Emergency situations often catch people off guard and leave them feeling devastated.  From financial difficulties incurred from a layoff or an unforeseen medical expense to fires and natural disasters, one thing is certain.  Without a rock solid back-up plan, the chances of your family weathering a storm are next to zero.

So, what do you do to prepare yourself for the unexpected?  You open the doors of communication with your partner and you come up with a way to get out of any pickle you might find yourself in.  This might sound easier said than done but it is of vital necessity.

Preparing for future scenarios, although scary, can help your family survive the harshest conditions yet.  The following advice has been collected from books written on the topic of survival.  The situations described throughout the article may or may not apply to you and your lifestyle.  Nonetheless, it never hurts to be prepared.  In fact, the safety and security of your family may one day be dependent on your ability to adapt to a stressful situation.

Financial Devastation and Dealing with Joblessness

It isn’t a secret that today’s economy is a far cry from what it used to be.  Joblessness is a concern of every American pounding the pavement.  Unemployment benefits, although useful, are often not enough to save your home from foreclosure or your vehicle from be repossessed.  It is seldom enough to put food on the table and warm clothes on the backs of your children.  With that being said, you should start now by putting your budget on a diet. Couple that with building an emergency fund that can get you through a few months can go a long way in keeping you afloat.

You do this one of two ways.  You either increase the income coming into your home by taking on a part-time job or selling things around your home or you cut back on unnecessary expenses.  The latter is the more likely scenario as finding work is difficult in even the most plentiful cities.  Make it your mission to save as much of your paycheck as you possibly can.  Get creative.  Use coupons when you grocery shop and bank the savings.  Get to know the free section of Craigslist and sign-up for notifications from Freecycle.  Repeat the following mantra, “When in doubt, do without.”  Before you know it, your newly found thrifty lifestyle will allow you to maximize your savings and prepare for the worst.

Natural Disasters and Other Forms of Devastation

I recently read two good books on survival that I would like to recommend.  Cody Lundin’s When All Hell Breaks Loose and Kathy Harrison’s Just In Case: How To Be Self-Sufficient When the Unexpected Happens. Both books offer practical advice on how to secure food, water, and shelter during unforeseen events like natural disasters, pandemic breakouts, and power failures.

The underlying theme of each book is that families should be self-sufficient.  Chapters concerning preservation are incredibly helpful.  Step-by-step instructions on how to purify water, unfreeze pipes, locate shelter, and protect your most precious assets are worth looking into.

Disaster strikes when you least expect it.  Prepare yourself for the worst by hoping for the best.  A positive attitude coupled with knowledge and determination can help you get through the toughest of times.

Charissa Arsaoui is a freelance writer for ChickSpeak, Buzzine, DisFUNKshion Magazine, Student Stuff, and a guest contributor for Wisebread.  She loves thrift related topics and can spot a bargain a mile away.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Emergency Preparedness: How Does Your Family Rate?

Social Media is Fun, But if You’re Not Careful it Can Cost You

Everybody seems to be jumping on the social media bandwagon these days and in just a few short years sites like Facebook and Twitter have hundreds of millions of users. Most people are aware of the fact that the things you talk about on these sites can often be viewed by a lot of people, so other than the occasional embarrassing photo getting out, most users refrain from posting detailed financial information for obvious reasons. But did you know that even if you aren’t posting your bank or credit card account information you can still be hurt financially by using social media sites?

Some are obvious, like not posting your bank account information online or badmouthing your boss, but there are a number of things that can come back to haunt you even if you feel as if you’re taking care of your online presence. Here are a few reasons why you need to be extra careful.

1. Employment

Employers are now using social media sites to check up on both current employees and prospective new hires. All they have to do is use Google to find your page on Facebook, MySpace, Twitter, or almost anywhere else. They will take a look at what you post on those sites and it can come back to haunt you if you post something they would disapprove of. In the past you just had to worry about keeping updated job skills and a clean resume, but things have changed.

Remember the famous incidents such as the infamous KFC Girls who took a bath in the restaurant sink or the Florida sheriff’s deputy who admitted his drinking problem and fascination with breasts on his MySpace page? These are some of the more extreme examples and I know most people wouldn’t go this far, but you don’t have to do something that outrageous to have it hurt your job prospects.
Especially if you’re trying to get a new job, just posting things that may even remotely cast a negative light on you, your personality, or work ethic can keep you from getting a job. If they don’t like what they find on your Facebook or Twitter, they won’t even hire you. If your current employer catches wind of a comment you made about your job, co-workers, or supervisor, it could lead to losing your job or be enough to keep you from getting a promotion or raise when the time comes.

To make matters worse, the very nature of these sites mean something you post could go viral, meaning that the entire world can hear about it. A random outburst, an embarrassing photo, or anything can spread across the web reaching millions and haunt your prospective employment opportunities forever. That picture of you with the lampshade on your head at the Christmas party might end up biting you somewhere besides your head.

Think twice about what you do on social media sites and understand that everything you say can have a huge financial impact on your life for years to come.

2. Tax and Debt Collection

While hurting your employment picture may pose a problem, there are new methods being used to hunt down people who aren’t paying their fair share. The IRS and debt collectors are scouring social media sites. If you’re cheating on your taxes or trying to escape a debt, the last thing you want to do is bring attention to it online even if you think only your friends are listening. In Minnesota, the IRS levied back taxes on the wages of a man who announced on his MySpace that he was moving back to his hometown as a real estate agent, and gave his employer’s name. So, the state was able to collect those back taxes by garnishing his wages. Oops.

Even if you aren’t trying to run from the IRS or debt collectors you should refrain from bragging about your financial situation. If you’re getting a significant tax break or talking about freelance income that you may not be fully reporting you’re opening yourself up for an audit.

It isn’t just people looking to get money from you that are watching. Insurers are also getting in on the act. If you’re collecting on a disability or any other insurance claim, don’t give the insurance companies any ammo that could prove otherwise. You may not deliberately be trying to commit insurance fraud, but even a slight embellishment can be a big problem.

3. Friends and Family

Most people use social media to keep up with friends and family. That’s great, but think about what you’re saying on there that you might not say in real life. Making a good money or get a raise and want to brag about it on Facebook? Don’t be surprised if friends and family start looking for you to pick up the check when you’re out to eat. Not only that, but if you come across as having money you could have relatives that are in need coming to you for help, and those requests are hard to resist. At the very least, they may ask you to co-sign a loan with them, which can mean big trouble for your credit if they don’t pay.

Another big mistake is when spouses aren’t completely honest with each other about money. You might think telling your girlfriends on Twitter about the new $300 purse you bought was a great deal, but when your husband finds out about your purchase online instead of from you directly you can probably expect an argument.

Be smart. If you wouldn’t say something to your friends over dinner, don’t say it online for the entire world to hear.

4. Online Scams

In the past, email was the preferred method of scamming people online. You know, the Nigerian prince who left you millions of dollars, fake online lotteries, and people posing as friends in need. Most of us wised up pretty quick when it comes to our inboxes, but now people are targeting social media sites.

There are Facebook viruses and people posting fake contests on Twitter every day, and it’s easy to get caught up in these scams. Sometimes they aren’t as blatant asking you to send money to some offshore bank account, but the information they can obtain from you just by clicking on a link can be devastating.

Even if you aren’t scammed out of money directly, the repercussions can go far beyond that. A hacker could take over your account and start posting messages as if they were coming from you. This could lure friends and family who may not be as savvy and they could wind up in trouble. Even worse, the remarks this person makes could scar your online identity forever, leading us back to the employment problem mentioned in the beginning.

