AllFinancialMatters

Here’s Dave Ramsey’s Snowball Method for paying off credit cards:

Step 1 - Make a list of all your credit cards, ranked in order from the highest balance to the smallest balance.

Step 2 - Beginning with the card with the smallest balance, pay as much as you can on that card while paying the minimums on the other cards.

Step 3 - Once the card with the smallest balance is paid off, take the amount you were paying towards that card and apply to the card with the next lowest balance.

Step 4 - Keep on keepin’ on until ALL the cards are paid off.

Now, contrast Dave’s Snowball Method with Suze Orman’s Method found in The Road to Wealth:

Step 1 - Figure out the largest possible amount you can afford to pay each month toward all your credit card balances together.

Step 2 - Add $10 to each minimum payment that your credit card company is asking you to pay.

Step 3 - Add up all your minimum payments plus $10 added for each card.

Step 4 - Hopefully the difference between the figure found in Step 1 is GREATER than the figure in found in Step 3. If so, apply the difference to the card with the HIGHEST interest rate.

Step 5 - Once that card is paid off, you continue the process (Steps 1 - 4) until ALL the cards are paid off.

Which method’s the best?

Dave’s Snowball Method is great for boosting self-esteem since it gives you a great feeling when you have paid something off. It’s also a great feeling to take the amount that was applied to the smaller card balance and ADD it to the payment on the next smallest card.

Suze’s method makes the most sense mathematically since you are concentrating on the card that is costing you the most. And, once you get that card paid off, you can start on the next card. I also like the fact that you are paying MORE than the minimum payment each month, which is pretty much ignored with Dave’s Snowball Method.

The main thing to take away from this is to get your cards paid off as soon as possible. The method won’t really matter that much when it’s all said and done.

What do you guys think? Do you prefer one method over the other?

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I haven’t asked a Question of the Day in awhile. Here’s one:

I would have to say that ours is retirement planning followed closely by fixing up our house. There’s no doubt that some of things in our lives have gone unfullfilled due to lack of resources to meet every need. The good thing is that we didn’t pile on debt to do stuff even though we didn’t have the funds to do them. I think that’s where the rubber meets the road when it comes to building wealth. We aren’t perfect yet, but we have learned a lot along the way.

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There’s an article over on Smart Money titled Seven Great ETFs. Their list:

Large Company

Rydex S&P Equal Weight (RSP)

iShares Russell 1000 Growth (IWF) - picked because the article’s author thinks that growth is the place to be.

Midsize Company

Midcap SPDRS (MDY)

Vanguard Midcap (VO)

Small Company

iShares Russell 2000 Value (IWN)

Multicap

Vanguard Total Stock Market (VTI)

International

iShares MSCI EAFE (EFA)

It looks like a pretty good list to me. However, I’m a little surprised they chose the iSharesRussell 1000 Growth fund. It has underperformed significantly over the last 5 years, as the graphic below illustrates:

I realize that value and growth tend to rotate in and out of favor. However, it seems like a better way might be to just purchase the iShares Russell 1000 fund (IWB). I don’t have a problem with iShares Russell 2000 Value fund because small cap value always seems to do better than small cap growth (there’s a theory behind it that I’ll try to write about in the future).

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I’m starting to think that a lot of these “studies” are a waste of time.

Today’s Wall Street Journal has an article (FREE) highlighting a study that says Americans ARE adequately prepared for retirement. (I’m in the process of locating the study and hope to link to it later) This particular study goes against the grain of what other studies have said. However, keep in mind that a lot of the other studies were funded by companies that have a vested interest in getting people to save more money.

Regardless, I’m to the point now that I think these studies, unless they are used for national purposes, are useless. Retirement planning is PERSONAL. In other words, each person has to take responsibility to find out whether or not they are prepared for retirement. What’s good for me is not necessarily going to be good for you.

The point of all this?

• Start saving for retirement now. The younger you are, the better off you’ll be if you can get started now. If you are older, start saving NOW! Every little bit will help.
• Save as much as you can WITHOUT getting yourself out of balance. Enjoy life. The main thing is to not get caught up in credit card debt or to live outside or your means. There’s nothing wrong with having a nice house or a nice car as long as you can afford it (by “afford it” I mean that you are saving money for retirement).
• Make sure you are investing appropriately for your age. The longer you have until retirement, the more you should be invested in stocks and less you should have in bonds. There’s no set allocation for everyone. Again it is a personal choice.
• Review your retirement account once per year. Is your allocation out of whack?

