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title

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Invest in Your-self : Six Secrets to a Rich Life

author

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Eisenson, Marc.; Detweiler, Gerri.; Castleman, Nancy

publisher

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John Wiley & Sons, Inc. (US)

isbn10 | asin

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0471399973

print isbn13

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9780471399971

ebook isbn13

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9780471437086

language

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English

subject

Finance, Personal, Investments, Life skills.

publication date

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1998

lcc

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HG179.E397 1998eb

ddc

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332.024

subject

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Finance, Personal, Investments, Life skills.

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INTRODUCTION

There really are only two possibilities: You're living the life of your dreams, or you're not.

If you're not, perhaps we can help.

Chances are, even if you're handling your money fairly well, you think you don't have enough. You're not alone. Surveys show that nothingincluding sexual fantasiesoccupies more of our brain time than thoughts about the almighty dollar: how to earn, invest, borrow, and spend it.

Maybe you once thought everything would be okay if your paychecks were only larger. But every time you got a pay raise, you spent more, and the government took more. Soon you were right back where you started, living paycheck to paycheck, at dollar amounts and stress levels that kept getting higher and higher.

So maybe a raise won't buy you the life you want. Maybe gobs of cash is the answer. Publishers Clearing House amounts. Or maybe the answer is in working less and leading a simpler life. But then you fear you'd have to sacrifice too many of the creature comforts you've come to enjoy, and you'd fall behind on those bills.

Wouldn't it be great if you could just leave all your money worries and job stress behind? Well, you can! And you don't have to move into a cave to live a freer, happier, healthier life. Nor do you have to choose between your work, your pleasures, your friends, and your family.

All it really takes is the right investment portfolio. A portfolio not just of stocks and bonds, but one that includes investments in yourself and in your family. Like any good portfolio, the best investments you can make in yourself are diversified, flexible enough to change as you and your goals do, carefully managed, and geared to the long term.

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Giving some money away while you're among the living.

Paying a child's or grandchild's college and/or medical expenses.

Setting up an irrevocable trust. (Revocable trusts are to avoid probate, not to save on taxes.)

Warning: If you're married and rich when you die, you can pass on an unlimited amount to your spouse, and no estate taxes will be due. However, when he or she goes, anything over the limit at that time will be taxed. For a couple to avoid taxes on a large estate, the first to die has to have left the limit to others or set up a trust. It's complicated. We hope you'll have enough money to worry about it!

IS A REVOCABLE TRUST FOR YOU?

After 18 years in court, Marilyn Monroe's heirs received a bit over $100,000, while $1.5 million was devoured by probate, the arcane process of deciding, through the courts, who inherits what.

Say your lawyer charges 2.5% for handling the estate. Assuming you've had a 40-year career, 2.5% of what you've accumulated represents the rewards of a whole year's worth of your working life.

Don't want to spend a year working to pay for some lawyer? If you'd rather see more of the fruit of your labor go to your family, consider a revocable (or living) trust. Here are the pros and cons.

Trust Advantages

Avoids probate, saves time, money, and hassle. A trust is especially useful if you have property in more than one state.

The courts won't freeze your assets for months, maybe years.

You retain complete control of your property while you're alive.

Your trust can be changed or terminated at any time.

You can structure your trust to allow for uninterrupted business or asset management during illness or incapacity.

Your privacy will be protected. The bequests in trusts aren't public record, while the probate process is. (That's why everyone knows the details of Marilyn's estate problems.)

Trust Disadvantages

Setting up a trust can be expensive and complicated.

Your estate could still end up in probate if you fail to register a pricey asset or two in the trust's name.

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Trust Misconceptions

Revocable trusts don't replace a will.

Revocable trusts don't avoid taxes.

If you'd like to create your own revocable trust, get the Living Trust Maker Software from Nolo Press.*

Note: As with everything else, be it life insurance or impulse purchases, it's easy to buy more estate planning than you need. If you only have a few bucks and no offspring, a joint checking account with your mate or heir is all you'll need to avoid probate.

Decision Time:

What Will You Will?

Your spouse will probably be entitled to somewhere between one-third and one-half of your estate. Do you want to leave more to your mate? What part of the rock do you want each child to get, and what limits, if any, do you want placed on their use of that money?

Who else do you want to rewardor shock? Think in percentages to avoid this costly error: A rich widow left $50,000 to her pooch and the rest to her three children. A market crash cut her worth to $51,000, leaving her kids $1,000 to splitless expenses. Had the dog been willed, say, 25%, the children would have each received $12,750, the same as Fido.

It's an impossible task, but someone has to do it: The job in question is "executor." You need to pick someone to pay your debts, distribute your assets, and referee any disputes that may arise. Do you prefer a friend, a relative, a bank, or an attorney?

If you and your spouse should die together, who do you want to raise your children? Would that guardian also be good at tending to money matters until the kids come of age? If not, pick someone else to be the money manager. (In fact, there might be a benefit to separating these tasksto provide some checks and balances.) Then ask! Not everyone will be happy, or competent, in these roles.

Because technicalities can end up being costly and upsetting to those you love most, finding the right estate planner for you (once you're

*Note: Nolo Press books and software are frequently mentioned in this book because they're terrific, having been researched and written by lawyers who want to save you and us from being at the mercy of lawyers. To request a free copy of the informative Nolo News write to Nolo Press, 950 Parker Street, Berkeley, CA 94710, or go to www.nolo.com.

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informed enough to really benefit from it) is worth your time and money. Begin by asking friends and relatives who have worked with a lawyer in settling an estate. Ideally, you want an attorney who devotes at least half of his or her practice to estate planning. Interview several (many won't charge for an initial consultation), then select the best fit. Don't select based solely on fees.

Important: Whether or not you use any other estate planning devices, you need a will. Even if your assets won't amount to much, don't you want to decide who gets what? Otherwise, a judge will divvy things up based on the laws in your state. The process itself might be costly, the taxes high, and your kids left in the lurch.

With a will, the person you select will raise your children, and you'll be able to dictate the conditions that will apply to any money you leave for them. With a will, you can protect your mate (spouse or live-in partner), and limit potential conflicts among everyone else who wants or expects some of what you're leaving.

You can certainly write your own will with help from Nolo's Simple Will Book or WillMaker Software. Or check out the many on-line resources: A good central source is at www.ca-probate.com/links.htm.

If you do write your own will, we think it's still well worth the money and the peace of mind it'll bring you to have a reputable lawyer look it over. You want to be certain that all the i's are properly dotted and the t's properly crossedor your will might not be valid.

If a lawyer is going to draft the will, bring along a list of what you own and oweand what you want to happen. The better organized you are, the less the lawyer should cost.

AND NOW IT'S TIME FOR A TREASURE HUNT!

Bite the old bullet and clean out your basement, garage, attic, and closets. Don't make your heirs sort through a lifetime of junk. Treasures, on the other hand, are a comfort. Why not relieve yourself of the clutter and upkeep and share some now? You'll be giving a gift to yourself as well as to the recipient.

You Bet Your Life

When you take out home or auto insurance, you're betting that you'll have a loss you couldn't afford to recover from, such as a major theft or

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serious fire. On the other side, an insurance company is betting you won't suffer a major lossat least not this year!

