Get Financially Fit!

If you’re new here, please subscribe to my RSS feed or sign up for email delivery.

According to government statistics, the Core Price Index (a measure of broad inflation) is up only 4.0% over the last year (see March 2008 report from the Bureau of labor statistics).   In my life I am finding a disconnect between this low reported rate of inflation and a wide variety of good and services such as gas, groceries, and restaurants.      

I have written several articles with ideas on how to Live within your means, How to Balance your Checkbook, and how to Eliminate Debt.  In this article I would like to share some ideas on how I am working to reduce expenses.

1.  Eliminate left hand turns on busy roads.  Both UPS and FedEx announced early this year that they remapped their routes to minimize left turns.  I have been trying this strategy.  I’m not sure if I’m saving money, but I can say that I have reduced the stress associated with crossing difficult roads.  The next time you are completing your errands, see if you can eliminate those difficult left turns that keep you stranded in the middle of the road.

2.  Split a meal when eating out.  American portion sizes are much to big.  My wife and I typically share meals at our favorite Mexican, Thai, and Chinese restaurants.  For example, at the Mexican restaurant we share Fajitas and order extra tortillas. 

3.  On date night, eat at home but then go out for dessert  Another trick that my wife and I do sometimes is to eat a simple meal at home (such as leftovers) and then go out for either a fun appetizer and drinks or dessert.  This is a fun way to get out and enjoy the experience of a restaurant at one-third the price.  I’ll never forget one time when we met a large group of friends at a high end bistro.  My wife and I split an appetizer and each enjoyed a glass a wine for $25 for both of us, while our friends bloated on multi course meals at over $100 per couple.  When the bill arrived, the credit cards began flying into the center of the table like playing cards in Vegas.  The looks were priceless when we simply paid with cash, bid everyone good night, and escaped into the clear night air. 

As you can tell, it’s easy to for me to think of food ideas.  What are your suggestions?

I was talking with a friend the other day and he asked me if it was better to pay off the mortgage first or focus on retirement savings.  My personal preference is to save 15% toward retirement savings and then use incremental money to pay off your house.  My post titled, Create a financial plan, outlines my 10 recommended steps to retirement security.

If you have incremental money to put toward your mortgage here is a strategy to pay off your mortgage in half the remaining time of your loan.  In brief you create an amortization table and double up on principal payments.  The accelerated payment method that I’m describing worked for fixed loan mortgages. 

Step one of the process is to create an amortization schedule for your mortgage.  An amortization schedule details your principal and interest payment for each month.  I found a good amortization calculator at Bankrate.  Simply enter the loan amount, number of payment periods (in years or months, the interest rate, and the starting date of the loan.  The calculator will calculate both your monthly payment and the principal and interest payment for each month.  The Bankrate calculator also has the option of adding an incremental payment each month, adding an incremental payment each year, or adding a one time payment. 

To cut your mortgage payment time in half, simply send an incremental payment each month that matches the principal payment corresponding to the month that you are in.  Here’s an example:

Loan amount:  $200,000
Loan term:   30 years
Interest rate:  6%

The calculator determines that your monthly payment is $1199.10

In the first month, $199.10 goes to principal and $1000 goes toward interest.  In month 1 then send in an incremental $199.10 and your loan duration will shrink by an incremental 1 month. 

In the second month $200.10 goes to principal and $999.0 goes toward interest.  In month 2 send in an incremental $200.10 and your loan during will shrink by an incremental month (your loan will now end two months earlier). 

In an alternative scenario if you are 10 years into this same loan and want to begin this process, the incremental payment would be $341.20.  Simply print out the amortization schedule and begin paying the principal payment amount. 

The great thing about this recommended process is that you can send in incremental money and quickly determine the decrease in the loan term.  One way to apply this process is to print out the amortization schedule for your mortgage.  Whenever you send in an incremental principal payment for the current month then you cross off the last month on the schedule.  This has the benefit that you can visually see the the progress that you are making toward eliminating your mortgage.

