5 Money Lessons For Preschoolers

Advertisers know our little ones are listening. Parents, put your 2 cents in now and start teaching basic financial management.

By Liz Pulliam Weston

Before we had our daughter, I thought financial education should begin somewhere in the grade-school years.

Clearly, I underestimated kids.

Our daughter, who's almost 5, has taught us that children are ready to learn about money as soon as they're old enough not to swallow it. And increasingly the evidence suggests that we shouldn't wait to begin teaching them.

Attempts to teach financial literacy to high-schoolers aren't working. The courses, which are sometimes touted as a cure for rampant money mismanagement in our society, don't seem to improve high-schoolers' money savvy at all, according to research by leading financial literacy expert Lewis Mandell, professor at SUNY Buffalo School of Management.

Even middle-schoolers are often resistant to messages that contradict the pervasive messages to consume that they get from advertising and their peers.

Catching kids younger, and instilling habits like saving, may be the key to money lessons that actually take.

"It may be more indoctrination than education," Mandell speculated. "They need to know things like, 'saving is good.'"

Advertisers certainly have no compunctions about targeting preschoolers, noted Sam X Renick, a former financial services executive whose company, It's a Habit, publishes money books and music for kids. Parents need to push back against those messages, he said, and teach kids the basics "before they're too cool" to listen.

Renick's Web site and the "Thrive by Five" resources offered by the Credit Union National Association are great places for parents to pick up ideas and resources for teaching preschoolers about money.

I've combined some of those lessons with my own experience to come up with these five money lessons your child should understand by kindergarten.

Money can be spent, saved and shared

The first concept -- that money can be used to buy things -- is the easiest of the bunch. Our daughter had it down by age 3 1/2, which is when we not coincidentally started her allowance (more on that later). It took a bit longer for her to grasp the concept of putting money aside to be spent later. And sharing … well, we're still working on that. It's mandatory in our household, but like peas, it's not much appreciated.

Piggybanks, by the way, can help with all these concepts. When she was 2 and delighted in stacking and naming coins, we gave her piggybanks with removable plugs so she could put money in and take it back out again. Now that she's a little older we use a Moonjar, which has sections for spending, saving and sharing, although I also like the four-section Money Savvy Pig as well as the Amazing Money Jar, which counts coins as they're deposited.

Saving should be a habit

Developmental experts agree that by the time most children are 4 or 5, you can teach them about saving by helping them put aside money for a goal, such as a toy they want to buy. (A savings chart can help.) But you can actually start instilling the habit of saving even earlier by simply making it mandatory: A portion of any money they get is put aside for "later."

As Renick's signature cartoon character, Sammy Rabbit, puts it: "Out of every dollar, save a dime." Having a specific goal isn't necessary; it's the habit of saving automatically that's important.

Once money is spent, it's gone

Kids naturally think of money as an ever-renewing resource. It's always sprouting out of their parents' wallets, isn't it? The idea that money is a finite resource starts with learning that a dollar spent is a dollar gone for good.

And the best way to teach that is to let kids spend money. Give them a buck at the dollar store, let them pick out something, let them pay for it. The first few times they may be surprised that they can't use the same dollar to buy something else, or that you won't cough up another buck if they change their minds after they've bought. Stick to your guns, though, and the message gets across.

People have to make choices with money

Since this a lesson many adults have a tough time learning, we shouldn't expect preschoolers to have a perfect grasp of it. But it's an extension of the money-is-finite concept that's essential to learn.

We're teaching this by giving our daughter a weekly allowance. She's allowed to select how she spends it, within limits. Once the money's gone she has to wait until the next week to get more. If she decides to blow it the first day on little rubber snakes -- and she often does -- that cool keychain she wants the next day has to be passed up. We're hoping to cut back to biweekly and then monthly payments as she gets older to give her more real-world experience in managing her money over time.

We also talk to her about how we choose to spend money: on fun vacations, for example, rather than on fancy cars.

Don't trust ads

This is another lesson that may take years to really sink in, but you want to at least plant the seed of skepticism in your little one. The first task will be simply distinguishing commercials from shows; a 2-year-old probably won't be able to tell them apart, but a 4-year-old probably can. (Ours has taken to shrieking "Commercial!" with equal parts horror and contempt when they come on.)

We've told her that commercials are designed to try to sell her stuff she doesn't really need and that probably isn't as neat as it's depicted. But mostly, we try to limit how many commercials she sees (thank heavens for DVDs and TiVo).

Teaching tips

As you're teaching, keep the following in mind:

- Keep it fun. Games, songs, coloring books and smiling piggybanks are great tools for teaching about money. So are discussions with your budding financial genius, but your tone should be light and conversational, not doom and gloom.

- Seize the teachable moments. Daily life offers all kinds of opportunities to talk about money. At the grocery store, you can talk about how you shop from a list to make sure you get the things you need and save money by not buying things you don't. At the bank, you can talk about how you put money into your account so you can get it out later to spend.

- Keep it simple. The older kids get, the more questions they'll ask about money -- and some of them will be stumpers. Try to keep your answers simple, and look for signs that the child's attention is wandering . . . you'll know lesson time is up.

