Tag Archives: Debt

Saturday Sneak-Peak: PimpYourFinances.com

Welcome to this weeks edition of Saturday Sneak-Peak! Every week I explore a personal finance blog and give a brief review of the site. My major intent of the adventure is to expose everyone to new and/or obscure blogs. Up this week is PimpYourFinances.com. David has commented on the site a few times and I greatly appreciate his input. This blog would be nothing without you readers!

David is a twenty-something college grad who is just trying to get his financial house in order. He is tired of his debt and wants to rapidly decrease it while increasing his savings. David has a very unique writing style and I think that is what has given him a lot of success over the past few months (he has only been blogging since October of 2008). Here are a few of my favorite posts:

Are Savers Dooming the Economy? NO!!

What Would Bilbo Do? 14 Money Lessons from “The Hobbit” (Featured on MSN SmartMoney)

12 Easy Ways to Sabotage Your Financial Life In College

The Escalator Not Taken

I also asked David a few questions to help you get to know him. Here they are:

YMR: What inspired you to start a PF blog?

David: When I started making money at a real job, I had no idea what to do with it. So I started look around PF sites, and was disappointed that there wasn’t more stuff aimed at young people.

I started thinking that if I was desperate for information, there were probably a lot of people in a similar position.

YMR: You have had some pretty rapid success getting your name out there over the past few months. How do you explain that?

David: Thanks! It’s very flattering to think that my name is getting out and others consider me a success!

I think there are a few reasons.

First, I just try to be myself. I don’t try to write that same articles that other people are writing. I write articles that I’d want to read, especially if no one else is writing about them. That also means that I try to keep a very strong sense of humor and sarcasm.

It also means that I’m brutally honest about myself. I’ll admit the mistakes I’m making. I’ll tell people exactly how much debt I have, and the things I know I should be doing, but I’m not. I think people can relate with that, and hopefully use it to avoid similar mistakes. I’ll never pretend that I’m doing everything right.

Another big reason for what I’ve accomplished is that I teamed up with someone else when I started the site. I handle all the writing, and he does all the technical stuff. It’s allowed me to focus on writing and content – things I enjoy (and that take up most of my free time). It’s allowed him to focus on coding, layout, presentation, etc… stuff he enjoys, and is very good at.

By focusing on our strengths, we’ve done a lot more than we could have done by ourselves.

I’ve also tried to build strong relationships with other bloggers. I link heavily to the sites I like to read, especially ones that are similarly sized to mine. I need to be better about commenting on other sites though.

And one thing I definitely can’t leave out is Tip’d. It’s a social media site for personal finance. They’ve embraced bloggers, so it’s given me a way to publicize my site that didn’t exist a few months ago.

YMR: Which article has been your favorite so far?

David: The most fun I’ve had is with a post on What Would Bilbo Do? 14 Money Lessons from “The Hobbit”.

The reason I enjoyed it so much is that it came naturally. I love J.R.R. Tolkien, and have read the Hobbit / Lord of the Rings trilogy constantly.  At least 10-15 times each by now.

One day, I saw some financial undertones, and started taking notes. It came together by itself. I even ended up with 14 lessons – the same number that Gandalf intended – without trying. So it was fun and easy to put together. Plus I got to embrace my inner nerd.

And more than anything I’ve written, it struck a chord with the masses.  Get Rich Slowly linked to it.  Then MSN money did, and so did Mental Floss Magazine.  It was huge!

It was never a marketing ploy. I just wrote about something I was passionate about, and others picked up on it. It was a very cool feeling.

YMR: Do you think we will ever have too many PF Blogs?

David: Never! I think we all compliment each other. It’s great to having multiple opinions, and multiple points of view.

Even if we run out of unique ideas, you can always learn from the experiences of others.

Also, no one knows The right answers. We can all share our thoughts, but no one has it exactly right. By reading a variety of opinions, hopefully we’re all getting closer to the Truth.

It’s like good music or food. You can never have too many options. Each has their own audience, and even if they’re not normally your thing, there are some times when it hits the spot perfectly.

That’s it! I wanted to thank David again for taking time out of his busy schedule to do this interview. Head over to his site today and poke around! You will find many great things there, trust me.

Have a great weekend!

