Here’s an email I received from Karen (used with permission) and my response:

Hello Ron, thanks for all you have written on money and personal finances. I have been going through your archives and printing some out and sending others to friends of mine. One of these friends, I’ll call her Cloe, is about to make a really stupid decision with her money and I don’t know what to do. How do you keep someone from making a very bad personal finance decision?

If you don’t have time to answer, I understand. I hope you can tho!

My response:
Hi Karen. It sounds like you care for your friend’s well being and she’s fortunate to have someone like you on her side.

I started to ask you what the decision was, but later thought, “It doesn’t matter what the decision is. A bad decision is a bad decision!”

The real question you’re facing, since your friend is an adult is:

How far do you go in allowing someone to fail?

The answer depends on several things:

• How serious will the mistake really be? Spending too much on a dinner at a restaurant isn’t the same as signing a 120 month note for a $65,000 car at 23 percent interest when you make $10.45/hour.
• It also depends on where this person is in her life. Where is she in the learning process? What does she “get” and not “get?” Some people just cannot be taught and if she is one of these, life will just have to teach her.
• How much weight do YOU carry in her decision making processes? Obviously, you’ve already tried to dissuade her from this decision, but it hasn’t worked yet.

Don’t confuse “giving advice” with “stepping in.” Advising your friend before she makes the decision but allowing her to make it is entirely different than “stepping in” and forcing the issue. Many times with our children, we’re tempted to “step in” and prevent their failure, and many times we give in to that temptation, but when you’re dealing with adults, “stepping in” takes on a different meaning. It really is a judgment call.

Friends give advice all the time. Many times we just give it without being asked! I think it’s important though, when you’re dealing with adults, that you tread carefully here. Many times you can give advice by simply asking questions:

“What IS the payment going to be on that new boat?”

“Are you sure about the long term implications of this decision?”

“Can you get out of this contract if things don’t go so well at your job in the next couple of months?”

“Have you looked at any alternatives to your 6 week vacation cruise in the Greek Islands?”

“Are you going to need to make extra money because of this decision?”

Karen, I hope you can keep this one thing in mind when it comes to friends and money: Her choices on how to spend her money will never be the same as yours or mine. However, they are not wrong, they’re just different. Her choices reflect her personality, her priorities, and her passion; and she is, of course, free to make her own decisions. As a friend, all you really can do is ask some hard questions in a gentle way and hopefully steer her in a smarter direction, and hopefully, a wise direction!

photo credit: Coach O.

[tags]children, choices, decisions, finances, money, priorities, responsibility, teaching[tags]

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There is no quicker nor sure-fire way to improve your current financial condition than to pay off high interest debt, especially high interest credit card debt. Remember that “a penny saved is a penny earned” and you’ll save yourself big bucks in interest charges. Whatever you don’t spend on high interest debt is just like earning that same amount of interest on your money, and if you put your money into a savings account, your rate improves even more.

Over 60 percent of those with a credit card in the US carry a balance with rates in some cases as high as 26 percent. If you’re like the average American who carries about $10,000 in credit card debt, you’re probably giving away between $1,800 and $2,600 or more per year to credit card companies. What could YOU do with that extra cash?

• You could save for your retirement (also known as investing in your future).
• You could save for a child’s college education so they don’t have to go into debt for their education.
• You could help someone who really, really needs it.
• You could start a business of your own.
• You could purchase your own freedom.

High interest credit card debt is the scourge of our society and has become a prevalent practice around the world. It has given us a false prosperity, a thin veneer of success and accomplishment, but in the end, it bites us back. We pay for those throwaway items over and over again because the payments always seem to pay the interest, never the principle.

Even if your took that ten grand in a cash advance, thinking you’d make your fortune in stocks, just remember that the S&P 500 has a historical average of 10 to 12 percent. You’re still falling behind by 6 to 16 percent! And THIS year, the old S&P has lost money — a lot of money — down by almost 50 percent in the past 12 months, about half of that in the last 3 months.

Such high interest rates on credit card debt means that it should tower over student loans, most car loans, mortgages, and other debts in how you prioritize your debt payoff plan.

Give yourself the best gift of all this holiday season … shred your credit cards and feed them to the Grinch!

photo credit: Pro-Zak

Technorati Tags: grinch, holidays, credit, credit card, guaranteed return, interest, money, financial, finances

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Granted, each of those activities have their place, but we’ve turned what used to be less than desirable ventures and some flat-out questionable practices into glamorous businesses that “Can Make YOU the Next Millionaire!” What in the world is going on? Whatever happened to working hard and saving money by living beneath your means? Whatever happened to the cornerstone’s of our economy?

