Back to blogging after a really long holiday break. Christmas was fabulous with an extended family reunion, exotic food, few good and few not so great gifts. The best gift surely was the pair of Prada sunglasses that my hubby gifted. New year eve was one helluva party night that extended well beyond the day.

We are well into 2009 with our waistlines up by a few inches and wallet lighter by a few hundred dollars. We badly want to reverse the status of the two now. So here we go with our cost saving and waist(e) reduction plan for 2009.

First look at the household expenses since these usually form the largest part of our monthly spending. Grocery is one huge expense. I obviously can’t stop eating. But I sure can resist getting tempted by those yummy looking cookies, tarts and cheese dips attractively displayed in the stores. They sure know how to seduce people like me.

Having a shopping list in hand and trying to stick to it, while going out for shopping should help. This should help me have a watch on my waistline (hope I also try and fit into jeans one size smaller, something i’ve been trying for years now). Comparing prices in 2 or 3 stores to see who offers the best deal should also help; since stores usually offer good deals at the end of the month to clear stocks. Eating out is a sure no-no for the next few weeks atleast. Whether to work or travel, packed lunches are my best friend, now on.

The next big money sucker is my power bills. If the air conditioner or room heater is switched on all through the year then there is no choice but to foot hefty power bills. I read somewhere that when using room heaters or coolers, the room has to be properly insulated. Otherwise all the cool air might just slip through the small gaps in the window and door frames. So my important task this weekend would be to check my entire house for leakage.

Also, when using a PC, most of the power is used up by the monitor. So I guess when I’m not using my PC for more than half an hour or using it just to listen to music, it makes sense to switch off the monitor. The yellow heat generating incandescent bulbs generate 70% more heat and use up 75% more energy than compact fluorescent lamps (CFL). So there goes another weekend task of mine. Changing my conventional bulbs with a CFL. This way, I also do my own small bit in saving the environment. Small little things like switching off the lights and other power utilities when not in use, leaving the windows open during summers to let the sunlight through should also help.

When discussing fuel bills one of my colleagues suggested filling gas in the car early in the mornings as much as possible. As the day progresses, with the increase in heat, the gas stored below the earth in the gas stations would be in a vaporized form during the day, which would mean a lot of vapor will also go into my fuel instead of gas. By filling it in the mornings the vehicle will be able to absorb almost all the gas that I pay for.

Weekend entertainment is also a huge part of the monthly expense. Instead of cutting down on entertainment, maybe I should reschedule it. Most movie halls, multiplexes, fine dining restaurants and entertainment parks charge heavily during the weekends. Let me try rescheduling my weekly entertainment to a movie on Wednesday nights or a nice dinner on Thursday nights. This way I pay less for almost the same service, avoid the weekend crowds and also beat the mid-week blues away.

So that is largely my plan for 2009. Will keep posting on the progress.

 

Like a sort of trilogy to my previous two posts ‘Home owners insurance, explained’ and ‘Are you financially ready to welcome your new baby’ this blog on life insurance deals with the importance of providing financial security to the family in these uncertain times.

During my student days I worked part time as an insurance agent. The experience was an eyeopener for me. Had to undergo a lot of ‘doors-slammed-on-my-face’ and friends and acquaintances trying to avoid my gaze while crossing each other, just for the fear that I might coax them to buy a new policy. Even those customers who lend me an ear to know about the latest life insurance products would retort back with questions like, ‘ Are you trying to say I will die soon?’, or ‘How does it matter on who spends my money after I die?’.

I have only one question to ask those who always view life insurance with a negative perception. Do you get upset that the airbags in your car never came of use, despite you spending so much on it? Or do you worry that the helmet that you use for your weekend country side bike rides, never actually came of use because there was no accident? Life insurance is similar to that. A safety measure. Just that you would not be able to see and enjoy the fruits of it.

Who requires a life insurance policy? – Anybody with dependants like young children or a spouse should ideally have a life insurance policy. People usually buy life insurance policies after marriage or the birth of a child to ensure that in case of the untimely death, their dependents do not suffer financially. Having a policy becomes even more important if the spouse is non-working or if the child is too young and financially dependent on the parents.

