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WHY ARE YOU BROKE… ?


When contemplating financial success, my mind tends to focus on the knowledge and skills needed — the “what should I be doing” in order to achieve financial success concepts.  This past week I read an interesting blog post from MoneyPlan SOS that focused instead on the common mistakes people make — the “what should I not be doing” if I want to get ahead.


Many of the issues he raises are very commonplace, “average” ways of thinking about money.  Perhaps there is a good reason the “average” person isn't in a very enviable financial situation … ??  Some food for thought at least.



Things people say that keep them broke


 1.  I'm too __________ (old, young, … broke) to save money.
 2.  I deserve __________.
 3.  I did it to improve my credit score.
 4.  My student loan/mortgage is “Good debt.”
 5.  He told me I would __________.
 6.  The “Little Man” can't get ahead.
 7.  I can write off the interest on my taxes.
 8.  How much a month?
 9.  I have retirement covered, Social Security __________.
10. When I __________, then I'll be able to __________.

RENTERS INSURANCE


(Source: Insurance Information Institute)

Did you know
Nearly 2/3 of those living in U.S. rental properties are without renters insurance (Source: Independent Insurance Agents & Brokers of America).

Renters insurance provides financial protection against the loss or destruction of your possessions when you rent a house or apartment. While your landlord may be sympathetic to a burglary or a fire, destruction or loss of your possessions is not usually covered by your landlord’s insurance. Because in most cases, renters insurance covers only the value of your belongings, not the physical building, the premium is relatively inexpensive (usually about $150-$300 per year).

By purchasing renters insurance, your possessions are covered against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm and water damage (not including floods). Like homeowners insurance, renters insurance also covers your responsibility to other people injured at your home or elsewhere by you, a family member, or your pet, and pays legal defense costs if you are taken to court.

Renters insurance covers the additional living expenses if you are unable to live in your apartment because of a fire or other covered peril. Most policies will reimburse you the difference between your additional living expenses and your normal living expenses but still may set limits as to the amount they will pay.

There are two general types of renters insurance policies you may purchase:
1. Actual Cash Value – pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy.

2. Replacement Cost – pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy.

With either policy, you may want to consider purchasing a “floater.” A standard renters policy offers only limited coverage for expensive items such as jewelry. If you own property that exceeds these limits, it makes sense to supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.

Other Resources:
Your State Department of Insurance is a great, informational resource:
Find your State's Department: http://www.naic.org/state_web_map.htm

FINANCIAL BENEFITS OF COMPETITION


In my life, I have found competition to be healthy – on the racquetball court, at work … it motivates me to be better. I've also found it to be of great benefit in my financial life. Competition motivates companies to offer lower interest rates and fees, lower insurance premiums, lower commissions, better products, or suffer the consequences (lost business opportunities). That should be a pretty strong motivator!

Value of Competition.
Earlier in the week (05/04/10), Vanguard announced a dramatic reduction in their commissions charged on stock trades as well as commission-free trades on Vanguard ETF (exchange traded fund) transactions. Viewed in isolation, this would be big news. In reality, this is just one more domino to fall in the name of competition … Vanguard was merely following the lead of Fidelity and Schwab, a couple of its primary rivals.

Fidelity Headline (February 3, 2010). “Trade 25 ETFs — Commission Free” …

Schwab Headline (November 2, 2009). “Schwab rolls out free-trade ETFs” …

Healthy competition tends to bring out the best in individuals and companies. When companies compete, consumers win …

A BEST WAY TO GET OUT OF DEBT?


Is one way better than another to get rid of debt? The answer to your question will likely differ depending on who you ask.

“FINANCIAL” METHOD. Nearly every “financial” person will advise that debts should be paid off in a particular order — start with highest interest rate and move to the lowest interest rate (done by rolling the payment from one debt to another as debts are paid off). While this method makes perfect sense from a mathematical point of view, more and more people are finding that there is another method [often overlooked] that works better for their psyche …

PSYCHOLOGICAL METHOD. This system of debt repayment, popularized by Dave Ramsey, is often referred to as the debt snowball. This method organizes one’s debt from the smallest balance to the largest balance. This method will not likely save the most money or time (as the interest rates are not likely to align in that manner), but many find this approach very empowering and motivating because they see progress quickly (envision being on a diet where you are seeing progress quickly … becomes much easier to stick with it). Focusing on the smallest balance first will accomplish this end by providing some quick victories.

In using either of these methods, pay the minimum amount on all debts except for your “focus” debt (smallest balance in psychological method; highest interest rate in financial method); pay as much as possible on the focus debt until it is eliminated and then approach the next debt in the list with similar intensity. As debts are eliminated, the debt snowball will get bigger and bigger.

I’m not arguing against the merits of the financial method as outlined above. Obviously, if someone has the discipline to adhere to the plan, you’ll save the most time and the most in interest expenses by following its tenets. The psychological method merely takes a seemingly more “human” approach to finances that suggests that people will be more likely to stick with their ‘financial diet’ if they see those ‘debt pounds’ coming off quickly. That is what Personal Finance is all about – doing what works best for you – which very well may be something different than the next person. The point is to get out of debt [the end]; don't get caught up in the means to the end. How you decide to do it is much less important than actually doing it!

PowerPay, a free online tool developed by Utah State University Extension will allow you to play around with both of these debt repayment methods. I wrote a detailed explanation of the PowerPay system about a year ago if you're unfamiliar with it

IDENTITY THEFT RESOURCES


Identity theft is an issue that is regularly in the news – over the past couple of years, I’ve written multiple financial tips on the potentially devastating effects of identity theft. It is frightening to think that there are more than 8 million “new” victims each year in the U.S. I’d like to review the general strategies available to consumers to help minimize ID theft that have been shared prior and discuss some resources.

Personally Viewing Your Credit Report. Every 12 months you can order a report from each credit reporting agency for free. Most consumer experts suggest staggering your reports (ordering one every four months). Use the free, official government site only: www.annualcreditreport.com, NOT freecreditreport.com.

Opt Out. One way to reduce the risk of ID theft is to reduce the number of solicitations you receive. You can opt out of credit card and phone solicitations easily – see tip post from earlier this month

Fraud Alert. This is a ‘flag’ you can place on your credit report after being victimized. This alerts potential creditors that you are a potential fraud victim. Unfortunately, creditors aren’t required to abide by [or even check] the alert.

Credit Monitoring Service. A service where an annual fee is assessed to tell you when people are viewing your credit file. Most services honestly don’t add much of a benefit beyond what you can do for free [see above].

Credit Freeze. This is a very intriguing option and the only viable option that allows you to stop ID theft before it happens rather than reacting to issues after they surface. Consumers Union has compiled a helpful Credit Freeze Guide that provides answers to frequently asked questions and discusses state by state procedures and information.

FDIC – “Don’t Be An On-line Victim” (free CD-ROM). Free resource on guarding yourself against internet thieves and electronic scams. The free CD-Rom can be ordered at the FDIC website.

The ID theft resource has seven sections:
– Introduction to identity theft
– Introduction to electronic scams
– Protecting your information
– Protecting your computer
– What to do if you are a victim
– Help for identity theft victims
– Resources

ADDITIONAL ID THEFT RESOURCES.
Deter, Detect, Defend
Fighting Back
FTC ID Theft Site
Guard Against Internet Fraud
National Data
Publications
Resolving Specific Problems
State Data
Test Your Knowledge




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