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How to Take Advantage of the Low Interest Rates

22 Apr

Interest rates have been at record lows for a while. Actually, they are near zero and have nowhere to go but up. For illustrative purposes, a graph of the 30 year fixed mortgage rate shows that we have gone a long way since the 1980s when the rate was upwards of 17.5%. (Source: Yahoo Finance)

interest rates graph

The Federal Reserve has maintained the interest rates low in an effort to stimulate the economy by discouraging saving and encouraging borrowing Chairman Ben Bernanke said last month that while the U.S. economy has improved, it still needs support from the Fed to help lower unemployment. Bernanke says that short-term interest rates will stay near zero until unemployment falls to 6.5 percent. Forecasters expect that won’t happen sooner than 2015. (Source: NPR News)

Do you feel like you should be doing something to take advantage of the interest rates at record low? Probably.

Whether you want to save, spend or invest, consider your options and choose the strategies that best suit your particular financial circumstances. Here are five tips for low-interest-rate periods:

  1. Consolidate debt. With interest rates at historic lows, it makes sense to consolidate debt into one low-interest loan. For example, if you have outstanding balances on several credit cards, consider transferring those balances to one credit card with the lowest interest rate. If you qualify, it may be a good time to apply for a home equity line of credit to consolidate debt or make a home improvement.
  2. Shop around for credit cards with the best interest rates. You may be able to get one with better terms than the one you are currently using. Or, ask your credit card issuer to lower your interest rate to make it more competitive.
  3. Make large purchases now. If you’ve been thinking of making a major purchase like a house or a car, today’s low-interest rates make it a good time to finance big-ticket items. However, make sure you have a good credit record and can pay off the loan before applying.
  4. Order a free copy of your credit report. Review the report carefully to verify its accuracy and dispute any errors. Errors in your credit report may affect your credit score, and higher credit scores can mean lower interest rates. If your score is lower than you’d like, pay down your balances and pay bills on time to raise your score. Read more about What to do if you are a victim of identity theft.
  5. Keep saving. Just because standard savings accounts aren’t paying a lot of interest now doesn’t mean you should stop saving for your future. Your savings will still accrue, you’ll be less likely to spend it and you know it will be safe. If you can afford to lock up your money for a while, longer-term Certificates of Deposit (CDs) typically pay the highest interest rates. Specifically, Market Linked CDs are an extremely effective and popular solution as they are the only financial product that combines the guaranteed return of your principal and the protection of FDIC Insurance with the potential to earn reasonable rates of return.

In conclusion, although interest rates are at historic lows, it is important to ensure that whatever your strategy is, it makes sense in your particular situation. It’s probably not a great idea to buy an overpriced home now just because mortgage rates are low. Neither is it a good idea to acquire more debt just because it is cheaper to do so.

In any economic environment, the strategy that will ultimately bring you closer to financial freedom is one that focuses on debt elimination and creating tax-free income.

How to Live Within Your Means

5 Feb

how to live within your meansYou do realize that you have to live within your means because spending more than you earn is unsustainable. Yet you don’t seem to be able to get out of debt.  It feels like you are trapped in the vicious circle of minimum payments, accumulating more debt, paying off some of your debt but then “having” to use credit again… and it starts all over again. Sounds familiar? You are not alone. The average household consumer credit card debt in the US is about $15,422. You do have a choice. You don’t have to try and fund a lifestyle you want but cannot truly afford.

      Distinguish between wants and needs. Our instant gratification culture teaches us that we can have anything. And we can have it now. We are also wired to believe that if we really want something that must mean we need it. And credit cards are the enabler. So to avoid buying unnecessary items, always ask yourself if something is an absolute necessity or something that you think would be nice to have. Create a mental questionnaire that you go through every time you are about to make a purchase. And apply it to everything. With a little bit of practice, this decision process will eventually become second nature and you will be able to apply it in all kinds of situations. You may even discover that there are opportunities for limiting unnecessary expenses in areas that you did not even think about such as groceries for example.

      Know yourself. Not only is your financial situation different than your neighbor’s or friend’s but so is your personality and your ability to “resist temptation”. In terms of spending that is. Even if it may be difficult to admit, you probably know if you are a spender and cannot really accomplish Step 1 above. If that is the case, purposely stay away from shopping temptation, or do not carry your credit cards with you, or come up with whatever works for you to keep your mind occupied and keep you away from trouble.