With life insurance, the gamble is similar. You're betting that you'll die before the policy year ends, and the insurer is betting that you won't. Insurance is the one bet you never want to win! To avoid winning, lock your car doors, put smoke detectors in your house, and treat your body with respect.

If, despite prudent precautions, your car is destroyed or your home burns to the ground, insurance money will help to replace the loss. Death, on the other hand, is irreparable.

It would be silly to pay for homeowner's insurance if you didn't have a home. It is equally silly to pay for life insurance if you don't have a beneficiary whose lifestyle would suffer because of the loss of your income. There are some instances where the wealthy among us might want a life insurance policy as a "tax dodge." But by and large, you don't need life insurance if:

You're single with no one counting on you to make ends meet.

You have no children or others who are dependent on you.

Your elderly parents have adequate money for their own needs.

Your life partner earns more than enough to be self-supporting.

You already have enough money socked away.

If you fit one of these categories, skip ahead, and return here only if your situation changes. Otherwise, let's get a grip on the life insurance monster and chop it down to affordable size.

What Is Your Life Worth?

As in so many other areas of our lives, the bottom-line question is, how can you get adequate coverage at minimum expense? Despite worksheets in books and articles that can help to pinpoint needs, there really is no firm answer to the somewhat morbid questions, "What is your life worth?" and "To whom?"

Life insurance is to family survival as a lifeboat is to surviving a Titanic-type disaster. Neither should be better than the original. A yacht isn't the lifeboat for a canoeand you should only buy as much insurance as your beneficiaries will need to get to that place and time where they can take over the financial burden you had once covered.

Life insurance just doesn't make it as a lottery ticket. It's too expensivedefinitely not a dollar and a dreammore like a small fortune and

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a nightmare. Nor is it an efficient investment vehicle. For that reason, we recommend term insurance for most folks. It costs less. It serves only one purposelife insurance. And it has to be carried only until such time as no one is financially dependent on you.

True, mortgage payments will need to be kept up whether you're there to write the check or notbut your home loan does not need to be immediately paid off. And as you'll see in Chapter 15, very few families have to foot the whole astronomical cost for four years of higher education. When a family's income is reduced, college aid goes up. It's a booby prize to be sure, but your heirs might as well claim it.

Shopping for Term Insurance

Begin with the following basic questions (which we unfortunately cannot answer for you):

How much do I need? Conventional wisdom says seven times your salary.

How much will it cost?

Then there's a question of stability. Not yoursthe insurance company's. You want a company that will outlast you, not one that's on the verge of collapse. There are a number of services that rate insurers. Check guides at your library, click on www.insure.com/ratings on the Web, or contact one of the following free services:

Standard & Poor's: 212-208-1527

Moody's: 212-553-0377

Duff& Phelps: 312-368-3198

If you happen to work for a company that provides insurance as a fringe benefit, you may be able to add on to it at reduced cost. In states that allow savings banks to write them, savings bank life insurance (SBLI) policies tend to have low rates. To check around, call one of the services that will quote on numerous policies from different insurers: SelectQuote at 800-343-1985, InsuranceQuote at 800-972-1104, and TermQuote at 800-444-TERM.

Keeping the Cost Low

The less likely you are to die prematurely, the less you'll pay in premiums. As always, one of the best investments you can make is in your health. If

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you smoke, drink, eat too much, lead a stressful life, have a history of problems, or enjoy dangerous hobbies, the price will go up. If you take good care of yourself, the price goes down. If you buy while still in top shape, the price is low.

Especially if you're looking for a large policy, a medical exam may be required. Strange heartbeats, high blood pressure, and foreign substances in your body fluids will raise your cost.

Congratulations, You're 65

As if things weren't complicated enough, you have six months from your sixty-fifth birthday to get your act together, at least as it concerns health care insurance. If you've managed to reach age 65 without following any of our advice and with virtually no assets, you're in luck (bad luck perhaps, but luck of a sort). You'll have full, no-premium health coverage under Medicaid, which is handled by your state.

Medicare, on the other hand, is a federal program, and it's at least as confusing as taxes. You've been paying for Part A coverage through payroll deductions for the last 30 years. So that part is your right, unless you aren't eligible for Social Security, in which case you're in double trouble: no Social Security and the option of paying about $300 a month if you want Medicare coverage.

Part B of Medicare picks up some costs (e.g., doctor visits) that Part A doesn't cover. But Part B is an optional extra that you'll want to buy. It currently costs under $50 a month.

Since neither Part A nor Part B nor both of them together is likely to cover all of the medical expenses you might incur, there is Medicare supplemental insuranceknown as Medigapin which you have 10 options ranging from another Plan A to Plan J, where A is the most basic and J is the most comprehensive. A costs less than J, and B through I fall in between in alphabetical order from the least to most. If you sign up for one of them within six months of turning age 65, you must be accepted. After that, preexisting conditions could keep you out.

A somewhat more recent twist is the Medicare HMO, which may cover most of your costs, but through an HMO that may limit your choices. And even more options are on the way.

There is nothing easy about getting older, and choosing the right Medigap policy depends on your assets. The less money you have, the less insurance you may needbecause "the system" is more likely to eventually drain away all your assets, and you'll end up on Medicaid anyhow.

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BEFORE YOU'RE 65

Invest time before this birthday to learn about Medicare, Medicaid, Medigap, Medicare HMOs, Medicare Select, and long-term-care policies. Call 800-638-6833 to request Uncle Sam's free Medicare Handbook or go to www.medicare.gov.

Decide Now, or Someone Else Will Do It

As if Medicare weren't confusing enough, you might want to consider what you're going to do if you need long-term care. Half of all women and a third of all men spend a couple of years or more in a nursing home. With the average annual tab running $40,000 and many homes costing more, it's well worth planning foreven if it's "just in case."

You don't want to deal with this, we know. But just suppose for a moment that you needed the kind of care that your children or spouse simply couldn't provide. What would you want them to do?

Let's be blunt: You can make the decision yourself or risk having someone make it for you. Finding out what your options (or your parent's) are when they are not needed is better than waiting until a crisis occurs.

First, you may want to research nursing homes in your area to find out what's available. During your research, check if there are "Edenized" homes around you. These nursing homes, which feature lots of plants, visitors, activities, and even pets, are extremely popular with residents. If you don't like what you see, consider volunteering at a home. You can help improve the lives of the people who live there and perhaps help bring about some positive change.

If you really don't want to end up in a nursing home, then take a hard look at your alternatives. Can you come up with a workable solution, perhaps with the help of your children, a local social service organization, or your church? We know you wouldn't want to bully your family into anything. It may mean hiring in-home care or taking advantage of community-based services. It's up to you to know what your options are. If adequate programs aren't available in your area, then perhaps you just found a community project that has your name on it.

The American Association of Homes and Services for the Aging offers free, helpful information on the range of alternatives (independent living, assisted living, continuing-care retirement communities, and nurs-

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ing homes): 901 E Street NW, Suite 500, Washington, DC 20004-2037, 202-783-2242, www.aahsa.org. Also check out the Extended Care Information Network, www.elderconnect.com.

Of course, one of the best things you can do to avoid a nursing home is to take care of your health. Exercising, eating well, going for regular checkups, and maintaining strong friendships will help you take your best shot at continuing an independent way of life.

