The United States Department of Agriculture (USDA) estimates the average cost of raising a child to be around $234,900.  That staggering amount, of course, assumes you’ll be financially supporting your offspring only until they’re 18 years old.  In this day and age, that’s a bigger assumption than you might think, given the high unemployment rate for people under the age of 24 and how little young people know about responsible money management.  Therefore, if you want to avoid bleeding money during your golden years and having to convert the basement into a makeshift apartment, you should probably get to work teaching your son or daughter the do’s and don’ts of personal finance.

The financial difficulties that we’ve experienced in recent years should both reinforce the need for financial education and give you a sense of the exact types of skills you need to pass on to your child.  For example, the fact that US consumers continue to rack up credit card debt at record rates indicates a glaring need for budgeting skills as well as a reimagining of what actually constitutes a necessity.  Among the other important lessons learned from the downturn are:

• It’s important to maintain an emergency fund:  This harkens back to the importance of budgeting, but even if you manage to live within your means, an unexpected expense or downturn in the economy could be financially crippling.  It’s therefore crucial that you impress upon your children the value of maintaining proper insurance and saving a certain amount of money each month.
• Good credit pays off:  Consumers who managed to maintain excellent credit throughout the Great Recession are now reaping the spoils of their hard work in the form of initial rewards bonuses worth up to $500 and 0% introductory interest rate terms that last well over a year.
• Beware hidden fees:  Aside from bailouts, one of the primary reasons folks have been so resentful toward banks in the wake of the recession is that financial institutions helped complicate many people’s financial situations during the economic turmoil by using bait-and-switch pricing tactics and burying costly fees in fine print.  Make sure that your child knows how important comparison shopping and carefully reading contracts are when it comes to financial products.

Of course, talk is cheap and your child is going to need practical experience if they are going to actually internalize any of your lessons.  That is why you should begin a personal finance training regimen where you give your child an allowance using a variety of different financial products and require that they pay for some of their own expenses.  The best course of action would be to begin the following process when your child enters high school:

1. Load an allowance onto a prepaid card:  Prepaid cards are great starter financial products in light of the fact that they don’t affect your credit standing or allow you to overdraft your account.  They also provide online account management, which will enable you to review your child’s purchasing and ATM withdrawal habits with them.  So give your child an allowance every other week, designate certain expenses that will be their responsibility, and get to work.
2. Raise the stakes & use a cash allowance:  Cash requires a bit more trust since you’ll have no way of tracking it (unless you work for law enforcement and use marked notes).  Graduating to a monthly cash allowance while adding to your child’s list of financial responsibilities will therefore be a good test.
3. Switch to a checking account:  The risks are once again higher with a checking account since misuse can prevent your child from qualifying for another checking account in the future.  If your child is ready, though, checking account use will offer valuable experience writing checks, balancing a checkbook, and maintaining a sufficient account balance so as to avoid incurring unnecessary fees.
4. Begin credit building:  You’ll want your child to have a student credit card by the time they head off to college, not only for emergency expenses but also so they can begin building credit.  One’s credit standing is a key determinant of future credit card and loan rates, job prospects, and their ability to lease a car or rent an apartment.  Just make sure your child knows to either make on-time purchases every month or never user their card at all (you build credit either way).

By the time your child graduates from this program, they will be way ahead of the curve when it comes to financial literacy.  The prospect of financial independence therefore won’t be scary any longer; many of the most important financial products will actually be familiar to them.  In other words, rather than having your child live in your basement until the age of 30, they’ll be able to house-sit once in a while during your now affordable extended vacations.

This article comes from our friends at Evolution Finance, a company that operates the credit card comparison website Card Hub and the personal finance social network Wallet Hub.

Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Welcome to the June 9, 2012 Edition #240 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security.

This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

The Skilled Investor, Editor

Budgeting and Economics

Miss T. presents Small Money Mistakes that Have Big Consequences posted at Prairie Eco Thrifter, saying, ” It is often the little things you do, the small actions you take, that have the biggest impact on your financial security, both in the present and in the future. Of course, this concept is true whether the little things are positive or negative.

A Blinkin presents Simple Steps To Grow Your Business posted at Funancials, saying, ” As your business starts succeeding, you should look at what the next level is. This can encompass a whole range of things, from moving out of the house and into a real shop, or even just making your existing business look more professional and function more streamlined.

Daisy presents It’s Not Necessary To Pay For Your Kid’s College Education posted at Add Vodka, saying, “This does not reduce the accomplishments of those who had their parents pay for college for them, nor is it meant to be a compare/contrast of people that pay for their own.

Janet presents Expense budgets posted at Independent Financial Planner , saying, ” Many people do not track their living expenses and do not understand the magnitude of their consumption.”

Financial Planning

Miranda presents Funding Your Small Business posted at Wallet Hub Blog, saying, “Finding money for a small business can be difficult right now, with the economy struggling, and many banks reluctant to take a chance on small businesses. If you are looking for sources of income for your small business, here’s where to start

Jason presents Things to Consider With Your Relationship and Money posted at Work Save Live, saying, ” Your Relationship and Money A lot of couples fight about money.

Crystal presents Getting Excited about FINCON12 But Nervous Too… posted at Budgeting in the Fun Stuff, saying, ” The Financial Blogger Conference 2012 is going to be awesome, but I am already nervous about speaking. This will make FINCON12 a bit more stressful for me.

Corey presents Cost of Being in Someone Else’s Wedding posted at 20s Finances, saying, “Do you have any close friends getting married soon? Have they asked you to be in their wedding? Do you know how much it will cost you to say yes? I was in a friend’s wedding in December and will be in another wedding in June. Between those two weddings and having 3 other weddings to attend in the next few months, I have weddings on the mind.

Amanda L Grossman presents 20 Ways to Spend Money On and Off Board a Cruise posted at Frugal Confessions, saying, “I am fresh off the ship of the first cruise I have ever taken.