      Set limits on spending and track your expenses. If you don’t already track your expenses, you should make a priority to do so. It is imperative you have clarity on how much you spend every month on groceries, clothing, paying bills, entertainment etc. Having just a rough idea is not enough. Sometimes what you think you spend in certain categories and what you actually do may be what causes you to live above your means and “supplement” your income with credit. Once you know how much you spend, set a limit on expenses.

     Have an emergency fund. Very often we use credit not for wants but because we have to cover urgent and unexpected expenses. Those are inevitable. Life happens and even if you are very disciplined about sticking to your spending plan, there will be surprises. Therefore, all experts agree that everyone should have at least 3-6 months of living expenses in an emergency fund. Keep in mind, this is the minimum. It is however absolutely mandatory to have an emergency fund if you don’t want to be forced to rely on credit.

      Don’t get caught up in consumerism. Stuff is just stuff. One of the most important ways to ensure you live within your means is to focus on living simply, being happy with less. Remember that the best things in life are free. Reevaluate how you spend your free time. Are you indulging in material possessions to keep up with the Joneses? Take a moment to answer all these questions truthfully. Refocus and find simple and meaningful pleasures that don’t get you in debt. Then you will know you have learned to live within your means.

What do you live within your means? Please share in the comments section below what works and doesn’t work for you and your family.


How To Deal With The New Payroll Tax Hike

14 Jan

how to deal with the payroll tax hikeSo by now, most of you have probably already opened your first paycheck for the year and were unpleasantly surprised by the decreased amount of your take-home pay. In case you were living under a rock for the past few months, here is what caused the tax increase. Well, it is not really an increase. There was a temporary tax break (reducing the Social Security Tax rate from 6.2% to 4.2%) that all American workers got for the last couple of years. This temporary tax break was given to us in an effort to stimulate the economy by letting us have more disposable income and was set to expire at the end of 2012.  Congress decided to let the tax break expire and therefore allowing all Americans to effectively lose 2% of their income starting January 2013.  There is a lot of speculation on how this tax hike will affect the economy. Many economists predict that the decrease in money Americans have access to on a monthly basis will lead to economic stagnation; some even go as far as predicting another recession. However, regardless of the impact the tax increase will have on the economy, most of us are now mostly concerned with how to immediately deal with the decrease in income and how it will affect our own budget.

The reality is simple – 2% less income is a lot for most of us. If your annual salary is $50,000, then you are looking at bringing home $1,000 less this year. Here are some of my thoughts I would like to share with my blog readers and my past, current and prospective clients at The Baron Group:

  1. Reduce expenses. Of course the most obvious response to a reduction in income would be a reduction in expenses. Think carefully about your spending patterns and see if there is any discretionary spending you can easily reduce. Going out to eat, dry cleaning, daily lattes and buying lunch at work are some of the most obvious ones you can cut or reduce.
  2. Go generic. If your budget is already reduced to bare necessities, think if you can save money by buying generic brands as opposed to brand names. You don’t have to immediately look at your groceries list. Realistically, most of us prefer a certain brand of food/drink and even if we can easily see that the ingredients are exactly the same, switching to a generic brand doesn’t happen easily. Instead, consider other household items such as paper towels, cleaning supplies, diapers etc.
  3. Don’t reduce retirement savings. Reducing how much you contribute towards your retirement goals may seem like a good way to respond to the tax hike. This couldn’t be further from the truth. Remember with savings you have to always consider the effect of compound interest. Specifically, the amount you chose to not save today will be magnified because you will forgo the benefits of continuously accumulating interest on interest. So, before you decide to reduce your retirement savings contributions, explore every other strategy for cutting expenses. Ideally, you will avoid reducing your retirement savings altogether.
  4. Increase debt payments. You may think it is counterintuitive to increase payments when your income is reduced. Not when it comes to debt payments. As you are scrubbing your budget to see where you can find a few extra dollars to respond to the payroll tax hike, you may surprise yourself with reductions increasing 2%. If that is the case, and in an event of any room in the budget, I always recommend increasing debt payments. The sooner you are completely debt free, the closer you get to financial freedom and the realization of your financial goals. (Learn how to Eliminate Debt, including your mortgage in a fraction of the regular time)
  5. Deserve a higher raise. Usually 2% of annual income is what the average American receives as an annual raise.  However, since in 2013 this raise will be eaten by the payroll tax hike, maybe now is the best time to really excel and impress at work so you can make a case for an above average increase this year.