12 Questions With Deena Katz – Top Financial Planner

While attending Graduate school at Texas Tech, I had to opportunity to learn from one of the top financial planners in the country, Deena Katz. Deena has been in the business for many years and is recognized as one of the best CERTIFIED FINANCIAL PLANNERâ„¢ Professionals. She was recently named one of Financial Planning Magazine’s “5 Most Influential People in the Planning Business”. She is also the author or co-author of nine books on financial planning.

I appreciate the time that Deena took out of her extremely busy schedule to answer our questions. Here is the list of questions that I asked her. These questions include some of my own as well as some from readers. Deena has some great insight in her answers and I hope you appreciate her input!


YMR: What drew you to financial planning and how does it enhance your life?

Deena: My mother was a minister and a social worker, but when my father died at 39, it became clear that she was unprepared for the financial burden.  She taught me early on to be able to take care of myself, because there is a high likelihood that I would be taking care of myself at some point in my life.  That led me to the planning profession.  My first company was working with women in transition.  It is extremely fulfilling to see people learning to take financial responsibility and accomplishing their goals.  I’m passionate about it.

YMR: Why do you think many individuals are scared about the thought of using a financial planner? What can the industry do to fix this problem?

Deena: There have been some very bad incidents in past years (Madoff and Standford most recently) which have shaken the trust and confidence that people had in advisors.   This is a two-sided problem.  Many people do not have the education to recognize if something is not right, some are looking for investment opportunities that are just too good to be true.  A little greed and a little vice make a big mess.  I always tell people “Never let anyone care more about your money than you do.”  On the other side of that, I believe people should work with CFPs, who are bound to standards of ethics that are quite rigorous.  I also believe that advisors should act as fiduciaries (in the best interest of the client.)  When looking for a planner, ask how they work, how they are paid and if they are a fiduciary.   Then you can begin to develop trust.

YMR: How have you been calming down your clients over the past year? Did you have them well prepared for an event like this?

Deena: No one is really prepared for an event like this.  It’s a 6th standard deviation event.  But, if we are able to manage client expectations from the first minute they work with us, we have a better chance to keep them from jumping ship when things are rocky.  As advisors, we can never promise market returns, we should be exploring the downside of investments with them.  We should be able to “stress test” their plan, to demonstrate how bad things really have to get, before their plan is unworkable.  We need to keep them informed of what is happening in the markets, in congress, and in the economy so we can give them “our take” on it and how it affects them personally.

YMR: Do you think this economic climate will finally get people to realize that debt is bad and retirement saving should be a priority?

Deena: No.  I don’t think many folks really understand.  I am hoping that congress will start to help us focus on financial literacy so that young children get this education to prepare them for life, rather than stumbling through it, making grave mistakes, then trying to “right” everything before they retire. I think people are paying more attention, but I am not sure they have been taught successfully yet.

YMR Reader: Do you think budgets are a sexy thing right now?

Deena: I have always felt that budgets are a four-letter word…but “sexy” is not the word I think of.  The nature of many human beings is not to feel the constraints of budget, because you fight against them, the same way you fight against your parents when you are 15.  I believe in  “trade-off” spending.   The first thing you need to know is how much does it cost you to live-basics, like rent, utilities, etc.  Then you look at the variables-eating out vs. eating in, for example.   Then you can say, “I’d like to buy a new car, so if I eat in and shave off some other expenses, I can us that money to buy the car.”   With budgets you are managing money, but with trade off spending you are managing goals.

YMR Reader: The buy and hold strategy has been around for decades. Do you feel that same strategy applies to the Gen X and Y generation?

Deena: I do not believe that modern portfolio theory is dead.  I further believe that you can’t  make market returns unless you are in the market.  Look what has happened in the last two weeks— If you missed one day, you missed a 6 ½ % run up.  Right now, I have no reason to change my investment philosophy.

YMR: Speaking of generations, do you think the baby boomer generation is prepared for retirement? Why or why not?

Deena: Baby Boomers are not prepared, but they don’t really want to retire either. Further, if all of us did retire, we would not have a big enough work force to carry on.  Boomers may not stay with their current jobs, but may work at something they love, for less money.  They will postpone retirement because they have to, even though they will not admit that’s the reason.

YMR Reader: Asset allocation has been preached extensively after the dot.com bubble, yet even diversified balanced portfolios took a significant hit with the recent economic meltdown. How do you address that to those concerned?

Deena: See #6 above.