The more physically, emotionally, and financially comfortable you are, and the more in control of your own life, the better off you and your family will be.

JOSEPH MATTHEWS, Beat the Nursing Home Trap

Long-Term-Care Insurance

If you or your loved ones do need long-term care, who will pay for it? And how? How long would your assets last with care costing $40,000 a year or more? What if you or your spouse end up in a nursing home while the other is still at home? Then you'll have to be able to afford both the nursing home fee and the expenses for the spouse who stays at home.

If your assets won't cover three or four years in the long-term facility of your choice, or will wipe out the assets your spouse will need or that you hoped to leave to your heirs, you may want to consider a long-term-care policy.

Long-term-care insurance, or nursing home insurance, is really designed for people who are in the middle: They have enough financial assets so that they don't qualify for Medicaid, but several years in a home would wipe out those assets. (Not all facilities accept Medicaid, either.)

When should you buy long-term-care insurance? Like most decisions, there's rarely a clear answer. Most experts will tell you to seriously consider it between the ages of 55 and 65. If you buy when you are younger, you'll lock in at lower rates-and you're less likely to have medical conditions that could disqualify you later. On the other hand, this insurance is still relatively new, and policies are improving. If you wait to buy, you may get better coverageunless you develop health problems in the meantime. So perhaps your best bet is to start looking seriously by the age of 60, earlier if you have health problems that could become more serious.

This is complex stuff, and it's one area where planning ahead can make all the difference. So take your time. Read How to Protect Your Life Savings

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from Catastrophic Illness by Harley Gordon. Then explore several long-term policies, and make sure you understand exactly what's covered before you decide to invest in one. And if you want to legally protect assets from the reach of Medicaid, start transferring them years before you're likely to require nursing home care.

But that's enough talk of death and disease. It's time to get back to the exciting business of living!

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SECRET III

WHEREVER YOU WORK, BE IN BUSINESS FOR YOURSELF

Americans have come to realize, slowly and painfully, that they can no longer count on a job to take them through to retirement. For your own protection, you need to be prepared and willing to transition into a different department, a different company, a new line of work, or a business of your own. And whether it's as an employee or in your own company, you need to design your own benefits package. Fortunately, it's not hard to put together a low-risk, high-return, balanced portfolio for your work life that will outshine anything Wall Street has to offer.

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Chapter 1

Charting a Course to the Way of Life You Want

If you had your druthers, what would your life be like?

How to get clear on your priorities and your lifestyle options

Finding the balance between your money, time, and values

Looking at your situation objectivelyfinancially and emotionally

How to take your dreams for a test-drive without chucking everything

The domino effect

Not everything that is faced can be changed, but nothing can be changed until it is faced.

JAMES BALDWIN

If You Had Your Druthers

If you had a magic wand and could go back 10 or 20 years, knowing what you know now, what would you have done differently? Having made those alternative decisions, what would your life be like now?

Would you marry the same person?

Would you spend more (or less) time with your children?

Would you move to a new city, town, or country?

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Chapter 6

Freeing the Entrepreneur inside You

Why you must think like a consultant, no matter what your job

Safe ways to test the waters before you plunge into something new

Ways to speed up your trip, whether up the ladder or out of the rat race

Essential skills for promoting yourself

In as much as you can view the revolution in the American workplace as an opportunity for you to create independence for yourself rather than seeing it as a cause for disappointment, you will certainly have a better work life and a better retirement life.

MARY ROWLAND, A Commonsense Guide to Your 401(k)

It's almost guaranteed that you won't be at your current job for the remainder of your working life. No matter how hard you work, how many hours you put in, how much you learn, how many brilliant ideas you share, how much money you earn for the companyyour days as an employee of any particular firm are numbered. According to statistics, you'll move from job to job and career to career at least seven times.

Whether you work for a multinational corporation or the smallest company in town, you'll thrive or fizzle depending not only on your abil-

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ities and on how you market thembut also on what the bottom line dictates. You don't have to like it, but that's the reality. You get paid for what you can do for the stockholders.

But your job can offer you a lot more than a paycheck. While you're gainfully employed, your job can also give you the time to figure out what you would really rather be doingand the opportunity to develop new skills that might help you succeed in your dream occupation, whatever that might be.

You're the Boss

Think of yourself as a consultant, which makes your employer your current client. You can be dismissed at will, but you also have the right to terminate the relationship. However, as any good consultant would, while you're on assignment, you'll do your absolute best for your client. That's your job, that's your commitment. Work as creatively, effectively, and just plain hard for your employer as you would if it were your own business. It is!

But like every rational consultant, you always want to be on the lookout for the next clientand to think about how today's client can help you get to tomorrow's. Ideally, you want another project, a better one, ready to start when your current commission has ended.

Since you're the head honcho, you're also responsible for financing the businesswhich means having funds available to carry you through lean times, when there may be no clients. The less income you need and desire, the more flexibility you'll have. You get to decide on the mix. Here we are again, face-to-face with the issue of finding and financing the lifestyle you want, and with an important premise of this book:

The secret to having maximum control over how you liveand

make your livingis to be able to live comfortably on less

than you earn.

Flexibility is the key to unlocking those not-always-golden handcuffs that hold so many employees prisoners to their jobs. It will also prepare you to switch career gears when you want to, or when you are forced to by whomever you currently call ''boss."

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Of course, the better you are at promoting yourself, the better your chances of being able to make the "Do I stay or leave?" choice voluntarily. And since most of us make the bulk of our money from our jobs, the more you can increase your job or business marketability, the better your chances of getting to wherever it is that you ultimately want to go in your work life.

There are many things you can do to increase your marketability, your income, and your job security, and we'll get to them in a minute. Right now, we're much more concerned with helping you find the answers to these key questions: "Where do you want to go?" and "Are you doing something now that heads you in that direction?"

Whatever you thought you wanted to be when you were a kidfirefighter, nurse, or president of the United Statesyour goals have probably changed numerous times since then. Is your current occupation in sync with your current life goals?

Go Where Your Heart Takes You

To be successful, you need to be motivated. To be motivated, you need to enjoy and care about what you're doing. If you hate, or even mildly dislike, your 9 to 5 routine, you won't be able to give it your best, you won't learn as much as you could, you won't rise to the top, and you'll be exhausted by the time you return home at night. Is that how you're feeling, Bunky?

Fortunately, there are incredible investment opportunities waiting for youwith guaranteed high returnsin the wonderful world of work. By carefully investing your time, energy, and maybe a little money, you can find out where you really want to goand then do what you need to get there. It's one of your best investment opportunities, way better than anything you could get in the stock market.

But since you can't get what you want if you don't know what it is (or won't admit it to yourself), your most important task is to find and follow your own path to earning a living. There's no way around it. Until you pick your path you won't be able to walk it.

We believe that deep down inside, you probably know what you enjoy doing, where your interests lie, and what your skills are. You surely know a bunch of things that you don't want to do to make money. Task number one is to establish positive goals.

However you choose to get goinglong lists on paper, career counseling, closing your eyes and fantasizing, having many a soul-searching conversation with your matethe journey can't begin until you pick an

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objective, a destination. It doesn't have to be a forever decision. Thinking in terms of forever may just stop you in your tracks.

