Photography by: greefus groink

Editor’s Picks

No Credit Needed presents Beware Of The Laundry Detergent Cap posted at No Credit Needed. He found the recommended amounts for detergent are not what the lines look like on the cap!

Squawkfox presents Top Five Frugalicious Snacks (A Visual Guide) posted at squawkfox. These are great ideas for healthy frugal snacking. My favorite is the apples and peanut butter!

Aryn presents 13 Frugal Ways to Celebrate Spring Fever posted at Sound Money Matters, saying, “In honor of spring, I have 13 frugal ways to celebrate the season – one for each week.” It’s a great list of ideas to get outside and enjoy springtime without spending a fortune.

Jason presents Prepare Your Home for Summer Energy Savings posted at The Frugal Dad. Change the direction of your ceiling fan and other helpful tips will get you started on energy savings for the summer.

Terry presents Where to Find the Cheapest Travel Deals posted at Savvy Frugality. Included are some interesting ideas, like being a courier.

C Duran presents Budget Organic – How to Spend Less for Organic Foods posted at Jinxy Knows Best, saying, “Eating organic is great for your health and for the environment, but it’s not always so great for your wallet. But, with these tips, you can eat organic foods without breaking the bank.” We’ve been considering joining a CSA, so this was a good reminder for me to do some research.

Photography by: christopher.woo

Yan presents 14 Easy Ways to get the best Shopping Deals posted at buxr.com.

Alex presents Car Buying Tips posted at Home Life Weekly.

R.Pettinger presents 10 Simple Ways to Save Money at Work posted at Mortgage Blog.

vh presents Real Wealth posted at Funny about Money.

Amy presents Five Find for Friday – Free Things to Do in Atlanta posted at The Q Family Adventure.

Thursday Bram presents Cutting the Grocery Bill: Reducing the Cost of a Good Spice Rack posted at Wise Bread.

Steve presents How to Save Money on Air Tickets posted at DebtBlog.

Kris presents Free Cooking Lessons Part II: A Beginner’s Guide to TV Chefs posted at Cheap Healthy Good.

Bryce presents Farmer’s Market posted at Save and Conquer, saying, “You can save money at a local farmer’s market and get healthy and scrumptious food as well. It doesn’t hurt to haggle, as well.”

Photography by: TooFarNorth

Rio Rivas presents The importance of keeping investment expenses to a minimum posted at Get Financially Fit! saying, “Using average mutual funds may cost you a quarter of your nest egg”

Finance Girl presents When I’m Debt-Free, I’m Buying the Expensive Toilet Paper! posted at Finance Gets Personal.

Ron presents 5 Ways I Plan To Survive The Recession posted at The Wisdom Journal.

Lightening presents Reducing the Grocery Budget – Buy Generic posted at Lightening Online.

Penny Nickel presents Delicious homemade ice cream means more for my money posted at Money and Values.

Raymond presents The Difference Between Legal Tax Avoidance and Illegal Tax Evasion posted at Money Blue Book.

FMF presents Wisdom from Readers: Saving Money and Performance of Index Funds posted at Free Money Finance, saying, “Save money by getting AAA discounts.”

Chief Family Officer presents Drugstore vs. Department Store Makeup posted at Chief Family Officer.

Shana presents Smart Easy Money: Budgeting is Only for Lean Times?? posted at Smart Easy Money.

Pinyo presents A Dollar Saved Is Better Than A Dollar Earned posted at Moolanomy.

Photography by: greefus groink

Paid Twice presents My Frugal Travel Tip ~ Pack Your Own Snacks posted at I’ve Paid For This Twice Already…

Kyle James presents Fun and Frugal Spring Family Activities posted at Rather-Be-Shopping.

Steward presents Save to Buy … If You Buy At All posted at My Family’s Money.

Silicon Valley Blogger presents Serious Savers Who Died Very Wealthy posted at The Digerati Life.

GBlogger presents How The Word “Free” Makes Us Lose Our Minds posted at Can I get Rich on a Salary.

David presents 10 Tips for Finding a Shared Living Space posted at Money Under 30.

Dollar Frugal presents New Work Clothes posted at Dollar Frugal.

Jacob presents The value of hobbies posted at Early Retirement Extreme, saying, “Do you pay for your hobbies, do you enjoy them for free, or do you even get paid to have fun?”

Stephanie presents Beat Rising Food Prices – Grow Your Own posted at Unclaimed Money.

RC presents Your Health and Money- Save Money by Living Healthier posted at Think Your Way to Wealth.