Columns by Liz Pulliam Weston

The Rich Don't Save Either

The excuses are familiar: bills, unforeseen expenses, a desire for spending cash. Even Americans who earn $250,000 a year say it's hard to sock money away consistently.

By MarketWatch

The low to no savings rate in the United States extends to rich people too. It isn't just low- and middle-income people who find it difficult saving money -- people who earn a lot say they also have trouble stashing money away.

HSBC Bank reports on a new survey that savings barriers stretch across income levels.

"It's clear from this survey that savings hurdles transcend income levels, and that savings requires more discipline than we may realize, regardless of household income," said Kevin Martin, a senior vice president for HSBC Bank in the U.S. "The data revealed recurring bills get in the way of saving for the majority of households at both ends of the income spectrum."

As evidence, HSBC reports that people with more than $250,000 in household income, who constitute the top 1.5% of U.S. households, report facing many obstacles when it comes to saving. Indeed when HSBC asked what prevents them from saving more, the top answer was the need to pay everyday bills, with 34% of respondents of those who earn more than $250,000 concurring.

The savings rate in the United States dipped to zero in 2005 and has even fallen into negative territory, the first time since the Great Depression.

Financial advisers recommend that people keep three to six months or more of income in a savings account, depending on their financial circumstance. But when people don't save, and overspend in addition, a precarious financial circumstance evolves where even the slightest snafu in expenses can send them into defaults and bankruptcy.

Over the past two years, default rates on debt payments and bankruptcy rates have soared. Most recently, mortgage foreclosures have skyrocketed.

Control and awareness

It's sometimes assumed that wealthier people are somewhat sheltered from risk of foreclosure or bankruptcy. But just because the numbers may be bigger doesn't mean the financial circumstance may be better.

HSBC found that 49% of respondents with at least $250,000 in income aren't saving more because they simply "want some spending money." In 28% of the cases for those who earn between $100,000 and $250,000, respondents say they do not save more because "something unforeseen always comes up." And in nearly one in 10 situations, people who earn $250,000 or more say they aren't even earning "enough to make ends meet as it is."

Wow. Those statistics are great insight. The serious case of consumerism in the U.S. -- we spend more than twice as much as anyone else in any other country in the world on average per year -- may come back to bite if the economy slips and employment slows.

"Savings can be a challenge at any stage of your life," says HSBC's Martin. "Regardless of your income, financial status or age, saving does require a level of control and awareness."

It seems that awareness dims, however, with the more money you earn. More people who earn between $50,000 and $100,000 save consistently than people who earn between $200,000 and $250,000 per year, according to HSBC.

To be sure, there are other things to consider when examining the financial lives of higher income earners. For example, while people who earn more may not be saving more, they may have some type of an investment plan that acts as a surrogate for their savings account. That may be why 74% of people who earn more than $250,000 per year say they save consistently throughout the year. (They save most just before tax time.)

Still, investing aside, saving is a different thing altogether that doesn't always get its due. Talk of hedge funds, sophisticated trading techniques and hot stocks often obscures what should be the gateway to the investing world: the savings account. It shouldn't be minimized or taken for granted. It should be there when times get tough.

These days, I bet a lot more people wish they had a bigger savings account instead of a bigger house.

This article was reported and written by Thomas Kostigen for MarketWatch.

Capital Guaranteed Fund Explained

As an investor, you may have come across a Capital Guaranteed Fund. But do you know what it is, how it works and its risks and benefits? Commonly, a Capital Guaranteed Fund (CGF) is a unit trust fund with a limited lifespan, usually between three to five years, that is structured to guarantee investors of their investment capital at the maturity period of the fund. The main element of the CGF is its capital preservation feature. A CGF is usually guaranteed by guarantors and normally they are licensed financial institutions like banks or merchant banks with good credit ratings. These banks will receive guarantor fees in exchange of their guarantees. These fees will be borne by the investors of the CGF.

How does it work?

A CGF typically consists of three phases:


The guarantee factor
Let’s assume that you bought units in a CGF at an Initial Selling Price of RM0.50 per unit. The fund maturity period is three years. You invested RM5,000 in exchange of 10,000 CGF units. When the maturity date arrives, the net asset value of the funds is only RM0.40 per unit. Since it is a CGF, you will receive RM0.50 per unit when you redeem your fund, instead of RM0.40 per unit. Basically, the guarantor of the fund will pay for the RM0.10 difference. In this case you will receive RM5,000 after redeeming the 10,000 CGF units. Without the guarantee you would have lost RM1,000 and would only receive RM4,000 (excluding fees and charges).

However, if on the maturity date the net asset value per unit is RM0.60, the guarantee will not be triggered and the redemption value of each unit will then be based on the actual net asset value per unit of the fund. In this case, you will receive RM0.60 per unit rather than RM0.50. Therefore you will receive RM6,000 for redeeming your 10,000 CGF units (excluding fees and charges). Your profit is RM1,000.

Nonetheless, the guarantee is only applicable for units that are held until the Maturity Date in this example, three years. If the units are disposed before the Maturity Date, the guarantee will lapse and investors’ capital will no longer be guaranteed and will be exposed to potential capital lost. For some CGF, penalty will be imposed for early redemption. You must consider all these factors to ensure that investing in the CGF is consistent with your investment plan.