5. Advertising

Finally, the world of advertising is changing. It’s not just about TV commercials and magazine ads any longer. Instead, you’re being peppered with ads on all of the social sites you visit. What makes this dangerous is that these sites know you and what you like, therefore giving you very targeted ads. In the past you may have flipped through a magazine only to find one or two products that really pertained to you. Now, almost every ad you see is being shown for a reason and you’re getting different ads than your friend who might be sitting in just the other room.

For instance, If you’re interested in sports, you’ll often see ads from sporting goods companies. It may go one step further and if you visit a lot of golf sites you may see nothing but golf ads. They’re startlingly effective. If you have a soft spot for a particular type of product and you’re getting bombarded with these targeted ads on a daily basis it can be hard to resist the urge. This can be costly.

Wrapping Up

In closing, it’s important to utilize these sites the best you can, but you do have to be careful and consider how it will affect your bottom line. From the completely benign new ads that you’re seeing online to the obvious mistakes where you talk about how drunk you got on a work night, these sites can prove costly if you’re not careful. Treat these sites like you would any other real social interaction. Behave online how you’d behave in person and project the right image on these social media sites.

All that being said, you can follow me on Twitter or follow this blog on Facebook.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

5 Ways Social Media Can Cost You Money

Saving money. It’s something everyone knows they should do. So why does it seem so difficult to get started? The fact is everyone has to start somewhere, and starting is the hardest part. Having liquid savings is something that might impact you in ways you hadn’t thought of.

We all know how important having an emergency savings is in an emergency, but think of the decrease in stress when you have some money set aside. Think of the discipline and confidence you’ll gain in making a savings plan and sticking to it. If the worst happens and you lose your job, money in the bank is the difference between living off of high interest credit cards and having a safety net to pay your bills. A savings account is the first step to building a better financial future for you and your loved ones.

Why People Save

The uncertainty of living paycheck to paycheck is a real fear that affects millions of Americans, especially with the volatile economy and job market in recent years. Money in the bank is peace of mind, something that won’t fluctuate if the market crashes or the economy sours. Whether it’s for an emergency fund, saving for a vacation, or buying a home, a savings account should be a priority on everyone’s financial “to-do” list. Think of savings as a way of paying yourself first. People are used to paying bills, and a savings account is no different. Think of your monthly savings goal as a bill that has to be paid just like any other. If your cell phone bill is $100/month do you always find a way to pay it? Of course. So if your goal is to put $100/month into a savings account you should treat it like a bill and make sure it gets paid!

How to Start Saving Money

The first step is to set up a savings account. Whether it’s online or at a physical bank down the road, don’t get overwhelmed with all the options. Pick an account that has minimal fees, no minimum balance, and if possible, a decent interest rate to start. Rates are low right now, so if you find an account that doesn’t have fees you’re already ahead of the game.

Opening up an account with an online bank is usually the quickest and easiest way to get started. The application process can be done 24 hours a day and usually only takes a few minutes. You can usually fund the account with a small opening deposit (usually around $50, though some banks require a little more or less) transferred instantly from your existing checking account. Once your savings account is linked up with one of your existing accounts transferring money is as easy as a click as a mouse. In fact, you can even set up scheduled and recurring deposits so that it’s all done automatically.

If you’d prefer to go in person it’s still a simple process that should take less than 30 minutes. You can stop into any branch office of your existing bank or a new one and let them know you’d like to open an account. In the end it doesn’t matter so much where you bank as it does just setting up an account somewhere and actually putting it to work.

Building Your Savings

Once the savings account is set up it’s time to start focusing on building your savings. The most intimidating part of beginning to save money usually stems from looking at the big picture before focusing on smaller goals so that you know what you’re up against. Financial professionals often recommend having 3 to 6 months of emergency expenses in savings. That’s a big chunk of cash and most people are not going to be able to save that kind of money in a short amount of time, and no one expects you to. This is the big picture so don’t try to bite it all off at once.

Instead, break your goals into smaller, more sizable benchmarks. Try having 10% of your salary direct deposited into your savings account. Direct deposit means you won’t see the money hit your checking account first, and therefore will probably be less inclined to spend it. If 10% is too much to start with, begin with 5% and increase the percentage by 1% every three to four months. If you receive your paychecks via paper check, discipline yourself to taking a percentage of that check and physically depositing or transferring the equivalent amount into your savings whenever you get paid.

Don’t get discouraged in the first few months. Remember, if you’re depositing just small amounts and earning little interest it won’t seem like you’re making progress, but you are!  Periodically, check your progress to make sure you’ve been saving as much as you should. The goal doesn’t have to be a dollar amount, but every quarter or every six months, make sure you’ve been keeping up on your savings plan. This can be as informal as a simple spreadsheet to as detailed as you want by managing your accounts in something like Quicken. Tweak your progress periodically to reinforce your savings goals or plan for upcoming expenses. If you receive a bonus, put the same percentage straight into your savings account. Remember, pay yourself when you receive income, whether from a gift, a bonus, side income, or tax refund. Continuing to reinforce the pattern of saving only puts you closer and closer to meeting your goals.

Stay on Track Once You Start

Keep yourself on track with your saving and the rewards will be tremendous. The biggest thing is to keep from getting discouraged. Most people take years to build up a savings fund, and having a small amount of money in the bank is better than having none at all. It’s easy to feel like saving just $20/week or something isn’t doing any good, but remember that you’re setting a plan in place that will likely take a few years to reach your goals. It’s a marathon, not a sprint.

Eventually, you’ll check your progress and be amazed at how those small steps towards saving have turned into a sizable balance in your savings account. It takes discipline, patience, and maybe even some steps towards more frugal living, but the rewards of building a cash cushion will be well worth it. The peace of mind of having a savings account is, in a word, priceless. So, what are you waiting for? Open a high-yield online savings with no fees and no minimum today!

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

The Importance of Creating a Savings Account

Graduating from high school or college is a big deal. It’s a point in your life where you embark on a new journey that carries more responsibility and begin taking actions that determine your future. Becoming financially responsible is one of the new challenges you’ll face and it will be important to your success for the rest of your life. You will need to learn how to handle your money, build a healthy credit history from the start and hit the ground running in your new career. Start life on the right foot by becoming financially responsible with these 9 financial tips after graduation.

1. Think Long and Hard Before Using Credit Cards

Young adults are the largest population targeted by credit card companies. They prey on young college students who are broke and in need of money fast. There are often promotions thrown in with the application of a new card, such as a free gas card or other gift certificates that lure students in. Credit cards may seem intriguing at first, but are one of the quickest ways to get yourself in a lot of debt without even realizing it. Although there usually is a 0% APR promotional period, the interest rate quickly goes up after a few months, accruing even more debt on all the unpaid debt on your card.

If you do want a credit card you should get one with the intention that it will either be used for emergencies only or that you will keep a card with a low credit limit and get into the habit of making small purchases and then paying them off in full each month.

2. Student Loans: Borrow Only What You Need

Many college students graduate with a heap of student loan debt. While student loans are an excellent way to pay for higher education and school supplies, it  can also be a tempting way to use a little extra cash for things like partying and eating out. If you are a high school graduate, do yourself a favor and only borrow as much student loan money that you absolutely need. Acceptable needs include tuition, books and supplies and housing. If you stick to student loans for the real school necessities, you will be grateful you did so after graduation. You still may have a lot of debt to repay, but at least you know it didn’t go to waste and you won’t be paying for that keg party until you’re 40 years old.

