Personal Finance: Take Back Your Finances

======================== THE MOTLEY FOOL ======================== PERSONAL FINANCE Wednesday, August 14, 2002 jellings(a)me.umn.edu ================================================================= IN THIS ISSUE - DAILY Q&A: Look Before You Give http://www.fool.com/m.asp?i=701873 - YOUR MONEY: Take Back Your Finances http://www.fool.com/m.asp?i=701874 - SPOTLIGHT: Make Your Money Matter http://www.fool.com/m.asp?i=701875 - COMMUNITY TIPS: Pay Off Student Loan or Buy a House? http://www.fool.com/m.asp?i=701876 ================================================================= ADVERTISEMENT BY: MBNA MBNA offers a preferred yield of 3.56% on 24-month CDs for Fools. Make your savings work for you with the security of FDIC-Insurance up to $100,000 per depositor. Other terms available. http://www.lnksrv.com/m.asp?i=701877 ================================================================= DAILY Q&A Q. WHAT ORGANIZATIONS OFFER REPORTS AND INFORMATION ON CHARITIES? I'D LIKE TO LEARN MORE BEFORE I DONATE MY MONEY. A. Here are the main industry watchdogs: The American Institute of Philanthropy: This outfit rates several hundred charitable organizations, focusing on their finances. You can order their Charity Rating Guide & Watchdog Report for $3. http://www.lnksrv.com/m.asp?i=701878 The Better Business Bureau (BBB) Wise Giving Alliance: This organization rates hundreds of charities and can help you learn which ones may be spending too much of the money they receive on things like fund-raising or office parties. It offers a free Wise Giving Guide and will send you a free in-depth report on any single charity. http://www.lnksrv.com/m.asp?i=701879 GuideStar: This outfit offers you access to tax filings of hundreds of thousands of charities. Its mission is "to revolutionize philanthropy and nonprofit practice with information." http://www.lnksrv.com/m.asp?i=701880 Full Answer: http://www.fool.com/m.asp?i=701881 ----------------------------------------------------------------- YOUR MONEY TAKE BACK YOUR FINANCES If you've noticed a little sweating and fretting on the part of CEOs and CFOs around the country, it might be because Aug. 14 is coming. That is the day by which top executives of the 945 biggest companies must begin personally certifying the accuracy of their companies' financial statements, as mandated by the SEC. "Rightly so!" we all say. We demand a prudent use of resources, a tight rein on spending, and a track record of steady growth. It makes sense to expect such discretion from the stewards of our investments and, indirectly, our economy. Shouldn't we expect the same thing from ourselves? Let's start with how much money you're spending. Two words: cash flow. In other words, ask yourself "Where does all my money go?" There are many ways to track the flow of your dough, such as reviewing your bank statements from the last three to six months and calculating how much you spent on various categories, like food, shelter, insurance, and -- perhaps the most telling of all -- "Junk I bought but never used." We know that exercise will prove informative, but we also know it takes a chunk of time. So, try this: 1. Just for a day, record every transaction. 2. Carry a piece of paper in your pocket and make a note of every time a greenback or a credit card leaves your wallet. 3. At the end of the day, project the annual cost of each expenditure by multiplying it by 365. For example, let's say you go out for lunch, which costs you $7. If you did that every day of the year, you would be spending $2,555 annually. Keep in mind that this is after-tax money, so if you're in the 27% tax bracket, you'd have to earn more than $3,500 to have $2,555 to spend. If you earn $40,000 a year, this means that almost 9% of your income went to lunch. We recognize that analyzing just one day's worth of purchases provides limited information. If you have the inclination, keep an eye on a week's worth of spending, then multiply by 52 -- or even a month's. But we think that even a day's worth of money monitoring will be enlightening. (If you have your own ideas about how to scrutinize your spending, let us know on the Fools and Their Money discussion board.) http://www.fool.com/m.asp?i=701882 ----------------------------------------------------------------- SPOTLIGHT MAKE YOUR MONEY MATTER This is the final week to try out TMF Money Advisor one month for free. For those of you who don't already know (because you've been vacationing on Mars), TMF Money Advisor is