Photography by: cheesy42

Mmhabits presents Wealth and Weight Loss posted at Millionaire Money Habits.

David presents Beauty in Simplicity: Steps for Decluttering Your Life posted at Slow Down Fast Today!

Single Guy Money presents Avoid those Bank Fees posted at Single Guy Money.

Deborah presents The American Frugal Housewife posted at Pennies To Nickels.

Nickel presents Save Money by Fixing Things Yourself posted at Five Cent Nickel.

Lazy Man and Money presents Feeling Poor: Here Are The Two Largest Reasons Why posted at Lazy Man and Money.

Ryan presents Hunting for Discounts: Mail Order vs. Local posted at Uncommon Cents.

Wenchypoo presents Inflation—Here We Go Again posted at Wisdom From Wenchypoo’s Mental Wastebasket.

Poetloverrebelspy presents Why I Love/Hate RyanAir posted at Less Than a Shoestring.

Photography by: Mr. Mystery

Sarah presents When persnicketiness and frugality meet posted at 20saver.

Be This Way presents I’ve Finally Found the Line posted at Are You Going To Be This Way The Rest of The Time I Know You?.

KCLau presents Financial Security: How you feel it? posted at KCLau’s Money Tips.

Lisa presents Free Time or More Money-Which is it? posted at Greener Pastures: Personal Finance, saying, “When I was just out of college, all I wanted was money. Now, pushing fifty, all I want is time.”

Grace presents Free is Such a Lovely (and Dangerous) Word posted at GRACEful Retirement.

Dorian presents The Personal Financier: How to Make Sure this is your Dream Home: 7 Practical Tips posted at Personal Financier.

The Happy Rock presents Easter Spending Without A Plan posted at The Happy Rock.

Frugal Duchess presents Ask for Camp Scholarships! Money is Out There posted at The Frugal Duchess.

Frank presents Buy an S&P 500 Index Fund with Low Costs posted at No Load Index Fund.

Thanks to all the participants in the festival. Submit your article to the next edition of Festival of Frugality, hosted by Consumerism Commentary, using the carnival submission form.

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Investment Snowflaking

I didn’t want the investing crowd to be left out in the cold, so I’ve turned the approach around to apply it to building investments, which is the cornerstone of our dollar plan. I’m going to try to add each extra dollar that comes into our house to our investments! These investment snowflakes will help build our investments quicker just as the debt snowflakes help paydown debts quicker.

Get Rich Slowly recently highlighted five of Jaimie’s golden rules for snowflaking. Let’s apply the same rules to investment snowflaking:

• Snowflake early and often. Starting early is one of the keys to successful investing.  Normally I don’t determine our Roth contributions until after our taxes are complete. However, I’m going to start sending in additional contributions right away!
• No amount is too small to snowflake. I do have a minimum on our Vanguard Roth IRA’s but I’ll drop the small amounts into our savings account at ING. Each time I hit the minimum I’ll transfer the money to Vanguard.
• Anything can be a snowflake. The most likely source of my snowflakes will be money from my dollar-a-day challenge. I don’t make it a daily habit anymore, but I still operate in the same mentality to find extra money. Any extra money I get I’ll throw at the accounts, whether it’s the change jar, a check in the mail from a rebate, or money from eBay.
• Snowflake as immediately as possible. While I’m not fighting an interest rate, it is beneficial to get the money applied sooner. The more time an investment has to grow, the bigger it will grow!
• Keep track of your snowflakes to use as motivation. This will be easy because in April when the rest of our Roth contributions are due, I won’t have to pay the full amount! If that isn’t motivation, I don’t know what is. Of course I will take the extra and apply it to another investment, possibly increasing my contribution to my new Roth 401k!

Building Net Worth

It’s likely that many of the strategies used by people working on paying down debt and people building their investments would cross over in principle. After all, the goal in both scenarios is growing your net worth overall.

Action Plan

I enjoy saving and investing even more when I can apply a fun strategy to it. This seems like a great one because I’ll be able to invest even more than I planned for the year. It will also help since we finished 2007 just short of our planned goal. Now, off to start snowflaking!

Photography by: ViaMoi

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Ana’s official stance is on Ways Credit Card Companies Separate You From Your Money. However, Ana couldn’t wait and got started early in Dirty Credit Card Company Tricks. I countered with reason number 1 (you won’t lose money if you lose your credit card).

