Federal Reserve Cuts Rates Again

Today, the Federal Reserve Board cuts rates again. This time they cut rates by a quaerter point. Many people incorrectly think that the rate cut directly, positively impacts home mortgage rates but it doesn't. Since home mortgage loans are usually tied to bonds, Fed rate cuts tend to hurt mortgage rates. Generally, mortgage rates are impacted by economic direction. A bullish market helps stocks and hurts bonds so mortgage rates goes up. A bearish market hurts stocks but helps bonds, making mortgage rates fall. Obviously, there are tons of factors that influence rates so don't think this simple explanation explains it all.

I will say that the rate cut does positively HELP credit card rates, home equities loans and car loans. It just doesn't help mortgage rates.

Also keep in mind that there is a difference between the Federal Funds Rate and the Discount Rate. In addition to the Federal Funds Rate, the Board aslo cut the discount rate today by a quarter point. The Federal Funds Rate and it is the rate at which banks pay to borrow from the marketplace and the rate that affects credit cards, home equity lines of credit, car loans and other consumer loan rates. The other rate that the Feds control is the "discount rate". This is the rate that the Fed charges to lend money directly to banks and other lending institutions.

Federal Reserve Helps You

On November 19, 2007, the federal reserve board announced a new program for consumers that need help in regards to bank problems. It's called Federal Reserve Consumer Help and the link is www.federalreserveconsumerhelp.gov.

The board says, "To make it more convenient for consumers to contact us, we created a one-stop complaint and inquiry site where consumers know they can go to get help."

The website allows for easy navigation and the ability to submit complaints electronically.

Here is all the contact information:

Online: http://www.federalreserveconsumerhelp.gov/
E-mail: ConsumerHelp@FederalReserve.gov
Toll-free: 888-851-1920 (8 a.m. to 6 p.m. CT)
Toll-free TTY: 877-766-8533
Toll-free fax: 877-888-2520
Mail: Federal Reserve Consumer Help, P.O. Box 1200, Minneapolis, MN 55480

Great Finance Tools for Kids

Unfortunately, many schools don't teach basic personal finances. As parents, it's critical that we educate our children about money and managing money. Recently, a program was featured on The Today Show. The program is called "PAYjr" and it is a website that allows teens to get pre-paid Visa cards. For kids under 13, there is a feature that allows for tracking of allowance and chores. I think it's a great idea as it allows kids to start learning about money at an early age.

Money Magazine's "25 Rules to Grow Rich By"

article: http://money.cnn.com/magazines/moneymag/moneymag_archive/2006/11/01/8392426/index.htm

Home
1 For return on investment, the best home renovation is to upgrade an old bathroom. Kitchens come in second.
2 It's worth refinancing your mortgage when you can cut your interest rate by at least one point.
3 Spend no more than 2½ times your income on a home. For a down payment, it's best to come up with at least 20%.
4 Your total housing payments should not exceed 28% of your gross income. Total debt payments should come in under 36%.
5 Never hire a roofer, driveway paver or chimney sweep who is going door to door.
Invest
6 All else being equal, the best place to invest is a 401(k). Once you've earned the full company match, max out a Roth IRA. Still have money to invest? Put more in your 401(k) or a traditional IRA.
7 To figure out what percentage of your money should be in stocks, subtract your age from 120.
8 Invest no more than 10% of your portfolio in your company stock--or any single company's stock, for that matter.
9 The most you should pay in annual fees for a mutual fund is 1% for a large-company stock fund, 1.3% for any other type of stock fund and 0.6% for a U.S. bond fund.
10 Aim to build a retirement nest egg that is 25 times the annual investment income you need. So if you want $40,000 a year to supplement Social Security and a pension, you must save $1 million.
11 If you don't understand how an investment works, don't buy it.
Plan
12 If you're not saving 10% of your salary, you aren't saving enough.
13 Keep three months' worth of living expenses in a bank savings account or a money-market fund for emergencies. If you have kids or rely on one income, make it six months'.
14 Aim to accumulate enough money to pay for a third of your kids' college costs. You can borrow the rest or cover it from your income.
15 You need enough life insurance to replace at least five years of your salary--as much as 10 years if you have several young children or significant debts.
16 When you buy insurance, choose the highest deductible you can afford. It's the easiest way to lower your premium.
17 The best credit card is a no-fee rewards card that you pay in full every month. But if you carry a balance, high interest rates will wipe out the benefits.
18 The best way to improve your credit score is to pay bills on time and to borrow no more than 30% of your available credit.
19 Anyone who calls or e-mails you asking for your Social Security number or information about your bank or credit-card account is a scam artist.
Spend
20 The best way to save money on a car is to buy a late-model used car and drive it until it's junk. A car loses 30% of its value in the first year.
21 Lease a new car or truck only if you plan to replace it within two or three years.
22 Resist the urge to buy the latest computer or other gadget as soon as it comes out. Wait three months and the price will be lower.
23 Buy airline tickets early because the cheapest fares are snapped up first. Most seats go on sale 11 months in advance.
24 Don't redeem frequent-flier miles unless you can get more than a dollar's worth of air fare or other stuff for every 100 miles you spend.
25 When you shop for electronics, don't pay for an extended warranty. One exception: It's a laptop and the warranty is from the manufacturer.