3. Repaying Student Loans

If you are a college graduate and now have student loans to repay, you will more than likely have a 6 month grace period from the time of graduation to start the repayment process. With a difficult job market it can take some time to find suitable work so that you can begin making those payments, but don’t fret. There are programs in place that can help minimize the burden of repaying student loans if you’re out of work. Also, many lenders offer to lower your interest rate if you make timely payments and utilize the automatic bill payment option.

Certain professions, such as teaching and others in non-profit agencies can sometimes apply to have a portion of their student loans forgiven. Find out if your student loan center participates in any incentive programs you can take advantage of to make loan repayment easier.

4. Take Care of Your Taxes

Young adults may be getting jobs for the first time and are unaware of how important taxes are. Many think they can get away with not filing for their taxes and reporting their earnings for the year simply because they didn’t make much. This can really get you in a lot of trouble in the long run and cost you money. Do yourself a favor and begin learning about taxes as soon as you can. Learn what documents to keep, how to adjust your tax withholding, and be aware of the tax filing deadline.

5. Set up an Emergency Fund

Young adults typically have the benefit of not being burdened by a ton of debt or financial responsibilities, but this changes rapidly once you set out on your own. Start now by setting up an emergency fund. Cars need repairs, accidents happen, and if you lose your job you’ll still have bills to pay. Open up a high-interest savings account and put aside 5-10% of every paycheck. It might not seem like a big deal now, but when you’re faced with even a small financial crisis in the future you’ll be glad you put a little money aside for this very reason.

6. Establish Good Credit

Whether you like it or not, your credit history will be following you around for the rest of your life. Things like paying rent on time, paying your car payment on time and even having a few credit cards can all result in a good credit history. As good as those things are, just missing a single payment can be a black eye on your credit history for up to seven years. Earlier we mentioned being wary of credit cards, which isn’t the same as not getting one all together. If you are absolutely sure you are financially responsible, using a credit card can be an excellent way to establish credit for the first time. You can use it only in emergency situations or on certain purchases such as paying for gas, but always pay your bill on time and you’ll have the makings of a solid credit history.

You may not think a credit score or your credit history is all that important until it comes time to find a mortgage or something which may be many years down the road, but times are changing. Now, even some employers are basing who they hire partially on credit history! And don’t forget, even when renting an apartment or getting a cell phone is going to run a credit check and a poor score may prevent you from getting either or at the very least require a larger deposit than you’d have to pay otherwise.

7. Keep track of your finances

You may be thinking that after graduation you will find a great job that will pay a lot of money and everything will just fall into place. You’ll make enough money that the idea of budgeting seems unimportant. Wrong. You can live paycheck to paycheck on a six-figure income as easily as you can on minimum wage. It’s all about being aware of where you are spending your money and how much you are spending. It is OK to treat yourself once in awhile to a fun time, but you should be budgeting that into your finances so you know exactly what you can afford.

8. Take Care of Your Health

While this might not seem like a major financial concern on the surface, it’s actually a big one. Paying for health related issues is one of the largest expenses for most Americans, especially those without health insurance. Choose healthy foods, exercise regularly and see the doctor and dentist on a regular basis. If you are no longer covered under your parent’s health insurance you’ll want to investigate your own coverage. Insurance can be expensive, but not having insurance at all when you end up needing expensive treatment can literally push you to bankruptcy.

9. Invest Some Money

Hopefully you took the advice above about putting a little money aside for an emergency fund, but the saving doesn’t stop there. You need to start preparing for the future and for most of us that means retirement. It may seem like it’s still an eternity away, but time is one of your greatest investment tools. Compound interest is nothing short of magic but the key is giving it enough time to work. Even if you can’t afford to save and invest much, just save something. If your new job has a 401(k) available you should take part in that, but at the very least you’ll want to open an IRA and tuck a little money away for your eventual retirement. You’ll be thanking yourself in 40 years because you’re mistaken if you think Social Security benefits will be enough to live on, if you receive any benefits at all!

Summary

This is an exciting time of life for a young adult and there’s a lot to think about. As a young adult, now is the best time to take charge of your financial future. Take care of yourself and your finances now as to avoid complications in the future. Remember, the decisions you make with your money at 20 may provide tremendous wealth in the decades to come, or they may haunt you for the rest of your life. It’s up to you to make the right choices.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

9 Financial Tips for New Graduates

These Money Problems Can Prevent You From Building Wealth

Building wealth is a part of the American Dream. We’re told that through hard work and seizing opportunities we can lead successful, healthy, and wealthy lives. But building wealth isn’t important just for the sake of having money. In fact, it’s almost a requirement these days if you want to fully retire at some point. Social Security won’t provide much of a retirement. Your kids may not be able to afford college on their own, and there’s a good chance that health care costs can wipe out even a decent nest egg during your golden years.

Since building wealth is so important for our future why is it that most people still find themselves under a mountain of debt or end up retiring broke and unhappy? It isn’t just luck. Sure, in the game of life luck does play a part, but most of the outcomes in life are directly attributable to the choices you make and financial decisions are no different. If you make smart decisions with your money your odds of success lean in your favor. Make poor decisions and you put yourself behind the 8-ball. Here are seven of the biggest money problems and mistakes most people make and if you can avoid making these mistakes you’re on the fast track toward building wealth.

1. Buying More House Than You Can Afford

This is the granddaddy of them all. For generations we’ve been told that owning a home is how you build wealth. The reasoning was simple: you buy a house, live in it for a few decades, and sell it for a large profit since it appreciated in value. For the Baby Boomers and their parents this was a reasonable expectation. People did not move around as much, had steady employment with a company, and they held on to their homes long enough that it was almost unheard of to not make money when selling your home. For our generation, things are different.

Generation X and Y are mobile creatures. Gone are the days of company loyalty and staying with the same employer for 30 years so you can retire with a big pension and a gold watch. No, today people are on their own and have to do what’s best for themselves and their families. This often means frequently changing jobs, moving, or even losing a job and being forced to look elsewhere. This means people aren’t staying in their homes nearly as long as they used to. And guess what that means? The less time you live in your home the less equity you build. The less equity you have the more likely that when you sell you’re going to be put into a position where there is little or no money to be made and it could even cost you significantly as we’ve seen in recent years.

Factor in the above chances in home ownership with the fact that banks are often willing to lend more money than you can realistically afford and you’ve created the perfect wealth destroyer. Owning a home used to mean building value and adding to your net worth, but these days more people are finding that owning a home is nothing more than a large monthly payment. Make sure you’re buying a home for the right reasons so you can avoid the next housing bubble, otherwise you could be making one of the costliest financial mistakes of your life.

2. Having a Vehicle Fetish

If you’re like most Americans you probably spend a good deal of your time driving to and from work. Thanks to the way our country and cities were built this is how most of us have to live and that means having a car (or two or three). The downside is that owning a vehicle is an expensive proposition. First, you have to buy a car, but the expenses don’t stop there. Even after putting out thousands of dollars for the vehicle itself you’re left with filling it with gas. Then you have to get regular oil changes and perform routine maintenance. And let’s not forget about insurance. Oh, and those flat tires and unexpected repairs can be costly as well. All said and done, the average person will spend over $500,000 on vehicle expenses over their lifetime. No, seriously. Most people end up spending more on their cars than they have in their retirement account by the time they are 65. Think about it.