Why take a policy when you are young? – We all get older as the years pass by and also get more susceptible to ailments like diabetes and high blood pressure, which in turn may lead to other health complications. By taking a policy when young we get to pay a smaller amount as premium for a longer period of time.

Types of policies – There are two types of policies,

1. Whole Life – This is for the entire life of the policy holder and will be valid as long as the premium is paid. In addition to the death benefit, there is also an ‘account’ that earns interest that however starts accumulating only in the 10th year or so of paying the premium. The premium paid is slightly higher than term policies.

2. Term Insurance – As the name suggests, it is for a specific term, say 3, 5 or 10 years and expires after that. The premium is fixed for a number of years and the older the policy holder is, higher will be the premium. So at the end of the term, if the policy holder wants to extend the tenure the premium to be paid will become higher. It is pure coverage, in the sense that it pays only upon the death of the policy holder. There are no other cash benefits. The premium paid is lower than that for whole life policies.

Types of death that a life insurance policy covers? – Life insurance policies usually cover death by natural causes. One can add an ‘accidental death benefit rider’ to the life insurance policy, to cover death of the policy holder due to an accident. The premium will be higher accordingly. In case of death due to suicide, the premium amount paid till date is returned. Death due to chronic illnesses like cancer and AIDS are also covered by such policies provided the policy holder has paid the premium for a minimum number of years. The number of years varies from one insurer to another. To cover critical illnesses like HIV/AIDS, cancer and paralysis, one can go in for critical illness insurance which fellow blogger HillsPersonalFinance explains.

How much can you insure yourself for? – It all depends on your income levels, the sum that you feel would be adequate to provide your dependents after your demise and how much you can spare on a monthly, quarterly or yearly basis. Insurance4USA provides an insurance calculator that helps you calculate the amount of life insurance that you need.

 

I am very happy today. My best friend Kaitlin just called me up to say that she is expecting. The stork will visit her place in the summer of 2009. When I expected my baby two years ago I was well prepared mentally to welcome my bundle of joy. But experience has taught me that it is equally important to be financially prepared.

So i gave my pearls of wisdom to Kaitlin on how and why it is important to be financially prepared to welcome your new child. Let me share it with you all too.

DELIVERY OF THE CHILD - First things first. The actual birth of the child. Home deliveries are becoming popular. And yes they do work out cheaper. But it requires a lot of preparation in terms of the partner’s willingness to assist in the delivery process. If you or your partner is not sure or if there are medical conditions in the later stages of pregnancy like high BP or gestational diabetes it is strongly adviced that you have the child delivered in hospital with proper medical assistance.

POST CHILD BIRTH EXPENSES – So you just welcomed your new bundle of joy into this world. Apart from giving both partners sleepless nights the baby will also bring in a lot of new expenses . Okay you may hate me for asking you to count and calculate when you should actually be admiring your baby’s little hands and feet and the innocent smile. But trust me, by being prepared financially you will have lesser worries and and have more time to enjoy your baby’s little pranks.

So here I continue. These are the new categories that will find place in your monthly budget with the arrival of a new child.

1. Diapers – You would need these by the dozens everymonth. Ask me about it. You could try alternating between re-usable and use-and-throw diapers.
2. Clothes – This is a recurring expense. Children outgrow their clothes faster than you expect. And then there are winter clothes, summer clothes, booties, body suits and so on.
3. Medical care - There are a lot of vaccinations in the first year of child’s life and a dozen visits to the paediatrician to make sure your baby is growing fine.
4. Food – If you are planning to go for formula feed then you have to factor in those costs. Blogger chieffamilyofficer has some interesting posts here and here on preparing baby food at home that is both healthy and costs much lesser.
5. Toys –The child care product makers in the market have the knack of making us feel guilty of not caring for our child enough. So we end up stacking a lot of pacifiers, baby gym, teethers and rattles. Do not stack up in advance. You will anyways get many such stuff as gifts.

And then there are other utilities for a child like crib/cot, car seat, bath tub and stroller that you have to stack up.