Johnny presents Investment education  posted at Personal Finance and Planning , saying, ” 99+% of the financial information that is easily available through the media and the Internet is: self-interested and biased, superficial and non-implementable, historical in nature or just current “noise” reporting without any actionable utility, and/or poorly researched, just plain wrong or unmitigated rubbish.”

101 Centavos presents How To Painfully Save Hundreds of Dollars a Year posted at 101 Centavos, saying, ” While we’re off on vacation, I’m recycling.

Eddie presents 35 Money Lies People Tell Regularly posted at Finance Fox, saying, “Men supposedly lie six times more per day than women, and when someone tells you, be a man or a woman – Nothing is wrong, I’m OKAY -, they’re really lying to your face.

Franklin presents Passively Funds posted at Investor Strategies, saying, “On average, higher mutual fund turnover is far more likely to result in lower investment fund performance — instead of superior risk-adjusted performance.”

Luke presents Are Investors in the PIMCO Total Return Fund Missing Out? posted at Learn Bonds, saying, ” The PIMCO Total Return Fund is Underperforming PIMCO’s new BOND ETF. Are PIMCO Total Return Fund Investors missing out?

Don presents Alpha Returns posted at Wall Street Financial Engineering , saying, “For typical individual investors, without special access to information, it offers what is likely the best financial advice they will ever get: It is hard to consistently beat the market, especially after fees. A passive strategy will do better in the long run. ”

John presents Creflo Dollar, Joel Osteen and the Prosperity Gospel posted at Married with Debt, saying, ” Preachers like Creflo Dollar and Joel Osteen are leading figures in the prosperity gospel movement. What is it, and is it right?

Income

Jeremy presents Overcoming Unemployment Challenges posted at Modest Money, saying, “As many of you know I’ve been unemployed the whole time I’ve been running this blog. Now find out about the struggles I’ve had to overcome to rejoin the world of the employed.

YFS presents Rental Property #3 Numbers Analysis posted at Your Finances Simplified, saying, “As I told you guys in the last post, I’m going to give you the actual break down of my current and future rental property purchases.

Martin presents Can You REALLY Start a Business With $100? posted at Studenomics, saying, “How to start a new business without tons of capital.

Insurance and Risk

Stephen presents Do You REALLY Need Life Insurance? posted at NerdWallet, saying, ” If no one depends on your earning capacity, you most likely do not need life insurance. That’s the fundamental rule by which to make your decision.

Evan presents Trying to Understand Long Term Care Insurance posted at My Journey to Millions, saying, “While I am entirely too young to consider Long Term Care Insurance considering I don’t think many carriers sell individual policies for people under the age of 40,I have been giving it a lot of thought recently.

Lawrence presents ID theft protection posted at Best Financial Planner, saying, “As a threat to your financial security, you should take the potential for identity theft very seriously. Identity theft sometimes entails a loss of your money, but whether or not you lose money, it can take a very large amount of your time to rectify.”

Jeff Rose presents Protection For Your Home – Is Mortgage Life Insurance Worth It? posted at Life Insurance By Jeff, saying, “While your house is most likely your biggest asset, does that justify paying the extra premiums to have a mortgage life policy? Does the added cost really give you the protection you need?

Investing

Jeff Rose presents Best Short Term Investments For Your Money Right Now posted at Good Financial Cents, saying, “In such an unstable market, short term investing may be a safer alternative for investors. Short term investing allows investors to invest their money with little or no risk, while knowing their money is not going to be tied up for long periods of time.

Pinter presents No Load Bonds posted at Cheap Bond Funds, saying, “Investment research overwhelmingly shows that lower cost fixed income funds tend to yield higher bond investing returns.”

Sustainable PF presents Canadian Dividend Stocks: Brookfield Renewable posted at Sustainable Personal Finance, saying, ” Many investors are looking to Canada as a source of investing opportunity that are a little more eco-friendly than their competitors like Brookfield Renewable Energy Partners.

TSI presents Morningstar Ratings posted at The Skilled Investor , saying, ” Individual investors and their advisors appear to make investment decisions that are heavily influenced by the Morningstar Rating system. Because the stars are very widely used and often misunderstood, these are articles to help investors make more rational decisions about the stars.”

Pierre presents Teaching Your Kids To Become Great Investors posted at Intelligent Speculator, saying, ” Do you teach your kids about money?

Div Guy presents Canadian Aristocrats; They Have it Too posted at The Dividend Guy Blog, saying, “What sort of stocks are you investing in?

DL presents Global Financial Markets  posted at Nerds on Wall Street , saying, ” Stock markets are almost perfectly transparent, with full information available to all, and the best electronic clearing and settlement in history. These technologies were omitted in building the skyscraper of cards (“house of cards” seems too mild) out of collateralized debt obligations (CDOs), credit default swaps (CDSs), synthetic collateralized debt obligations (SCDOs), and the rest.”

W presents A Speculative Alternative To Investing Part 1: Goals posted at Off-Road Finance, saying, ” A long term speculative trading system for those who want to avoid conventional investing.

Managing Debt

Maria presents Four conditions under which cash loans may not be such a bad idea after all posted at The Money Principle, saying, ” Before I go on and set out the four conditions under which, I believe, cash loans may not be a bad idea let me tell you a story.

Mike presents Why Cash Back Beats Travel Rewards posted at Rewards Cards Canada, saying, ” A free vacation keeps many Canadians loyal to their travel rewards program, but for me, cash back is king. Here’s why cash back beats travel rewards

Mike presents Best Cash Back Credit Cards posted at Rewards Cards USA, saying, “If you are looking for some solid choices when it comes to cash back credit cards, here are a few of the best options for getting money back

Echo presents Home Equity Line Of Credit: Friend Or Foe? posted at Boomer & Echo, saying, ” A home equity line of credit has its advantages, but be cautious. Easy access to credit and loose repayment terms can make HELOC’s very dangerous.

