you must borrow, look for those special deep-discount deals.  And when it comes to retirement, decide how much you intend to balance the safety, guarantees and security of a low, locked-in rate versus the opportunity of a variable rate, which could grow well … but which could also lose money.     

Additionally, the bank has graciously asked me to hold a book signing that day, between 11:00 AM and 2:00 PM, for my book and workbook set, “The Back to Basics Book of Money!  A Couple’s Guide to Financial Peace.”

There will be all kinds of other events and give-aways, too, so mark your calendar and plan to drop by the Bank of Luxemburg in Algoma on August 12^th. 

* * *

Director, Family Finance Conference Center

Here’s a short quiz.

Question # 1:  At the end of 50 years, how much money do gamblers end up with who “invest” $50 a week on lottery tickets or at the casino? 

Question # 2:  At the end of 50 years, how much money do non-gamblers end up who put $50 a week into an IRA or other long-term investment, one that earns, say, an average 5% return?

Answer to question # 1:  zero!  If you think otherwise, you’re fooling yourself … or maybe you’re that 1-in-100,000,000 who actually hit the jackpot.  (I’ve heard about those folks all my life, but never actually met or even saw one.)

Read on for the answer to question # 2.

First, a brief rant.  One of my biggest pet peeves (this one’s about the size of a male yak) is standing at the counter of the gas station/convenience center waiting to pay for my gas, and I’m behind this guy or gal hunched over and frantically scratching off lottery tickets with more determination than a dog going after fleas.    

Now, I really don’t mind the waiting, and I admit that I do enjoy gambling from time to time, so don’t get me wrong on this.  BUT … these folks almost always are driving a car my father might have traded in fifteen years ago and they look like they’re living from paycheck to paycheck … or even three or four paychecks behind.  (Add in that they’re buying $7/pack cigarettes and I’m ready to blow a gasket.)

I know, I know, it’s not my business.  However, I see some folks who do this every week, who shell out anywhere from $20 to $50 hoping to hit the big one.

So, here’s the skinny on gambling, whether lotteries or casinos:  If you like to gamble, great.  It can be good recreational fun.  However, did you know that, according to Thomas J. Stanley, author of “The Millionaire Mind,” most millionaires almost NEVER gamble.   

So, let’s imagine that my friends at the gas station are “investing” $50 a week in lottery tickets.  That’s $2,600 a year they’re out!  (If they win a few bucks, they almost always buy more tickets.)  They scratched off enough for a mini-vacation or purchase a newer car.  Money down the drain.

Now imagine (yes, this is where it gets boring, but pay attention), they put that money into an IRA, and let’s say again that the rate of return is 5%, compounded monthly.  They start when they are 18 and just beginning their first job.  They continue until they are 68 and ready to retire. 

In 50 years (and here’s the answer to question # 2) that $2,600 per year has grown to $580,000.  That is one sweet retirement nest egg. 

The bottom line:  Like to gamble?  Fine.   However, if you want actually to become wealthy, talk to your financial advisor about where to put your money.            

Now, go out and work hard, make money, have fun and save a little each week for the future. 

* * *

Want to learn more about how to manage your money and your life?  Check out The Back to Basics Book of Money! A Couple’s Guide to Financial Peace.  The book contains 10 valuable Couple Money Skills.  Plus, the Back to Basics Book of Money Workbook (which dovetails with the main text) offers 31 practical, hands-on Wealth Builder activities that can help you and your partner build financial and domestic stability.  Both the book and workbook, which retail for $31.98 plus S & H, are available at the Family Finances Conference Center website for $27.99 total.

The Family Finances Conference Center tailors programs to the unique and individual needs of client organizations and their members and employees, based on the principles of the book and workbook set, The Back to Basics Book of Money!  A Couple’s Guide to Financial Peace. 

For more information, contact me at the Family Finances Conference Center by email (john@b2bbookofmoney.com) or my direct phone line (920-559-3722).

John Ingrisano

Director

Family Finances Conference Center

204 Lakeview Drive

Algoma, WI 54201

(920) 559-3722

john@b2bbookofmoney.com