TWO JOBS OR ONE – Financial planning has to be done based on whether both partners will be working after the birth of the child or if the mother will take a maternity break for three/six/twelve months or quit the job. I have been repeating often that traditional wisdom suggests an emergency fund equal to atleast three to six months of ones salary should be maintained by every working individual. If the mother is taking a maternity break she should ensure that the emergency kitty is sufficiently full.

If the mother will resume work in a few months after the baby’s birth then options like leaving the child in a day care centre or hiring a baby sitter would be considered. You can calculate to see if the mother’s pay check is big enough to handle the related expenses and stress arising out of leaving the baby in a day care centre or with a baby sitter. You could try taking help from parents, friends or other family members if they are willing to do so. Works out cheaper and you can also be at peace that the child is in safe hands.

By preparating adequately the first 2-3 years of your child’s growing years will be smooth sailing for you. This blog has more information on financial formalities post baby’s birth. As for preparing for your child’s education, future and stuff, thats a bigger topic. Let me keep it for another day. Ciao.

 

Yesterday night at about 11PM, when I had finished my dinner, put my baby to sleep and was about to retire for the day, I got an SOS call from my best buddy Agatha. ‘ Hey Cindy I need $3,000 urgently. Can you lend me?’ she asked. My sleepy drowsiness vanished in a minute as I started wondering what was the urgency for her to call me at this time of the day for some cash. ‘The credit card guys are after me and I have a huge debt to pay back’, she said.

Agatha is one of those reckless credit card users who does not mind swiping card for bills as low as $10 and $20. And she has eight such cards spilling over from her wallet. Like Agatha there are thousands of other Americans who misuse their credit cards resulting in the credit card crisis now and card issues resorting to tough measures like cutting credit limit. I have already written on ‘How to free yourself from a credit card debt’.

Let me now state which are the top ten credit card mistakes that many users like Agatha commit.
1. Having a dozen credit cards – Even the most richest people in the world would not require more than two cards. However big a spender you are, one or two cards will be sufficient to meet your needs. If you require more than 2 cards it only means you have to have a relook at your spending pattern.

2. Paying late – Mark the credit card payment date in your calender, or set a reminder in your cell phone or write it in a paper and paste it in front of your bed. Do whatever you have to, to make your credit card bill payment on time. Late payment will lead to a viscious cycle of penalty, service charges, finance charges, interest etc. It also affects your credit score badly. Blogger Millionaire Mommy next door lists 14 ways to improve your credit score.

3.Making only the minimum payment – If you are going to pay only the minimum payment only, everymonth then it will take years for you to settle your credit card dues. If you are not confident of making the payment on time then do not make the purchase. Do not postpone repayment for one or a maximum of two cycles.

4.Using card for small payments – By using credit cards to make small payments you may lose track of all the purchases made using the card. You do not want to end up paying late fee for a toothbrush purchased, do you? 

5.Using the card during overseas trips – Carry adequate cash or travelers check when going abroad and avoid using your card as much as possible. There are additional charges for using your card internationally. But if you are worried about the safety of the cash you are carrying or need a record for the purchase, using credit cards is a good option.

6.Choosing credit cards for wrong reasons – Getting a credit card because it has free airline miles or cash back offers is foolishness. You may end up with a card with high annual fees or exorbitant interest rates.

7.Not checking your monthly statement properly – There could be printing errors or incorrect information on repayment or amount due, which when ignored might pile up into an inflated sum to be repaid. Check your monthly statements properly and follow up with your issuer immediately in case of errors.

8.Read the fine print carefully – Before starting to use your card read carefully the instruction given along with the card, the yearly subscription fees, interest rates, billing cycle and credit period.

9.Exceeding credit limit – Some cards do not allow you to spend beyond your credit limit. But exceeding credit limit may lead to over-the-limit charges, penalty and other charges to be paid.

10.Using card to withdraw cash – Remember your credit card is not a debit card or ATM card. Cash withdrawn using your credit cards will have to be repaid with ridiculously high interest rates.

The Federal Trade Commission has also come out with guidelines on Credit repair and how to help yourself. Try it for more information.

As for Agatha’s debts we spoke to her credit card issuer who promised to reduce the interest rate and also extend the repayment period. I tried to pool in some funds as well to help her and we will settle the debts within 2-3 billing cycles.