Although the studies are fun to look at to compare your situation to the national averages, the most important thing to focus on is YOU.

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There was an interesting article in the Wall Street Journal last week that I wanted to share with you but didn’t because it wasn’t free. However, now it’s free.

The article is about how various universities are offering courses and course material for free over the internet. Personally, I wasn’t too impressed with the offerings I found in the listings. There’s no personal finance classes and only one school (that I found) offered courses in economics (through MIT). Most of the other courses were for stuff I have no interest in whatsoever. You, on the other hand, may feel differently and that’s why you should read the article.

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Several personal finance “debt” blogs were mentioned in The New York Times:

Blogging Away Debt

Poorer Than You

Save Leigh Ann

We’re in Debt

Make Love, Not Debt

No Credit Needed

Anyway, congratulations to all who were featured in the article. It’s always nice to get some media attention. I actually submitted the article to both Reddit and Digg but they never gained any traction.

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We all see “Cash back or 0% Financing” advertisements all the time. Have you ever thought about which deal is better for you?

Let’s say you are looking at a Chevy Impala. Right now, Chevrolet is offering $3,250 cash allowances or 0% financing for 60 months on the Impala (the website doesn’t say anything about a downpayment so we’ll assume there isn’t one). We’ll say the Impala normally sells for $26,000. For this little exercise we will assume that there are two ways you can buy this car:

1. Finance $22,750 ($26,000 - $3,325 = $22,750) through a third party at 6.25% (the best rate I could find through a local credit union) for 5 years.

2. Forgo the cash incentives and take the 0% offer for 60 months.

Assuming you want to buy this Impala, which way is the best way to go?

Here’s the math I came up with:

According to these numbers, it is better to go the 0% route. This doesn’t mean it is ALWAYS better to go the 0% route. You have to do the math yourself to find out which way is best for you.

I also did a calculation in Excel to find the breakeven point in the interest rate that would make 3rd party financing the better deal. I came up with 5.38%:

That means that if you could find an interest rate lower than 5.38%, you would do better by going the 3rd party route instead of the 0% offer.

That said, this post is not advocating you go out and buy a new car. In most cases you would do better to buy a good used car.

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Here’s the opening to Brian Tracy’s Change Your Thinking Change Your Life:

You are a thoroughly good person. You deserve a wonderful life, full of success, happiness, joy, and excitement. You are entitled to have happy relationships, excellent health, meaningful work, and financial independence. These are you birthright. This is what your life is meant to include.

You are engineered for success and designed to have high levels of self-esteem, self-respect, and personal pride. You are extraordinary; there has never been anyone exactly life you in all the history of mankind on earth. You have absolutely amazing untapped talents and abilities that, when properly unleashed and aplied, can bring you everything you could ever want in life.

You are living at the greatest time in all of human history. You are surrounded by abundant opportunities that you can take advantage of to realize you dreams. The only real limits on what you can be, do, or have are the limits you lace on yourself by your own thinking. Your future is virtually unimited.

Do you believe this to be true?

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This week’s Blog of the Week is The Digerati Life, a blog about money, personal finance, geeks, and cyberspace. For those of you who don’t know (I didn’t know until I looked it up), the word “digerati” means “people skilled with or knowledgeable about computers,” according to Dictionary.com.

One thing I think is cool about her blog that I haven’t seen on a lot of other blogs is a section with her most popular posts, some of which are:

Money 101: My Basic Financial Plan
13 Worst Company URLs Ever: An Analysis
Ways To Monetize Your Blog
Saving Money: Frequently Asked Questions
Seriously Thrifty? Some Wild Ways To Save (Part 1)

Anyway, I like her style of writing and have linked to some of her posts in my Weekly Roundups. You can find out more about her and her blog by reading her About page.

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I noticed a nice jump in my Feedburner Subscriber stats (you can see the number in the Feedburner chicklet at the bottom of this post). Yesterday it was around 1,710 subscribers. Today it is 2,562. The increase is due to the fact that Google is now reporting subscribers to Feedburner. Just about every blogger who uses Feedburner will see a jump in their subscriber numbers.