So, don’t make the same mistake many vehicle owners are. Most of the people you see driving around $70,000 luxury SUVs are not as wealthy as their vehicle leads you to believe. Their car is likely making them poor and they probably have little more than a bunch of monthly payments that still has them living paycheck to paycheck. Buying new vs. used can be one mistake, but it goes beyond that. Spending more money on a nice vehicle leads to more interest being paid when financing, costly maintenance, and higher car insurance  premiums. To make matters worse, these are all costs associated with a depreciating asset! You will continue to throw money at something that becomes worth less every single day. I may not be a mathematician, but even I know that isn’t how you build wealth. Let fools be easily parted from their money as they sink it into hunks of plastic and steel. You can find a better use for your hard-earned money, can’t you?

3. Letting Your Money Trickle Away

We all know that big purchases can be costly, but it’s the little things that can kill you. You need to plug your money leaks if you want to find a little extra in your budget each month to save, invest, or pay off debt. It’s the premium movie channel, the extra text message plan for your phone, the magazines you never get around to reading or the Netflix movies you find yourself holding on to for a month before watching them. Each of these may only be $10 a month individually so it doesn’t seem like much, but when you take a look at all of the little expenses that aren’t being fully utilized each month you could be sitting on a few hundred dollars that’s going to waste.

It’s like the leaky faucet in the bathroom. You may only see a single drip every few seconds and it’s hard to imagine those add up to much, but a single leaky faucet can waste over 1,000 gallons of water a year! The same thing goes for your money. A dollar here, five dollars there, and you hardly notice it on a weekly basis. But over a year and beyond you’re literally wasting thousands of dollars. Think about what it could mean if you were saving a few extra thousand dollars a year instead. It could mean an early retirement.

4. Cashing Out Retirement Funds

There is a reason these are called retirement accounts — because they are meant for retirement! This is a problem that many people face and it’s usually a result of other underlying money problems. Nobody wakes up in the morning and says, “hey, I think I’m going to go cash out my 401(k) so I can go buy a new Corvette for the heck of it.” Actually, I think there are some people like that, but this isn’t why most tap into their retirement funds. Instead, it’s usually more about a financial emergency that leads to this decision. Maybe you lost your job, encountered a major medical emergency, or are faced with any number of other hardships. But tapping into your retirement fund either by liquidating or taking a 401k loan can do more harm than good. And let’s not forget the cardinal sin of retirement savings — cashing out your old 401k instead of doing a 401k rollover.

It’s like robbing Peter to pay Paul. This is your money, but if you take something out of one account just to pay for something else you haven’t really solved any problem. Yes, you may have been able to put out a short-term crisis, but now you’ve created a long-term crisis. Ultimately, this could lead to requiring you to work much longer than expected, sell off assets when you do retire, or maybe skip retirement completely. None of those options are good ones, but it’s a reality if you rob your nest egg early. It not only takes money away from your retirement account, but it can cost you dearly in unnecessary taxes and penalties just further complicating matters. So, make sure you don’t treat your retirement funds like a savings account. They should be an absolute last resort in a time of need and you should work on plugging some of your money leaks and apply that to an emergency fund to help you in a time of need.

5. Paying Too Much for College

When you’re in high school all you keep hearing about is preparing for college. After all, these days it’s pretty much expected if you want a good job you have to get a degree. For many career paths this is true. And in some professions you need to go beyond and get a graduate degree or more. While there’s not much you can do about the fact that some professions require degrees, for the large majority of students there are steps they can take to minimize the burden of a college education.

For one, you don’t have to go to a private school to get a superb education. While some schools are going to be better than others, picking a school because of their name is like buying a $200 pair of designer jeans over a $50 pair of tried and true Levis. Both will accomplish the same thing, but one costs a lot more and it may or may not pay off in the future. And don’t neglect community colleges or state schools for the first year or two before transferring to the school of your choice. Knocking out many of the basic courses in the first two years could literally mean a savings of $100,000 on your total education bill.

Finally, don’t make the mistake of assuming you can just get student loans to pay for it all and you’ll be making enough money when you get a job after graduation that paying them off will be easy. It’s not. Ask anyone with a run-of-the-mill bachelors degree who has financed their entire education with loans. They may be well over $100,000 in debt and lucky to be making $50,000 a year. They will be spending the next ten years essentially making a mortgage payment and tying up valuable funds that could be going towards a retirement account, emergency savings, or a down payment for a house. If you’re a student thinking about college, make a wise decision and don’t think that you can just throw money at an education and that it will pay for itself when you graduate. And if you’re a parent you should start planning early and decide how and if you want to help your children out with college. This could mean starting a 529 plan or at least setting some expectations with your child so they know what to expect. But whatever you decide, make sure you weigh the pros and cons of saving for retirement vs. saving for college.

6. Starting Too Late

Ask any 20-something what their plans are for retirement and you’ll probably get a confused look or outright laughter. When we’re young we feel as if our whole life is still ahead of us. And for the most part that’s true, but that doesn’t mean we have time to wait before starting to save. You see, there’s this little thing called compound interest that’s willing to put your money to work, but it requires one crucial element in order to do its job. Time. Without time the value of interest is virtually eliminated.

The problem is that compound interest is not linear. If you’re investing $5,000 a year you can’t just say that if you wait two years to get started you can figure your account will only be roughly $10,000 less. No. Instead, waiting just two years to start saving $5,000 could end up costing you over $50,000 by retirement. And that’s just two years. When you make the mistake that many people make by waiting five years, ten years, or even longer until the “time is right” to start saving you’re literally throwing a few hundred thousand dollars out the window.

Here’s a tip for you: there’s never a good time to start saving. I hear it all the time. People say they want to wait until they get a better job before saving. Then they want to wait until they settle down. Then suddenly there’s a child on the way, so now they want to wait until the craziness of being a new parent subsides. Then another child is on the way and they are shopping for a bigger house so they want to wait until that gets squared away… Let’s face it. There is always something going on in your life that can be used as an excuse to wait. Stop making excuses and just start! Time is either your greatest asset or your greatest enemy. It’s only up to you to decide how to utilize that time.

7. Not Setting Any Goals

The previous six money problems dealt with fairly specific financial decisions gone wrong, but the seventh bad decision isn’t as exact. Instead, it has to do with setting goals. This is a pretty broad topic and really, everyone’s goals will be different. But the problem is that most people don’t take the time to outline specific financial goals. Sure, people tell themselves that they want to save more, invest more, spend less, get out of debt, and all of that, but being that generic is not helpful.

You need to be specific and set concrete goals so that you can put a plan together to reach them and then have something to track your progress. Instead of just saying you’re going to start building an emergency fund, be specific and say you’re going to set aside $10,000 in 12 months. Ok, now that you have a specific goal set you can start putting a plan in place to reach that goal. You know exactly how much you need to set aside each month to reach that goal ($833) so every month you can track your progress. If you fall short, you’ll know and can then think about ways to make up the difference.

If you aren’t setting specific financial goals you have no real way of knowing how you’re doing. You want to retire at 60? Who doesn’t? But the real question is how are you going to get there? Just telling yourself that you need to put money into an IRA each year so you can build a nest egg is not enough. Instead, you should be calculating how much money you need to retire, how to allocate your investments so that you can reach that goal, and then hold yourself accountable over the years. Without goals you’re basically adrift in the sea and going wherever the current takes you.