I have to admit, I’ve fallen for it too. Back about 20 years ago I fell into the get-rich-quick through multi-level marketing trap. I fell hard, too. I “invested” money I didn’t have into a multi-level marketing venture that put me deep into credit card debt. “After all,” I reasoned, “I’ll make extra money and be rich in less than a year and can pay it all off.” Umm, no. Not only that, but it severely distracted me from finishing college, a move I’ve regretted ever since. No one bailed me out of MY bad decisions. I could just taste my success, but it turned bitter in the end.

Nowadays, we have big time CEO’s of banks, and automakers, and who knows who else, begging for tax dollars because of their own stupid mistakes. They over extended themselves, depended on credit, and They failed to make wise decisions, smart decisions, or even common sense decisions and instead chose the quick and easy decision and now they want a bailout. It seems that a huge chunk of our economic system is predicated on pulling the wool over someone’s eyes. Does anyone other than me realize that the IRS only takes in about $225 billion per month? With a $700 billion bailout, we will spend about 3 months worth of the Federal government’s gross collections! Can we keep this up? Bailout spending is out of control!

What we need in this country is an integrity bailout. We need a great big bucket of ethics and integrity poured out all over us. It’s high time we return to the values our grandparents and great grandparents taught us. Things like:

1. Hard work - making the choice to build or add value to something or someone rather than try to benefit from another person’s poor decisions. If we return to our roots of innovation and creativity, we can build real, lasting wealth.

2. Ethics - doing what’s right even when it doesn’t benefit us instead of claiming that certain actions are “standard operating procedure.” What would our country look like if we returned to integrity, honesty, and and genuine care for the next generation?

3. Patience - there is really VERY LITTLE you or I “need” right NOW. Learning to wait creates character. I can remember my grandmother teaching me to “just wait.”

4. Learn to do without - depriving yourself of every “want” that pops in your head is a smart move. Wants have their place: they can motivate and inspire, but to constantly satisfy them reduces their meaning.

5. Buy value rather than appearance - too many items have a thin veneer of quality but underneath are just cheap cardboard. We’re satisfied with fake furniture, plastic chrome, disposable this, replaceable that, so long as it’s cheap. I wonder if we would recognize quality if it stood in front of us and help up a sign.

6. Quality of time at work, quantity of time at home - by giving your employer your best, but giving your family the bulk of your time, you’ll be able to satisfy the employer’s needs for production, but your family’s need to spend time with YOU.

7. Self Sufficiency - we used to make things happen for ourselves. Today, it’s accepted practice to allow someone else to do all the heavy lifting. I can still remember my grandparents working in a garden, canning their vegetables and making sure there would be food available in the winter. What a concept.

I think if we were to look back, we’d realize that grandpa really did know best. Hard work, integrity, family. Those are the values we should all support and emulate.

Technorati Tags: bailout, handout, money, finance, finances, financial, waste, beg, integrity, ethics

photo credit: Digital Sextant

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All you do is click the link and you’ll be taken to the Restaurant.com site. There, you enter your zip code and see what restaurants participate and what deals are available. What I personally like about it, is that there usually are local restaurants, not the big chains. I prefer to enjoy the flavor of a local establishment myself.

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Time flies! Here we are at the end of the year and for most individuals, it’s the end of the tax year.

A Dutchman was explaining the red, white, and blue of the Netherlands flag to an American. “Our flag is symbolic of our taxes. We get red when we talk about them, white when we get our tax bills, and blue after we pay them.”

The American nodded. “It’s the same in the USA only we see stars too!”

Yep, it’s always wise to think about reducing your tax liability and about taking actions to insure that you’re prepared when tax time comes around. Just as a business’s largest expense is usually labor, my largest expense (and probably yours) is taxes. Just this past year, the US economy spent 30.8 percent of its income on our tax burden (Federal, state, and local), more than food, clothing and housing combined according to The Tax Foundation.

How do I do MY taxes?

I use TaxCut from H&R Block Premium + State + E-File and have for 12 straight years. But this year, I’ll be using the TaxCut Online version. With it, I’ll be able to prepare and e-file both my federal and state return with just one program at the same time! Not only that, but I will also get one “Ask a Tax Adviser” session included and get H&R Block’s “Worry-free Audit Support” by using E-file. Simply put:

I trust TaxCut from H&R Block.

Here’s some year end tax saving strategies I plan to use

1. Review and potentially increase my spending in tax deductible areas.
There would include medical expenses, mortgage interest expenses, interest on student loans, un-reimbursed business expenses, or other related tax deductible expenses. If there’s anything that I can afford to pay in those areas, it makes tax sense to do it before year end.

2. Make a contribution to my Roth IRA.
The beauty of the Roth IRA is, though my contributions are not tax deductible, by making contributions with after tax money, all the growth accumulates tax free (under current laws).