How about you? What will you do (have already done) to respond to the payroll tax hike? Please share in the comments section below.


13 Sure Ways to Be Broke But Cool… Forever

11 Jan

Broke But CoolYou know all those personal finance experts who always talk about saving, budgeting, living within your means and being financially independent? They often give advice that although has a desirable future outcome assumes that you save up for stuff, live within your means and are financially responsible. How boring! You only live once. Instead, read below how to be broke but cool.

  1. Keep up with the Joneses. Number one rule for being cool is making awesome impression. If your neighbors or friends get something new, you should definitely follow suit. Actually, think if you can get something bigger and better.
  2. Finance everything. You can’t afford it? No problem! That’s what credit is for! You are not buying a $30,000 car but committing to only $300 a month payment. For only 5 years. You can totally do this. Why wait to buy the stuff you really want when you can have it now. After all, you have a huge credit limit for a reason.
  3. Pay the minimum. When the credit card bills come in, don’t waste all your cash to repay them. There is this really cool concept of minimum payment. It is designed with your comfort in mind so you don’t have to use up all your cash and instead can spend it on some really nice stuff. Oh, and ignore that part about how it will take you 38 years to repay the balance if you only pay the minimum. That’s there just for informational purposes. No biggie.
  4. Stay in debt. There is no need to try and get out of debt when almost everyone in the US has debt.  You are in good company. And interest? Well, just focus on that daily interest percentage that your credit card company has listed for you on the statement. When you look at it that way, it doesn’t seem so bad.
  5. Buy the biggest house. Buying the biggest and most expensive house you can barely afford is a great way to be cool and broke.  Make sure you have the most lavish décor, high end everything and remodel as soon as possible. You can finance all of that. If you are lucky, your house may even go up in value so you can borrow against the equity and have some more spending money. Now how cool is that?
  6. Buy a new car. And do that often. There is nothing like that new car smell. A new car makes you feel and look great. Your car is one of the first things people notice about you so make sure it is fancy so you can make a good impression. Ignore them if people tell you that a car is one of the fastest depreciating assets. They must be jealous of your coolness!
  7. Don’t save. Why tie up your cash in a savings account when you could put it to better use? Financial advisors always talk about emergency fund. Do you really need that when you can use a credit card in case of an emergency?
  8. Don’t have insurance. Another favorite of financial advisors and all those personal finance folks. After paying for your big house, new car and cool new toys, life insurance just costs too much. Plus what are the chances you die anyways?
  9. Follow the latest trends. In fashion, cars, furniture, appliances and gadgets, the trends change all the time. And there is a good reason for it. After all, they are developed after countless hours of research by the consumer goods companies. So by all means, follow the trends! Even if that means renewing your wardrobe and cell phone every season, changing your car every two years and remodeling your kitchen every five years. Remember, that’s what credit is for and trendy is cool!
  10. Go on expensive vacations. You work so hard. You deserve it! And you have a huge credit limit on your new card. So why not treat yourself to that exotic vacation you have been thinking about. Make sure you choose the best. Go for luxury whenever you can. Think about the cool pictures you can show! You would really like that 5 star resort in the Caribbean.
  11. Don’t think about retirement. Retirement is for old people! You are way too young to think about that. You have plenty of time. You can think about that later. Plus towards the end of your career you will be making much more than today so it only makes sense to start then. Don’t get depressed thinking about getting old. Instead, enjoy your awesome life now.
  12. Wait to invest. Same logic as above applies here. Why waste precious dollars today for something that impacts your long-term future? Ok, maybe there is a merit to doing that but you can always start tomorrow. Or next year.
  13. Get regular “shopping therapy”. You didn’t know that “shopping therapy” is a scientific term? If you are sad, tired, or bored, go shopping. Coming home with something new will instantly cheer you up and make you feel better. Do it regularly and consistently for best results.