Family of 9 Lives Debt Free on $35K per Year

I just read the article on abcnews.com site (20/20) about America's Cheapest Family. They live on $35,000 per year and there are 2 adults and 7 kids. The most amazing thing is that that they live DEBT FREE. There was a video on yahoo.com this morning as well. As most personal finance blogs seem to re-iterate, it's the small things that add up. This family goes to the store once a month and they literally save hundreds of dollars each trip using coupons. Over the course of a year, that's thousands of dollars. Thousands of dollars adds up to a huge percentage when the total salary is only $35K! They even wrote a book called America's Cheapest Family Gets You Right on the Money: Your Guide to Living Better, Spending Less, and Cashing in on Your Dreams

Credit Card 0% "Loans"; IT REALLY WORKS

In this post, I'll discuss how to use those introductory 0% credit card offers to your advantage. The basic premise is that you apply for a credit card that has a 0% introductory rate and use the credit limit that you are granted to get cash. You take the cash and put it in a higher yield savings account or money market account. Each month, you only pay the minimum due and keep the rest of the money earning interest for you. At the end of the introductory period, simply pay off the balance on your card. With enough of these cards, you can easily earn thousands of dollars a year. This method was discussed on other PF blogs as well: www.thesimpledollar.com and www.pfblog.com

Now, there some negatives associated with this practice. You must remember that since your income to debt ratio will be way out of wack, your credit score WILL GO DOWN. This is not really that big of a deal if you don't have any near term needs for credit. Even though you credit SCORE is affected, your credit report will still be showing on-time payments and your history will be increasing. After you're done with this "loan" idea, it will take quite a few months for your credit score to go up. It's very important to forecast when you might need to apply for normal credit (i.e., you really need to buy something like a car or house) so that you can begin to pay your loans off.

Another thing to remember is to stay on top of your payments. Do not be late! If you apply for many offers, you could easily have 5, 10, 15 or more cards to keep track of each month. The method I use is to have paperless statements sent to me each month in the form of an email alert. As soon as I see the alert, I go to that card site and schedule my next payment (I either pay the minimum or I pay off the card if the intro period is about to expire). To do this I use electronic funds transfer (EFT) from/to my savings account to the account I pay my bills out of it. Honestly, each bill pay only takes me about 5 minutes from the time I read the alert, transfer money, update my check registry, and schedule the payment.

Here is a very imporant point. When you are researching for new cards to apply for, of course you want to look for the 0% offers but you absolutely must read the fine print in regards to the fees. The best offers are the ones that have no fees associated with a transfer or cash advance. Others have something like 3% of the transfer amount but cap it off at $50 or $75. The worst offers are the ones that have no maximum fee for the amount trasferred. For example, if you apply for a card that has a 3% transfer fee with no max and you write yourself a check for $10,000, you will be assessed a $300 fee. I DO NOT RECOMMEND THESE CARDS because your margin will be very small. You really have to do the math when it comes to the term of the intro period, the transfer fee, and the max transfer free details. If the margin is very small, I do not apply for the card.

Here are some links for 0% card offers:









Here are some links for savings account with decent yields:








In summary, you can make money using 0% introductory rate credit card offers. However, you should read the fine print to determine the fees involved (hopefully they're none). Additionally, set up a method that works for you so that you can stay on top of all your payments. You definitely don't want to be late with you payments. Finally, be sure to track your expiration dates so that you don't forget to pay your card off when the intro period is up.

Get Rich Slowly Book Review

...just read the book review of "Debt is Slavery" from the blog Get Rich Slowly and I must say it was a great review because he summarized all the key points and explained each very well. I'm going to list each point but honestly, to appreciate the post, please read it: http://www.getrichslowly.org/blog/2007/08/07/book-review-debt-is-slavery/

Get the book here:


Here are the points:

1. Debt is slavery.
2. Money is time. (see the book Your Money or Your Life)

3. Possessions are a prison.
4. Don’t let advertising brainwash you.
5. Money buys freedom.
6. Don’t sell your soul for a salary.
7. Own.
8. Spend less than you earn.
9. Save 50% of your salary.
10. Control your money.
11. Start doing this now!