Today’s topic is WAYS TO SAVE.

You have two types of expenses - fixed expenses and discretionary spending.  Let’s talk about fixed expenses first.  Not all of those are as fixed as you think.  While you probably can’t do much about your rent, there are ways to lower other expenses.

• TAX REFUNDS ARE NOT A GOOD THING!  If you squeal with glee every year when you get that fat refund check, stop now.  You’re giving the government an interest-free loan.  Rather than letting them hold onto your money, you hold onto it yourself in your online savings account.  If you get a large refund every year, you should adjust your withholdings so that less is taken out of each paycheck.  Funnel that money directly to savings because you can’t miss what you never had.  The IRS withholding calculator IRS withholding calculator will tell you how much you should be withholding and PaycheckCity will tell you approximately how much your check will be once you change your withholdings.

• Eliminate unnecessary features on your cellphone and home phone.  Do you really need *69 and 2000 anytime minutes?  Sure it may only save $5/month but all those little $5/month’s add up.  Wouldn’t you love to have $50-100/month extra just by putting forth a little effort?  Also, if you work for a large company like I do, you may be eligible for employee discounts.  Most of the cellphone companies will give 5-10% off just for being an employee.  And while your’re at it, cutback on the cable.  Do you really watch HBO, Showtime AND Cinemax?  Probably not.  Maybe stick with just HBO and save $20/month.

• Save money and the environment.  Make an effort not to waste water, electricity or gas.  Stop running the dishwasher and the washing machine half full.  Invest in programmable thermostats if you have high utility bills.  Also, don’t believe the hype.  You really don’t need a capful of detergent and a whole sheet of Bounce for every load.  Try using half as much.  I promise your clothes will be just as clean and just as soft and you’ll save money to boot.  Stop running all over town everyday too.  Combine your errands into one or two trips per week.  You’ll save time, money and wear and tear on your car.

• Are you getting the best rate on your car insurance?  If you haven’t done so lately, get online quotes from a few different companies to see if you’re getting the lowest rate you can.  Also, re-evaluate the coverage you have.  If you have an old beater that’s only worth $1000, it’s probably not worth it to have full comprehensive and collision.  Drop back to just liability coverage and save the difference.  Are you being charged for gap insurance?  Unless you’re upside down on your car loan, you don’t need it.  Drop it and save the difference.  Another cost-saving meaure is increasing your deductible if it’s below $1000.  Also, consider taking a defensive driving course.  This will lower your premiums as well.  Courses can be taken online for as little as $45 and an hour of your time.  I don’t have the link offhand but post in the comments if you want the link to the course I took.

• Credit card companies will help you if you ask.  I hope you don’t have credit card debt, but if you do, there are ways to ease the pain.  If you always pay your bill on time, call and ask the card company to lower your interest rate.  Most times they will.  If they won’t, call back in three months and ask again.  You can save hundreds of dollars a year in interest payments just by making a phone call. 

That’s all for now.  Tomorrow’s post will be about saving on discretionary spending.

This is the second post in my homebuying series. The second step in the homebuying process is GET YOUR MONEY RIGHT.

• Open an online savings account. Why not a “regular” savings account, you ask. An online account will give you a better interest rate (3% or more) vs the 1% or less you will probably get at your current bank. In addition, you can’t easily access the money so there’s less temptation to overspend and dip into your savings. No ATM card and while you can transfer money out, it will take 1-3 business days to post to your checking account. I like both HSBC and ING Direct. Also, if you deposit $250 or more, ING will give you a $25 opening bonus – nothing like free money. (ING referral links are posted on the left sidebar. Disclaimer - You’ll get $25 and I’ll get $10.)

• Pay yourself first - Put everything but what you REASONABLY need to live on until your next paycheck (i.e. gas, groceries, etc.) into your savings account from the start. You can’t spend what you don’t have. If you only have $65 in checking until your next paycheck you will be forced to brown bag it rather than buying lunch everyday. I leave myself $50 extra over what I believe I need until my next paycheck but that money isn’t for spending. It’s in case something truly unexpected comes up. That brings me to my next point…

• Plan for it - Irregular expenses like car insurance are not emergencies and should not be unexpected. If your car insurance is $600 every six months, then you need to be setting aside $100/month (preferably in your “regular” savings account that’s attached to your checking account) so that when the bill comes, you already have the money for it. Apply the same technique for birthday/Christmas spending. If you know you like to buy $600 worth of Christmas gifts every year, you should be setting aside $50/month all year so you don’t have to charge it.

• Stop charging stuff! If you’re putting expenses on credit cards and you’re not paying the bill IN FULL every month, then YOU CAN’T AFFORD IT! You’re spending money you haven’t even made yet. You’re jeopardizing your future for Red Lobster and PF Chang? Come on, you’re better than that. If you’re like most people, you probably don’t even realize how much money you spend on unimportant things (the important thing being getting a house). So…

• Write down EVERY CENT you spend - This can be done with a notebook, Excel spreadsheet or software like MS Money or Quicken. You will be surprised to see how much money you nickel and dime away. Once you do this, you’ll see how much money you have to save as well as how much money you COULD be saving every month if you cut back your spending on the unimportant things. Next up….

• Create a budget but be sure to leave yourself some room for fun. It’s kind of like being on a diet. If you force yourself to eat healthily ALL the time, one day you’ll get tired of depriving yourself and eat the whole bag of cookies in one sitting. However, if you allowed yourself three cookies per week, you’d be better off for it.