Focus on what would be a great next assignment for you in your business life. Ideally, it will be something that takes advantage of your natural aptitudes, that fits with your personality, and that you'd enjoy. Even if you have no clue about what you might like to do, you can decide that you're going to find outand that you will take steps to move in that direction over time.

A typical 45-year career means 90,000 hours on the job. That could feel like a very long prison sentence without the possibility of parole, or it could be a unique opportunity to achieve great things. The choice is yours. For now, let's think ahead, say, five years. By then, would you like to have:

1. The same job?

2. A different position in the same organization?

3. A similar job elsewhere?

4. A new career?

5. A business of your own?

6. The opportunity to devote your full time to raising a family?

7. Retired?

We know that it's often hard to believe in yourself enough to give an honest answer to these questions, but try. Stuck? Start by trying to answer this:

Would you dieor killfor a job?

Wayne McLaren was one of the "Marlboro Men," those intrepid ad cowboys who showed smoking as a virile, attractive thing to do. When he died of lung cancer, it was thanks to his 30-year, pack-and-a-half-a-day smoking habit. Toward the end, Wayne did an about-face and spoke out against smoking.

Of course, no one is forced to smokeor to grow tobacco, or to manufacture cigarettes, or to design the packs and cartons, or to distribute and sell them, or to work on the advertising campaigns, or to represent the cigarette conglomerates in court or on Capitol Hilland certainly, no one is forced to model for their ads.

Yet anyone is free to do so. Back in the early 1990s, nonsmoker Margaret Thatcher earned $1 million from Philip Morris to push the smoking habit in Eastern Europe and the Third World. Would you push cigarettes for $1 million? Tempted?

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In our hearts, each of us knows whether the work we do makes the world a bit better or worse. If you're not proud of what you do to accumulate money, we hope you'll decide to get yourself onto a new track.

We All Have Fantasies

Some fantasies include changing our work lives. Sometimes it's enough to have hobbies or volunteer roles that incorporate talents and interests not used in our moneymaking efforts. But for many of us, a larger shift seems essential if we're ever to be truly satisfied.

Sometimes the answer is staring us in the face: a nurse who longs to be a doctor, for example. Other times, it's a long road to finding the next right place. Take it slowly and try to enjoy the ride, bumpy though it may be. Think of every step along the way as an investment in yourself, in finding the next right spot where you'll be happy and prosper.

The best time to begin making job changes, of course, is before you're unemployed or totally burnt out and in a panic. Note that we said begin. Change takes time. Change means risk and requires courage. Change often means pay cuts, emotional upheaval, and family friction. However, since change in your occupation is virtually guaranteed, your best bet is to anticipate the future and prepare for the safest landing possible, while you're still on someone else's payroll.

Start by thinking about what really motivates you. Money? Fame? The opportunity to help others? A desire to be creative? Long vacations? More time with your family? Power? A heartfelt cause? The opportunity to play golf with movers and shakers? A love of art? The joy of world travel?

The very first step to finding work that fits you is to understand the connection between doing what you love and doing something worth doing, something that has meaning. Because they are one and the same thing. . . . Without an activity that really matters to you, you're going to feel empty, even if you've set yourself up in Paradise and are living the life of the rich and famous.

BARBARA SHER, I Could Do Anything If I Only Knew What It Was

Invest in Knowledge

If you've a yearning to do something else, but no clear sense of what that might be, you could begin by investing in some career counseling. Three-fourths of working adults say that if they had to do it over again, they would try to get more information on career options before they settled into their jobs. Now's your chance for a do-over!

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Your alma mater or a nearby community college may have an inexpensive career counseling programor maybe you'd really rather do it yourself. In either case, it's well worth a trip to the library for an assortment of self-improvement books (e.g., the classic, What Color Is Your Parachute), some audiotapes, and magazines that might shed some light on different careers or ways to "find yourself."

Even if you're not plugged in yet, your librarian or a friend can suit you up for a flight into cyberspace. Good Internet sources for career changers are www.monster.com, www.careerbuilder.com, and www.careermosaic.com. They have free on-line job search engines as well as sound career advice. Other valuable sites for career info are: www.careermag.com, stats.bls.gov/ocohome.htm, and www2.fu.com/almis.

Through inexpensive adult ed classes offered by colleges or, in larger cities, by private companies such as First Class or the Learning Annex, you can take career counseling classes, explore new fields or subjects that seem interesting, or pick up the skills and credentials that will open up new doors. For example, you can learn how to write effective marketing copy, master the computer, develop a business plan, start a day care center, become a travel agent, or get a real estate license.

But don't just take the class! Most adult ed teachers are professionals who really do what they teach. Take advantage of your instructor's expertise by asking for some real-world career advice, perhaps over a couple of cups of coffee.

And almost every type of business has a professional association that publishes newsletters or magazines focusing on the latest trends and concerns of the industry. The Encyclopedia of Associations at the library has 2,416 pages full of them. Find some associations that look interesting and give them a call. Ask them to send you membership information and a sample publication. In and of itself, this is a great way to scout out other fields.

As you narrow your search, talk to people who work in professions that you find appealingincluding the staff at those trade associations. They have a unique overview and can offer key insights about training and job opportunities. If you're lucky, someone there may "adopt" you and further help you on your journey. Try to make it so.

Safe Ways to Test the Waters

Once you find a field you want to seriously explore, consider volunteering after work or on weekends. Maybe you're thinking of going back to school to become a nurse. Volunteer at the local hospital in a position that

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will allow you to interact with nurses, and find out what the job really entails. You'll be in the perfect spot to talk to nurses about what they like and don't like about their jobs. If you do decide to go back to school, you'll have a helpful credential to add to your resume. And if you don't like it, you can always quit.

You don't have to limit your volunteering to do-good organizations. Chances are, you can create a risk-free volunteer opportunity at any outfit that catches your fancy.

For example, a couple of decades ago, Nancy wanted to learn more about greenhouse gardening, so she arranged a deal with a local grower. She'd help transplant little seedlings and in exchange, could ask as many questions as she wanted, plus take home all the plants her heart desired. Nancy soon realized that turning her passion for growing plants into a business didn't sing to her"They'd become merchandise, and that'd be awful!" But Nancy still applies what she learned in her own little greenhouse, and she's still tending many of the flowers she got so long ago.

Our researcher, Marcy Ross, got her start by offering to help a friend who was a freelance writer. The friend couldn't afford to pay her, but the research experience helped Marcy land a staff job on a magazine.

Temping and moonlighting are two other risk-free ways to test the waters of a new field or business. Like volunteering, by taking on temp or part-time jobs, you'll be around people who actually do the work you're considering. You'll get a good sense of the pros and cons of the joband more.

When you're ready to seriously pursue your new line of work a little further, you might want to ask for a leave of absence from your current job. If you could take a sabbatical, you'd be able to get an even better feel for what your new life would be likewithout burning any bridges. But when the time has come:

Update your resume.

Check the classifiedsregularly.

Network with friends and acquaintances, as well as trustworthy customers and suppliers.

Visit the Web sites we've already mentioned, plus these: www.careerpath.com, www.ajb.dni.us, and www.occ.com.

Talk to headhunterswhat do you have to lose?

Read about and practice interviewing.

Start your own business.