Risks and benefits

* Even though the SC’s Guidelines on Unit Trusts requires the guarantor to have a good credit rating from either domestic or global rating agency, there’s always the risk of default by the guarantor.

Capital preservation is the main feature of CGF but it should not be the sole basis for making your decision to invest in the product. Like any other investment products, CGF comes with investment risks too. Therefore, you should review your financial goals first and subsequently, evaluate the CGF offer thoroughly, to ensure that both are consistent before you invest. You should also review the fees structure of the CGF imposed by the manager of the fund, because these fees could affect your investment returns and will be deducted from your capital.

Source: Securities Industry Development Centre (SIDC)

Hedging Your Bets: A Heads Up on Hedge Funds and Funds of Hedge Funds

What are hedge funds?

Like mutual funds, hedge funds pool investors' money and invest those funds in financial instruments in an effort to make a positive return. Many hedge funds seek to profit in all kinds of markets by pursuing leveraging and other speculative investment practices that may increase the risk of investment loss.

Unlike mutual funds, however, hedge funds are not required to register with the SEC. Hedge funds typically issue securities in "private offerings" that are not registered with the SEC under the Securities Act of 1933. In addition, hedge funds are not required to make periodic reports under the Securities Exchange Act of 1934. But hedge funds are subject to the same prohibitions against fraud as are other market participants, and their managers have the same fiduciary duties as other investment advisers.

What are "funds of hedge funds?"

A fund of hedge funds is an investment company that invests in hedge funds -- rather than investing in individual securities. Some funds of hedge funds register their securities with the SEC. These funds of hedge funds must provide investors with a prospectus and must file certain reports quarterly with the SEC.

Note: Not all funds of hedge funds register with the SEC.

Many registered funds of hedge funds have much lower investment minimums (e.g., $25,000) than individual hedge funds. Thus, some investors that would be unable to invest in a hedge fund directly may be able to purchase shares of registered funds of hedge funds.

Source : U.S. Securities and Exchange Commission

Keeping Wealth Within The Family

The Chinese have a saying: “Wealth never survives three generations.” The West has something similar: “From shirtsleeves to shirtsleeves in three generations.” As with most proverbs, there may be more than a grain of truth to these. To kick off this two-part series, CIMB Private Banking and CIMB Trustee Services look at the dynamics behind this popular notion.

THE wealth cycle comprises wealth creation, enhancement, protection and distribution. However, we at CIMB Private Banking believe that many of the family-owned businesses and the rich in the country often neglect the last two aspects.

CIMB Investment Bank director and head of securities and trustee services Yap Huey Hoong, who oversees matters relating to trustee services such as succession and distribution, concurs with this view.

“Even if family business owners and the affluent pay attention to wealth preservation, it is usually only through traditional methods such as fixed deposits, savings accounts, properties, unit trust funds and life insurance. Unfortunately, this does not optimise the growth potential of their wealth,” she says.

Ignoring the protection and distribution of wealth may lead to a realisation of the popular notion that stems from the Chinese proverb, “Wealth never survives three generations.”

The saying reflects our forefathers’ observation that many wealthy families have seen their fortune dissipate as it is handed down over the course of three generations. It starts with the founder of the company who has worked hard and has lived frugally to build his business.

He sends his children – the second generation – to tertiary institutions to ensure that they are better equipped in life than he was. Accustomed to a life surrounded by wealth, the founder's grandchildren – the third generation – tend to fritter away the family fortune.

So, is this saying really just a myth? Is this rags-to-riches-and-back cycle in three generations inevitable or can it be overcome? Can families hold on to their wealth and businesses beyond three generations?

Yap points out that the proverb has been proven true very often as there are many real-life examples from around the world.

She says, “In Asia, the bulk of high net worth individuals are generally what is considered as ‘new wealth’. Many affluent Asian families are only beginning to progress from second to third generation. We have seen high-profile cases, ranging from family disputes to lawsuits, whereby family wealth has dissipated due to family differences.”

She, however, adds that there are also a handful of families who have broken through the third generation 'barrier' through proper estate and succession plans.

“The estate and succession plans are put in place well in advance to ensure that the family wealth and the reins of the family business are handed over to the following generations in an orderly manner,” she explains.

“Many family businesses and wealth do not survive due to two primary reasons – the lack of proper succession planning and the lack of a united family holding structure. As a family grows, this can lead to discord between the needs and interests of the business, and the expectations and requirements of family members.”

Survival of family wealth

Yap advocates the creation of a family holding structure, paired with a succession plan, as the key to the longevity of family wealth and business.

Imagine a founder with five children, who each has a spouse (or in some cases, several divorced spouses) and at least three children. We are thus looking at a family with more than 25 members, each with his own needs and family requirements, and who are all shareholders of the family business.

The different needs of these individuals and families are frequently at odds with the demands of the family business and wealth.

Says Yap, “Unless a proper succession plan is put in place, there will be too many fingers in the pie, with the family wealth being run by five siblings, or worse, a consortium of cousins and uncles.”

