Review of The Complete Idiot's Guide to Managing Your Money

The Complete Idiot's Guide to Managing Your Money, 4th Edition: Solid advice on getting out of debt and making the most of your money, by Robert K. Heady and Christy Heady, with Hugo Ottolenghi, (Alpha, a member of Penguin Group, USA, Inc.) Fourth Edition.

Useful stuff can come in small packages! In 94 small pages (I read the "digest version" which I purchased for $2.95 at the grocery store checkout) with lots of white space, section divisions, bullet points and icons, you can cover a lot of ground with very little effort. When tackling a new subject, I often like to read small books before the big ones, just to familiarize myself with the territory.

Author Robert Heady was the founding publisher of Bank Rate Monitor. His daughter Christy is a financial columnist who writes nationally syndicated columns.

It's divided into six chapters:

Chapter 1: Financial Planning Made Simple

Commit yourself to doing something about your finances. Make financial decisions regularly. Learn to enjoy making decisions! Right or wrong, you learn something as you go. Go ahead, do your homework and make those financial decisions that you've been putting off.

Set some short-term and long-term goals and stick to your plan.

Example Short-Term Goals:

Pay off your credit cards

Build up an emergency fund

Buy a house

Save for a European Vacation

Example Long-Term Goals:

Pay for your kids' college

Retire wealthy

Beside each goal, write how much money it will take to accomplish that goal.

Chapter 2: Managing the Debt Monster

Determine your net worth by subtracting your liabilities (what you owe) from your assets (what you own). Rules of thumb:

"Current assets should be approximately two times greater than current liabilities."

"...your monthly debt should not exceed 36 percent of your monthly income."

Find out where your money is going on a monthly basis in categories such as Housing, Cars, Clothing, Food, Medical, Education, Gifts, etc.

Create a spending plan (budget) and stick with it! This is the way to take control of your finances!

If you're overspending, find ways to cut back. For example, the average American spends around $5,000 a year eating out!

Establish an emergency fund of about three months of living expenses so that you don't have to get into debt to bail yourself out of a crisis.

If you're over your head in debt:

contact your local Consumer Credit Counseling Service. 1-800-388-CCCS. Or, the National Center for Financial Education.

If you're talking to deal with another company, make sure they're a member of either the National Foundation for Credit Couseling or the Association of Consumer Credit Counseling Agencies. Also, the local Chamber of Commerce. The best ones are nonprofit corporations. Don't go if its phone number isn't listed or you can't visit its offices. Make sure it will provide a complete list of its fees and charges.

Paying a minimum amount on your credit card each month is a raw deal over time. Example: You've got a $3,000 balance on your 18 percent credit card. Each month, you pay 2 percent of the balance. At that rate, you'll pay $7,587 over 36 years!

Some ways to escape the debt trap:

Stop ignoring your debt. It won't go away by itself. Start dealing with it now, before the problem gets worse.

Track your spending to find out where your money is going.

Cut back where you can. Cutting back on those small, regular expenses, like eating out, can make a huge difference.Many creditors will reduce their rates and fees if you ask.

Always pay more than the minimum amount due on your credit cards.

Save toward expenses that don't occur every month, like insurance, vacations, birthdays and Christmas.

Borrowing more money to consolidate your debts often leads to worse debt. Most people return to their bad habits once they get their new loan. A home equity loan puts your home at risk.

Don't dip into your retirement, like your 401 (k).

Realize it will take some time. Be patient. You probably didn't get in debt over night. It will take some time to get out of debt as well.

Bankruptcy is a last resort, not an easy alternative.

Some ways to stay out of debt:

Don't buy now and pay later.

Don't get cash advances. Some charge up to 32 percent, plus a transaction fee!

Pay your bills on time. Always.

Chapter 3: Everyday Money Language You Should Know

Know where to go for accurate financial information.

Newsletters and Websites

Hulbert Financial Digest, at www.marketwatch.com .

More specifically:
http://www3.marketwatch.com/Store/products/hfd_profile.aspx?dist=top10hfd&cat=mf

Let's say that a friend told you that you ought to subscribe to somebody's financial newsletter to get good advice about your investments. Mark Hulbert has done a tremendous service by reviewing the advice of over 160 financial newsletters, showing how their forecasts, predictions and recommendations turn out over time. Cost: $25 for a report on one newsletter. Potential savings from bad advice and bad investments: megabucks.

Choose your advisors carefully. According to Hulbert, "over 80% of advisory letters fail to beat the market over the long term." (From Hulbert site)

Morningstar Fund Investor

www.morningstar.com - Tons of great research, ratings and advice for investors.