Here’s 25 more reasons to love credit cards:

1. Earn cashback and rewards. We earn between 2% -5% cashback on all our purchases on our credit card. It’s like buying everything on sale! Here’s a list of some of the best cash rewards credit cards.
2. Make money on balance transfers. Credit card arbitrage is profitable. Credit cards frequently offer balance transfers at 0%. Leverage it by transferring this money to a high yield interest account. We’re able to make over $11,000 per year using this strategy.
3. Rent a car. Some car rental companies will not allow a rental without a credit card. My in-laws don’t use a credit card and were turned away from a car rental company in Houston. The policy varies depending on the company, but I wouldn’t want to be standing at a rental car company unable to get a car.
4. Make online purchases. Try asking Amazon if they take cash!
5. Float. A great thing about using credit is just that… you are purchasing on credit and the payment isn’t due until a month later. That leaves the money in the checking account for an extra month to earn interest.
6. Raise your credit scores. Most credit scores have a mix of business component that gives you points for holding a credit card. In addition, using it responsibly can help boost your score.
7. Corporate reimbursements. If you have expenses for work using a credit card is the only way to go. Not only do you get to earn rewards but you don’t have to pay the bill until later, giving you time to get your expense report turned in and paid.
8. Post bail. As I already mentioned in the roundup last week Five Cent Nickel shared with us that you can now use a credit card to post bail.
9. Take advantage of affiliate offers. Recently American Express hosted it’s wishlist for customers and partnered with Etrade for a signup bonus (now expired).
10. Fraud Protection. The companies call you when they see unusual spending patterns. It’s a great feature. When a charge does get through you can always do a dispute. I’ve done one a couple times at different companies. All painless processes and the charges were removed.
11. Limits on fraud. If a charge does go through, you will never be responsible for more than $50.
12. Convenience at gas stations. With sleeping kids in carseats it’s much easier to pay at the pump than to have to run in and pay cash.
13. Check in quickly at the airport. We fly Northwest a lot and they have a convenient kiosk that can read your name off your credit card to speed up your check-in.
14. Get coupons. Being a cardholder gets you on the mailing list for coupons at some stores. We get Macy’s coupons all the time which I’ve found you can sell on eBay and make even more money.
15. Shop for others. Credit cards work well when you want to buy things on behalf of other people. I can purchase things for my mom using her credit card.
16. Pay negative ATM fees. When out to lunch with friends, charge the bill and have them pay you in cash. Earning those reward dollars on other peoples’ money is like getting paid to go to the ATM!
17. Try out purchases. You don’t need to front the money for items that will be returned. For example, if I need to purchase two shirts for one of my boys because I’m not sure which one will fit better, I can purchase both on credit and return one later. As long as the credit posts before the statement closing date it’s essentially a try-before-you-buy program.
18. Deposits. I remember that many places that we worked with during our wedding wanted a deposit. With a credit card they can place a temporary charge eliminating the need to come up with money that will later be returned.
19. Buy a car. Thinking of financing another item? Lower your interest rate using creative debt reduction strategies.
20. Access to emergency money. Have you ever been caught when an ATM was down? If the bank is closed for a holiday or if the ACH feature is unexpectedly down at a bank (which was the case at one of our banks recently) a credit card can come in handy to make a purchase.
21. Documentation. Credit card statements are handy little records of your purchases.
22. Qualify for better rates and services. Our local credit union has tiers of service depending on how many qualifying services you have. A credit card counts as a service and adding it to our package qualifies us for higher interest on deposits and less fees for other services.
23. Billpay features. Our FIA Card Services card has a great billpay program that gives you the ability to pay other cards and reoccurring bills. This enables us to simplify and organize our finances.
24. No more cash discounts. It violates the terms of service for Mastercard and Visa, therefore there is no longer a monetary benefit to using cash that once existed.
25. My dad got one. My dad doesn’t use a computer, doesn’t email and doesn’t believe in credit cards. I was pretty sure he would be the last person on earth to get a credit card. If he got one, then they must have something good to offer!

Of course, I’m not saying credit cards are perfect. Occasionally they make mistakes but they do get fixed. This does happen with any company though (I have many more errors on our cell phone bill but that’s another story).

Patrick at Cash Money Life debated Ana previously. Patrick had some additional points including short term loans and extended warranties. In addition, Ana challenged him to go three months without using a credit card. Whoa! I hope that isn’t in store for this debate…. credit cards are making us way to much money for me to give them up.

Action Plan

Your financial goals likely involve money: making it, saving it, investing it, and enjoying it. Credit cards can be used to help meet those goals. Why not use them?

Add your comments here and at Debt Free Revolution. If you have a blog, join the debate and let us know why you love or hate credit cards!

The Great Credit Card Debate Continues….