So, live by the above principles and you are guaranteed to look your best, make the best impression and always immediately get what you want. You will know that you have enjoyed life to the fullest and you are guaranteed to be the person everyone envies and wants to be like.

Who cares about not having savings, not being able to retire, living paycheck to paycheck and being broke when you are that cool!

What to Do If You Are a Victim of Identity Theft

26 Oct spending

In my recent post What You Need to Know About Identity Theft  I’ve discussed the types of identity theft, the maximum liability in case of identity theft and various identity theft scams.

While it is useful to have that information, most of us think we will never have to deal with identity theft. I certainly hope this is the case for all of you but in the event of identity theft this article will go over what to do if you are a victim of identity theft.

How to Detect Identity Theft

If you are a victim of identity theft it is crucial that you take action right away. The sooner you act, the more likely it is you will contain the damage and be able to save time, money and frustration.

It is important to be able to recognize the below major signs of identity theft:

Unauthorized purchases and accounts – probably the most obvious. Look out  for unauthorized accounts, charges, transactions.

Missing mail  – make sure you keep track of all monthly statements, bills and anything else containing your personal information that you usually receive in the mail. Watch for missing: credit card bills, bank statements, boxes of new checks, tax forms, tax refund checks, social security checks and statements.

Lost belongings – if your wallet containing credit cards, IDs etc. is ever stolen it is best to assume that your identity is at risk and take actions.

Collection calls – you know  if you start receiving calls  from collection agencies or worse, the IRS, about debts you have not incurred, that someone has assumed your identity.

How Can You Repair Your Credit AFTER Identity Theft

There is life after identity theft!

Here is what you can do to help repair your credit after you have become victim of identity theft.

Write to the credit bureaus – Send a letter to each of the three credit reporting agencies. This letter is often referred to as Identity Theft Report. It needs to include:

  1. Clear statement that you’re a victim of identity theft and that you are writing to request that all fraudulent information be removed from  your report.
  2. Reference to any calls made to place a fraud alert on your file
  3. Specific details about what needs to be removed. A copy of your credit report could be useful.
  4. Copies of any police reports filed and/or any additional documents which can support your case.

Send your letter by Certified mail Return Receipts Requested. The addresses of the fraud divisions for the three credit reporting agencies are:


PO Box 740256

Atlanta, GA 30374


PO Box 9556

Allen, TX 9556


PO Box 6790

Fullerton, CA 92834

According to Fair Credit Reporting Act (FCRA), the credit bureaus are obligated by law to do the following:

Block all allegedly fraudulent information from appearing on your credit report.

Investigate the fraudulent information you have reported. They must inform the companies that originally reported the information that you are disputing the charges. Those companies in turn must investigate the charges and report their findings to the credit reporting agencies.

More Steps to Help You Recover from Identity Theft

Unfortunately, the process of repairing your identity can be a lengthy one, so here are some additional steps to take in order to reclaim your credit and identity.

As soon as you realize you have become a victim of identity theft you should:

–          File a police report

–          Put a fraud alert on your credit report

–          Notify all accounts of possible fraud and identity theft

–          Close or at least put a freeze on all compromised accounts

–          Consider changing the username and password

–          Follow the quoted steps outlined on the FTC website at

If you find that you’re a victim of ID theft, the FTC urges you to:

  1. Contact the fraud departments of each of the three major credit bureaus and report the theft. Ask that a “fraud alert” be placed on your file and that no new credit be granted without your approval.
  • Equifax: 1.800.525.6285
  • Experian: 1.888.397.3742
  • Trans Union: 1.800.680.7289
  1. For any accounts that have been fraudulently accessed or opened, contact the security department of the appropriate creditor or financial institution. Close these accounts. Put passwords (not your mother’s maiden name or Social Security number) on any new accounts you open.
  2. File a report with local police or the police where the identity theft took place. Get the report number or a copy of the report in case the bank, credit card company or others need proof of the crime later.
  3. Call the ID Theft Clearinghouse toll-free at 1.877.ID.THEFT (1.877.438.4338) to report the theft. Counselors will take your complaint and advise you on how to deal with the credit-related problems that could result from ID theft. The Identity Theft Hotline and the ID Theft Website ( give you one place to report the theft to the federal government and receive helpful information.