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Something I noticed while preparing my Weekly Roundups.

Have you noticed lately that there have been a lot more “Numbered” posts from different bloggers? You know what I’m talking about:

“10 Tips…”

“5 Ways…”

“642 Secrets…”

Personal finance bloggers (myself included until recently) are in love with the numbered post. I like them and have used them numerous times because they give a sense of structure to a blog post. However, like everything else, they are getting overdone (the same can be said for the number of “carnivals” out there). It’s to the point now that I don’t even read them.

Do you read numbered posts?

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Jim’s playing devil’s advocate again with Why Roth IRAs Are Bad. - I wish he would quit doing this because his titles are throwing me for a loop.

There’s a lot of office love in the air.

Here’s some good advice from Nickel: Always, always double-check your medical bills.

Is it better to give of your time or your money?

MBH talks about wholesale prices from your retail grocery store.

Binary Dollar hosts this week’s Carnival of Money Stories

Blunt Money got a call from a debt collector.

The Digerati Life has 20 Typical Reasons to Sell Your Stock or Mutual Fund - Some of this seems an awful lot like “market timing.” In my opinion it is extremely important to keep your emotions in check when deciding whether or not to sell an investment. Unfortunately, most people trade with their emotions.

Here’s a message from Dimes to Dollars: READ THE DAMNED CONTRACT!

eFIPO is starting a stock market game.

Finance Buff reviews A Random Walk Down Wall Street. Believe it or not, I have NEVER read this book. I saw it the other day in the bookstore but didn’t buy it because I have too many books already on my list. I do intend on reading it this year.

FinIndie has 4 Cardinal Rules of Car Buying.

Money Tortoise has some things to know before filing your taxes.

If Numbers Were Just Numbers.

EDITOR’S CHOICE: Jonathan has put together a handy little graphic that explains Tax Efficient Mutual Fund Placement.

New blog “See Jane Learn” has a post worth reading: Retirement Savings and Behavioral Economics - Yeah, it’s a boring title but worth reading.

Tired But Happy recently talked about her life and the changes she is facing.

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I saw this on The Consumerist.

ConAgra has recalled Peter Pan Peanut Butter due to Salmonella. The affected jars have a code on the lid that starts with “2111.” We NEVER bought Peter Pan until a couple of weeks ago. Guess what: our jar has that code on it and we have eaten about 1/3 of the peanut butter in the jar. Geez…

If you have a jar with the code on the lid, you can send in the LID to get a refund (hopefully it is cash so I can buy Jif instead. LOL!). Send your lid to:

Stuff like this is why you should read The Consumerist every day!

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Chris, an employee for Dave Ramsey and blogger for PourOut, sent me an email with a link to a post asking for opinions on whether or not there should be an official Dave Ramsey blog. Anyway, if you get a second, stop by Chris’ blog and leave your opinion. I think it would be cool (especially if they link to AFM!)

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I’m listening to the Dave Ramsey Show from yesterday. At about 1:06:38 (that’s hr:mm:s) into the program, Dave takes a call from a guy who wants to settle a disagreement with his wife. His wife wants to take their 401(k) contribution down to zero while they pay off their debts. Apparantly Dave suggests that people forgo putting money into their 401(k) while they are getting out of debt even if they receive a company match. WOW! The guy on the phone told Dave that he would be leaving $6,000 - $10,000 on the table if he took Dave’s advice.

I’m surprised that Dave would suggest this over the phone without getting a firm grasp of this couple’s situation. I mean shouldn’t he (Dave) find out this couple’s cash flow situation before he tells them to stop contributing to their 401(k)?

When the caller asked Dave about this, Dave said something to the effect that, “personal finance is 80% behavior and 20% head knowledge.” This sounds like one of those sayings that people say without really having any proof to back it up.

Now, I realize that I’m not a “GURU” like Dave Ramsey is, but here’s my thoughts on this:

1. Prioritize your finances. Take a look at your cash flow and see what areas are most important. Contributing to a 401(k) should be one of the top priorities.

2. If you have to cut costs, cut them by getting rid of unnecessary monthly expenses.

3. ONLY touch the 401(k) IF you have no other resources to pay off your debts.

I have to totally disagree with Dave on this one. What are your thoughts on this?

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