Real Estate

Suba presents Our House On The Market: Month Three posted at Broke Professionals, saying, ” We’ve now had our house on the market for three long months, and I’m losing faith. We’re dropping the asking price, but I wonder whether it’s enough to get it sold.

Wayne presents Should You Hide Money From Your Spouse? posted at Young Family Finance, saying, “A recent study showed that many partners or spouses hide money from their significant other. Is it okay to hide money from your spouse?

Retirement

Hank presents Harnessing The Power Of Compound Interest posted at Money Q&A, saying, ” There is a power of compound interest that both savers and investors need to understand and harness in order to grow their wealth.

Brock presents Retirement Spreadsheet posted at IRA Account Investment, saying, “Whether or not to make investments into “traditional” tax-advantaged employer accounts and IRAs versus investing in “Roth” tax-advantaged employer accounts and personal IRAs is never a straightforward nor simple financial planning decision.”

PITR presents Reasons Why People Don’t Follow Their Dreams posted at Passive Income To Retire, saying, “Find out why people fail to realize their dreams. Why do people fail? Why do people give up on their dreams?

Knowles presents SandP 500 Funds posted at Large Cap Index Funds, saying, “The no load index fund strategy of the Schwab S & P 500 Index Fund tracks the S and P 500 stock index. This no load index fund was listed as one of the top 25 lowest cost index mutual funds in a research study.”

Savings

John presents Why You Should Think Twice Before Hitting a Toll Road in a Rental Car posted at Wallet Blog, saying, “One would think you would have to go through the Phantom Toll Booth to pay a phantom toll fee. Sadly, that is not the case, and the unsuspecting consumer is getting hit with unreasonable toll charges when driving a rental vehicle. Are these costs avoidable?

Freedom presents Savings Rates posted at Financial Freedom Plan , saying, ” Understand how your current savings rate and retirement withdrawal rate would affect all of your lifetime personal financial planning goals ”

Liana presents What to Make of the New Capital One Daily Deals Program posted at Card Hub, saying, “Move over Groupon and Living Social! Capital One is taking the stage with one of its newest programs. See what your credit card can do for you when it comes to saving money at places where you already spend!

Taxes

FMF presents The Eight Tax Rules posted at Free Money Finance, saying, ” In this article are eight rules that I recommend you follow in dealing with taxes. The first four are principles that you should adopt, and the next four are specific areas of competency that I recommend you develop.

Monroe presents Roth Conversions posted at Do-It-Yourself Finance , saying, “Key to you making a better decision about your lifetime Roth account contribution and asset conversion strategy is the need for a sophisticated financial planning software tool.”

That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: carnival of financial planning, blog carnival.

My wife and I have been teaching a Family Relations class at church that includes a section on money management. Writing all of these posts on finances has come in handy as I have a lot of material on the topic of money.

I want to share some of the principles and take-aways from our last lesson which focused on the basics or foundation to good money management.

Live on less than you earn

If you aren’t familiar with it already, that video clip is a duplication of an old Saturday Night Live sketch with Steve Martin.

Hopefully, you already know that you should live on less than you earn. But actually doing it can be pretty hard sometimes.

“I have discovered that there is no way that you can ever earn more than you can spend. I am convinced that it is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money.”

– N. Eldon Tanner

Read the first line of that quote again if you need to – I did. The message is simple – there are always things to buy and ways to spend money regardless of how much money you make.

The key to happiness is to avoid the bondage that comes with debt. Money and interest can be a very cruel taskmaster when used improperly.

Owe no man anything

A hundred years ago, having a mortgage would have been considered filthy or immoral. If you wanted to own land or a home, then you worked and saved for it.

Most families built their own home.

And yet, debt financing a home today is the standard. Saving enough money to buy a home seems unfathomable to so many.

Banks and lenders have done a great job teaching us that we need their money. It’s a lie. A complete and total lie.

That lie created the collapse in the housing market over the last several years. Consumers believed that we had to won a home – it’s the American dream. Banks believed that we’d never foreclose on the American dream and that home prices would always go up.

Unfortunately, inflated home prices caught up with too many and the bottom fell out.

So how do you avoid having a mortgage?

Dave Ramsey tells a story that I love. He describes a young couple that make a combined $80k a year. They rented a small place and lived on $30k and saved $50k every year. After four years, they had $200k in the bank. They found a modest home for $150k and then spent the other $50k furnishing it however they wanted to.

Awesome!

I’m sure you are thinking, “Yeah, well, I don’t make $80k a year,” or, “I have more expenses and kids and blah blah blah.”

If you are thinking anything like that then you need to change your paradigm. You need to change how you think about money.

It might take you longer than four years but you can do it. You can own a home without a mortgage. You can own a car without a car payment. You can have what you want..in time.

Learn to be patient.

If decide that you just have to get a mortgage, then at least save enough to secure a 15 year mortgage. You will pay substantially less.

Tips for spending less than you make

Saving that much money takes a lot of discipline and time. Let me give you some pointers.

• Setup auto-savings – Determine how much you are going to save each paycheck – let’s say 20%. Use direct deposit or automatic transfers to put that money into a separate account that is not easily accessed or spent. Basically, make the money disappear and forget it’s even there. Don’t rely on yourself to make the decision every paycheck to save the money.
• Develop and live within a budget – One of the most crucial factors in your success will be how well you live by a budget. Just to be clear, budgeting is not tracking how much you spend. Budgeting is setting limits to how much you spend and then living by those budgets. Some more bugeting tips.
• Cut up your credit cards – Just be done with them. If you have an issue with overspending, then take away your ability to overspend. I don’t care about the rewards – they are just gimmicks designed to take your money. Studies have shown that people who use credit cards spend more than those without. Fact.
• Use cash only – If you find that even with just a debit card you find yourself racking up overage charges or going onto an overdraft credit line, then move to a cash only system. Only use cash. If the cash is gone, then you are done spending. That simple.