Were you ever a victim of identity theft? Did you ever have to go through any of the above steps? Do you have other tips on what to do if you are a victim of identity theft.

Share with us  your experiences below.

What You Need To Know About Identity Theft

4 Oct

about identity theft

With our increasing dependence on the World Wide Web, identity theft is now more than ever a threat to all of us. There are no guarantees that we will not become the next victim of this crime. This is why the more we know about identity theft, the more equipped we will be to protect ourselves against in.

The History of Identity Theft

While identity theft is not a new crime, it has mutated over time to respond to the ever evolving technology and most importantly the World Wide Web, credit cards and ATMs.

Before the popularization of credit cards in the 1950s, stealing someone’s identity meant getting their passport, driver’s license or Social Security number. However, what made identity theft far less common in those days was the fact that a person had to be physically present at a bank branch in order to open a credit card.

Everything changed in the 1980s when the Fair Isaac Corporation invented the FICO system of credit scoring. This system rates a person’s credibility in a report which also contains other personal and financial information. When an identity thief gets a hold of that information, they are likely going to be able to access other banking and financial information. Unfortunately, with the automation of transactions and the ever more common online banking, stealing one’s identity has become easier than ever. Fortunately though, this ever increasing threat is recognized and today your maximum liability under federal law for unauthorized use of your credit card is $50.

Identity Theft Scams

The criminals specializing in identity theft are very skilled in the “craft” and constantly come up with new and improved ways to scam people just like you and I. No one is really protected because the schemes are getting more and more believable and sophisticated. The best way to find out about identity theft scams is to check out the resources on the website of the Federal Trade Commissions, the FBI, and the websites of your local Better Business Bureau or Chamber of Commerce.

Types of Identity Theft

Although there are many ways to steal an identity, below are the three more common types that everyone concerned about identity theft should know about.

Application Fraud (or True Name Identity Theft) – In this case the thief will use your personal information to open new accounts or purchase large items on credit. Most common forms of application fraud are a thief opening a credit card in your name or cell phone service. The biggest issue with this type of fraud is that it may take a while for it to be noticed. Very often people do not even realize that they have become victims of identity theft until they order a credit report and see consumer credit account that they do not recognize.

Account Takeover – in this case the thief uses your existing accounts to make purchases or withdrawals. This type of fraud is easier to notice and with the protection mechanisms many financial institutions currently have about identity theft, it is usually caught relatively efficiently. Many credit card issuers, for example, have protection mechanisms in place, such that in an event that a transaction meets their suspicion criteria, a call is generated to the credit card holder to verify the transaction was legitimate.

Criminal Identity Theft – possibly the most devastating type of identity theft, this is where the thief uses your identity and presents a counterfeit ID assuming your identity to law enforcement when questioned concerning a crime. This may seem an unlikely scenario to you but it is a form of identity theft that you should guard against.

What Identity Thieves are After

Social Security – a gateway to all your personal information

Date of Birth – to verify identity and confirm most transactions

Account Numbers – to with draw money or make purchases online

Mother’s Maiden Name – the ultimate identity verifier

Pins and passwords – to access various accounts

Driver’s license – to obtain fraudulent identification

How Is Your Identity Stolen

  • Identity Theft Online
    • Spyware – is type malicious software that collects information about your online activity. Spyware can come in the form of backdoor entry – which gives thieves access to your computer or keystroke logging when thieves get a log of everything you type online including passwords and account numbers. The presence of spyware is typically difficult to detect.
    • Phishing – is when you receive emails which seem to be coming from a reputable institution, your bank from example, asking you to update personal information. This way thieves can obtain your account numbers and other personal information
    • Fraudulent Sites Online – are fraudulent e-commerce sites offering various goods and services thru spam or online price comparison sites. Therefore, when your purchase something online, the thieves gain access to your personal information.
    • Wireless Snooping – occurs when the thieves access directly your unsecured wireless network and steal your private financial information directly from your computer.
    • Identity Theft At Home
      • Mail – stealing your mail can give thieves access to bank statements, credit carsd information, auto loans etc. Make sure your mailbox is locked or opt for paperless statements from your financial institution.
      • Trash – all personal information from above can be found in your trash. The solution is simple – get a shredder.
      • Phone Fraud – if you receive a call from your “financial institution” notifying you that there has been fraud suspected on your account and need you to verify your personal information, suspect that it may be a fraudulent call.
      • Identity Theft From Third parties – Sometimes thieves can access your information from a third party such as accessing your credit report illegally or hacking in  the records of a business that has your information (stores, restaurants etc.)