This disarray, she adds, may lead to family disputes that cause disharmony and eventually lead to the dissolution of the family business or even the dissipation of the wealth.

When family-run business continues to grow, one is likely to see more founder-children type of partnerships and even cousin consortiums. As the family expands, more people become involved, even if they have not worked directly in the business.

Hence, says Yap, their expectations are different and clashes erupt. The relatives who are silent partners or shareholders may only be concerned with their narrow interests when judging capital expenditure, growth or other major matters.

Those who are engaged in the daily operations will judge matters differently because they have a broader picture to consider. Furthermore, when the owner of the family business grows older, he may become more risk-averse and thus often hinders the growth of the business; this too may cause a rift among family members.

In addition, the second or third generation family members who run the business may not be as united or as driven as the founder. For example, cousins who are shareholders may want to cash out or may not have faith in the new management.

Sometimes, the founder will find himself in a dilemma when his daughter or maybe his niece has better business acumen than his oldest son. Who then should take over the business?

Hence, without any proper succession planning, says Yap, family businesses are unlikely to last past the third generation, as family members’ ownership and individual needs are so fragmented that it will be impossible to find consensus among family members.

Types Of Profit-Taking

The equity fund's performance is , however different compared to bond fund, as it volatile ups and downs are appropriate for certain pool of investors who are able to monitor the fund's performance and be disciplined in buying and selling at the right time. Also, those who wish to take advantage of cost averaging, purchase more units at a lower price while taking a position in redemption during an uptrend price.

Below are few ways how some investors can try approach:
Short-Term Profit-Taking
Buy during the uptrend price movement and sell higher.

Medium-Term Profit-Taking
Buy during the downtrend price movement and sell later.

Long-Term Profit-Taking
Buy during the downtrend as long as the price is below your last investment price or proven to have an affect on lowering your cost average. Hold to be sold later at a higher price.

Whither Stock Market?

The stock market witnessed a nerve-wrecking fall over the week. But investors can find comfort in that Malaysia’s fundamentals remain intact, writes TEE LIN SAY.

FAST and furious, aptly describes the selling of equities that took place in the market over the week. The key barometer, the composite index (CI) retraced 96 points to end the week at 1,191.55 points.

As of Thursday, the Dow closed at 12,861 points, only 0.03% higher from the start of the year. The main culprit is lingering credit fears in the US or what others dub as financial worries “made in USA”.

In Malaysia, one of the most battered would be stocks with high foreign shareholdings. Most market pundits say the broad-based play which everyone has enjoyed earlier in the year may be fading but what would be strategic at this point is to look at some of the choice picks that are undervalued.

If one were to look back, historically, market crashes in the US are followed by significant rises. The US has witnessed five market crashes precipitated by the oil embargo in the early 70s, the escalating rate rises in 1987, the Russian debt default in 1998, the dot-com bubble bursting in 2000 and the terrorist attacks on Sept 11, 2001.

Even so, it can be forgiven if investors are still feeling jittery. For isn't it a mass-scale approach in the market place that when stocks are soaring to record levels, investors are more eager to dive in to catch the rise but only far too less eager to fish when it hits its lows? That can largely be attributed to a single and most powerful factor in the marketplace – sentiments.

Even as much of the economic fundamentals of Malaysia remains sound, observers reckon that such optimism is being offset by worries in US, which has led to the global contagion currently unfolding; nearly every market has been pummelled.

Foreign funds in their bid to increase their liquidity are selling, hence the steep plunge in Asian markets. In times of a financial market shakeout, emerging markets are always the first to bear the brunt as foreigners flee to reduce their risk premium.

In search of answers

“At times like these, people look to see what went wrong, and search for all sorts of excuses. There is more selling than buying. And when it is hedge funds that are selling, it can be quite merciless,” says one research head.

The silver lining is that most market observers feel that it is a matter of time before the market recovers. Whether the triggers are internal or external, the stock market has always prevailed and risen higher after the catastrophe.

Valuation wise, stocks have never been in better positions. There’s nothing fundamentally wrong with the economy or the market – its external factors that are the issue now, and when this is the case, (which ever direction the market is heading), its most certainly at frenzied pace.

Prudential Fund Management Bhd correctly points out that it is easy for investors to lose sight of the bigger picture. “Most investors are so caught up in the credit concerns that they forget about the bigger picture, ie growth fundamentals remain strong,” it says, adding that subprime loans are a relatively small part of the US mortgage market (it provides these facts: The US residential real estate market is worth US$17 trillion; the residential mortgage market about US$10 trillion; and the subprime market about US$1.2 trillion).

It is for this reason that the fund management company says that this is probably why the Fed seems to believe that the issue will not cause a systemic crisis and that the process is a healthy one removing past excesses. “Hence, we remain bullish on the market.”

Areca Capital Sdn Bhd chief executive officer and executive director Danny Wong is still positive on the market over the 3 to 6 month period: “More so than before ... valuations wise, a lot of the stocks are trading at very attractive levels.”

Unpredictable forces

“What is happening now is purely driven by external factors. This will not affect earnings. I think it would be safe to look at cash rich companies with good earnings growth. For instance, some property companies have launched projects and have recorded high take up rates. Their unbilled sales is sustainable for over a year,” he says.