3. Deduct expenses associated with my hobby … blogging.
If you have a hobby that brings in a small income, start treating it as a business. I can come up with considerable losses to offset my very small blogging income. I will treat it and file it as a small business to offset my other income.

4. Make some donations of cash and non-cash items.
We usually donate some cash and some clothing to various charities at this time of year and I see no reason for that to change! We just donated a 5 ft chest freezer to my church and we have a lot of used clothing we can donate to Goodwill. Hey! Every deduction counts!

The easiest way to build real wealth is to keep more of your own money. That means giving the IRS only what it expects when it expects it, and no more. So take some time to organize your finances, to understanding the truth about the IRS and tax deductions, and to know how to protect your assets from over-taxation. It will literally save you thousands of dollars every year and help you maximize your money on the income you are already making.

Technorati Tags: blog, charity, taxes, finance, finances, income, money, ira, irs, savings

photo credit: chadmiller

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Here’s the recipe

Grease a 9×13 casserole dish. Dump in two 15 ounce cans of pineapple chunks (drain first). In a separate bowl mix one cup of sugar with 5 tablespoons of all purpose flour. Sprinkle this over the pineapple. Mix up one and a half cups each of mozzarella and cheddar cheeses (total of three cups) and sprinkle over the pineapple/flour/sugar mix. Rough crush one sleeve of Ritz crackers and sprinkle over the cheese, then drizzle one stick of melted, unsalted butter over it all. Bake at 350 degrees for 30 minutes. Allow to cool for about 15 minutes and enjoy! This is one of my family’s all-time favorite recipes and it came from my wife’s grandmother.

Here are some awesome links to check out while you’re waiting for your pineapple casserole to bake and cool:

Desperately seeking advice at The Simple Dollar. Trent hands out some very good advice for those seeking advice. It really DOES matter who you ask.

You can’t always get what you want: The dark side of personal finance at Get Rich Slowly. In an interesting conversation with his cousin Nick, JD discovers the goodside of having wants. This was a fabulous post that really spoke to me personally.

In his post Have you ever been embarrassed to be frugal? the Frugal Dad gives us his answer … it’s the same answer his daughter gave the safety patrol! Way to go Frugal Daughter!!!

How to cut the attachment to your plastic at My Two Dollars show 4 SOLID STEPS to breaking those plastic chains.

Jeff asks an interesting question: When Thanksgiving comes and goes, then what? He has several really good recommendations including “Continue to be thankful …”

Madison relates an absolute horror story in An administrative error could cost you your retirement. This story should make you REALLY want to check on things.

In one her best posts ever on simplifying your life, Sara writes The simple guide to staying out of office politics. This is an outstanding post for those who work in an office.

In a post on holiday cooking, the Simple Mom give you the secret to a great holiday turkey. I wholeheartedly agree. When I used this method, everything turned out delicious!

34 reminders to help you find your way at Marc and Angel Hack Life is chock full of fantastic tips and techniques to get you back on track.

Erica has a recommendation for this Thanksgiving: Say Thank You to someone who isn’t expecting it. Thank YOU Erica! You’ve been a big encouragement to me on The Wisdom Journal!

Thank you to everyone who has commented and linked to and encouraged me on this blog. I’m truly grateful for your encouragement and support.

Have a GREAT Thanksgiving!

photo credit: jelene

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Now here is a wise decision! Anytime you can get a dollar’s worth of value for only 50 cents, it’s usually a smart idea. How about a dollar’s worth for only 30 cents?

For a limited time you can get 70% off $25 Gift Certificates! Use code THANKS and pay only $3. Valid 11/25/08 thru 11/30/08.
Restrictions and limitations DO apply so check it out!

Make sure you use the coupon code THANKS when you check out. Wow! A $25 gift certificate for only $3 bucks! Buy a few and give them away as gifts!

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This is a picture of a gas station in Northeast Arkansas near my home. We’ve been seeing gas prices coming down 3 to 5 cents at a time.

On our trip back to Alabama to visit family for Thanksgiving, we saw prices in Memphis of $1.69 and then just outside of Birmingham of $1.80 per gallon. That’s a 31 cent swing! Wow.

What are gas prices in your area? Leave the price and what city you saw that price in the comments section below.

Thanks!

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1. Everyone Faces Trade Offs

To get something, you have to give up something else. Making decisions requires trading off one goal against another. You trade your hours for dollars at your job, then trade those dollars for goods and services, such as food, fuel, housing, or dry cleaning.

2. Debt Is A Disaster

The downward spiral of using debt to fund the consumption of items that instantly depreciate in value is a personal financial disaster. High interest charges and fees are designed to keep the money flowing to the lender and to keep the borrower in slavery.