No-Load Fund Investor, by Sheldon Jacobs

www.sheldonjacobs.com - tracks 996 no-load funds

Other Sites

www.msn.com

www.cnn.com

www.bloomberg.com

www.smartmoney.com

www.cardtrak.com

www.bankrate.com

Internet Calculators

http://mortgage.interest.com/content/calculators/index.asp

www.bloomberg.com/analysis/calculators/mortgage.html

www.fmcalcs.com/tools-tcc/fanniemae/calculator

Magazines and Newspapers

USA Today - See their "Money" section.

Money Magazine

Smart Money

Kiplinger's Personal Finance

The Wall Street Journal

Business Week

Investor's Business Daily

On Comparing Rates

Always ask to speak to the bank officer rather than a teller.

If the way a rate is calculated seems a little confusing, or you don't understand all the fees and such, ask this simple question to get to the bottom line:

"If I give you my money today, how much will I have in my account at the end of one year - in dollars and cents, not percent - after subtracting all fees and charges?"

Ask the same question whenever you borrow:

"How much will my total cost of the loan be in dollars?"

Ask for a bank or broker's complete fee schedule. Study it.

Chapter 4: Savings and CD Accounts: Beating the Averages

Three Types:

Passbook Savings

Is liquid, meaning you can withdraw your money at any time with no penalty.

Money Markets

Also liquid, but with some accounts you need to make sure you don't get under a certain amount in the account.

CDs

Not liquid, but usually better interest. If you withdraw it before the agreed upon term, you're penalized, losing, for example, three to six month's interest.

Finding the best: Credit unions generally give better interest on CDs than banks or thrifts. All three are backed by the federal government up to $100,000 per person. Nobody has ever lost money in a federally insured bank up to the $100,000 limit, even during the depression, when many banks closed. If you put $100,000 in one bank and $100,000 in another bank, all would be insured.

Tips:

Shop around for the best rates. Higher paying out-of-state banks can be just as safe. Most internet banks are insured by the FDIC (make sure to check!). Check places like www.bankrate.com for the best rates.

"Ladder" your CD's, some in six month, some in one year, some in two year. This gives some protection against the rise and fall of rates and gives you some money coming due at any given time in case of an emergency.

Don't be afraid to negotiate. Ask, for example, if they can drop a fee. Good question: "Are you sure you've told me about all the ways I can earn more interest, avoid fees, and save on my loans?"

Chapter 5: The Right Credit Card for You

"Engrave this in your mind. Credit cards are the main reason so many Americans are up to their ears in debt and why the bankruptcy rate is so high." (p. 64)

Never charge more than you can pay off entirely each month.
Read the fine print. You must know all about annual fees, fees for charging over the limit, inactivity fees, will the rate go up if you miss a payment, etc.
Don't get more than one or two cards. Fewer cards can keep your risk of debt down and your credit score up.
Try bargaining. If you can get a better deal with another credit card, tell them about it and see if they will match it. Ask them to drop a fee so that you won't go with another company. You'd be surprised what you can get.
If you have bad credit, check into secured cards, with which you can make purchases up to an amount you keep in the bank. A good way to rebuild your credit rating.
Credit unions often offer credit cards with better rates.
Contact the Consumer Credit Counseling Services if your payments get out of hand.
Shop for a good grace period.

Sites to help choose the right card for you:

www.bankrate.com

www.cardweb.com

www.creditcardgoodies.com

Chapter 6: Retiring R-I-C-H!

There are three building blocks for your retirement:

Social Security
Pension Plans
Investment Assets [for example, 401(k)s and IRAs]

DON'T DEPEND ON SOCIAL SECURITY! It may provide only 21 percent (for maximum wage earners, or 38% for average wage earners) of your current income. (Call the Social Security Administration at 1-800-772-1213 to find out how much you'll likely be getting from them in retirement.) People simply aren't saving enough.

"A Big Six accounting firm survey shows that unless we save a great deal more than we currently do, three out of four Americans over the age of 20 will have less than half the money they need to retire and maintain their pre-retirement stand of living." (p. 80)

Start early. The person who starts saving $100 a month at age 25 will retire with six times the money of the person who puts off saving till age 45.
Take advantage of tax-deferred savings. Save $3,000 per year at 6% interest for 30 years in a taxed account and you'll have $185,000. Put it in a tax free IRA at the same interest for the same number of years and you'll have $250,000.
If you've got more than ten years before retirement, invest for the long-term to get a better return, especially in equities.

The Complete Idiot's Guide to Managing Your Money A Money Book Summary

The Complete Idiot's Guide to Managing Your Money
A Money Book Summary