Yet, scouring for clarity in a market beaten down to unexpected lows has been hard coming. Most analysts and fund managers are non-plussed by the extent of the global contagion on equities and appear to prefer to keep their forecasts to themselves. “I don't think even the experts can tell you what to expect now, because they don't know. Nobody knows. People are anxious and are looking to reduce their positions,” says a research head.

But there's consensus that the markets will remain volatile for as long as the uncertainties over the US economic data and subprime mortgage woes persist.

“The US subprime problem is not a simple issue. It affects borrowers who do not have good credit ratings, I think the problem will drag on for awhile. I don't think this is anywhere near a global recession, but more of a temporary setback,” says an analyst, adding that while he sees a lot of value in Malaysian stocks at these levels, the sentiment appears to have been beaten down.

“The way markets are falling, it would appear as if there is expectation of bad news. Global markets are trying to deal with it, and of course, emerging markets which are considered more speculative, will always be more brutally hit,” he adds.

Wong says that what is going on now is beyond fundamentals. Currently, price movements of financial assets are driven by a combination of risk appetite and liquidity flow. However, ultimately the intrinsic value of the underlying financial assets will prevail and move the under-valued price to its real value. Therefore, he suggests that now may be an opportune time for investors to accumulate good value stocks.

Bet on long term

Clearly too, most market pundits are more eager to bet on the long-term outlook of the market – which is probably a wise move.

“We remain bullish on the market over the longer-term ... a buoyant economy for an early election ... rollout of projects under 9MP, expansionary fiscal budget, growth in the Iskandar Development Region and Northern Corridor Economic Region is likely to gather pace. Besides, more tax cut is expected in the next budget,” says Prudential Fund.

Wong echoes such sentiments: “For long-term investors, this is the advice. Tighten your belt through this roller coaster ride. Be prepared to go through the ups and downs and at the end of the day, you will benefit from better value.”

“If investors remain calm, and look back in the past 10 years, you will see that every year, there is always this sort of turbulence for about one or two months. But what happens after that? The market always goes higher. Whenever there is a dip, there is always a rebound,” he says.

Macquarie Research in a note on Aug 10 says that strong domestic growth drivers offer upside amid regional volatility.

“Nothing has changed China’s external imbalance. The renminbi needs to strengthen and that means growth will remain strong and shift toward the domestic sectors. For the rest of Asia, it means export demand will be boosted and currency appreciation will remain intact,”

It adds that Malaysia’s macroeconomic ranking remains at No. 1 in Asia, given its strong domestic demand underpinned by the RM200bil Ninth Malaysia Plan, and expected currency appreciation.

Furthermore, the ringgit also took a breather in the second quarter and early third quarter, and is set to resume its appreciating trajectory.

“On both a price earnings ratio and EV/EBITDA (enterprise value to earnings before interest, depreciation, tax and amortization basis), Malaysia is now cheaper. Whereas three months ago Malaysia was the second most expensive market after Singapore on both metrics, it is now cheaper than India, China and Japan,” says Macquarie.

Most People Ill-Prepared For Retirement

by Chan Shek Jan
newsdesk@thesundaily.com

KUALA LUMPUR: Retirement is an impending stage in life but most Malaysians are not aware of the amount of money they would need for their retirement and might be ill-prepared for it, a survey report revealed yesterday.

The Prudential Retire-Meter 2007 found that 79% of the 1,038 respondents polled said their health and well-being were the most important considerations during retirement. About 69% wanted to remain active and 51% planned to travel.

Despite these expectations, the survey found that more than 80% of the respondents were either indifferent or not worried if they would even have enough money to live throughout their retirement years.

Only 34% were consciously saving regularly for retirement and 60% had no clue how much exactly they would need for their sunset years.

About 60% of them said they would just save as much as they could and “hope” that they would have sufficient funds to cover their retirement needs.

“The Prudential Retire-Meter 2007 shows Malaysians clearly know what they want to do when they retire, but the majority are not actively planning their retirement,” Prudential Assurance Malaysia CEO Tan Kar Hor said at a press conference here yesterday.

The survey found that the lack of awareness was partly due to the reluctance of most Malaysians to discuss their savings or retirement plans with financial experts.

Only 11% were comfortable speaking to personal financial planners about their retirement needs, while 18% and 21% had no problems discussing them with insurance agents and bank representatives respectively.

Malaysians were also found to be conservative when it came to the types of investment tools they would use for retirement.

About 77% were relying heavily on low-yielding bank savings or fixed deposit accounts to accumulate wealth for their future retirement.
Only 35% admitted they were confident their EPF and personal savings would be enough for retirement.

Commissioned by Prudential Assurance Malaysia, the Retire-Meter survey was conducted by Synovate Malaysia and covered the Klang Valley, Penang, Ipoh, Johor Baru, Kuching and Kota Kinabalu.

The respondents were Malaysians aged 28 and above with a monthly household income of RM3,000 or higher.

Retirees were also among those polled and only 42% said they were confident that they had enough to cover all their retirement needs for the rest of their lives.