 I may not have said too much in this post that you haven’t already heard or read. However, I do hope that you’ll walk away better motivated to make needed changes.

Take a look at your life today, target some specific areas for improvement and then go for it. But go all out and make it happen!

I have had a number of conversations lately with friends who took me by surprise when they told me how much student debt they have – years after graduating. Some of them have student loans and others have credit card debt from living expenses. I guess I have taken for granted how lucky my wife and I were for graduating with four year degrees without a penny in debt.

Since I firmly believe that you can also graduate debt free, I want to share some suggestions based on what we did. Also, share anything you did to avoid debt in college in the comments below.

If you are still in high school, get good grades

I’m sure that you are sick of hearing this, I know I was. Actually, it’s unfortunate that teenagers have to make decisions (like studying instead of playing) that will last a lifetime when their ability to make decisions is probably at the lowest point in their lives.

Let me put this in teenager terms. All of the people that you think are cool in high school will not matter the day after graduation. That girl/guy that is so cute is most likely going to marry someone else. Your social life will not end if you miss this party. If you earn good grades now, you will get into a better college. Better colleges mean better jobs, more money, more toys and more playing later in life. Good grades can lead to scholarships, leaving you with more money in college to date and have fun.

Some self-discipline now means getting to do more of what you want later.

Evaluate schools based on value for dollars

One of the biggest reasons that I was able to graduate debt free is because I went to a great private university with a small tuition. Tuition cost around $1800 a semester and yet the business school was ranked #7 in the nation by BusinessWeek. I paid little but got a lot. Before applying and selecting a school, spend some time researching the value (cost as compared to career prospects). Here are some links to help you research colleges:

• Princeton Review’s Best Value Colleges
• Kiplinger – Best Values in Public Colleges 2011
• Kiplinger – Best Values in Private Colleges 2011
• Forbes Top 20 Best Value Colleges

Work through college

I worked three jobs while in college. The first was as a night time custodian (though, I never cleaned a toilet). My hours were from 9PM – 2AM Sunday through Thursday. I had Friday and Saturday off. I usually had to take classes that started after 9AM so that I could get enough sleep. And the hours definitely cut into my social life since 8PM is about the time everyone starts to hang out and do stuff on weekdays. However, I was able to pay for all of my bills.

My next job was as an accounting clerk in the university’s budget office. A big improvement. But I had day time hours that again affected my ability to sign-up for the classes I wanted. The last job was as a research assistant for the company where I now work as the Marketing Director.

The two direct benefits from working five days a week throughout my entire college experience was the income that helped me to avoid debt and the experience that led directly to the job I now have. I don’t want to get into a political discussion or make sweeping generalizations, but one of my biggest frustrations with the Occupy Wall Street movement* is the number of people who went to school, took out huge loans, didn’t work and are now angry because they have debt.

*As a side note, I visited Occupy Wall Street and conducted my own interviews in order to form my opinion on the movement. Watch my Occupy Wall Street interviews on YouTube.

Apply for grants and scholarships while in college

Some people may not realize that many scholarships are still available even after you have started school. I was denied a scholarship when I was first accepted. However, after two years, I was able to show through my grades that I deserved a scholarship. I was awarded a half scholarship. But I had to apply for it, which involved writing essays, etc.

The other avenue to explore are Pell Grants, which is free money from the government. Rather, free money to you. Someone else is certainly paying for it in the form of higher taxes. I didn’t qualify for a Pell Grant until I got married, which was near the end of the four years. Here’s some more info on Pell Grants.

It sucks, but ask family for help

I’m a proud guy and I believe in taking responsibility for myself. But when I just didn’t have enough money, I swallowed my pride and reached out to family members that I knew could help. I am forever grateful for that assistance. Also, I spent any money that I received for Christmas or my birthday on school books. At times, I was frustrated when I saw my siblings getting to “play” with their Christmas money while I headed to the Campus Bookstore to buy Economics 110.

My last piece of advice doesn’t come from experience

I didn’t have any money saved up for college. I wish I would have. But that is not a choice that I made. If you have the opportunity to save money before going to college, then do it! You will never look back and say, “Man, I wish I would have graduated from college with some debt. Living debt free has been a real strain on me.”

Though as you can see from me, I still graduated debt free from college despite not having any savings. It just took a lot of hard work.

If you like what you read today, then follow Rabbit Funds on Twitter or Like us on Facebook for regular updates on great, new articles. Also, this article was featured in the Carnival of Personal Finance hosted at Afford Anything.

Recently, my wife and I had what I call a “Come to Jesus” moment. Basically, we had to face reality. We had let a number of areas in our finances slip. Mostly, we just got lazy. So we are currently putting everything back in order. But this experience has left me asking myself, “Why do I have to let things get bad before I shape up?”

Maybe you’ve found yourself in the same boat.

You are sticking to your budget and saving money. But then one expenditure comes up and you decide to dip into your emergency fund (even though it wasn’t an emergency). Then another thing comes up, and then another, and so on. Next thing you know, you are pulling our credit cards again.

Hopefully I’m not alone in this boat (let me know in the comments).

Long before making big, bad decisions, we started by just being lazy about little things. And rather than making changes when it was easy, we waited until things were hard. I’ve repeated this pattern a couple of times in my life.

• Step 1: Get everything in order.
• Step 2: Start slipping in small ways (usually dining out).
• Step 3: Start making bigger, badder decisions (and yes badder is a word).
• Step 4: Realize what I’ve done and work for months to fix it.
• Rinse and repeat.

The problem is that each cycle is costly. It sets us back and puts our goals that much further out of reach.

What’s scary is that our entire nation acts the same way.