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Call someone who is successful in the field you're interested in and offer to take them to lunch to pick their brain. People love to talk about themselves and what they know. Mark Victor Hansen, author of the best-selling Chicken Soup for the Soul series, says he used to call bigwigs he wanted to learn from and offered to be their chauffeur when they were in town. All he asked for was the opportunity to ask questions during drive time. It worked!

GET HELP WHEN YOU NEED IT

If you're having a tough time moving up the career ladder, aren't sure what you want to do next, or are thinking about making the transition from employee to entrepreneur, a job counselor or a career coach may help you get thereeven if you're not sure where that is!

Most of these professionals do not come cheap, and fees can range anywhere from $75 or more per hour to several thousand dollars for a complete package of services. That means it's important that you screen them carefully to make sure your money and time are invested well.

Career Coaches

A coach will work with you over a period of time, usually one-on-one for several months or more, typically over the phone and on-line. Unlike a traditional job counselor, whose focus tends to be only on finding you a job, career coaches generally focus on helping you create the whole life you want. If you're considering a change in your bigger picture as opposed to simply finding the next job, Jane Trevaskis, a job counselor as well as a career coach in Arlington, Virginia, recommends you find a coach who has experience in counseling people through career changes or transitions.

To find a career coach, contact the International Coach Federation at 888-ICF-3131 or www.coachfederation.org, or the Coaches Training Institute at 800-691-6008 or www.thecoaches.com.

Take a look at prospective coaches' backgrounds, including their marketing experience, to find ones who seem to make sense, given where you think you want to go. Then call three or four for an initial interview. Most reputable coaches offer a free introductory session, which can be a good opportunity to check out the chemistry.

Job Counselors or Consultants

With these professionals, Trevaskis says you should look for a firm or individual who will give you personalized job counselingas well as training

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in networking, how to interview, and telephone techniques. Early in the process, which should be fairly short term and specific to your job needs, counselors should also offer you an aptitude test. Go for it! It may help you find out what you were really meant to be!

It's important to find a firm that has been in business a while and has substantial ties to the community, so you'll be introduced to people who can help you. Also, make sure they allow you the opportunity to network with their other clients. Some people who pass themselves off as career consultants try to isolate their clients from each other, and that's a real red flag. A reputable professional organization that provides referrals to members is the National Board for Certified Counselors (www.nbcc.org or 800-398-5389).

How to Speed Your TripUp the Ladder or out of the Rat Race

Whatever your current career or the next one, the more education you have, the more you're likely to earn, and the less likely you are to be unemployed. High school grads, on average, earn $17,000 a year less than those with college degrees. The more you know, the more you're worth.

That doesn't mean you should go back to school just for the sake of getting a degree. But whether your goal is to start a new career, to have a business of your own, or to take on different job duties where you work now, you'd be wise to take a careful look at whether an advanced degree or technical training would help. (We'll be talking colleges in Chapter 15.)

Schools Are Busting out All over

We're all students for life. And now there are more educational opportunities than ever before to help you get ahead. In addition to public and private four-year colleges, local community colleges offer lots of helpful, cheap courses in their continuing education departments. Even if there's no school nearby offering classes you want to take, or no way you could find the time (and the sitters!) to attend during the week, you still have options.

Many reputable schools now offer courses, and even degree programs, to students who never enter a classroom. In this new, high-tech version of correspondence schools, students can watch their professor's lectures on

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Would you change jobs or careersperhaps return to school or go into business for yourself?

It's your life. If the balance is wrong, if your debts are too high and your pleasures too few, perhaps you're stuck. There's security in routine, and change, especially dramatic change can be frightening.

Still, the world around us keeps changing and we keep growing olderand hopefully a bit wiser. The life you sought yesterday or 20 years ago may not be what you'd choose today. Knowing what you'd choose today is what's important. You can't do much about decisions you made in the past. Let them go.

If you're going along unconsciously, and things just seem to happen to you, it's time to take control of the process and to thoughtfully resolve the key issues of how you live your life. As difficult as that may sound, you're going to be buoyed along the way by the knowledge that the steps you do take will bring you closer and closer to happiness and contentment.

Rather than obsessing about an extreme solutiongetting a divorce, quitting your jobbegin by focusing on something you can do now that will improve your situation, something that might turn the negative into a positive. Begin to look at new career options. Talk to your spouse and perhaps with a counselor. Make a serious effort to return to those wondrous days of yesteryear.

If Only

Certain words and expressions in the English language have a tendency to eliminate all of life's gray areas. Yes, when we were toddlers, we may have had limited ability to make independent decisionswhen to cross the street, for instance. Back then, our parents used clear, black-and-white statements to tell us how to behave. "You should never cross the street alone." But you're old enough now to cross safely by yourself, to make your own decisions.

If only, it's their fault, can't, won't are all good words to consider removing from your vocabulary. You don't have to, but they're excuse words. If you're in a situation at home or at work that is problematic for you, and you're not doing anything about it, you've got a loser in your portfolio.

This book is not about excuses, blame, or impossible dreams. It's about making the most of what you have, earn, save, and oweand of your time and energyso you'll have the most options for how you live your life. It's about making conscious decisions, based on both the facts and on how you feel about them.

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cable TV from the comfort of their couches or join a classroom discussion on-line or by phone.

If you think distance learning may be for you, go to www.cisnet.com/~cattales/Deducation.html. Or see if your library carries the latest editions of The Oryx Guide to Distance Learning by William E. Burgess or The Adult Learner's Guide to Alternative and External Degree Programs by Eugene Sullivan. These comprehensive tomes list hundreds of institutions that offer courses via mail, cable TV, the Internet, videocassetteor in person on weekends. Another excellent resource is College Degrees by Mail & Modem by John Bear, Ph.D. and Mariah Bear, M.A.

Formal schooling aside, your best educational opportunities may be available right on the job. By helping your employer earn and grow, you can invest in yourself at your boss's expense. Be sure you benefit from whatever formal in-house training is available. And if there's some special training that would benefit both you and the boss, but no program currently in place, you'd be smart to find a way to make it happen. Maybe you could get the green light to find someone who could run a workshop on the subject for your department.

Spend as much time as you can picking the brains of colleagues, managers, suppliers, and customers. Whenever possible, attend seminars, conferences, and company-sponsored workshops. If the organization where you spend 40 hours a week pays for continuing education, take full advantage. Not doing so is throwing money away.

Is there a special license or certification that could buy you a more secure future? Will the boss pick up the tab? If you can learn on your employer's time and nickel, you'll be that much further aheadfor free. But even when the boss won't pay, if there's a special degree that would help you advance yourselfspring for it!

If you're at all facile with languages, consider becoming fluent in another one. The demand for competent multilingual workers is rising, and you can probably already dream up ways it could benefit your current employer. Courses are one way to go, but you can also get a set of tapes and learn on the way to and from work.

High Tech = High Returns

Janet didn't have a computer background, but she took every opportunity to read computer magazines, take classes, and just plain teach herself. Soon she became the person everyone went to for advice on their computer and word processing problemswhich contributed greatly to her boss's view that she was indispensable and deserving of more than a few raises.

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Nowadays, almost everyone has to be computer-literate. If you're at all behind the times, this is the best investment from the booming technology sector to put in your portfolio for your work life.