10 Bad Habits That Lead To Debt Disaster

Little things add up fast. Learn from these mistakes and try these tips to start paying off your debt.

By Bankrate.com

Sometimes the only way to stop a snowballing problem is to go back to the top of the hill and find out what started it.

If you're up to your eyeballs in credit card debt, take a step back and recount your money missteps. Knowing your weaknesses could help prevent you from falling back into the bad-credit pit and show you a way out.

According to Gail Cunningham, vice president of business relations at Consumer Credit Counseling Service of Greater Dallas, a nonprofit financial-management service, consumers mired in debt make common financial blunders, most of which they can prevent with discipline and behavior changes. Learn from these mistakes and start paying off your debt.

Bad Habit No. 1: Misusing balance transfers

Transferring balances on high-interest cards to lower-rate cards can be an effective technique, but it's easy to make it a good idea gone wrong. Transfer a balance onto a card with a low introductory rate and you can potentially save money on interest if you refrain from charging on it and focus on paying off the balance before that introductory rate expires. But most people continue to charge on the new card and wind up with more debt once the teaser rate expires, says Cunningham. In fact, new purchases may pull an altogether different interest rate. Read the fine print very carefully, and only attempt the balance-transfer maneuver if you can control your spending on the new -- and old -- card.

Try this: If you can't refrain from charging, balance transfers won't get you out of debt. If you're really in the hole, consider getting a part-time job and dedicating your earnings to your debt load. If that's not possible, go back to your budget and cut back on unnecessary expenses such as restaurant outings and cell phone extras. Put the money you save toward paying off your balances. Pay for new purchases with cash or a debit card.

Bad Habit No. 2: Not checking credit reports -- you can't change them anyway.

Wrong. If you have credit cards, pull your credit report at least once a year and check it for errors. Purging your record of inaccuracies can be crucial for getting better interest rates, landing the job you desire and stopping an identity thief from ruining your credit rating. Your credit report also affects your credit score, which determines how high your interest rates will be on future loans. Dispute anything you think should not be there. The Fair Credit Reporting Act allows for the correction or deletion of inaccurate, outdated or unverifiable information, provided that a reinvestigation into the disputed data sides in your favor. Unfortunately, negative but truthful data must stay put. A Chapter 7 bankruptcy filing, for instance, will remain on your credit report for 10 years, a Chapter 13 for seven years.

Try this: You can request one free copy here from each of the big three credit reporting bureaus, Experian, TransUnion and Equifax, every year. Why bother? Errors on your report, such as a payment marked late that came in on time, could raise your interest rates, lower your credit score and affect your ability to obtain credit in the future.

If you do find a mistake, send a correction letter to each of the credit bureaus that show the error. Experian allows you to dispute errors online, as do TransUnion and Equifax.

Don't bother with so-called credit-repair clinics that aim to charge you hundreds or thousands to fix your credit record. "Anything you can legally do to repair it you can legally do for free," says Cunningham. Of course, if you're not willing or dedicated enough to write those letters and follow up with the credit-reporting agencies, paying someone else to do it for you may not be such a bad idea. Better to have someone dispute the errors rather than no one. But be extremely careful in selecting such an organization -- try to get referrals and seek out others who have been satisfied with the service.

Bad Habit No. 3: Failing to alert creditors about a financial hardship

You heard the rumor: Layoffs are coming to a department near you next week.

Don't wait until it happens to worry about how to pay your bills. Do some damage control right away.

Try this: "The best time to negotiate is before the problem spirals downhill," says Cunningham. Call the credit card company and explain the problem you're about to have. Ask if they could temporarily lower your interest rate or extend your payment deadline. Some issuers have in-house help programs that provide such short-term services to customers.

Bad Habit No. 4: Thinking of 'budget' as a dirty word

The word may call to mind tedious self-trickery meant for those with low incomes, but everyone could benefit from deciding on certain amounts for spending, and sticking to the amount no matter what. It also makes sense to budget for known future expenses, such as quarterly insurance premiums, college textbooks and rent. Not saving up in advance means you'll have to charge expenses or cut into funds set aside for necessities. Budget these fixed costs while you can handle small financial pinches.

Try this: To find out what's draining your finances, keep track of where your money goes for a month. Use a spreadsheet, financial software or a pen and paper and categorize your expenses. Doing this will reveal whether you're spending too much on expenses you could trim, such as restaurant outings and gas. Then you can consider cooking at home more often or consolidating driving trips. Cut back as necessary without cutting out expenses important to you. Cunningham suggests that if you enjoy watching TV, but don't tune in to a majority of the 300-plus channels you have, consider cutting back on your cable package instead of cutting out TV altogether.

For a detailed household spending plan, try this home budget work sheet. Or, get help creating a budget with a budget calculator. (For a really simple budget, try the 60% Solution.) Plan for future costs by figuring out the total amount you'll owe and divide by the number of months you have until that day, says Cunningham. If you have money due next month, divide by the number of weeks you have and save that amount every week.

Bad Habit No. 5: Using retail store credit cards to make use of discounts

Chances are, that card carries a high interest rate you'll be forced to deal with if you don't pay off your balance each month.