YMR Reader: Speaking of asset allocation, what do you recommend people do with their retirement accounts? I would like an answer for new hires, mid-range employees and close to retirement employees.

Deena: First, the younger you are, the more time you have to let your portfolio grow.  I suggest a low-cost S&P 500 index.  Leave it alone.  As you continue to add money, eventually you should buy small cap and international-all index.  Mid range employees, you may want to add some fixed income, probably around 20% max.  As you get closer to retirement, you may have 60% equities, depending upon when you will need to start withdrawing from them. You want low-cost selections, because the fund expenses come right off the return.

YMR Reader: The economy has my wife feeling a bit insecure even though we’ve got a sizable emergency fund built up, and we have no debt. The question is, once we’ve completed our emergency fund, what path should we take? Should we start investing in the stock market like it’s on clearance, save in a high yield savings account, or should we be paying extra on our mortgage? Or a combination of those things?

Deena: Some leverage is good, so I would not start paying down the mortgage unless your interest rate is so high that you cannot beat it by investing your money elsewhere.  If your mortgage interest is low, invest in the market, because it is on sale.  I would suggest that you in invest index mutual funds because they are cheaper (less expenses).  Try Vanguard’s S&P Index fund for starters.

YMR Reader: My wife and I are in the market to buy a new home. We’ve saved up a sizable amount and we are selling our current co-op to use mostly as a down payment on a new place. Our credit is also impeccable. Still…how can we tell if we can truly afford it? Is there a metric/guide we can go by?

Deena: Bankrate.com has a calculator that can help you get your arms around that.  I don’t like “rules of thumb” because they are made for average situations and I believe you deserve solutions that are unique to you.

YMR: Now a fun question! How are you liking semi-retirement in Texas?

I am not semi-retired!  I am working 24/7, but loving it.  I love Lubbock, it’s just the right size community for me.  I love the school, my fellow faculty and most of the students.  I can’t imagine doing anything else. In fact, we’ve opened up a branch office of Evensky & Katz here in Lubbock and we are in for the long haul.

Many thanks to Deena for allowing me to interview her!

The Average Net Worth of Americans: Where Do You Stand?

I absolutely love using the calculators at CNNMoney.com. There are so many cool ones that I use frequently. They have one for housing prices, cost of living comparison, retirement needs, saving for college, etc. I actually just stumbled across one for the average net worth of Americans. All you have to do is enter in your age and current salary and it give you two charts. The first chart shows you the average net worth of individuals in your age group. The second chart shows you the average net worth of individuals in your income range. I’m not sure how helpful the second one would be since it compares the salary against any age. If I am making $50,000 as a 22 year old, of course someone making $50,000 as a 50 year old will have a larger net worth than me (I hope they do). Anyway, here are the averages for different age groups:

Under 25

$1,475

25-34

$8,525

35-44

$51,575

45-54

$98,350

55-64

$180,125

65 and Over

$232,000

Where do you stack up against these numbers? Personally, we are no where near the average for our age group. I mean we are not even in the same zip code. I imagine that has to do with the fact that we both used a lot of student debt to earn our degrees and we own no real estate.

Do you think these numbers reflect the recent turmoil in the stock market? The calculator did not have  a certain date on it (i.e. “this chart is based on the 2000 census”). However, I hope that it takes into account the recent decline. The net worth of individuals should be much higher than these averages. You should strive to be much higher than these averages.

Are You Living ‘Within Your Means’ or ‘Below Your Means’?

Recently, there was an article on CNNMoney that tried to define the phrases ‘living within your means’ and ‘living below your means’. I think they are two phrases that are completely different and here are my ‘definitions’ of them.

Living Within Your Means

To me, this phrase is too positive. Living within your means sounds like you are spending everything that you earn. That sounds more like living paycheck to paycheck. Which one sounds more positive to you? If I told someone I was living within my means, they would think that I am getting by just fine. However, since I am spending everything that I earn in order to pay the bills, mortgage, debt, etc., I am in no way saving any money. They wouldn’t think to ask if I am saving money because the phrase kind of implies that I am saving when I am not. However, living within your means also implies that you are taking on no additional debt. Since I am only buying things that I can afford based on my income, I would not be buying things that I cannot pay with cash.

If I told you that I am living paycheck to paycheck, you would probably feel bad for me. Living paycheck to paycheck is more negative and it definately applies that I am saving no money. I am here to tell you that these phrases are the same thing and there is no difference.