The further behind you are in whatever technology your industry uses, the less desirable you'll be at your current jobor when you apply for a new one. Photographers, for example, who for years developed prints in a darkroom, now use sophisticated computer technology to capture, print, and even touch up their photographs in record time. When it comes to commercial work, those who can't use new equipment are the blacksmiths of the modern era.

If new computer hardware and software are entering your work space, stay late if need be, and learn how to use them. It won't cost you a dimebut the yield in terms of your future job options could be enormous.

Entrepreneurs Advertise

You've been marketing yourself since before you were born. There was that first kick in the womb, that first cry when you exited, your smile when mommy or daddy said something brilliant, like "goo, goo." You quickly learned that well-timed attention getters could get you what you wanted.

As you grew, so did your ability to gauge your audience and behave in whatever fashion might get the desired response. Perhaps you realized that more often than not, whining at the checkout counter would get you a candy bar, while those great big hugs for Auntie Mame were good for doubling the quantity of birthday presents she'd buy you.

You marketed yourself at high school dances, on college applications, and when you applied for your first job. If you're smart, you're marketing yourself at the job you have now. It's a blue-chip investment opportunity for youeven if you feel as though you have a foot out the door.

Sometimes actors, singers, athletes, or even great employees are discovered accidentallybut more often than not, they've been doing a lot of self-promotion. Call it advertising or public relations or propagandizing. Whatever. It works.

Whether you're hoping to be named corporate vice president, shop supervisor, head teller, first in line for the day shiftor just trying to keep your jobthe more people who know your name and credentials, the better your chances of winning. You don't have to be pushy or even outgoing. But you do have to make sure the decision makers know you and know what you can, will, and are currently doing for the business.

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GERRI'S TOOLBOX: CREATE AN ''I'M WONDERFUL" FILE

Keep a "Good Job!" journal focused on your accomplishments. Every time you learn a new skill, finish a project, crunch some numbers that indicate your high level of productivity, attend a conference, take a class, give a speech, or complete any other significant task at work, make a note of it. And throw in letters complimenting your performance, as well as samples of business proposals or well-written memos you've penned.

You'll have your "Good Job!" journal to boost your own confidence, to refer to at your job reviews, and if you don't get that raise you deserve, you'll have great fodder for your new, improved resume. Or maybe you'll impress yourself enough with your accomplishments to finally reach for that gold ring and take off on your own.

Its Who You Know

Your list of contacts can be your most valuable asset. And the way to fill up your Rolodex is by meeting people. Unfortunately, that dreaded N wordnetworkingbrings up images of trying to make small talk at boring cocktail parties or, worse yet, recruiting downliners for a multilevel marketing scheme.

So how does someone who's a natural wallflower become a savvy networker? You've got to get out there and get known. Start by coming up with a good answer to this question:

What do you do?

When someone asks "What do you do?," do you say, "I'm in marketing" or, "I work for Sillycone Systems"? What happens next? Most likely they nod, their eyes begin to wander, and they're off. Experienced networkers subtly promote themselves by turning that question into an opportunity for a 20-second commercial.

A vivid description of what you offer is essential to subtly promote yourself. It'll probably take some practice to feel and sound natural, but once you learn how, you'll communicate your abilities more clearly, sound a lot more interesting, and be able to get a conversation fired up.

Here are two better responses to the "What do you do?" question:

1. "You know how so many people are up to their eyeballs in debt and can't seem to get ahead financially?" Involved in the conversation, the other person nods, and you continue, "I write books and articles and give seminars that show people simple ways to pay off their

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debts and build a strong financial foundation." That should catch their interest.

2. Offer a line about what you do followed by an accomplishment. For example, "I help companies improve their communications with customers. I recently set up a program for XYZ company that cut their customer service response time by 10%. And you?"

Now that you can break the ice, join a trade or professional association and attend its conventions and seminars. They offer a wonderful opportunity to network and get the inside scoop on what's hot in your current or future field. It also gives you a shot at greatly increasing your perceived standing in the industry. How? Volunteer for a position that will have you working side by side with key people in the organization.

Participating on committees or projects is an excellent way to meet new people as you let others get to know you and what you can do. But make sure you really have the time to invest, the skills, and enough interest to accomplish the project's goalsor volunteering will end up hurting, rather than helping, your reputation!

Or you could write to conference organizers and propose a speech you'd like to give. You'd rather go to the dentist than give a talk? Ask if your boss would like you to suggest him or her as a speaker. (You might get extra points and valuable experience by offering to draft the speech.) Or contact a trade magazine's editor to suggest an article you'd like to write. You don't have to be the president of your company; you just need to have something helpful to say to colleagues.

GERRI SPEAKS UP

The greatest opportunities in my work have come as a result of my public speakingtelevision appearances, radio interviews, workshops, and speeches. But it wasn't long ago that the thought of giving a speech absolutely terrified me. I wasn't alone. Most people rate the fear of giving a speech as greater than the fear of death!

The first time my boss said he wanted me to give a speech, I was sick to my stomach for days. I absolutely dreaded the thought of getting up and talking to an audience of about 20 people at an informal dinner meeting sponsored by a local businesswoman's group. Miraculously, my prayers were answered, and for reasons I can't remember, the meeting was canceled.

But that didn't stop my boss from pushing me into public speaking. I don't remember my first speech, but lightning didn't strike and I wasn't

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run over by a train as I had hoped. I don't remember my first television interview either, but I did one, then another, and pretty soon they weren't so bad.

I've had some less-than-stellar appearances, to be sure, but I try to forget those and focus on the ones that went well. I became more and more comfortable, and now actually love giving speeches and doing TV and radio interviewsat least most of the time.

You don't have to become a public speaker or woo an audience with your brilliant sense of humor. But being able to speak confidently in front of groups is a big plus in any job. One good way to get more comfortable with public speaking is to join Toastmasters International. Since 1924, it's helped over 3 million people (including me) develop confident communication skills. It's well worth the moneydues run around $35 every six months. For a chapter near you, call 800-993-7732 or you can go to this Web site: www.toastmasters.org.

GERRI

And Now for Today's Speaker

Do you think people join the Rotary or Chamber of Commerce so they can listen to self-promotional talks once a month? Au contraire, they join because it keeps them and their companies visible and in touch with the local community. If the Rotary doesn't sing to you, how about participating in the company bowling league or volunteering with a local charity?

Problem Solved

Problem solvers are always in demand, so spend some time analyzing what's wrong where you work, and developing realistic solutions. Did you just hear about a hot new marketing opportunity at a convention, and do you have some thoughts about how your organization can use it to increase sales of the widget no one seems to want? Do you know how the current phone system might be improvedor can you suggest better ways to handle complaints? Putting solutions to problems on paper is a good way to let your boss know you're "on the case."

Pitch in when things get really hectic, or learn to do what no one else can or will. Just make sure you teach others how to do it themselves. You don't want to get stuck changing the toner on the copier every time it runs out just because no one else has taken the time to learn how.

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I See a Bright Future for You

Your next investment shouldn't be a 900 call to a psychic hotline, but rather the development of an important skillthe ability to see into the future and prepare yourself. We're not talking crystal balls here. Learning how to think about the future can be one of the most useful things you can do for your career and for yourselfwhile a lack of awareness of what's new, what's hot, and what's not can put you on a dead-end path.