We’ve been on a spending spree since the Obama Administration took office nearly three years ago. Although many people and groups warned of the dangers, Congress charged forward. Then, we were hit smack in the face with warnings of credit rating decreases, actual credit rating decreases, and the risk of default. We hit our credit limit. It was only at that point that Congress decided to make some effort to reduce spending.

The scary thing though is that fixing my financial mistakes is not that hard, it just takes a little time. Fixing the financial mistakes on such a large scale – the United States of America – will take decades and a lot of money out of everyone’s pocket. And don’t tell me that it won’t affect your because businesses and the rich should pay more. Businesses and rich people are what drive the economy. They put the money into the economy that gives all of us jobs. So if they have less to spend, then our economy slows and jobs go away.

So why do we as individuals and even huge governments let things get so far out of control before we wake up and have a “Come to Jesus” moment? Why don’t we guard ourselves against deviating from our course?

The government has no excuse.

Elected representatives should represent their constituents and the system of checks and balances should weed out stupidity. But it seems to have failed of late (for a lot of reasons).

But as individuals

We don’t have checks and balances unless we create them. Let me give you a few ideas on how to create self-monitoring mechanisms.

1. Budgets – A budget is a guide and benchmark against which you can weigh yourself.
2. Weekly or Monthly Financial Reviews – Set aside a time each week or month to review your finances with you spouse so that you both know what’s going on and can talk through any issues.
3. Cut up credit cards – Just remove the temptation.
4. Tell your mom about your goals – Okay, so maybe you don’t have to tell your mother per se. But tell someone that will check-up on you about your financial goals. Create accountability for yourself.
5. Automate as much as you can – Make your savings automatic. Make bill pay automatic. Make donations automatic. Get your money going to the right places as soon as you are paid. Then, only spend what’s left.

I’m happy to say that we are headed in the right direction again. But it’s still been costly. Hopefully, I won’t have to wait until it’s out of control again before making course corrections.

Can you empathize? If so, let me know in the comments or on Twitter.

If you have kids and are much of a Dr. Seuss fan, then you’ve probably read Dr. Seuss’s Sleep Book. We were reading it to our two little girls a few nights ago when a part of it caught my attention. I suddenly realized that Dr. Seuss was financially savvy too.

Here’s the excerpt:

“At the fork of the road in the Vale of Va-Vode, five foot-weary salesmen have laid down their load. All day they’ve raced round in the heat, at top speeds, unsuccessfully trying to sell Ziffer-Zoot Seeds which nobody wants because nobody needs.”

What’s interesting is that I feel that I’ve bought these same seeds before. Now granted, they weren’t called Ziffer-Zoof seeds. Rather, I purchased fancy argyle socks, a new laptop even though the old one still worked, and a deal on Groupon that was great but not within my budget.

The point is that I bought products or services that I did not need. I just wanted them.

Dr. Seuss, though, teaches a very interesting lesson. The Ziffer-Zoof Seed salesmen aren’t having any success because the people of Whoville, or whatever realm they are in, don’t want what they don’t need. To help explain, I’m going to talk a little bit about the good ol’ days.

Life in the 1800s – A simpler time

But definitely a harder time by several standards. Due to a number of factors, such as a lack of refrigeration for most of the century, families spent most of their time working to support themselves (whether it be in or out of the home). Many families had to churn their own butter. Money was carefully saved in order to buy land or a home, rather than debt financing one. Clothes were mended and mended and then turned into rags once they could not be mended anymore.

Americans had wants, but their time, money, and energy were spent on satisfying needs and often foregoing wants.

Life in 2011 – Luxury after luxury

For most Americans, we have more luxuries than any other people in any other time has ever had or even dreamed of having. The modern grocery store is a logistical miracle. As a result, we have learned to rely less on ourselves. We spend more time and money pursuing our wants because our needs are so readily met. Everything is $0 Down OAC.

Americans spend their time, money, and energy satisfying our wants and foregoing our needs, which are often future needs such as retirement.

Satisfying wants is not a bad thing

But it can have bad side effects. Since we don’t have to focus on meeting our needs, we can easily become consumed with meeting our wants. So rather than spending our time being productive and bringing home the bacon, we are off spending the bacon on Ziffer-Zoof Seeds, which no one should want because nobody needs.

Late night infomercials have a PhD in selling Ziffer-Zoof Seeds. “Not only does this knife slice-n-dice and clean up after itself, but you’ll receive a second set completely free if you Act Now!” Why do I need or want two sets of the same knives? Why do I even need new knives? I should just sharpen the ones I have.

We simply need a fundamental shift in attitudes. We need to stop masking wants as needs and learning to forego now so we don’t have to forego later.

From now on, call it what it is

The next time you hear the siren call of the Ziffer-Zoof Seeds salesman, which may come in the mall, online, on TV or as the little devil on your shoulder, have the control to call what it is – Seeds of Destruction that Nobody Wants Because Nobody Needs.

What Ziffer-Zoof Seeds have you bought lately?

So every month, we have dinner with some good friends that we’ve been trying to convince to jump on the bandwagon and have a baby. Well, I just found out that she is eight weeks along and we couldn’t be more excited. However, they are a two income family and are now faced with losing the second income.

Many couples find themselves in the same situation. Both spouses work for several years until junior comes along and then mom decides to stay home. Unfortunately, they’ve become accustomed to living on two incomes. So how do you adapt to a one income family and not go broke?

First of all, let me dispel the myth that you must have two incomes to be financially viable in this day and age. Maybe you’ll call me a chauvinist, or a romantic, but I firmly believe that the male gender has a responsibility to get as much education as possible and then work hard. I know too many men that are not willing to work hard and provide for their family. Now, please do not assume that I am opposed to an educated, successful woman. I am proud to say that my wife is a college graduate and business owner. We also have two lovely little girls. The oldest turned three just yesterday.