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Here’s the strategies I’m referring to:

1. Deciding if you should roll your credit card balances into your home equity line, exchanging unsecured credit for secured credit and vice versa.
2. Worrying that if you consolidate your loans, you will charge your cards up again.
3. Debating whether or not to pay off the low balance first or the highest interest rate first.
4. Calling to lower your interest rates or ask for other forgiveness.
5. Evaluating Creative Debt Reduction Strategies.
6. Deciding whether or not to contribute to retirement or debt reduction first.
7. Confusing debt with some kind of emotional attachment.

The Real First Step

All these things are fine-tuning the debt reduction plan. The number one way to get out of debt is to change your spending habits. You must live within your means. If you are still doing the things that built up the debt in the first place, stop!  The biggest financial return is not incurring additional debt. 

Supplemental Steps

All these strategies are actually very helpful steps to evaluate to help reduce debt. However, they should only be applied after you have the problem that got you into debt in the first place solved. Otherwise it’s like bailing out the Titanic with buckets!

Action Plan

Take a look at your debt and determine exactly what you bought. Are these needs or wants? Make a commitment to yourself that wants will no longer be financed. Commit to not add anymore debt. Once you bring your spending in line with your income, then you can optimize your debts to get rid of them faster.

Once you are ready here’s some great resources:

• Industry Report: Should I use a Home Equity Loan to pay off my debt?
• Free Money Finance: Why You May or May Not Want to Consolidate Your Loans
• Credit Withdrawal: All I Want for Christmas are Lower Credit Card Rates
• Paid Twice at the No Credit Needed Network: Interest Order Vs. Balance Order

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Double Contribution

Did you know that the elective deferral limits are for each plan? You can contribute the maximum to both plans, effectively deferring double the amount that is usually allowed for private sector employees through a 401k.

457 Advantage

When you can’t fully fund both plans, there’s a great benefit to a government 457 plan. There is no early withdrawal penalty! The standard 10% withdrawal penalty for using funds before age 59 1/2 doesn’t exist. It’s also important not to roll 457 money into another plan to preserve this benefit.

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Special Needs Trust

Special needs trusts, or supplemental needs trusts, provide the means to care for a disabled child (or adult) after the parents or guardians have passed away. It holds money that would typically be provided to children through an inheritance or through a lawsuit settlement. It also shelters money so the disabled individual cannot be taken advantage of financially.

Why It Is Important

To be eligible for SSI, an individual must have limited resources (including cash, savings, stocks, land, vehicles and life insurance policies), which is defined as $2,000 for an individual or $3,000 for a couple. A house and one vehicle are excluded, as are special needs trusts.

Many parents would agree that you currently give your disabled child a better quality of life than $2,000 could provide. You don’t want their quality of living to decline after you are gone. However, leaving an inheritance directly would jeopardize the SSI and Medicaid benefits. Without these government programs, the individual would be worse off financially even after receiving the inheritance.

A special needs trust is created to keep the disabled individual eligible for government assistance and provide a quality of life consistent with what they received when their caregiver was alive.

Our experience

Here’s some of the things I learned when we had the trust made.

• The trust cannot be created by the individual, so we created it for him.
• We worked with a lawyer to create the document. We were not willing to take a risk disqualifying him from SSI or Medicaid, so a do-it-yourself document from the internet was out of the question.
• There was another option about pooled trusts, but the remaining money would be distributed to a non-profit organization or the State. We did not look into this option, as we wanted the proceeds to be passed onto another family member when he dies.
• The trust names the current and future trustees and beneficiaries. The future beneficiaries do not need to be disabled. The trust dissolves upon his death and pays the proceeds to the beneficiaries directly (or creates additional trusts for the children under 25).
• The trusts are designed to provide money that focuses on quality of life above and beyond basic needs. The money can be used for special outings, vacations, and special interests such as a music class. It cannot be used for food, clothing and shelter.

Creating the trust was actually a simple process. We met a couple times with the lawyer to discuss options and learn about it. The hardest part was selecting the trustees and beneficiaries. Taking the first step to set up a meeting was half the battle.

Other considerations

• In addition, you need to notify and work with other family members who might have wills. Name the trust as a beneficiary and not the individual.
• The trust needs an EIN to file tax returns.
• For the applicable law, see Social Security Act: Section 1917(d)(4)(A).

The Simple Dollar recently had an article Setting My Own Personal Finance Goals where a reader asked about a special-needs trust. Our experience should help that reader get started. 

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What is a Roth 401k?