How Identity Thieves Can Use Your Information

  • Make purchases – usually large ticket items that can later be resold for cash
  • Make withdrawals – can be done from both credit and debit cards
  • Change your address – so it delays you discovering the fraudulent activity on your accounts
  • Open new accounts – using your Social security, a thief can open new credit cards and/or new auto loan or other loan accounts.
  • Get employment – it may sound strange but it happens often than you may think. Your identity may be used to secure employment.
  • Receive Social Security payments.

To prevent identity theft online you could take these measures:

  • Ensure your Operating System is up to date
  • Make sure your Browser is up to date
  • Get good antivirus software
  • Get anti spyware software
  • Do not click on pop ups
  • Be careful what you download

When using email you could take the following measures:

  • To protect yourself from phishing scams, do not respond to emails asking you to verity your personal information. Beware that thieves are very skilled and unfortunately they have succeeded at making those emails appear legitimate. Always use caution and suspect fraud. Keep in mind that it is highly unlikely that your financial institution will ask you for such verification via email
  • Make sure your antivirus software scans incoming emails.
  • Do not open attachments from people your do not know.
  • To open links that friends have sent always copy and paste the URL directly into your browser. Remember that sometimes fraudulent emails appear to come from people you know. This happens when their email accounts have been hacked.
  • Consider investing in encryption software to use each time you need to send personal information via email.

Follow these suggestions to protect your wireless network:

  • Enable 128-bit encryption
  • Change the routers default user ID and password
  • Change the default Service Set Identifier (SSID)
  • Disable SSID broadcasting

What Do Diets and Budgets Have In Common

28 Sep

What Do Diets and Budgets Have In CommonDid you know the US government has a list of the most popular New Year’s resolutions? No, this is not some form of “Big Brother watching” way of keeping track of the goals we set for ourselves but a list of most popular resolutions with links to useful web resources to help achieve them.

To no one’s surprise, a big percentage of the resolutions on the list are related to two coveted outcomes: to be physically and financially healthy.

Most everyone has been taught that one of the main methods to achieve financial health is to create a budget and stick to it. Same goes for physical health – get on a diet and stick to it.

So what do diets and budgets have in common? They don’t work! And let’s face it; they are not any fun either.

They both focus on what you cannot do and cannot have and do not account for surprises. Psychologically, both diets and budgets are ineffective and even potentially damaging to our wellbeing because the sense of restriction and deprivation create feelings of resentment which only destine the plan for failure. I think most of us know all too well the feeling of being motivated to start a diet just to fail a few days or weeks later.

So my suggestion, although it may seem counterintuitive, is to abandon the budget and the diet altogether. By focusing on the big picture and what you can have you will be more likely to be successful in changing your mentality and be better positioned for success.

It is really quite simple:  in case of financial health – spend less than you bring in; and in the case of physical health – the other way around – expand more than you take in. We all fully understand the theory but once when we try to live by those principles we realize that it may be much easier said than done.

Change the way you see saving and spending. Similar to healthy eating, you would be much more successful if you focus on the nutrition you get from your food rather than obsess with counting calories. The recipe is quite simple – eat whole, “clean” foods, cook more at home, eat less “empty” calories and move more. When it comes to your financial health, the principles are similar. Instead of feeling restricted with an unrealistic budget, develop a spending plan based on trends and be prepared and aware of “surprises” that will come along the way. Think about the purchases you make, the state of mind you are in when you make them. Are you an impulsive buyer? Do you have to have all the latest gadgets? A spending plan and a careful analysis of your historical spending will help you answer all those questions truthfully to yourself.