Don’t Make the Same Mistakes

Hopefully you can avoid falling into these traps and make better decisions with your money, but don’t get discouraged if one or more of these apply to you. We’ve all been there, myself included. I bought a house for the wrong reasons, spent too much on a car, got a late start in saving for retirement, borrowed a ton of money to try and get a worthless graduate degree, cashed out an IRA in a time of need, and wasted thousands of dollars on useless little things. But if you can identify the problems and admit that you’ve made some mistakes you can learn from them and turn things around.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

The 7 Biggest Money Problems Most People Have

According to the Federal Reserve, consumer debt amounted to $2.5 trillion dollars in 2009 or approximately $8,100 for every man, woman, and child living in the United States. To put that number in perspective, 47% of American households paid no income tax this year which means that income levels are rapidly decreasing leaving those without steady employment scrambling to find another way to pay their bills. Forced into accepting credit cards with high interest rates, payday loans, and other types of pay-by-the-week services just to survive, consumers play a deadly game of cat and mouse with their finances. Tack on high interest rates, late fees, and charges for overdrafts and you have a bonafide recipe for disaster.

Even if we have the luxury of a full-time job and employer benefits, we have to change our way of spending. When a single beverage from Starbucks costs nearly as much as a gallon of milk, there is room for concern. We overextend ourselves in a number of ways. We space out minimum payments rather than buy items outright with cash. We purchase more house than we can afford and enjoy. We have cell phone bills that cost as much as our utility bills and we swap home cooked meals for dinners in fancy restaurants because we feel like we have earned it. We justify last minute purchases because we can put it on a credit card and forget about it for a month.

Less is More

We have yet to buy into the notion that less is more and that is extremely problematic. We didn’t find ourselves in a mortgage crisis for no reason. We simply wanted our piece of the pie, our part of the American Dream and we were willing to overextend our budgets to pay for it. This, too, is a recipe for disaster.

$8,100 per person is a lot of debt to be lugging around. With frugality becoming ever more popular by the second, do we really have an excuse to flaunt our finances? Websites, books, and movies tell us how to cut back without losing out. Coupon clipping mothers tote news crews around supermarkets so they can show the world how savvy they are. (See how a mother of five feeds her family on less than $25 a week and you’ll feel inspired.)

Pick up a copy of Christopher Greenslate and Kerri Leonard’s On A Dollar A Day and come up with your own food related challenge. Note the amazing selection of bargain duds at your local thrift store. I bet no one in your office can tell the difference between a second-hand designer suit and one bought right off the racks of a high priced retail store. Your bank account will bear witness to the benefits of bargain shopping. There is a world of difference between an item that is on sale and one that isn’t. That difference will be found in the contents of your wallet or pocketbook.

Charissa Arsaoui is a freelance writer for ChickSpeak, Buzzine, DisFUNKshion Magazine, Student Stuff, and a guest contributor for Wisebread.  She loves thrift related topics and can spot a bargain a mile away.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

When Enough is Enough: Putting the Brakes on Overspending

Buying a Car? Make Sure You Follow These Tips

The days of being a clueless consumer walking into a dealership and letting the car salesmen explain all of the features of the new models are over. Today, you have the internet on your side. You can learn anything you’d ever want to about any car on the market before stepping foot into a dealership. You can research crash ratings, fuel efficiency, insurance rates, and even build a car with all of your desired options right from the web. With this knowledge comes power and you’re less likely to be scammed by a car salesman. But all of this information is useless if you don’t use it.

If you just walk into the dealership, pick out a car, and do the financing on the spot, you could be walking away having paid hundreds, even thousands, of dollars more, directly or indirectly, than you should have. That’s the old way to buy a car, and even though some people still do this, if you’re reading this you’re already one step ahead.

Here are the top six things you should know to be ready to buy a car at the best total price. Remember, it isn’t just the dollar amount on the sticker that matters since there are dozens of ways to save on car expenses over the life of ownership.

1. Are You Upside Down On Your Current Car Loan?

Welcome to the world of the 60-month (or longer) loan. Newsflash: vehicles are rapidly depreciating assets and the longer you finance them, the longer you’ll be upside down and pay excessive interest. While being upside down on a $15,000 vehicle is not as bad as being upside down on a $150,000 house, it’s still a stupid financial mistake. What makes it so stupid is that cars have a known depreciation rate so you can easily calculate whether or not you’ll be upside down on your loan, how long it will take to pay it off, and what you’ll pay in interest over the life of the loan. You can’t do this with real estate, at least not in this market. Because real estate values can go up and down at different rates over time it’s understandable that some people can be caught upside down. There’s no excuse when it comes to your car loan.

There was a time when car loans were a standard 36 months. Gradually the term became longer to enable more people to qualify for loans they couldn’t really afford, by lowering the monthly payment. The longer the term, the more you’ll pay in interest, so a lower payment is really not your friend. Does this sound familiar? It should, because the mortgage industry did the same thing. The 30-year fixed rate mortgage with 20% down used to be the standard. Over time they introduced zero-down loans, adjustable rates, balloons, ARMs, and even interest-only loans to allow more people to buy something they really couldn’t afford. It’s no different when it comes to buying a vehicle these days.

If you try to sell your car before the loan term is over, you may find that the car is worth less than you owe on it. To buy a new car, you’d have to pay off the balance on the original loan or roll it into the new loan, which creates an even more expensive car. Buying a car that depreciates quickly is another thing that can cause you to be upside down on your loan. If you buy a model that depreciates roughly 20% each year you’re going to lose money on it faster than a car that depreciates maybe just 7-10% a year. Don’t get into a cycle of constantly financing an upside down vehicle and letting your car make you poor.

2. Have You Researched the Trade-In Value of Your Current Car?

Keep the trade-in of your old car and the purchase of your new car as separate transactions. Get the trade-in offer before discussing the price of the new car, or finalize the price of the new car before discussing the trade-in. Some dealerships will offer you a good trade-in but will just raise the price of the car you’re buying, or if they already give you a good deal on a new car they might come in with a low-ball number on your trade. You need to know the trade-in value of your current car so that you have a rough idea of what to expect the dealer to offer for it. If the number is much lower than expected you know you may be getting taken for a ride.

One of the easiest ways to research the trade-in value of your car is to look it up at Kelley Blue Book. Here you can enter your location, vehicle make and model, mileage, condition, and features. It will then give you various prices for private party value and trade-in value. The trade-in value is obviously going to be less than what you’d get selling it privately because the dealership has to make money on it when they resell, so keep that in mind. If the difference is significant, you may want to consider trying to sell it privately first.

3. Have You Researched Interest Rates on Car Loans?

Don’t evaluate the deal based on the monthly payment. This is one of the biggest mistakes most car buyers make. Do you think it’s just coincidence that most car commercials advertise new cars by just stating how low your monthly payment can be? The interest rate is where most of the cost lies if you don’t put a significant chunk down. Know how much you’ll pay over the life of the loan by using a vehicle loan calculator to model some different loan amounts and rates.

One thing you can do before even shopping for a car is to check with your local bank or credit union about auto loans. See what they currently offer and whether or not you qualify. If you go into the dealer already pre-approved for a loan with your bank you know exactly what your interest rate is and how much you’ll be paying. If you wait for the dealer to try and find financing for you you’ll almost always get approved for something, but by the time you get to the financing stage you’re so emotionally sold on buying the new car that you don’t even care about the interest rate and just want to finalize the deal. This could literally cost you thousands of dollars.