Try this: If you must charge your purchase, use your general-purpose credit card, says Cunningham. If you can't pay off the balance, at least you'll pay a lower interest rate. Limit the total number of credit cards you have to just two, if you can: one you can pay off each month and one with a low interest rate for those large purchases you'll pay back over time.

Bad Habit No. 6: Procrastinating on creating an emergency fund

Learn to save for financial emergencies. Even if you feel robust and invincible, a single emergency room trip or car accident could force you to put large balances on credit cards, causing interest to accrue and more debt to pile up. "That rainy day will happen," Cunningham says. "It's not a matter of if, it's a matter of when." If your tire goes flat and you can't pay upfront for the replacement, for instance, you're stuck with charging it or reducing funds earmarked for necessities. That's where the emergency fund fits in.

Try this: Maintain an emergency fund of at least three to six months' worth of living expenses, and keep your insurance policies up to date. Work toward that goal by socking away 10% of your take-home pay each month in a liquid savings account, says Cunningham. If you receive a raise or bonus, add that money to savings. Since you're not used to the extra cash flow, you won't miss it.

Bad Habit No. 7: Paying bills in no particular order

While the order may not matter if you can pay all the balances, it will matter if you fall short one month. Say you pay off the balances on your credit cards first, then find you can't make the minimum on your house payment or monthly rent. You've put the roof over your head at risk.

Try this: "Pay for living expenses first," says Cunningham. After the house or rent payment, necessities such as utilities, groceries and medical care should top the priority list. Next comes the car payment -- you want to avoid repossession, obviously. On down the line, secured loans and co-signed debts follow in importance, then unsecured loans and credit cards. "Ideally, everyone can get paid, but if a choice has to be made, paying in this order will do a better job of keeping the home life stable."

Since bills often aren't due in this order, you'll need to work out a payment schedule and set aside money from each paycheck. See No. 9.

Bad Habit No. 8: Charging purchases instead of paying in cash or with a debit card

How many times have you charged services or merchandise when you had the money to pay with cash or debit? Insignificant purchases of $20 and $30 made several times over can quickly add up, particularly if you already carry a balance. Balances you can't pay off each month mean paying interest charges and, subsequently, more money for items you could have bought outright, interest-free.

Try this: Make a habit of paying for purchases under $50 with cash, debit or check. Knowing that the money has to clear the bank sooner could help curb your spending habits. Just be sure to check your balance regularly to ensure that you have enough funds.

Bad Habit No. 9: Making credit payments late

After all, it's only a $39 late fee. Besides wasting money you could've put toward the balance, a payment that arrives at least 30 days past due can throw your account into default and triple your interest rate. Plus, other creditors may start charging you a default interest rate as well, thanks to a universal default clause buried in your contract.

"Creditors are constantly reviewing your credit activity, and if they see you falling behind with one creditor, even if you have a perfect payment history with them, they can raise your interest rate," Cunningham says.

Try this: On a calendar, mark upcoming paydays and payments that should come out of that paycheck, she says. If you're mailing payments, send them seven to 10 business days in advance. Better yet, sign up for online bill pay. Just check that the address on file and the address on the statement match, or the payment might not arrive on time. If you're still late, call the creditor, explain the situation and ask them to forgive the late fee. Check your credit report and be sure the information shows up correctly.

Bad Habit No. 10: Making the minimum payment only

Paying the minimum is better than paying nothing, but it doesn't do much to pay off most balances and forces you to keep paying interest. By paying interest on interest, you lose any savings from buying a dress on sale, Cunningham says.

Try this: If you can afford to pay more or in full, go ahead and pay as much of the balance as you can. You never know when you're going to have a tough month. Pay in full every month and you can avoid interest charges altogether.

Or, if paying more than the minimum proves difficult, consider working an extra part-time job or decreasing your expenses -- or both, says Cunningham. Put all of your extra earnings toward the debt. Use the minimum payment calculator to see how much you're saving in interest charges.

By Leslie Hunt, Bankrate.com

Choosing Mr. Right Fund

Making the right choice and taking the plunge can be a daunting task. However, investing does not have to be difficult or unnecessarily complicated! Having the privilege of choices means investors are ultimately responsible for their choices.

Most investment-related materials usually carry the disclaimers implying the needs for investors to understand the instrument, risk involved, investment objective and small print.

Here are things to look out for if you fall into the following groups:

If you are a conservative investor
Fixed Income/Money Market Funds
For the cautious investor, these types of funds offer portfolio stability or minimal portfolio volatility, compared to an equity fund whilst seeking to provide a moderate and consistent income stream over the mid to long-term. Such funds are suitable for conservative investors seeking instruments that may outperform fixed deposits.

If you are a medium/moderate risk taker
Mixed Asset Class Income/Balanced Funds
These funds tend to have a mixed portfolio suitable for investors who prefer more stable investment returns or who are relatively conservative with a bias towards receiving regular income and meaningful medium long term capital growth. These funds invest primary in fixed income instruments that provide regular income as well as in high dividend yielding stocks to enhance income and returns on the fund.