Budgeting and dieting share another similarity. Regardless of how devoted you are to your budget or your diet, life just happens. You will have that piece of scrumptious chocolate cake at the office birthday celebration party just when you have started your “No Sugar” diet. Or you will have to spend hundreds or even thousands on inevitable car repairs. This often creates the feeling of failure and makes us feel like we are not staying on target and not meeting our goals. That’s why an overly detailed budget will set you up for failure when a spending plan will outline the major categories in your spending: monthly bills, living expenses, saving for retirement, vacation, emergency fund etc.

Reexamine your priorities and consider why are you following the diet or budget anyways. Instead of being forced to focus on the restrictions that come with dieting and budgeting, focus on the long term goals and acknowledge progress along the way.

And last but not least, take advantage of all the tools available. There are so many options, from do-it-yourself programs like , thru complementary advice from to customized, comprehensive spending plan you can work on with your advisor, like the ones from Your Family Bank. Whichever one you choose, focus on your goal of financial freedom. The budget is just an imperfect tool to get there and not the goal itself.


Til Debt Do Us Part

9 Aug

We have all heard the statistics – 50% of marriages in the US end in divorce. It’s a shocking and a very discouraging statistic and one that has not changed much in the past three decades, according to recent data from the National Survey of Family Growth (NSFG). Marriage counselors and divorce attorneys will confirm that most couples list financial issues as a significant cause for their failing marriage. Especially in difficult economic times as the present, arguments over money can really bring most couples to at least alienation, if not worse. And without a doubt, one of the worst offenders from the money troubles category is debt. It is stressful and overwhelming.

But with the right approach, it can be managed.

Forget the blame. It does not matter much whether you are working towards repaying debt that you have accumulated together as a married couple or debt that one of you brought into the marriage. Concentrating on the fact that one of you brought more debt to the marriage is not productive and will not help repay those debts faster. Pointing the finger will not get you far either. Instead of thinking “Your debts will ruin us. You should really repay those debts as fast as possible!” say :” Let’s see what we can do to repay the debts as fast as possible so we can concentrate on our long term financial goals”. Remember you are now a team. Your spouse is not the enemy, debt is!

Create your family’s financial plan together. No goal is successful without a plan. This is particularly true when your goal is to be financially free and repay your debts. To create a plan which will be followed by both partners, it needs to include input from both of you. Your family’s financial plan needs to be realistic and something you could follow with your partner long term. Remember that your family’s financial plan is not something set in stone and is an ever evolving plan that helps you get on the right track.

Choose the right person to manage the finances. Although in some families both partners are very financially savvy and frugal, in most couples one partner is naturally more inclined to be a saver and planner than the other. Sometimes opposites attract and it is not uncommon for two individuals who are on the very end of the financial management spectrum to form a successful union. If one of you is naturally more inclined to being a better money manager, it is an easy choice to delegate managing the finances to that person.

Practice common sense debt management. It is really quite simple – live within your means (below your means is even better), save, create a financial plan and follow it. For more detailed discussion on common sense debt management, see my previous post Do’s and Don’ts When Getting Out of Debt.

Be transparent and communicate. It is not always easy to try and explain to your partner why it is important for you to buy a certain thing. It is very normal to have different priorities and disagree on discretional spending but one of the worst things a couple can do is lie to each other about spending and acquiring more debt. If you feel like you need to hide your purchases and are unable to explain them to your partner, then maybe that purchase is a case of emotional spending versus something you really need. When tackling debt, you and your spouse, as a family should be a united front and keep the lines of communication open. Being transparent will give you an opportunity to identify if there is a need for your financial plan to be adjusted.

Being debt free is much more than just a goal. It’s a way of life that can make a ton of difference in your family dynamics.

So, don’t be a statistic! Don’t let debt ruin your marriage!

Do’s and Don’ts When Getting Out of Debt

12 Jul

A significant part of my practice at the Baron Group is helping families get out of debt. Without a doubt, being debt-free is not only a requirement for financial freedom but also in most cases what is needed to be able to achieve financial goals and be able to retire.

The unfortunate reality is that so many of us, even the most financially disciplined ones are forced at one time of our life or another to take on debt due to unforeseen circumstances, very often urgent, such as job loss, medical emergencies, funeral expenses etc. And once there is too much debt we all know what happens – higher interest rates which then make it difficult to repay, inability to take advantage of the current lower interest rates environment in order to refinance a home mortgage for example… and it really becomes a vicious circle that it is difficult to get out of.