4. Have You Considered the Benefits of Buying a Used Car?

There’s nothing like the feeling of buying a new car, but consider the cost. Cars depreciate sharply in the first two years — some models as much as 25-30%. The car you paid $25,000 just two short years ago may be worth only $17,000 now. If you’re someone who keeps cars for 7-10 years or doesn’t bother buying a new car until long after the first one has been paid off this isn’t as much of a concern. You’ll get your money’s worth. But if you don’t think you’ll keep the car 10 years you need to consider the potential savings by buying used. You can buy a car that’s literally only a year old and with only 15,000 miles on it and save 15-20% over new in many cases. The car may have had a previous owner, but it’s still nearly new and carries all of the original warranty. If you think about it, the money you save by buying a slightly used car will probably cover the insurance premiums on that car for as long as you own it.

5. Do You Know the True Cost of Ownership of the Car?

Don’t find out too late that you can afford to buy the car, but you can’t afford to own it, due to operating expenses, insurance, gas mileage, annual excise taxes, and other costs of ownership. You’re not ready to buy a new car until you’ve researched and considered this information. Just like when you buy a house, there’s much more to it than the monthly mortgage payment. This is how so many people get into financial trouble because they are told they can afford the monthly payments, but really can’t afford everything else associated with it.

New car buyers often don’t consider the higher costs of repairs and maintenance for certain models, tires that cost twice as much as those on other cars, higher gas costs, and higher insurance (depending on make, model, and even color). This is especially true once you begin looking at SUVs and luxury models. Insurance rates can be nearly double that of a smaller or less expensive vehicle.

One of the most important considerations is the repair record of the make and model. Does it have a history of problems with the transmissions? Brakes? Electrical systems? What does it cost for routine repairs and maintenance? You can find all this information at Edmunds.com. It doesn’t do any good to find a great deal on a car only to find out you’ll be spending $1,000 a year fixing common problems with that particular model once the warranty is up. This is a great site that can really help you save money and avoid being taken advantage of.

6. Have You Evaluated Any Dealer or Manufacturer Offers Like Rebates or Financing Specials?

A $2,000 rebate on your new car may sound good, but are you sure it beats the low-interest-rate deal the dealer may offer as an alternative? Don’t be fooled by the lure of cash upfront as it isn’t always the best choice over the long run. Evaluate the incentives and offers before you start seriously shopping. Check all of the manufacturer websites, ask your local dealers about incentives, and be armed with your options ahead of time. This will help you make sure you get any incentives you’re entitled to while also objectively comparing the true savings between offers.

The Bottom Line

Do your homework. Don’t roll the balance of an upside down loan into a new loan just because you’re tired of your old car and you’re just ready for something new. Don’t just walk into a dealer without having done your research and expect to be given the best possible deal. Don’t buy a new Lexus just because you can finally afford it if you get a 6-year loan. Vehicles are wealth destroyers, not wealth creators. While it may feel good to impress your friends or commute in style, foolishly wasting money on a vehicle is a sure way to retire broke.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

6 Things You Need to Know Before Buying Your Next Car

There Are Many Ways to Save on Car Costs

Do you own a car? You probably do, and that means you probably know how expensive it can be. Did you know that the average person will spend over $500,000 on vehicles and vehicle-related expenses over their lifetime. It really starts to add up. Vehicles don’t last forever so you need to replace them over time, you need to put gas in them, and then you have to think about insurance and maintenance–and that’s just in today’s dollars, not adjusted for inflation. Half a million dollars just to drive a car. When you think about it, that is kind of absurd when the average retirement account balance for most baby boomers these days is under $50,000. No wonder our cars are making us poor. How wealthy would we all be if we took the money spent on owning a car into an investment account?

Unfortunately, cars are a necessity for most of us. Without an extensive public transportation system we rely on buying our own cars so we can get around. It’s one of those things that we can’t escape. But just because it’s a necessary expense that doesn’t mean there aren’t ways to save on your car expenses. In fact, if you’re good you can literally save hundreds or thousands of dollars each year on your vehicle expenses. Save $1,500 a year for the next 40 years and that puts $60,000 in your pocket. Then if you use that savings wisely you’ll be living comfortably in your later years. Here are 28 tips that can help you save money on your car expenses.

How to Save Money on New Car Purchases

• Keep your car longer instead of trading in or upgrading every couple of years. Not only does the cost of new cars rise each year, but cars depreciate quickly, and when you trade frequently, you lose money on low trade-in values. And don’t forget about interest if you have to finance part of the purchase. Buy a good quality car and keep it for at least five to seven years. Potential Money Savings: $400-1,000/year.
• When buying a new car, consider the smallest model for your needs. Smaller cars are often cheaper, and because they’re lighter, they usually get better gasoline mileage. In addition, insurance tends to be cheaper on most cars compared to a large SUV. Potential Money Savings: $400-600/year.
• When buying a new car, consider the impact that various options have on fuel economy. For example, you sacrifice a few miles per gallon when using air conditioning on the highway and even more in stop-and-go traffic; automatic transmissions get about five miles per gallon less than manual transmissions; and six-cylinder engines get about four to five mpg less than four-cylinder engines. Potential Money Savings: $400/yr or more by choosing the right options.
• Don’t buy credit life or credit disability insurance through your car dealer when purchasing a new car. Some dealers do a hard sell on these coverages, but they are highly overpriced, and if they’re folded into your car loan you not only end up paying 100% to 500% more than you should for the coverage, you also pay interest on it. Stick to regular life and disability insurance through your employer or an individual policy. Potential Money Savings: $300-500.
• Be extremely wary of purchasing service contracts or extended warranties on new automobiles through your dealer. Many of them have very limited coverage (in spite of what the salesman may lead you to believe) and they cost much more than policies purchased directly from providers. Make sure you understand what your current warranty covers so you’re not just throwing money away. Potential Money Savings: $500-1,000.

How to Save Money on Maintenance

• Keep your car properly tuned. A poorly tuned car uses between 25% and 33% more gasoline each year. It’s also cheaper to pay the cost of a tune-up than it is to repair a major problem. Potential Money Savings: $50-100/year.
• Change the oil and oil filter in your car according to your owner’s manual. A 3,000 mile oil change may not be necessary since many cars are now built to go much longer between oil changes. Potential Money Savings: $50-100/year.
• Check your car’s air filter monthly. A dirty filter drags on engine efficiency and reduces gasoline mileage up to 10%. You can clean the filter by removing it and blowing it with an air hose, or you can replace it. Potential Money Savings: $130/year or more.
• Use the proper tires for your vehicle. Having extra wide, large, or performance tires may drag on your gas mileage.  Potential Money Savings: $100/year or more.
• Unless your manual suggests it, don’t waste money on premium gasoline. For most cars, premium gasoline offers no benefit. Unless your car has a high-performance engine and your manufacturer recommends a high-octane gas, use the less expensive gas. Premium gas costs 10% to 15% higher than regular. Potential Money Savings: $200-400/year.
• Check your tire pressure regularly. You can improve your gas mileage by around 3.3 percent by keeping your tires inflated to the proper pressure. Under-inflated tires can lower gas mileage by 0.3 percent for every 1 psi drop in pressure of all four tires. Properly inflated tires are safer and last longer.. Potential Money Savings: $100-250/year.
• Add thousands of miles to the life of your tires by having them balanced and rotated once a year. In addition to destroying the tread, improperly balanced tires can wear out your shock absorbers and damage your suspension system, leading to more expensive repairs. Potential Money Savings: $125-200/year.
• Check fluid levels regularly. Make sure your power steering and radiator fluids are at proper levels with each oil change. Also check automatic transmission fluid, brake and clutch fluids. A bottle of fluid costs just a couple of dollars. Replacing a broken or worn part due to low fluids will cost you hundreds. Potential Money Savings: $50-300/year.