According to Gerald Celente, Director of the Trends Research Institute and author of Trends 2000, the key to tracking trends is to read two newspapers every day with a purposeeither The Wall Street Journal or The Financial Times, plus The New York Times or USA Today. Look for stories with social, economic, and political significance, be it about the difficulties older suburbs face or the current currency crisis. (You'll know by the headline or the first paragraph.) Skip the stories that are purely human interest or that are about something that hasn't happened yet (for example, a jury resuming deliberations on a sensational trial).

When a crisis does occur, tune in to the extra in-depth analyses that you'll find in accompanying background pieces, probably in more than one of the newspapers. Read them as though you're a "political atheist," Celente recommendsnot for what you want or hope, but for what is really going on, not only in your own profession or industry, but for trends that may directly or indirectly shape the future.

Once you spot a trend, ask yourself what it means to your business, to your way of life. For example, in the articles giving postmortems about Christmas spending, you see again and again that people did spring for services and "experiences," while expenditures on typical gifts went down. Although you're in a service business, no one at work ever packaged what you do to appeal to holiday spenders. But now you'll be thinking about this trendand how your business can benefit from it.

Who Sets the Price?

The marketplace is regulated by supply and demand (as well as by the Feds). In the workplace, you're a supplyjust like computer chips (or potato chips, for that matter). The more you're needed, the more you're worth. But not all chips of equal quality cost the same.

Some brands are perceived to be worth more than others. To a large extent, that has to do with promotion. If consumers are swayed enough

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by clever advertising, they'll often pay more for a product that's identical to the generic one alongside it.

The techniques we've been discussingcontinuing your education, developing cutting-edge technical skills, and engaging in effective self-promotion, will all increase your value. But being more valuable to the company isn't your only goal. You want the boss to pay you more.

Like consumers, businesses pay more for something they value more. As an entrepreneur, it's your job to make your client (your boss) believe you're worth what you believe you're worth. Set too high a price, and you could be walking the streets. Set too low a value on yourself, and you may be perceived as being worth lessand that could put you out on the streets just as quickly. Working Woman and Working Mother magazines often carry stories that can help you decide what you're worth and how to get itwhether you're a woman or a man.

If you want to stay employed and move ahead, look at your job as an entrepreneur would. You're currently employed by one of many potential clients. If you feel that your current fee is less than you deserve, you have some choices:

1. You can raise your price and ask for more money.

2. You can wait, in the hope that you'll be given a raise.

3. You can go elsewhere.

If you choose option 1, be prepared to be turned down. If you are, you have three options:

1. Wait a while and ask again.

2. Ask why not, and try to correct any shortcomings the boss thinks you have.

3. Go elsewhere.

Our recommendation is twofold: Don't push for a raise or promotion unless you have a viable alternative. Then pick your time and place carefully. The time to ask for a raise is not hot on the heels of the company having just lost its biggest account. The place to ask for that raise isn't in the parking lot when the boss is already running late.

But when the clock strikes the right time and the circumstances put you and your manager in the right place, have a number in mind, and be able to justify it by tooting your own horn. Bring out those letters, proposals, and memos that document all the great things you've done for the company. You're best off if you can quantify that you've earned or saved your company X dollars. After all, it is the bottom line that counts to the client.

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The message here is that while not asking is an automatic no, asking does change the relationship. An emphatic "No!" may cause a loss of self-esteem, and you'll be forced by your ego or common sense to look elsewhere. Or maybe it's time to strike out on your own.

Play Your Ace to a Business of Your Own

In Chapter 8 we explain why developing and maintaining a small business of your own, what we call an "Ace in the Hole," is a great investment in your family's future. But if you're eager to start your own business fulltime from the get-go, we're all for it.

Many a small business owner has made the leap from full-time employment to self-employment by working as a consultant for a former boss. If you've built up some expertise or a reputation in your field, you may be a perfect candidate. You'll have the opportunity to build your own business (and set your own hours and fees) by selling the expertise you developed on your job.

If you're contemplating this route, begin putting together a proposal for your superiors that emphasizes the benefits they'll gain by working with you on a consulting basis. Once you've made the commitment to leave, contact everyone you know who can be a potential source of business, and tell them of your plans. Ask them if there's anything you can do for them, or better yet, suggest projects you might be able to do. You'll be off to a running start.

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Chapter 7

Work Is Where the Perks Are

Comparing investment opportunities on the job

How to find loose-change leverage at work

Turning your savings kitty into a cheetah

Ways to benefit most from your benefits

Employee benefits can boost your standard of living and reduce your income taxesif you know enough to use them wisely.

KATHY KRISTOF, Kathy Kristof's Complete Book of Dollars and Sense

Whether you work for Godzilla Corp. or George's Garage, a good employee benefits package can make life a lot easier. To begin with, these perks are generally worth 35% to 40% of your annual compensation. And it's tough to save on your own for retirement, expensive to get your own health insurance, and difficult to take a family leave unless you know your desk will be waiting patiently for your return.

Yet many people take perks for granted and don't use them to the fullest. How much do you really know about your benefits? Do you know what they're worth? Are you really using them to your advantage?

Chosen and used wisely, your benefits provide golden opportunities for what we call "loose-change leverage"the ability to turn small amounts of money into big results. You can capitalize on this leverage by funding your retirement plan to the max, investing in flexible spending accounts, opting for a health plan that matches your needs, getting reimbursed for expenses, and getting an education on your employer's dime.

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To cash in, though, you've got to do your homework. While it may be more fun to compare the features of various new wide-screen TVs or CD players, the payoffs are much, much greater if you put time and thought into comparing your benefit options. And if your spouse has a good package as well, you'll have a little more homework, but even more potential leverage.

BARGAINING FOR BENEFITS BEFORE YOU TAKE THE JOB

Employers typically present the benefits package to a prospective employee as though it were set in stone, when it may actually be as flexible as Flubber.

The more valuable you are to the company, the likelier it is that you can negotiate a step-up in perkseven if the company can't or won't come up with the money you think you're worth.

Start by trying to see yourself through your prospective employers' eyes. Are they getting a bargain, based on your skills, experience, and the going rate for people in your position? You may have more room to negotiate on perks if the compensation you're being offered is barely competitive or somewhat below market rates. By contrast, the benefits cupboard may be dry if they're paying a premium to bring you on board. But if you don't ask, you'll never know!

With your needs in mind, review the benefits package you're being offered. Are there any gaps or weak spots? For example, if you're a young parent, does the company offer adequate life and disability insurance? What additional benefit(s) would mean most to you? More vacation time? A company car?

If you've been offered similar perks by other companies, be sure to say so. Explain why the extra perks will help you do a better job. But don't wallow in emotion or issue ultimatums unless you mean them.

Perkmanship:

Leverage Those Fringe Elements

If you already work for a company that's blessed with a strong array of benefits, your employer's first official greeting probably came in the form of an avalanche of leaflets, brochures, and binders describing your options in detail.

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The Choice Is Yours

The way we see it, wealth is simply having more than you need, and poverty is having less. Many folks with little money and few possessions are far wealthier and happier than high-income earners who are in hock up to their eyeballs and working at jobs they hate.