Living Below Your Means

When someone says that they are living below their means, I automatically think of clipping coupons and driving a 1993 Nissan Sentra. I don’t know why, but that is just what I picture. However, I feel that living below your means simply means that you are able to sustain your standard of living by spending less than you earn. You may be completely comfortable with the way you live your life financially. You just do not spend all of your income meaning you can save. You can save up for retirement, a car, a house, etc. Living below your means is they way to become The Millionaire Next Door. Living below your means will also help you get Beyond Paycheck to Paycheck.

What are your definitions of these phrases? Are they radically different than mine? Which category do you feel you fit in?

Basics of Prepaid College Tuition 529 Savings Plans

Have you noticed an upward trend in college costs over the past few years? I am guessing that you have. College costs have been increasing every year at an average of 6% per year. That means that a public university that costs $10,000 today will cost approximately $29,368 in 18 years. That’s for only ONE YEAR! Are you afraid you will not be able to save that much? What if I told you that you can lock in current college prices. Would you be able to sleep more easily at night? That is the idea behind a prepaid college tuition plan.

What is a 529 Prepaid Tuition Plan?

Prepaid tuition plans are college savings plans that allow you to lock in current college costs. In other words, if you purchase a full years worth of tuition at a state school today, that plan will pay a full years worth of tuition 10, 20, or 30 years down the road. It is guaranteed to increase at the rate of college inflation.

Prepaid Unit Plans

Prepaid unit plans allow you to purchase units that represent a certain percentage of college tuition. For example, you may be able to purchase 1 unit in the plan that represents 1% of college tuition for a year. Everyone pays the same amount for a unit and the price increases each year. You can then use these units to cover part or all of the costs of attending college.

Contract Plans

Contract plans sell, you guessed it, contracts. These allow parents to purchase a set amount of years of tuition at a certain price. Basically, the younger the child, the less expensive the contract price.

Advantages of Prepaid Tuition Plans

  • Allow parents to lock in current tuition rates
  • Very simple to understand and no personal investing required
  • Plans involve no risk of principal and are typically back by state or local government
  • Anyone can contribute to the plan for the benefit of the beneficiary
  • If the beneficiary dies or does not attend college, the funds can be transferred to another

Disadvantages of Prepaid Tuition Plans

  • Have a negative impact on need-based financial aid just like regular 529 plans
  • Cannot earn higher returns if the market has a great year
  • Typically, can only be used for tuition and not for room and board, books, supplies, etc.
  • They do not guaranteed acceptance into college
  • You are limited to the schools that are listed in the plan

Is a prepaid tuition plan right for you? It all depends on the things that were mentioned above. Look carefully at the advantages and disadvantages and make your choice based on those criteria.

You may also want to consider using the plan in conjunction with a standard 529 plan. The standard plan will allow you to invest the savings more aggressively while the prepaid plan may help you hedge against higher increases in tuition rates. One day we are going to have to start paying back all of the government debt we have and education funding may have to be cut. What will happen then? Large increases in tuition, you can be sure of that! I also recommend using the site www.savingforcollege.com. The site offers evaluations of each states plans and has some great college funding calculators.

Has anyone had any experience with prepaid tuition plans? I know they are fairly rare but someone may have an experience they may want to share.

Weekly Roundup – February 15th

Well, Valentine’s day has passed. What did you and your significant other do? Did you do something frugal? Did you go all out? Did you spend your stimulus money already? We decided to do the responsible thing and not spend much money on each other. However, tonight we are attending one of the best seafood restaurants in the area. We feel that it is OK to spend some money every once and awhile or else we would just go insane. Anyway, I hope you had a great Valentine’s and please enjoy the holiday on Monday! Unfortunately, I have to work. 🙁

Here are some great reads I found this week. Please be sure to check them out!

David at My Two Dollars shows us Do It Yourself Debt Reduction. Some great tips here if you are thinking you are at your last wit. Before you do anything crazy, check out this post.

NCN at No Credit Needed shows us 10 Places to Look When Scrounging for Change. The story the precedes the tips is the best part of this post. I think it’s great that he ended up doing what he did!

The David at Pimp Your Finances lets you know Why He is Starting a Vacation Fund in the Middle of a Recession. Sometimes the best way to save money is by telling yourself that you are going to do something fun with the money.

Have a great week!