The Roth 401k is a great retirement savings vehicle with many of the same benefits as a Roth IRA including:

• Tax free growth.
• Ideal for investors currently in a low tax bracket, but anticipate being in a higher tax bracket in retirement. This is the case for many younger workers.
• Offers the ability to diversify accounts against tax treatment using a combination of regular 401k and Roth 401k. A great idea because of the uncertainty of taxes in the future.

In addition, for those who are interested but restricted from participating in a Roth IRA, the Roth 401k makes sense. Additional benefits over the IRA include:

• No income limits. Great for higher paid workers.
• Contribution levels are higher. See 2010 Roth 401k and Roth IRA Limits.

As always, there are other points to consider including the investment options and expenses of the investments when deciding whether or not to participate in a Roth 401k.

Why Employers are Slow to Implement

The Roth 401k didn’t have a lot of employers that immediately put it into place because the original legislation made it only a temporary plan existing from 2006-2010. That changed in 2006 when the Pension Protection Act was signed making the Roth 401k permanent. Employers may still be reluctant because they have to account for the following:

• Keeping the highly paid employees contributions in line with the others to keep the plan qualified.
• Additional education needed to help employees make the right choice between the traditional pre-tax option and the new after-tax option.
• And of course the plan sponsor would charge additional fees.

Other Roth 401k Tidbits

• Employer matching funds will still be deposited into the pre-tax 401k account.
• Further advantages for proprietors of owner-only businesses are detailed in an old article from Investment Advisor.

Action Plan

I will keep encouraging my employer to offer the Roth 401k. It will benefit a great deal of the workforce. Until I get the plan offered to me, I’ll continue to get excited for readers, like Russ, who get to take advantage of it. It would be great to hear from others that are getting the chance to participate. And don’t forget, if you have both, you can contibute to a Roth 401k and a Roth IRA at the same time.

Update!

My employer decided to offer a plan for 2008! Read about it, including some reader questions about the Roth 401k.

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Myth: You will need it to pay for burial expenses.

Burial expenses are a one time cost. While the cost is high, it is still less than a year of our child care expenses, and significantly less than what we will spend over a lifetime raising our children.

Myth: It’s cheaper to buy now than later.

Buying something that I don’t need when it is cheaper does not make it a good deal. It’s the same as buying olives on sale. I still won’t eat them.

Myth: It’s a good way to save for children.

If they mean disciplined, maybe. But I assume that good means getting a reasonable return on the investment. While whole life policies do include a cash value portion, it would be much better to discipline yourself and invest the money elsewhere, in a high yield savings account for example.

Myth: In case they become uninsurable later.

Isn’t this a double negative? Insuring against becoming uninsurable. This argument probably holds the most weight, but again, unless they are contributing to our family dollars, there is no income to replace currently. When they do get a job and need to be able to replace their lost income, there are still other avenues available such as group coverage through an employer. For adults, see How Much Life Insurance Do You Need? 

Final words
Of course there are always exceptions to the rule. For example, if your family does not have an emergency fund, and a burial would put you into debt, it may be worth considering. However, for the majority of families I find it as an unnecessary expense. Taking the money spent and investing it in their education is a better route to go.

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Tax Planning

I just finished cleaning out my closet to make donations of clothing and wedding attire by year end for tax deductions. Here’s some other strategies that I work on at year end:

• Tax loss harvesting: I go through our taxable accounts and sell stock that I am carrying at a loss. Flexo at Consumerism Commentary has a good description of it in Year-End Tax-Saving Move: Reduce Capital Gains.
• Maximizing any tax deferral options still available in 401k, 403b and 457 plans.
• Having any extra dental work done, prescriptions refilled, etc. to use remaining flexible spending account dollars.
• Conversion of IRAs to Roth IRAs to maximize the rest of our tax bracket.
• Moolanomy highlights some additional strategies in 22 Money Maximizing Moves You Can Do Today.

Finance Checklist

I also complete the following paperwork for the upcoming year:

• Enroll in dependent care and flex spending account.
• Determine correct amount of withholding based on projected income.
• Evaluate net worth and determine if additional umbrella insurance is needed.
• Rebalance our portfolios to match our selected asset allocation.
• Check for appropriate deductibles and limits of car, home and life insurance.
• Evaluate income phase outs for planned deductions; refigure taxes if needed.
• Update our list of assets in the house and financial papers and place in safe deposit box.
• Measure progress on our dollar plan.
• Look up value of cars and decide whether or not to carry comprehensive and collision coverage.
• Start a new tax folder to gather paperwork in throughout the year.
• Fireplace maintenance. (Not really a financial item, but it’s on my yearly list anyways).

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