President Barrack Obama is currently considering increasing the tax rates and making changes to the Health Care reform, in order to cut budget deficit and reduce the crippling debt. This is to bring some financial order in the government. And just like the government is doing, millions of Americans are having to make drastic changes to bring sanity into their finances. Years of economic ‘prosperity’ has brought about financial hardship last experienced during the great depression. I hope we are going to learn the importance of having some order in your financial house, as explained by Laura Rowley in the following article on how to bring your financial house in order.
In last week’s column, I reported on a Yahoo! survey that examined how Americans are shifting their behaviors as a result of the recession. This week I offer some tips and tools to help shore up your financial house.
Paying Off Debt
In the Yahoo! survey, 35 percent of respondents said they’re increasing efforts to pay off debt. But getting motivated to do so can be tough because the rewards are abstract versus, say, saving up for a cruise and actually getting to do the limbo on the Lido Deck at the end of your efforts.
A new free Web site called DebtGoal.com attempts to make the payback more transparent. After someone enters their credit card accounts, amounts, and interest rates, the site provides an optimal pay-down plan and specific recommendations to accelerate the process. If someone has an extra $40 that month to pay toward a card, the site instantly reveals what $40 means in terms of money saved over the life of the debt, and time saved paying it off.
“When people think about paying debt…it feels like they write a check and just immediately throw it into the trash can,” says founder Steve Richmond, who spoke at the Finovate conference in San Francisco in April. “They don’t really gather that they’re paying back some portion of that to themselves in the form of reduced principal. So on each payment we show people how much they are reducing principal by…then we show them the future interest that’ll save them. We find it really helps people stay on track and get excited about making progress on their debt.”
Once one card is paid off, the site tells the user which card to target next with that old monthly payment to speed up their journey out of the red. Debtgoal.com, which currently has $160 million in debt on its platform, also provides users with scripts they can follow to call their credit card companies and negotiate a lower interest rate, encouraging them by showing reductions that other users of the site were able to get. A social-networking component allows community members to reach out to each other for support.
Monitoring Your Spending
Some 57 percent of survey respondents say they have cut spending in response to the recession. But it helps to embrace a specific method to track costs, or fuzzy math can prevail and costs can creep back up. If you’re disciplined enough to manually input your spending into a budgeting program, consider free online tools such as budgetedge.com or myspendingplan.com.
If you’re not, use a Web site that automatically downloads activity from whatever financial accounts you input into the system — debit card, credit cards, checking and savings accounts — and provides a clear picture of your spending and habits. Several free, advertising-supported sites launched in the past few years include wesabe.com, geezeo.com, and mint.com, as well as new additions such as greensherpa.com and moneystrands.com. (Some of the sites make suggestions on how to save based on your spending habits, and receive commission for successful referrals from the service providers.)
Paid online services include mvelopes.com and quicken.com (although it has launched a simplified free version of its service as well). Users report different degrees of success in syncing their accounts with the sites; before you choose, check out how many institutions the platform supports, and be sure you’re comfortable with the way the site secures your data.
Stephanie Libhart, 32, works in administration for the Pennsylvania state judicial system and is married with a toddler. “I used to lay in bed at night and count what we spent on groceries that day and all the different things we needed to pay for,” she says. Libhart chose mvelopes.com, which she says helps her plan ahead for expenses that typically slip through the cracks, such as veterinarian bills for their dog.
“It takes a commitment; you have to log in at least twice a week to make it effective,” she advises, but adds that “it’s accessible no matter where I am, so if I travel for work I can get on the hotel computer and log in and see how things are going.” (Mvelopes and other applications are also available on Web-enabled mobile phones.)
Saving at the Grocery Store
Food and beverages make up 15 percent of household spending, according to the government’s Consumer Expenditures Survey, and almost half of the money goes to meals eaten away from home. Two-thirds of households surveyed by Yahoo! report using coupons to save money, 56 percent say they buy generic or less expensive goods at the grocery store, and 55 percent are eating out less.
I thought planning ahead before you hit the grocery store was common sense, but apparently not, since ‘The Wall Street Journal’ recently reported on the comeback of the shopping list. Recently, for instance, I planned five dinners for the week for my family of five and paid about $70 (and got one night of leftovers and a few lunches out of the deal). My strategy is ridiculously simple: Target whatever meat or poultry is $1.99 a pound or less (fish is typically more), and use the store’s online circular and coupon Web site to find the best deals on vegetables and side dishes that week. I use the store’s loyalty card religiously, and buy generic or different brands based on lowest cost.
Coupon sites such as couponmom.com or mygrocerydeals.com publish weekly lists by state and store, revealing the best deals, and are free with registration (thegrocerygame.com is a paid site). The sites also reveal whether a coupon is available for an item by listing the circular name — such as “Smart Source” — and its date. (I pull out the coupon circulars each week, write the date on them, and throw them in a drawer. Before shopping, I grab the relevant circular, clip the appropriate coupon, and go — or I get it online). From June through October I shop three local farmer’s markets; you can find one in your area on the U.S. Department of Agriculture’s Web site.
Where to Put Savings
About one-quarter of survey respondents say they have boosted their savings, tracking the national trend: Personal savings as a percentage of income has risen to about 4 percent from negative territory in 2006. Problem is, the returns on online savings accounts — which typically beat the brick-and-mortar banks — are around 2 percent. (Search bankrate.com or moneyaisle.com to find the best rates).
To perk up your return, consider a high-yield checking account: These accounts make you jump through hoops — for instance, requiring you to make a dozen debit transactions a month, use online bill pay, or have a certain number of deposits or automatic withdrawals per month. But rates can be as high as 6 percent. See http://www.highyieldcheckingdeals.com/ for a list of banks.
Another strategy: Spread the joy of saving to friends. A number of online banks will provide a bonus to you if you refer friends and family who open an account. INGdirect.com, for example, gives you $10 for each friend you refer (up to 25) who opens an account with $250; your friends get a $25 bonus. Finally, for every extra dollar you can save, put 25 cents in savings and use 75 cents to pay off credit cards and auto loans. With average interest rates hovering around 14 percent and 7 percent, respectively, you’re guaranteed a return well above the average savings account.