Save Money on Gas

• Pump your own gas if you can. Self-serve gas is usually 5% to 10% cheaper than full service. Potential Money Savings: $50-100/year.
• Combine errands when driving. If you plan your drive so that you hit all of your errands in one outing instead of making extra trips you’ll save on gas. If you save just 10 miles a week that’s over 500 miles each year. Potential Money Savings: $25-75/yr.
• Purchase your gas with a cash-back rewards credit card. You can likely save up to 3% on all future gas purchases. Potential Money Savings: $50-100/year.

Save Money on Insurance

• Ask your insurance agent how much money you can save by raising the deductible on your auto collision insurance. Often, raising the deductible from $250 to $500 can save you 10% to 30%. Increase it from $500 to $1,000 and save even more. If you have a good driving record, you could come out ahead. Potential Money Savings: $50-225/year.
• Make sure you notify your insurance company of all the safety features that qualify you for discounts on auto or homeowner’s insurance, such as automatic seat belts or air bags in your car, smoke detectors in your home, etc. Non-smokers or non-drinkers can often get additional discounts and it requires little more than letting your insurer know. Potential Money Savings: $50/year.
• If you drive an older car, consider dropping collision and comprehensive coverage (but don’t drop liability coverage). Collision coverage is required if you have a car loan, but for older cars that you own free and clear, weigh the car’s book value (what the insurance company would pay you if the car was totaled) against your collision premiums. If your car is over five years old or is worth less than just a couple thousand, keeping collision and comprehensive coverage may not be worth what you’re paying in insurance premiums. Potential Money Savings: $100-300/year.
• Before buying a new car, ask your insurance agent whether the model you are considering will require a surcharge due to higher theft, damage or repair costs. Certain vehicle makes and models do carry higher premium.  Potential Money Savings: $50-200/year.
• Shop around for insurance. If you’re getting good service from your company and are happy with the rates, you may want to stay with them, especially if you have had accidents or tickets. But if your record is good, shop around to see how much you can save, then decide if the savings are worth the switch. Potential Money Savings: $50-200/year.
• Consider combining your auto and homeowner’s insurance under one policy. Many insurers give a 5-10% discount for having multiple policies. Potential Money Savings: $50-200/year.
• If you have a high school or college student under 25-years old in your household, ask about the good student discount for auto insurance. If your student qualifies, you could save up to 25%. Potential Money Savings: $100/year or more.
• This is common sense, but avoid tickets for speeding or moving violations. Many insurance companies give a discount of up to 20% if you have not had an accident or ticket for three years or more. Potential Money Savings: $100/year or more.

Save Money While Driving

• Car pool to work if you can. By sharing the drive with just one other person, you could save an average of $20/month or $200/year in gasoline alone, if your commute is 20 miles round-trip each day. Sharing the driving with two others increases your savings even more. Savings vary depending on the length of your commute and the current price of gas. In addition to savings on gasoline, you’ll save maintenance costs and wear and tear on your car. Potential Money Savings: $400-700/year.
• Another benefit to car pooling is that it reduces the annual mileage on your car. Since this reduces the risk of accident, your insurance company may charge you less for your coverage. Potential Money Savings: $25-50/year.
• Wasteful driving habits can double your fuel consumption. Develop gas-saving habits, such as: (1) always accelerate gently (2) watch traffic ahead of you so you can anticipate slow-downs and avoid stops (3)coast up to traffic jams by lifting your foot off the gas pedal instead of approaching at full speed and slamming on the brakes. It takes 20% more gas to accelerate to normal speed from a full stop than it does from four or five miles per hour (4) don’t drive too fast or too slow. It takes 20% to 30% more gas to drive at 70 mph than 50 mph (5) maintain a steady speed on the highway by using the cruise control. Avoid getting stuck behind slow cars where you have to slow down to their pace and then speed up to pass. Potential Money Savings: $200/year or more.
• Don’t warm your car up by letting it idle for lengthy periods of time. Modern car engines are running efficiently just seconds after ignition so a long warm-up time is not necessary. And idling wastes about a quart of gas every 15 minutes. Potential Money Savings: $20/year.

Hopefully you’ll be able to use some of these tips to keep your car expenses to a minimum. Saving $20 here and $50 there really does add up. There are probably other tips out there, so what have you found works best for you when it comes to saving money?

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

28 Tips to Save Money on Car Expenses and Save Thousands of Dollars

Mistakes can be costly.  With that being said, there are two ways to get out of a financial crisis.  The first strategy involves assessing the amount of money being brought into a household on a monthly basis and employs a multiple stream of income approach to increase a family’s finances.  The second tactic involves a disciplined plan of attack that decreases expenses and pays down debt.  Each step is crucial for long-term sustainability.

Without an adequate amount of money coming in, men and women have a tough time sticking to a budget.  Items that once were paid for with cash now get put on charge cards which generate interest and cost a person more in the long run.  Add late fees, overdraft charges, and penalties and you have a recipe for disaster on your hands.

These financial blunders damage budgets and halt progress economically.  Not entirely avoidable in some cases, they are:

• Cashing in your 401K plan early. If you withdraw funds from a retirement plan before you reach 59 ½ years of age in most cases, you are subject to a 10% additional tax on early distributions.  This is on top of the taxes you would normally pay on the amount of money taken from the account.

• Not filing your taxes on time. The IRS charges a penalty for filing taxes late to the tune of 5% for each month or part of a month that a return is late.   This amount never exceeds more than 25%.  The penalty is based on the tax not paid by the due date and disregards extensions. Filing is easy and often free with TurboTax.

• Paying exorbitant interest rates on your credit cards. A lot of people fail to read the fine print.  Credit card companies entice consumers with promises of low introductory APRs and rewards programs.  Once you accumulate a balance, however, things change rather quickly.  Amendments are made on policies and percentage rates slowly rise.  Grace periods are shortened and late fees are charged.  Rewards points become harder and harder to redeem.

• Not getting a fixed rate cell phone plan. Extras like pay-as-you-go text messaging and internet access add extra costs to skyrocketing usage charges.  Choose a carrier with unlimited local and long distance calls for a fixed rate to avoid overages.  Know the conditions of your plan and ask for a discount.  You can save yourself up to 30% with one phone call to customer service.

• Spending more than you make and living beyond your means. Many people experience lifestyle creep with dual incomes.  Bills increase as income increases.  Rather than pay off the debt already owed, men and women continue to spend ridiculous amounts of money buying new things.  Higher mortgage and car payments are taken on and the amount of money being put in savings remains at a standstill.  If one of the dual income earners loses their job, they have a hard time staying financially afloat.  Without the recommended six months of living expenses saved, many couples have their vehicles repossessed or lose their homes to foreclosure.

You can avoid making these costly errors by employing multiple streams of income, paying off debt, reducing your costs of living, maximizing your retirement savings, and filing your taxes on time.

A savvy person is one who knows how to stand up to life’s challenges.  Overcoming financial obstacles becomes easier with a plan.  Make yours today and reap an abundance of rewards including more financial freedom and less dependency on credit.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Five Financial Mistakes That Can Cost You Significantly

These Tips Can Help You Simplify Your Finances Any Time of Year

While we’re just a few days into the new year a lot of people have set some new goals or made some resolutions as to how to improve their finances. The new year is a great time to begin making changes, you don’t need a calendar to tell you to do these things. Sure, there isn’t an instant cure for unemployment, the economy, or the housing market, but there are still some steps you can take today that will simplify and improve your finances.