If you are high/aggressive risk taker
Equity Fund and Most Offshore Funds
Equity funds can be equated to growth type funds which are suitable for investors who can tolerate fairly high risk levels to achieve their objective of capital growth, ideally over the mid to long-term. As with all investments, higher risk investments with higher portfolio volatility may potentially yield higher returns.

Is Eating Out Cheaper Than Cooking?

Americans are dining in restaurants more than ever, and with eateries trying to hold the line on prices, it's not necessarily a big money-saver to buy your own groceries.

By Christian Science Monitor

By the time he's driven to the farmers market, bought the organic veggies and spent an hour cooking a meal for himself and his wife, Mark Chernesky figures he's spent $30.

That's why recently, after fighting rush hour, the Atlanta multimedia coordinator dashed in to Figo, a pasta place, for hand-stuffed ravioli slathered with puttanesca sauce. "I'll get out of here for $17 plus tip," he said.

Crunch the numbers, and across America the refrain is the same: Eating out is the new eating in. Even with wages stagnant, time-strapped workers are abandoning the family kitchen in droves.

"When I add my hourly rate, the time to cook at home, I can instead take my family out to dinner, and it comes out pretty even," said Paul Howard, a manager-instructor at Café Laura, a restaurant run by college students at Pennsylvania State University in University Park, Pa.

Yet restaurants contend with concerns about poor service as well as oversize portions, which contribute to the expanding waistlines of Americans. And some Americans still find that cooking their own food at home is less expensive than going out.

But many are choosing to eat out because they don't have time to cook for themselves or their families. For example, 60% of mothers work outside the home. Leaving Mom's family table for plasma-TV plastered lounges is also about the capitalism of the kitchen: Restaurateurs are absorbing rising food and gas costs to keep menu prices low.

For the first time this year, American restaurants will bring in above a half-trillion dollars in total sales, according to the National Restaurant Association. The U.S. has about 925,000 restaurants, and at least 8,000 are added each year.

Restaurant-association surveys indicate diners increasingly view restaurants as extensions of their own homes, and a large percentage would like to see table-top televisions installed at their favorite eating joints. In the next decade, more than half the average household food budget will be spent on meals bought outside the home, compared with 25% in 1955, the association reports.

Restaurants 'essential' to daily life

"The restaurant industry has become more essential to consumer daily lifestyles than at any point in history," said Hudson Riehle, the restaurant association's senior vice president of research.

For Leah McAllister, an advertising representative who lives near Atlanta, the rigors of work and family contribute to her decision to eat out frequently. On a recent night, she pushed her baby toward Taqueria del Sol, a Mexican eatery in downtown Decatur, Ga., for a plate of Memphis tacos.

Within a block, she had other options, including tsukemono vegetables at Sushi Avenue, rock-shrimp tacos at the Key West Fish House and organic Sonoma duck breast for $15 at the Supper Club.

The biggest reason for the shift in her lifestyle: grocery-store prices. Just the other day, she paid $8 for a package of chicken wings and was shocked that they cost so much. "I was raised that everyone came home and ate around the family table, but now we eat out at least three times a week," McAllister said. "It's easier, and sometimes it's cheaper."

Despite all the money Americans spend on eating out, restaurants' profit margins are below 5%, the National Restaurant Association says. A dearth of new cooks and waiters has meant the end of many eateries. But cutthroat competition among restaurants has helped them produce good food at low prices, experts say.

"Restaurants aren't winning on their sophistication of pricing -- they're winning on their ability to deliver value," said Mark Bergen, a pricing specialist at the Carlson School of Management at the University of Minnesota. "Simply put, restaurants are more efficient than you are."

Restaurant food costs went up more than 5% from the previous year in 2003 and 2004. Yet entrees stayed at much the same prices. Restaurants quietly raised prices for appetizers, alcohol and desserts. Bundling and hard-selling specials are other tactics that focus on high-margin items. The industry, too, is using automation techniques to keep costs low: Computers keep track of traffic and beep to tell managers when to send employees home.

But restaurants have been tackling their share of problems. Most turn over more than their entire staff each year, a rate that has contributed to a decline in service over the past 10 years, experts say.

Weight problems linked to restaurant meals

Eating out is also considered a major cause of obesity in America, according to a recent report by the U.S. Food and Drug Administration. The report helped prompt New York City's health department to announce a plan to ban unhealthful trans fats from city kitchens. The plan also makes restaurants with standard menus list calorie counts of items.

Even as restaurants continue to add menu items that are fewer in calories and healthier, bold changes have failed, experts say. Ruby Tuesday restaurants recently reduced portion sizes, which patrons panned.

"Portion size is a huge issue," said Howard, of Penn State's Café Laura. "Society and research is saying we eat too much, but when you try to come up with (smaller) portions, customers hate it."

The fact that restaurant meals are favored over homemade dinners bothers some. Martin Shehan of Quail Valley, Calif., is not convinced that eating in is just as expensive as eating at restaurants. The economics of a slab of salmon on the grill disproves that, he said.

"My philosophy is, if it's not in the freezer, you can't eat it," Shehan said. "That's how I raised my kids, but these days I notice they eat out a lot, too. It's this cell-phone generation that's too busy to cook."

By Patrik Jonsson, The Christian Science Monitor