3. The Real Value of Something Is What Someone Is Willing To Pay For It

Your home may be “appraised” at $250,000 but if no one will pay more than $225,000 — it’s only worth $225,000. You may think you’re worth $75,000 to an employer, but if no one is willing to pay you more than $65,000 …

4. Money Is Worth More Today Than Tomorrow

The dollar I receive today is worth more than a dollar I’m promised sometime in the future. The dollar I get today is real, but the dollar I’m promised in the future will be worth less because of inflation, or I might not get it at all. After all, companies fold, people declare bankruptcy, or a lawsuit may wipe out my ability to collect. Also, the dollar I get today can be invested to create more dollars in the future.

5. Smart People Think at the Margin

A thinking person takes action only if the marginal benefit of the action exceeds the marginal cost. If a graduate degree is worth only another $2,000 per year at your job, but costs $35,000, it doesn’t take a rocket scientist to see that you’re going in the hole.

6. Compound Interest Is The Eighth Wonder Of The World

To think that a $1,000 investment (at 8 percent interest and compounded quarterly) when a child is born can be worth over $172,000 with NO other deposits when that child turns 65 really IS amazing. Put the power of compound interest to work FOR you rather than against you.

7. People Respond to Incentives

Whatever gets rewarded, gets done because behavior changes when costs or benefits change. Companies frequently ignore this truth and find that their incentive programs only cause people to perform in a way that will produce the incentive but still not produce the desired behavior.

8. Free Trade Makes Everyone Better Off

Imagine if all 50 states refused to trade with each other without tariffs, import/export quotas, or other barriers. The ability for all 50 states to trade with each other was one of the reasons the US became such an economic powerhouse. Free trade allows each person or nation to specialize in the activities he or she does best. By trading with others, people and nations can buy a greater variety of goods or services. Besides, nations who are trading partners have strong incentives to avoid wars with each other.

9. Markets Organize Economic Activity Better Than Bureaucrats

Households and firms that interact in market economies act as if they are guided by an “invisible hand” that leads the market to allocate resources efficiently. Begin central planning by government bureaucrats and you get the opposite effect: inefficient allocation of resources, shortages, and surpluses. No one understands how best to spend money than the people directly affected by it.

“In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles.” –Robert Long, The CATO Institute

10. Your Standard of Living Depends on Your Ability to Produce Results

Countries with productive workers creating a large quantity of desirable goods or services per unit of time enjoy a higher standard of living than nations with lower productivity. As a nation’s productivity grows, so does its average income. Individuals who can consistently produce desired results will always be in demand.

The beauty of truths, laws, and principles isn’t that they’re restrictive, it’s that once you understand how they work, you can use them to your advantage.

photo credit: randomduck

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I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. –Warren Buffett

1. Get ready for tax season

I always estimate my taxes during the month of December so I can make any decisions about minor medical procedures. If I think I will only be “close” on being able to deduct my medical expenses, I will go ahead and have either my wife, my children, or myself get their checkup, flu shot, or other procedure done before year end. This can include dental care, vision care, or other medical care.

If you have a flexible spending account for health care, you’ve hopefully been saving a little bit here and there each paycheck. Most plans are “use it or lose it” so you’ll need to spend the money you’ve saved in the account by the end of the year or you lose all of it. Check with your human resources or payroll department to see how much money you still have left in the account, what expenses are allowed under your employer’s plan, and then use what you have saved up by the end or the year so you don’t lose your hard earned dollars.

I’ll also look at making charitable contributions to help reduce my taxable income since I itemize.

2. Contribute to my retirement savings plan

In my case, I have a Roth IRA as well as an Employee Stock Ownership Plan (ESOP). Under my company’s particular ESOP plan, employees do not contribute to it but the company does on behalf of each employee based on the company’s profitability for the year.

The maximum 401(k) retirement savings contribution limit for 2008 is $15,500. If you are participating in a 401(k) savings plan at work, check with your payroll department to see how much money you’ve contributed this year. If you haven’t reached the maximum limit, ask if you can make a one-time contribution toward your account or consider whether you could increase your per paycheck contribution by just a little though year end. Every little bit counts!

3. Save any cash gifts or found money

If you expect to receive any cash gifts, a year end bonus, or other “found” money, use my sneaky savings strategy to bank that excess cash into a savings account. Once the holidays are over, you can use the money to pay down high interest debt, save money for college, paying off a vehicle loan, or making an extra payment on your mortgage.

4. Review where we are on our budget

2008 had a lot of surprises from a budget perspective. We had surging fuel prices followed by an incredible drop. Food prices went through the roof but I doubt they’ll come back down to earth. I haven’t reviewed our budget to make any really significant changes in the past few months, so