1) Plan to lose your second income years in advance

Do you realize that many of the financial woes that we are experiencing in this nation would probably not exist if companies and families would have sufficient planned before spending way too much money? For example, if new homeowners had asked themselves, “Do I have enough money in the bank to cover my mortgage for 3-6 months if I lose my job?” then maybe a lot of Americans would have taken out smaller loans.

The point is that if you know that in the next few years you may lose one of your incomes for a variety of reasons (it doesn’t have to be a new baby), then do not put yourself in a financial situation that makes it impossible to lose the second income and stay out of bankruptcy.

2) Reduce your monthly expenses through good budgeting

The second step to prepare to live on one income is to reduce your monthly expenses to the point where one income can cover all expenses. This should seem fairly obvious to you. However, reducing your monthly expenses (and that includes investments) by $1500 to $3000 may be very difficult. Though, if you’ve planned ahead as in Step #1, then you hopefully aren’t locked into any financial commitments and simply need to make a lifestyle change.

You should be using a budgeting tool like Mint.com anyways, but if you aren’t, making this type of change will almost necessitate that you become an excellent budgeter. Basically, create a new budget based one just one income several months before losing your second income and start making all of the lifestyle changes. I say months in advance because it will take you several months to figure out how to consistently stay within a new, reduced budget.

For more information bout budgeting, read Stop Lying, 5 Ways to Stop Overspending and 6 More ways to stop overspending and save money.

3) Save money in a dedicated savings account

If you are reducing your expenses as in step #2, then you will have extra income. PUT IT IN THE BANK AND DON’T TOUCH IT. Open a dedicated savings account that is just for this income. Hopefully, you will build up a nice emergency fund that you can use to ease your transition if hiccups arise. Please be realistic though about what expenses are and are not emergencies.

This account should be in addition to your normal savings since it is coming as a result of reducing your expenses. So don’t think you get to go buy something all shiny and new with it if you are already saving month.

Once you’ve transitioned to a single income, then decide how to best invest the money in this savings account. Maybe it remains an emergency fund or maybe you can invest it in a Roth IRA account or open a 529b account for the new baby.

4) Celebrate your accomplishment

Any good or true goal should have a reward at the end. So plan some way to celebrate a successful transition to income. Maybe it is a nice evening out or other small indulgence. Don’t go too extravagant but you’ve done something amazing and it’s important to recognize that.

Conclusion – The real secret to success

I probably haven’t said anything that you haven’t already considered. The reality is that what I’ve described are simply the mechanics of change. For any successful change to occur in life, you need a change motivator. You need a reason inside of you that says not only do I need to do this, but I can do this. So find your change motivator (I hope it isn’t job loss, which can be a powerful motivator). Write your motivator down and stick it on your mirror or put a picture of it somewhere that you will see everyday. Then the mechanics of change have a living force behind them driving you to make the right decisions.

Do you have experience of going from two incomes to one? If so, please share below.

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As we begin 2011, I find myself still reflecting on 2010 and what I’ve accomplished. Seth Godin recommends making a list of what we’ve “shipped” or completed this year. As part of my reflection, I’ve analyzed the traffic to Rabbit Funds to see what you, the reader, like.

First, thank you. Without you and your readership, this site would not exist.

As I looked at the stats, I was a little surprised to be honest. Some posts that I took great pride in faired okay while other posts that I thought were average were really well received. Apparently, my crystal ball is broken.

I thought you might like to see some of the stats. So I’ve outlined below the 10 Most Viewed Posts and the 3 Most Commented Posts and added some thoughts from me about the stats indicate about readers. Let me know what you think in the comments.

The Top 10 Most Viewed Posts

1. Money Hacks Carnival #104: Have you ever? – A lot of traffic actually comes from searches for Jack Nicholson as the Joker, which was featured in this post. I should therefore devote more time to celebrity gossip ;)
2. 3 Reasons Dave Ramsey is wrong about Credit Cards – Not everyone thinks that every word that drips from Dave’s mouth is manna from heaven.
3. 49 Expenses that are not emergencies – People like lists.
4. 6 More ways to stop overspending and save money – With tough economic times, you are looking to change or improve your financial situation. Keep it up!
5. REVIEW: Mint.com and the new Goals feature – If you are still looking for reviews on Mint.com, then stop it and sign-up today.
6. HOW TO: Dejunk your home, sell stuff, and be happier – Wanting extra cash, you are looking for tips/advice on selling stuff in your home.
7. Why Hubspot fails at social marketing –  Ranting and raving usually seems to get some attention.
8. Dave Ramsey said to sell my stuff and payoff debt – Some more Dave love.
9. 5 Ways too stop overspending – Debt isn’t fun and you are looking for ways to rid yourself of spending habits.
10. INTERVIEW: Seth Risenmay, Founder of MoneyDesktop.com –  You are looking for and researching budgeting tools. Yeah!

The Top 3 Most Commented Posts

1. Money Hacks Carnival #104: Have you ever? – Most of the comments are from other bloggers. So this post almost doesn’t count. But it does show that finance bloggers are grateful.
2. 3 Reasons Dave Ramsey is wrong about Credit Cards – Again, it seems that folks want to have their say if it’s a controversial topic.
3. 6 More ways to stop overspending and save money – It’s interesting that the top commented posts are also three of the most visited posts. I’m happy to see that you are looking at and engaging in discussions about saving money.

The Coming Year

Thank you again for helping to make 2010 a great year for Rabbit Funds and the personal finance community in general. As for 2011, I will work hard to continue providing great content and look forward to interacting with you. As always, your comments, suggestions, and feedback are always welcome.

To stay up-to-date with the coming posts about saving money, budgeting, and financial planning in general, subscribe to the Rabbit Funds RSS Feed or Follow us on Twitter. Good luck and good investing!

P.S. Rabbit Funds was recently selected as an Editor’s Pick in the 288th Carnival of Personal Finance hosted at  DollarMatters.com. If you are looking for some great articles to read, then go check out the line-up.