However, if getting out of debt is approached with a methodical plan which is followed diligently, then being debt-free could become a reality sooner than you had hoped for.

Below I have listed the 5 most important Do’s and the 5 most important Dont’s when it comes to getting out of debt.


  1. DO Check your credit report

Begin by obtaining a consumer credit report. First, make certain the information reported is accurate and also use it as a guideline to accomplish the second very important step – set a budget.

  1. DO Make a budget

Once you have identified all debts from the step above, then compare those against all sources of monthly income and set a budget. It really helps to list all income and expenses and figure out what the difference is. Then identify the debt with highest interest rate and create a plan to repay that debt first, then the one with the second highest interest rate etc. Be systematic and precise in your approach! Also, be realistic! This will make the difference between succeeding and failing to follow your budget.

  1. DO Stick to your budget

Even if you create the most efficient budget, it would not mean much if you do not stick to it and are unable to follow. Your budget will probably mean a more frugal lifestyle than what you are used to but keep reminding yourself that it is a temporary solution so you can accomplish your long term financial goals. Think of the day when you will be debt-free and focus on that. Because sticking to your budget is really what will put your on the road to financial freedom.

  1. DO Use tools to find savings

The good news is that sticking to your budget may not be so difficult because there is a strong chance that there currently are ways within your own accounts. There is variety of tools to help you accomplish that. From Personal Finance software like Quicken thru completely free online resources like to more robust and comprehensive tools like Your Family Bank®, the help is there, so take advantage of it.

  1. DO Beware of “Get Out of Debt” Companies

While sometimes it is indeed possible to renegotiate credit terms beware of companies that promise you miracles. In my over 20 years of experience, I have not seen credit card companies lower interest rates drastically just because you asked them to do so. If the promises those “Get out of Debt Fast” companies make seem too good to be true, they probably are.


  1. DON’T Incur more debt to get out of debt

In some cases it makes sense to transfer balances from high interest rates accounts in order to take advantage of zero interest balance transfer option but beware of the zero interest expiration date and include that in your long term budget. But it is important to note that this makes sense to do between already existing accounts. It is rarely prudent to open new credit card accounts in order to repay existing ones. Remember, you goal is to break the vicious cycle, not to keep turning within it!

  1. DON’T Cash out a 401(k) to get out of debt

Liquidating a 401(k) account is an option when separating from an employer but it is rarely a smart choice to make considering the early withdrawal penalty incurred by anyone who is younger than 59 ½(usually 10% of the balance) and the income taxes that will need to be paid on that transaction (depending on your tax bracket it could be anywhere up to 35%). Not to mention the interest lost over time if the account is rolled over to another 401(k) or an IRA. As a rule of thumb, think of cashing out a 401(k) as a very last resort when all other options have been exhausted. A plan to get out of debt usually doest not qualify for a life and each situation when you should resort to such drastic measures.

  1. DON’T live in denial

Ignoring the reality is never the answer regardless of how unsettling the truth can be. Just being satisfied with the status quo will not help you achieve your financial goals. Creating a financial plan and following it, even if it means some sacrifices along the way is what is going to help you get debt free. Doing nothing will only make your debtors richer.

  1. DON’T be late

Sometimes even small mistakes can cost a lot. These days credit cards companies are quite unforgiving when it comes to late payments. Paying a bill late will, in most cases, automatically trigger an interest rate increase which will then set back your efforts and keep you further away from accomplishing your goals. Keep meticulous track of payment due dates, setup for automatic payments, do make all efforts not to be late on payments.

  1. DON’T forget your Emergency Savings Fund

Following your financial plan to get out of debt should not come at the expense of your emergency savings fund. Do not liquidate your savings to repay debt and even when you are in the midst of aggressively repaying debt, continue saving. The monthly amount doesn’t have to be huge, as long as you keep adding to your piggy bank.

Getting out of debt takes a good plan, determination to follow it and it may mean sacrificing some “wants” and “nice to have”s… But it is all worth it!

Best of luck!

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