1. Organize

One of the first things you can do that will help you improve and simplify your finances is some organization. Have you ever sat down to do your taxes and realized you don’t know where all of your receipts, statements, or tax documents are? It’s okay, we all do it, but being organized like this can prove costly. You could miss a deduction, waste time looking for things when you could otherwise be working, or even miss an important tax deadline. It’s not just for taxes, either. Just think about all of the financial documents you receive on a regular basis. Bank and credit card statements, investment account information, letters from your mortgage company, copies of your property taxes, utility bills, and the list just goes on and on. What do you do with this information as it comes in?

It’s time to organize all of these documents. At the very least you should be creating a safe place to store important financial documents. It could be in a lock box or file cabinet, but one way or another you want to keep these items tucked away safely and where you can easily retrieve them if necessary. Next, find a way to separate different types of documents. Usually, just a simple collection of folders can take care of this. Keep a folder for your receipts that might be used for tax deductions, keep your investment account statements separate from your bank account, and so on. It doesn’t matter how you develop your system as long as you are comfortable in using it.

Go Paperless

If you haven’t been forced into paperless statements already I’m sure you’ve heard about it. Many companies are urging customers to go paperless, and it could be a good idea for you, too. For one, every account that you have setup as paperless is one less account you have to worry about organizing the paper when it gets mailed to your home. Instead, all of your information can be retrieved online 24 hours a day. Granted, the trade-off might is that you will have to rely on electronic reminders when it comes time to pay a bill, but you should be able to save time and money since you don’t have to buy stamps and you can make payments or account changes on your own time.

2. Automate

After you’ve organized your finances it’s time to automate them. In this day and age it’s usually harder to find an account or financial task that you can’t automate than ones you can. From getting paid to paying the bills, in many cases you can set it up so that you never have to cash or mail a check again. This can save you a lot of time and remove some of the worry when it comes to managing your day-to-day finances.

Automate Savings

The biggest benefit of automating your finances is when you’re talking about automatic deposits into savings or retirement accounts. This is how you pay yourself first. If you have money automatically deducted from your account each week or month you’re ensuring that the money actually gets saved. Over time, this will really start to add up and you’ll be glad you did it. So, start with creating an automatic savings contribution. It’s easy enough to set up an automatic and recurring transfer of funds with your bank that will move money from your checking to savings. Once you set this up you’ll never have to worry about transferring money into your savings account again.

Next, look at your retirement contributions. If you have a 401(k) through work this is already automated. Your contributions are taken right out of your paycheck, and that’s great. But what if you don’t have a 401(k) or you use an IRA instead? You can still automate this process. Every brokerage or fund company will allow you to set up systematic contributions. So, just like with your 401(k) you could actually set up a weekly or bi-weekly IRA contribution that coincides with your pay day. And there you have it, the money is sent off to your retirement account before you even have a chance to spend it.

The real benefit is that automated contributions made frequently hurt your bottom line less than waiting and making larger lump sum contributions. For example, if you’d like to maximize your IRA this year you’d need to contribute $5,000. For many people, that is a lot of money to move all at once, but with automatic contributions each week that goal becomes much more manageable. In fact, if you start at the first of the year you can maximize your IRA by contributing just $96.15 a week. If you take into account that you actually have until April 15th to make prior year contributions you could technically stretch that out further and make it a 75 weekly contribution. As you can see, it isn’t going to hurt as bad making a weekly deposit rather than waiting until the end of the year and having to come up with a large chunk of money.

Automate Expenses

Automation doesn’t just deal with building savings and investment accounts. In fact, one of the most powerful financial tool is to automate your bills. Do you hate sitting down to add up what you owe each month and then either log in to a bunch of different accounts to manually make payments or physically mail a check? These days, you usually don’t have to. Whether you use automatic bill pay through your bank or directly with the vendor, you can set up automatic payments for most of your expenses.

This is especially useful when it comes to regular monthly payments that don’t fluctuate much. Your mortgage, car loans, student loans, some utilities, etc. You know you have to pay these bills each month and they rarely, if ever change, so why waste time each month worrying about making the payments? Put these on autopilot! By doing so you’ll avoid late fees, stamps, and free up some of your time so that you can do more meaningful things. After all said and done, you should be able to limit your time paying bills to just a few minutes a month.

3. Analyze

Now that you’ve organized your finances and put virtually everything on autopilot, it’s time to take some time to analyze how things are going. How are your investments doing? Are you really using the best bank? Is your money earning enough interest? And have your financial needs changed in the past year? If you don’t take the time to sit down and really analyze your overall financial situation at least a couple times a year it won’t matter if you’re completely organized and automated. You may still be headed down the wrong path.

Investments

Let’s start by taking a look at your investments. How are they doing? This is a bit of a subjective question, but if you take the time to understand what’s in your portfolio and compare that to what the expected return is given the economic conditions you should be able to get a rough idea of whether or not you’re doing well or not. But it’s not just about if you’re doing good or bad in the market. You also need to regularly look at your investments, see if the fees you’re paying are reasonable, whether or not you have the right allocation, and rebalance. A good portfolio from two years ago could be a nightmare today. The funds could have changed, added fees, and a dramatic market swing could have turned that perfect portfolio into a real dog. You want your investments to be simple, but remember–’buy and hold’ is not the same as ‘buy and forget.’

Don’t forget about your old accounts. Do you still have a small 401(k) left over from an old job? Sure, it might be doing just fine where it is, but why not consolidate? Moving it to an IRA, existing or otherwise, can make your life easier and give you more control over your money. A lot of times people just leave their old accounts open because it can be a bit of a pain to move the money. Even so, it goes back to the first tip above: organize. Consolidating may be good for your portfolio, but it also means less to track and file away. If you’re thinking about rolling over your 401(k) I’ve put together a helpful guide that explains how to roll over your 401k.

Banking

When was the last time you changed banks or credit unions? A bank that was good for you a year ago may not be best for you today. Banks are regularly changing accounts, adding or removing fees, and changing their overall level of service. I know, the thought of changing banks is pretty low on my list of things I want to do, but don’t let apathy cost you. If you are unsatisfied with your bank, go ahead and explore other options. At the very least, go into your current bank branch and speak to a banker or manager about your accounts and what your needs are. You may be able to make changes that save money without even switching banks.

Let’s talk about online savings accounts for a moment. A few years ago there were a ton of different banks offering attractive interest rates and signup bonuses. If you’re like a lot of people, you opened a lot of different savings accounts to make a few extra bucks. The online banking landscape has changed over the past year and the rates aren’t what they used to be and there are fewer bonuses. So, you probably stopped chasing rates, but what about all of those bank accounts? Do you have money sitting at 5 different online banks all earning virtually the same interest now? There’s really no reason to have money spread out all over the place. It just makes it harder for you to keep track of everything for little or no financial gain. Instead, find a good high-yield savings account and consolidate. Unless you’re able to get an interest rate more than 0.5% higher or are dealing with upwards of $100,000, the benefits of chasing rates these days don’t outweigh the cost.

Overall Financial Needs

Finally, you need to spend a few minutes analyzing your financial needs and how they may have changed. Our goals and financial ambitions don’t remain constant. We all go through major events in our life that will dramatically change how we value money. Having a child, getting married, getting a divorce, moving, or changing jobs are just a few things that can completely alter your financial needs. What has changed in your life, and do these changes require you to make any financial changes? This isn’t something I can help you with, but instead I can only tell you to take a look at your life and determine what changes may need to be made financially.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

3 Things You Can Do Today That Will Improve Your Finances in 2010