For the purpose of this post, I am assuming that you already believe in budgeting. Meaning, I intend to review Mint.com as a budgeting software solution and not attempt to persuade you that you should be budgeting (though you should be).

Before detailing my experiences, let me start by saying that I love Mint.com. I had been a hardcore Microsoft Money user for years and was devastated to find out that they were discontinuing the product. Looking for a cheap, straightforward alternative, I decided to attempt Mint.com.

Here’s a brief outline of what I like and don’t like.

Likes

1. Free – If you are just starting to budget, then Mint is a good way to get your feet wet with a strong tool that is user friendly and free.
2. Auto-updates my accounts – This feature is fairly standard to most budgeting software but still worth mentioning. You use an obscure bank or credit union, then auto-updating may not be possible.
3. Offers – Mint.com makes money through third party offers such as credit card companies and brokerage firms. First, the “advertising” is not obtrusive to the user experience and you usually have to go looking for the offers (“Ways to Save” tab). Second, although I am opposed to credit cards and the like, I believe that consumers with credit card debt may benefit from lower interest rates or better terms. So I believe there is value in helping compare offers.

Dislikes

1. Only simple reports – Having used Microsoft Money for years, I had fallen in love with being able to quickly and easily create custom reports to analyze just about any part of my financial house. With Mint, you are restricted to a small set of non-customizable reports.
2. No debt management tool – Ok, so that statement is a little misleading. Until the recent addition of Goals, Mint offered no way to systematically eliminate your debt using techniques such as the debt snowball. Though, I outline my experience with the tool below.
3. Does not take into account savings – I really like the Budgeting feature. It is straightforward and easily accommodates custom budgets and helps you save for non-monthly expenditures (i.e. it tells me how much to save each month in order to pay for my wife’s salon trip every 4 months that always costs more than she says it will). However, I tried to add a budget for what I stick into my Roth IRA account, which is tracked by Mint, and the budget disappeared. Meaning, that investment amount isn’t subtracted from my spending and it appears that I have more money to spend than I actually do (see image to the right). I tried adding a ‘dummy’ Savings budget so I’d know not to spend the money, but then the investment isn’t tracked correctly.

The new Goals feature

Let me start by saying that it’s about time!

I’m honestly a little surprised that it has taken the team at Mint.com this long to add a goals feature. Either way, we have it now. When you click on the Goals tab, you are presented with a number of “off the shelf” options or a create your own goal option.

“Get out of Debt” goal

Excited to see how the debt elimination feature worked, I decided to see how I could payoff my mortgage sooner. To my surprise, the only debt I was allowed to eliminate was my one credit card (which has a balance of $176). Dismayed, I selected my credit card and hit Next. Mint then analyzed my discretionary income (or extra income after expenses), the minimum due on my credit card, and the interest rate. Mint’s advice was to pay the minimum, only $15, for one year despite sufficient discretionary income to pay it off much sooner. Like now. Simply put – Mint’s debt management program failed.

“Take a Trip” goal

Though, I believe everyone deserves a fair chance. So I attempted to create a different goal. My little family will be headed out to Washington D.C. next Spring to see her family. Below is what I entered. This time, I felt everything worked very well. We were able to give the goal our own name and upload a pic to motivate ourselves – very cool.

Despite the drawbacks of the debt reduction goal, I definitely give the Goals feature two thumbs up.

Last question, is it safe?

Let’s be honest. If I am sharing my account information with a site, I want to know that it’s safe. In a video posted to YouTube, Mint’s CEO Aaron Patzer explains how Mint approaches security. I’m pretty paranoid about my identity being stolen and take a good number of precautions. So far though, I have felt completely safe using Mint.

My recommendation is that if you are not currently using any budget software or if you are unsatisfied with the one you are using (this includes Microsoft Excel), then check out Mint.com.

For more tips and reviews, subscribe to Rabbit Fund’s RSS Feed!

A few years ago, my wife and I had the opportunity to invest in a company that we hoped would go public. We were young, just married, and broke. So we took out a personal loan from a family member (for a fairly small amount) to make the investment.

Within months, the company went belly up. Since we weren’t able to recoup a single penny from our investment, we were left to work off the debt. This experience taught us several valuable lessons. Among those lessons was that one should be extremely cautious when using leverage to make an investment or increase the expected return on an investment.

Let me give you four reasons not to use debt to invest

First, you may not  have the right experience to manage the use of debt, such as borrowing from a margin account, when investing. Without the aid of an experienced advisor, avoid using financial instruments such as margin accounts.

Second, for the average Joe, slow and steady will win the race. We all have goals and dreams and it would be wonderful to achieve them today. However, our dreams can become nightmares if we try to run to them too quickly. Realize that if you follow tried and true investing techniques, you will arrive at your goals and have had peace of mind along the way.

Third, your mama was right – don’t spend money you don’t have. This is the foundation for any solid financial house. I read an article several months ago that referred to credit card arbitrage, which is borrowing money from a credit card with a very low promotional rate and then investing the borrowed money. The idea is that you’ll pay off the credit card before the interest charges hit and you’ll have made more money from investing the money than any fees associated with borrowing the money (e.g. cash advance charge).

The problem is that you are building a house of cards. What if you can’t liquidate the investment in time to pay off the credit card? Even though the nice marketing pitch says you pay no interest, it is actually accruing. So if you don’t pay off the credit card within the promotional period, then wham! You’ll be hit with all of the interest charges.

Fourth, we become too emotionally involved. For many people, investment decisions are based on emotions. We see the market begin to fall or rise and we sell or buy accordingly. So if we know that getting out of a bad investment now means we are left owing the debt, then we may choose to not sell hoping that the investment will come back. We may get lucky and the investment rebounds, or the investment will decrease in value even further leaving us with even more debt to repay.

So why would anyone use debt or leverage when investing?