One of my  motivations for writing this post is to warn you off of expensive software packages ($1000 to $5000) that supposedly help you pay off your mortgage faster.  You are much better off putting that money toward your mortgage payment. 

Follow your dreams, Achieve your goals! 

Help others!  Spread the challenge to Get Financially Fit!   

 Modern man drives a mortgaged car over a bond financed road on credit card gas
- Earl Wilson

I recently watched the documentary, Maxed out, which is about predatory practices of the credit card industry. 

I highly recommend that you watch the documentary if you use credit cards and especially if you carry a balance.  Once you see some of the agressive strategies that that credit card companies employ to prey on weak borrowers, you will be motivated to pay off your credit cards quickly.  I don’t want to give to much away incase you want to watch it. 

 Here is a preview to the documentary Maxed Out

What is your feedback on the documentary?


I was amused when I saw Jim Cramer’s view of Bear Stearns just prior to their spectacular stock price drop.

 

What is your view and opinion?

This is a guest post form Linda Bustos.  Linda is an editor for CreditorWeb, where you can learn about credit cards, and compare credit card offers. 

Credit card companies have masterminds behind many of their promotions and special offers. Credit card marketers play are “banking” that you’ll make uninformed decisions thinking you’re saving money, getting special treatment or even helping the environment. These decisions can cost you money. Please read on!

0% Balance Transfers

If you have a low interest line of credit (perhaps 5% or so), wouldn’t it make sense to transfer your balance to a new credit card with 0% interest? It might, but make sure you factor in the costs of the balance transfer. The balance transfer fee could be as high as 4% of your balance, leaving just a 1% difference. And if you make new purchases, you will pay the
high interest rate, and any payments you make will be applied to your new purchases first.

You also must pay down the debt within the given introductory period. If it’s only 3 months or 6 months, you may find yourself paying 15% interest or more after the introductory period ends, when you could be paying 5% if you just kept your line of credit.

Gold / Platinum Cards

Gold and Platinum sounds prestigious - but these names often are just clever marketing to cover up high interest rates and annual fees.

Lower Minimum Monthly Payments

5% of your statement balance used to be the going minimum payment for most credit cards until many lenders lowered that rate to 2%. Not only does this take much longer to pay off when you only make minimum payments, but the geniuses behind this tactic understand that people will spend more thinking they’re saving so much in minimum payments!

Skip-A-Payment

Some credit card companies send letters to their customers in January telling them they don’t have to make any payments this month (after all, Christmas probably left them penny-less!). The letter makes it sound like the credit card company is doing you a big favor just when you need it most. Similar letters come in the Spring explaining that you have been such a good customer and have earned a “vacation from your bills,” and then they encourage you to take a vacation - using your credit card, of course!

Don’t be fooled, the only one who benefits from skipped payments is your credit card company. Always pay the maximum you can afford each month.

Low Fixed Rate Cards

Why use a credit card with 18.99% interest when you can get one at 9.99%? If you carry high balances, low fixed rate cards usually save you money. But they often come with hidden costs like annual fees, shorter grace periods, higher late fees and even clauses in your terms and conditions that grant your credit card company permission to jack up your rate if you
are late on one payment.

Eco-Friendly Credit Cards

The worst plastic is the kind that claims to be environmentally friendly. It’s great to choose a rewards card that will donate your points towards environmental projects - every little bit helps. But often the 0.5% of your purchases that actually translate into rewards is so miniscule, if you really want to make a difference, donate some cash to a worthy cause
in lieu of a new CD or restaurant meal every once in a while.

About the guest author:

Linda Bustos is an editor for Creditor Web, a resource for information on
credit cards and credit card offers.

Linda does a great job writing about the risks of credit cards.  Here are additional articles by Linda. 
  Tricks The Banks Play To Make You Pay
  Stop Paying Late Fees
  Ten interest-saving tips your credit card company doesn’t want you to know