our service that provides unbiased financial advice about your specific money issues. That's right; no conflicts of interest, no commissions, and no hogwash. It's worth a try, don't you think? http://www.fool.com/m.asp?i=701883 ----------------------------------------------------------------- COMMUNITY TIPS PAY OFF STUDENT LOAN OR BUY A HOUSE? It's hard to sort through which debt you can live with and which debt is a huge NO. A community member recently asked about the value of student debt: So -- should I pay off the student loans -- in which case it would delay us buying a home for about two more years until we saved enough for a down payment (assuming a 20% down payment). Or should I use the windfall to get into the investment of a house as soon as possible? Fool community member David Jacobs shared his opinion on the Buying and Selling a Home discussion board: http://www.fool.com/m.asp?i=701884 You've really asked two questions. The first question is whether you should retire your student loan debt. Whether you should retire your loan has two parts. The first part is whether you can earn more by retiring your loan than you can by investing that same money someplace else. Since your student loan is a 7% loan, you can immediately earn a guaranteed 7% return by retiring that loan. I haven't been following the story on whether interest on student loans is tax deductible, but if it ISN'T, then your guaranteed return is higher because your 7% return is tax-free. The second part of retiring your loan is the effect on your credit rating. If your student loan is your only form of credit (unlikely, but possible), then you may want to keep that loan so you can pay it down regularly and responsibly, which will demonstrate to mortgage companies that you have the discipline to pay down your mortgage regularly and responsibly. On the other hand, when mortgage creditors look at you, they're going to want to keep all your credit payments, including mortgage, credit cards, and student loan, less than about 1/3 of your gross income. If you're paying $200 per month on a student loan, that's $200 per month less that's available for a mortgage payment. $200 per month easily could be the difference between a satisfactory house and a nice house. The second question is whether you should buy a house. Statistically, homeowners must own their homes for five to seven years to break even on closing costs (both buying and selling) when they eventually sell their homes. Between your career and your family, your housing requirements PROBABLY will change dramatically over the next few years. So the bottom line is unless you find a fantastic deal on the absolutely perfect house, I recommend you hold off buying a house until your career and family plans settle. You mentioned housing prices in your area are increasing at 8-10% per year. Statistically housing price increases match inflation, which is historically around 4% per year, and for the last few years has been more like 3% per year. You're probably seeing the effects of a housing bubble in your area. That's great if you happen to be lucky enough to ride the bubble up, but when the bubble bursts you can find yourself trapped in a house you can't sell. Read the full post -- and contribute to the discussion -- on the Buying and Selling a Home discussion board. http://www.fool.com/m.asp?i=701885 ================================================================= ADVERTISEMENT BY: MBNA MBNA offers a preferred yield of 3.56% on 24-month CDs for Fools. Make your savings work for you with the security of FDIC-Insurance up to $100,000 per depositor. Other terms available. http://www.lnksrv.com/m.asp?i=701886 ================================================================= My Portfolio: http://www.fool.com/m.asp?i=701887 My Discussion Boards: http://www.fool.com/m.asp?i=701888 DO YOU HAVE WHAT EVERY FOOL NEEDS? Find out here. Hint: They save you time and money. http://www.fool.com/m.asp?i=701889 LOOKING FOR MORE MONEY TIPS? Our free newsletters make even the most difficult topics easy. Could our other offerings give you the edge or information you're looking for? http://www.fool.com/m.asp?i=701890 UNSUBSCRIBE Here's how to unsubscribe or change your settings. http://www.fool.com/community/freemail/freemaillogin.asp?email=jellings@me.… _____________________________________________________ Copyright (c) 1995-2002 The Motley Fool. All rights reserved. Legal Information: http://www.fool.com/m.asp?i=701891 ****** Email Powered by IronPort Systems ironport.com