I think that’s enough to digest for now so let that sink in and post any questions in the comments section. The next post will be WAYS TO SAVE MONEY.

For several weeks now, news broadcasts have stated that it’s a “buyer’s market” due to the increasing number of foreclosures as well as falling interest rates. If you’re someone who’s interesting in buying in the near future, there are several stes you need to take so this will be a series of posts. Step one is GET YOUR CREDIT RIGHT. Get your FICO score as well as copies of all three credit reports (Experian, Transunion and Equifax). You are entitled to at least one free credit report per year. The official site is www.annualcreditreport.com. However some states, like Georgia, allow you to receive two free reports per year.

If you have a FICO score of 700+, you’re doing great. If your score is 600-700, I’m not going to say don’t buy a house but you need to evaluate why your score is that low as well as realize you won’t be able to get the best mortgage rates. If your score is below 600, you don’t need to buy a house right now and with the current sub-prime mortgage situation, you probably won’t be able to get a mortgage anyway. Get your credit right and revisit the issue in a year or so. However, DO NOT pay anyone who says they can fix your credit for you. Either they’re charging you to do something you can do yourself for free (disputing genuinely inaccurate info) or doing something dishonest and/or illegal.

Checking your credit reports is important because you never know what’s on there. I have excellent credit and always have but recently a collection showed up on my credit report. It was a bill from a city I hadn’t lived in for over three years and they attached a collection without ever contacting me. It took a few phone calls and faxing proof of when I moved out of the city but I got the collection removed.

The first thing you want to do is get any incorrect info removed (accounts that aren’t yours, accounts that are closed or paid off but don’t reflect that, etc.). If you do have negative information that IS accurate, you need to resolve those issues as well. If you have accounts in collections, get those paid. If you have late pays on accounts, call up the companies and ask if they’ll remove the negative notations once you have X months of on-time payments. However, DO NOT open or close any accounts. Both will generally hurt your credit score and you don’t want that to happen.

You don’t want to have credit card debt if you want to buy a home. However, if you do have debt, pay attention to your balance ratios. It looks bad if you are using more than 30% of available credit on any one card and more than 50% of your total available credit. For example, if you have a credit card with a $1000 limit, try to get your balance below 30% of that ($300). In a later post I will go into details about paying off debt vs saving for a down payment. However, this should get your started. If you guys have any questions, leave them in the comments and I promise to answer all of them. The next step (and next post) is GETTING YOUR MONEY RIGHT.

Most people realize that they should be contributing to a 401(k). However, most people don’t know how to manage their 401(k)s. Here are a few easy rules to keep you on the right track.

• Start saving as early as possible - Time is on your side when it comes to the power of compounding interest. Even in you’re not able to contribute a lot at the start, every little bit helps.
• Location, location, location - When it comes to investing, don’t put all your eggs in one basket. You want a diverse portfolio but don’t overdo it. Three or four funds should suffice.
• Remember Enron - The lesson we all should have learned from that disaster is to limit the amount of funds you have in company stock. As a rule of thumb, don’t hold more than 25% of your portfolio in your company stock.
• Less is more - Resist the urge to constantly tinker with your 401(k). Once you’ve chosen an asset mix, only rebalance your portfolio once a year. Any more than that and you risk chasing yesterday’s winners.
• Cash isn’t always king - If you change jobs, don’t cash out your old 401(k). If you’re happy with your portfolio, leave the 401(k) open with the current administrator. If you’re not happy with it, your best bet is to roll it into an IRA. You will avoid taxes and withdrawal penalties as well as have more options and flexibility.

Lately, there has been a lot of focus on getting and keeping a good credit score. Here are a few things NOT to do if you want to maintain your good credit.

• Make your payments late - Even one 30 day late payment can significantly reduce your credit score. Send in at least the minimum payment when you receive your credit card bill in order to avoid late payments. You can always make another payment during your billing cycle.
• Maxing out your cards - When you use more than 50% of the available credit on any one card, that tags you as a credit risk. You should strive to not carry a balance at all but if you do, make it less than 50% of your credit limit.
• Too many cards - While you do want to leave open the card with the longest history, there is no need to keep open every card you ever got. Take a look in your wallet and try to pare down to no more than three cards.
• Ignoring bills - If you have bills go into collections, that is a serious black mark on your credit. Whether it’s a $25 cell phone bill from college or an old store card with a $100 balance, be sure to pay all bills! If you think you’ve been billed incorrectly, call the creditor but don’t ignore it.

Q: Should I save first or pay down debt?

A: This is one of the most frequently asked questions. The answer will vary according to your situation. However, I generally suggest establishing some level of savings (even as little as $500) before accelerating debt payments. Next, you should determine what is ‘good debt’ such as mortgage loans and student loans and what is ‘bad debt’ such as credit card debt. Pay off the high-interest bad debt first and then move on to investing and reducing good debt.

Q: I’m having a hard time saving money. Do you have any ideas or suggestions?

A: Set up automatic transfers into your savings account - out of sight, out of mind. Don’t pay unnecessary fees - late fees, ATM fees, etc. Those small fees can add up over the course of a month. Consider taking your lunch to work if you don’t already. $5/day for lunch at work is $100/mo. That’s not chump change. Cut expenses if possible. Do you really need the super deluxe cable package? With a little creativity, you will be able to increase your savings in no time.