Leverage acts as an accelerant. Just like adding gasoline to a fire, leverage can allow you to gain larger returns than you would otherwise be able to obtain.

Also, leverage increases the percentage return on an investment. Ever heard of OPM? Other People’s Money. Here’s a specific example.

• Scenario 1: I invest $100,000 and gain a return of $10,000. My percentage return is 10%.
• Scenario 2: I invest $10,000 of my own money and $90,000 of borrowed money (or OPM). If the return is still $10,000, then my percentage return is %100. This of course assumes no fees or interest associated with borrowing the $90,000, which is never the case.

Scenario 2 sounds nice because my return is %100 and I only had to tie up $10,000 of my own money. Though, at the end of the day, I’m $10,000 richer in either scenario. And I’m not financially committed to someone else in Scenario 1 if the investment begins to sour.

What are your experiences with using debt to invest? Good or bad. Also, sign-up for our RSS Feed for timely updates on other financial topics.

To celebrate the birth of our nation and the freedoms that we are afforded, I am writing three posts this week with a twist. Each post is based on an influential document which has given us rights.

On Monday, I outlined the Financial Declaration of Independence. Today’s post, based on the United States’ Bill of Rights, is the Financial Bill of Rights.

1. First Amendment – Freedom from debt, credit cards, and HELOCs
   We shall take out no unnecessary debt living beyond our means, which prohibits free exercise of other rights; or overspend through the use of credit cards; or enslave ourselves through the use of HELOCs; rather save the necessary sum to pay cash for wants and needs.
2. Second Amendment – Right to keep and have savings
   A well regulated Automatic Savings Plan, being necessary to the security of a financially free Family, the right to an Emergency Fund, shall not be infringed.
3. Third Amendment – Protection from bank failure through FDIC insurance
   No Investor shall, in time of peace place cash savings in any bank, without FDIC insurance, nor in time of war, but use multiple banks as necessary.
4. Fourth Amendment – Refusal of Interest Only and Adjustable Rate Mortgages
   The right of the people to be secure in their houses, condos, and town houses, against needless foreclosures and bankruptcies, shall not be violated, and no Interest Only or ARMs shall be issued, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
5. Fifth Amendment – Health, life, AD&D and LTD insurance
   No person shall be without Health insurance, or adequate Life insurance, sufficient for final expenses and income replacement, except in cases when no financial means to purchase insurance exists, while actively seeking new employment or other income source; nor shall any income producing person be without Accidental Death and Dismemberment insurance; nor shall any income producing person be without Long Term Disability, sufficient to replace 60% of the normal wage.
6. Sixth Amendment – Right to steady, growing mutual fund returns
   In all mutual fund investments, the investor shall enjoy the expectation of steady, growing returns, by careful fund selection based on principles of positive alpha, fair management fees, consistent performance, and passive management where appropriate; each fund consistent with a target asset allocation plan; to have compulsory purchases avoided and decisions based on sound investing principles.
7. Seventh Amendment – Consistent asset allocation by rebalancing
   In accordance with a predetermined asset allocation plan, where the values are determined through evaluation of your risk and investing objectives, the right of rebalancing, or realigning investments which have deviated from their allocation, shall be exercised, and no given investment, shall be allowed to overwhelm the returns of other investments, which may result in large, unexpected losses.
8. Eighth Amendment – Abolishment of excessive management fees
   Excessive management fees shall be avoided, nor 12b-1 fees paid, nor front end or back end loads paid.
9. Ninth Amendment – Protection of rights not specifically enumerated in credit card agreements
   Where credit cards are used, the enumeration in the Agreement, of certain rights, shall not be construed to deny or disparage others retained by the credit card account holder.
10. Tenth Amendment – Powers of spouses and family councils
    The powers delegated to the Head of Household by the Family, are reserved to the Spouses respectively, and decisions discussed in family council.

Signed this 30th day of June, 2010,

Adam Williams and the Rabbit Funds team

Sign the Financial Bill of Rights by leaving a comment in the comments section below and follow Rabbit Funds on Facebook for more great financial planning info.

As I reflected on the freedoms that I enjoy as a citizen of the United States, I realized that our forefathers would be sadden by the economic hardship which is self-imposed by overspending and enslaving ourselves through debt.

I therefore decided to alter the beginning of the Declaration of Independence, one of the most lasting and influential pieces of literature, to create a Financial Declaration of Independence.

Financial Declaration of Independence

When in the Course of our life’s events it becomes necessary to dissolve the bands of debt which have enslaved us and to assume among the powers of the earth, the financially free and secure station to which the Laws of Nature and of Nature’s God entitle us, an earnest and whole-hearted effort require that we should declare the causes which impel us to liberation.

We hold these truths to be self-evident, that all men are able to obtain financial freedom, that we are endowed by our Creator with certain unalienable Rights, that among these are Investments, Planning and the pursuit of Financial Security. “” That to secure these rights, Budgets are instituted among families, deriving their power from the mutually agreed upon savings and expenditures, “” That whenever any Form of Overspending becomes destructive of these ends, it is the Responsibility of the Family to alter or to abolish said overspending habits, and to institute new Attitudes and Habits, laying a foundation on such principles as Emergency Funds, Retirement Accounts, and Debt Reduction Plans and organizing its powers in such form, as to them shall seem most likely to effect their Financial Safety and Marital Happiness.

Prudence, indeed, will dictate that Budgets long established and effective should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to overspend, yet unsufferable evils that we ourselves must abolish are credit cards to which we are accustomed. And when a long train of abuses and indulgences, pursuing invariably an end design to reduce us under absolute Financial Slavery, it is our right, it is our duty, to throw off such Indulgences, and to provide new Guards such as Credit Card Destruction for our future financial security.

Signed on this 28th day of June, 2010,

Adam Williams and the Rabbit Funds Team

Join the Revolution

Join us in our revolution and sign this Financial Declaration of Indepence in the comments below!