A Penny Saved

A blogger who calls himself 2million is on a journey. A journey to financial independence. He has a pretty good start too from the looks of it. Take a look at 2million - My Journey to Financial Freedom. He has some excellent ideas and great pointers on true wealth building.

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The Savings Ladder:

The savings ladder is made up of several “rungs”.  The first rung is the most liquid of the rungs and consists of “emergency” savings.  This rung should be in a high-interest savings or money-market account.  How much you ask?

There are several factors to consider when deciding how much your “emergency” savings should have in it.  If the only people it will support are yourself, you can probably get away with 3 months of living expenses.  Married?  With children?  The more dependants you have, the closer you need to be to 6-7 months of living expenses.  Think of this savings as the “I lost my job” fund.

The next rung on the ladder is the mid to long range semi-liquid savings and investments. These are savings instruments that are tied up for a period of time, usually no longer than 3-5 years.  Generally, these savings instruments include Certificates of Deposit, Bonds, Stocks, and Mutual Funds.  Generally, all of these should be held for a period of time for maximum gain.  In the case of CD’s and Bonds, there is usually a set period of time before they “mature” and, in most cases, significant penalties for early withdrawl.  Because of the time restrictions these savings instruments usually have a higher rate of return than even the highest paying savings and money-market accounts.

The third and last rung (it’s a short ladder) consists of your extremely long-term savings and investments.  The two most common forms of long-term savings are Real Estate and Retirement accounts.  Your home and any rental property you may own is a long-term savings instrument.  They either make you income or gain in value, or both.

Retirement accounts are becoming more and more important in the final step in any Savings Strategy.  Whether you participate in your employers 401(k) or have an IRA, those accounts represent your retirement nest egg.  The bigger those accounts get, the more likely you are to not have to work during retirement or even retire early.

Don’t expect to build a fully funded Savings Strategy Ladder immediatly.  It wouldn’t be a ladder if it wasn’t meant to be taken one rung at at time.  Start at the bottom and work your way up.

Technorati Tags: Savings, Savings Strategy, Savings Strategy Ladder, Ladder, 401(k), IRA, Money-Market

Most of us want to save money.  We want to save money for that new gadget, for a new house or car and we want to save money for retirement.  So what steps should we take to do so?

1. Pay off High-Interest Debt: Each and every payment made to reduce the balance on a high-interest debt instrument is making you the equivelent of that interest rate on that money.  Paying 26% on that Visa?  Pay $1000 off and you just made a 26% return on your money.  Remember that just because you don’t see the savings, doesn’t mean it doesn’t exist.
2. Begin a Structured Savings Ladder: There are several different modes of savings, with each its place and reason.  The lower rungs of the Ladder are the most fluid with the highest rungs being the least fluid.

Step one is easily broken down.  If you do not pay off that high interest rate debt, you will pay the interest on it.  No ifs, ands or buts about it.  By paying off that debt, you no longer have to pay that interest and gain an immediate return on your money.  An added bonus is that you will then have more money the next month to begin your Savings Ladder.

It’s important to carefully examine the remaining debt you have as some debt, even though not classified as high-interest, may be higher interest than the best savings instruments.  It may not be feasable for you to pay off all of these, but a good idea might be to split your budgeted money for savings between the savings and the debt.

Technorati Tags: Savings, Credit, Debt, Savings Ladder, Interest

Debt consolidation is one of the most popular topics on the web. Nearly everyone has debt and nearly everyone has debt in more than one place. So why not consolidate all that debt into one payment to one place? Obviously the benefits are many. You get the added advantage of having only one payment, possibly a lower interest rate, and perhaps get to pay it all off earlier.

There are of course a few pitfalls that one must avoid when considering debt consolidation.

• Will you be able to avoid adding more debt?
• Increased interest rates
• new payment is too high

Other things to avoid are tying a secured debt and unsecured debt together. Often times, people will use a home equity loan to eliminate the credit card debt. The important thing to remember about doing so is that if you default on that loan, forclosure probably isn’t far off. The same goes for refinancing your car loan. The number one cause of failure in those that consolidate their debt is the aquisition of new debt. Many people find themselves drowning in debt when this happens.

So is consolidation for you? Generally, if you can avoid the addition of new debt and the tying together of secured and unsecured debt, it probably isn’t a bad idea.

Technorati Tags: debt consolidation, mortgage, unsecured, secured

Over many, many months of looking at every experts different ways of debt reduction and elimination I’ve come to the conclusion that the following is the method that would/should work best.

In order for this to work, there are two things that we must commit to.

1. We must stop using our debt instruments completely. One extra purchase sets us back by months.
2. We must be willing to have several tight months.

Here’s what we do.

1. Make a list of all your debt with the balances and interest rates. (I’ve found that a sortable spreadsheet works quite well for this.)
2. Sort that list by either Highest Interest rate first or by highest balance. (You might find it reassuring to slip a lower balance item in to the top of the list for gratification purposes when you get rid of it)
3. Using your list as a guideline, begin paying as much as you can on the debt at the top of the list and $1 more than minimum on the rest of the list items.
4. At some point the item at the top of the list will be paid off. Remove it from the list and add the payment you were making to it to the payment of the next one on the list. This will create a “payment snowball” effect.

Here is an example. I have three credit cards, each with a $1000 balance. The Interest rates are 8%, 9% and 15%. I list them in highest interest rate first. My list looks like so:

• $1000 15%
• $1000 9%
• $1000 8%

Nest I add the minimum payments to the list:

• $1000 15% $57
• $1000 9% $54
• $1000 8% $51

My initial payments to the 8% and 9% items are going to be $52 and $55. My budget allows for me to make payments of $120 to the 15% item.

As the 15% item gets paid off, I roll that $120 payment onto the payment for the 9% item. My payments are now $174 on the 9% item and still $52 on the 8% item.

When the next item gets paid off, I simply add the payment from it to the next item on the list. You can easily see how, if the list were 6-7 items long and my high payment begins at $100-$120, it quickly adds up on the next items until I’m making payments of several hundred dollars on the last item and it gets paid off very quickly.

This does work. It works well. The biggest thing is to remember that you must stop using your debt instruments and you must keep with the program. You must also remember that even though you racked up the debt in 6 months, it’s going to take quite a bit more than that to pay it off. A strong will is necessary in paying your debt off.

Technorati Tags: Debt, Credit, Credit Cards, Payoff, Reduction, Elimination

In the interest of trying to save a little money and possibly even have a little savings build up before the Edelet comes along, I’ve been looking around for good learning tools on the subjects of reducing debt. I have been a member(free) over at Motleyfool for quite some time, but only recently found this tutorial(online seminar really) on getting out of debt. Seems like some really good advice from a website that I trust to give me good advice.

Take a look and see what you think. Get Out of Debt [Credit Center]

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