Money isn't the only resource you need for the good life. Since many of the things we enjoy also require the involvement of others, we need the support of friends and family. And, of course, we need and want to be in the best health that we can achieve. But to do those things that make us feel good about ourselves and our lives, we also need time. We need the time to do what we enjoy, and we need the freedom to take that time.

Like money, we have a limited amount of time to spend. But unlike money, we can't spend time we don't have. No bank is issuing a MasterCard where we can charge more time than we were originally allotted.

Money can be earned or borrowed. Time can only be spent. Good health and fortune might affect how we consume our time, but if we burn ourselves out, no bankruptcy court will let us clear the decks and restart the clock.

Name some things that you've always wanted to do, but haven't done.

1. ___________________________________________________________________

2. ___________________________________________________________________

3. ___________________________________________________________________

4. ___________________________________________________________________

Do you feel as though some of the best life has to offer has been passing you by? Who or what have you been blaming for keeping you from your goals? Why haven't you been able to live the life you want? Is it money? Is it the children? Is it a spouse? Is it a job? Is it a bad break? Is it "them"?

Where to Begin

Not at the very beginning. It makes no difference where you were born or even why. What matters is where you are today, what excess baggage you're carrying, and whether your load can be lightened, redistributed, added to, or made a more enjoyable part of your lifeeither now, or with planning, sometime in the future.

With profound changes taking place all around us, virtually everyone

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Don't wait until your personnel department sends out a last call for benefit choices before looking at these treasure maps. If you make a hasty decision that turns out to be unwise, you could lose big-time until your next chance to change your planswhich might be a whole year away.

To get the most from your company perks, benefits consultant Neil Finestone from Sherman Oaks, California, advises that you start scouting your options early:

1. Begin looking into your choices as soon as you hear that an open-enrollment period is coming up. This should give you several weeks to research the alternatives calmly and intelligently.

2. Make sure you have a summary plan description for each available benefit program. Here's where you'll really find out what your pension's all about and what's covered (as well as what isn't) in your health plan. Read them and write down any questions you have. If your human resources department can't provide the answers, go right to the source: your company's retirement plan custodian, pension administrator, or insurer.

3. Be clear on your preferences and comfort level. On your health plan, for example, how important is free choice of doctors? Can you live within the limitations of an HMO? How much risk are you willing to take in your 401(k)?

4. When both spouses have similar perks, take a close look at the cost versus benefit received. For example, if you both have retirement savings plans with an employer match, it makes sense for each spouse to contribute enough to earn the maximum match. There's no way to beat an immediate 33%, 50%, or 100% return on your investment! Once you've taken full advantage of the match, the questions become how much more can you afford to contribute, and which plan's investments are likeliest to meet your financial goals down the road.

Retirement Plan Primer

The time to start planning for a financially secure retirement is the day you receive your first paycheck, although few of us ever do. But don't agonize over the fact; just avoid further delays and start now.

NANCY DUNNAN, Dun & Bradstreet Guide to Your Investments

By 2001, American workers will have socked away some $1.5 trillion in the most popular kind of employer retirement plan401 (k)swhile bil-

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lions more will have been socked away in plans offered by nonprofit organizations (known as 403(b)s) and government agencies.

By and large, employers are delighted with 401 (k)s. Instead of funding traditional pensions that pay retirees a fixed monthly amount, more and more companies are setting up these savings plans, which shift the responsibilityand riskof providing a financially secure retirement to the employee. This can seem like a huge challenge. And if you've heard how much money experts say you ought to have saved for retirement, all the zeros probably made you swoon. Buck up! The important thing is to take every opportunity you can to make this seemingly impossible task possible.

The first step: If your employer offers a retirement savings plan, rundon't walkto participate in it. Here's why we feel so strongly about this particular kind of loose-change leverage:

It's the most painless way to save you'll ever find. The money is deducted from your paycheck, which means you never handle it, can't spend it, and probably won't even miss it.

It cuts your taxes right away. Your contribution isn't included in your taxable income for the year, so, for example, if your gross compensation is $50,000 and you contribute $3,000 to your 401(k), you're taxed on only $47,000. Even in the 15% tax bracket, you've legally kept $450 from the IRSat least until you retire. If your "contribution" to Uncle Sam is 28%, you've held back $840. Note that 401(k) money is tax deferred, not tax-free.

You may be eligible for free money. With a 401(k), your company has the option of matching as much as 100% of every dollar you put in, with either cash or company stock. If you can find a better deal than an immediate doubling of your money with no risk, tell us about it!

You don't have to pay tax on any of the interest, dividends, or capital gains you earn until you withdraw the money. Ideally, this will be after retirement, when you're apt to be in a lower tax bracket. In the meantime, your savings will snowball, because you don't have to dip into them every year to pay the IRS.

A simple way to save, a tax break, and a shot at free moneywho could ask for anything more? Amazingly, though, 41% of employees ages 25 to 34 who are eligible for a 401(k) don't take advantage of it, according to the benefits consulting firm, Hewitt Associates (Lincolnshire, Illinois). More astonishing yet, almost a third of those aged 45 to 54 pass up this

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great benefit. And many more don't take full advantage of their employer match.

The earlier you start, the less you'll have to put aside to retire wealthyor the sooner you may be able to call it quits. So if you haven't signed up because you're shy about making long-term commitments, get over it. Here's a case where time is literally moneyand if you snooze, you lose.

WAKING UP A SLEEPY 403(B)

For years, 403(b)s were the only retirement savings game in town, and the teachers, hospital workers, and nonprofit employees who could benefit didn't have any choice but to buy insurance company annuities, had no way to compare their performance, and were hit with fees that were not clearly delineated.

Now there's a possible escape hatch if you're trapped in a sluggish 403(b) to which your employer hasn't made any contributions. You can arrange to have your existing balance transferred into a 403(b)(7) custodial account at a brokerage firm or mutual fund company, where you can invest in any mutual funds or annuities you wish.

Be careful: Since most annuities let you withdraw only 10% of your balance a year without triggering a surrender fee, your transfer into a 403(b)(7) may have to be made gradually.

How to Turn Your Savings Kitty into a Cheetah

Have you ever wondered how some of America's greatest fortunes were made? They were made, in large part, by the magic of compound interest . . . Today, the same principle is at work in your individual retirement accounts and your company retirement plans.''

JAMES JORGENSEN, It's Never Too Late to Get Rich

Assuming you've taken the plunge into a retirement plan (or you will after reading this chapter), how much should you contribute, and what should you invest it in? Like almost everything else in life, it depends.

If you haven't been saving at all, even a reasonable amount could pinch at first. But it may not! In any case, don't overdo ityou still have to meet your living expenses and pay off high-interest debt. Our suggestion: Start with an amount you're pretty sure you'd never notice, and boost it a bit

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every six months until you're putting in at least enough to get the maximum " free money" match provided by your employer.

And now, where to put your hard-earned 401(k) money? Typically, you'll be offered a smorgasbord of mutual funds, often including a money market fund, an income (bond) fund, a growth and income fund, a growth fund investing in diversified stock, an aggressive growth fund focusing on small-company stock, and an international growth fund. Another of your choices may be a guaranteed investment contract (GIC), which pays a fixed interest rate like long-term CDs, though they're not FDIC-insured. Finally, larger companies often put their own stock on the 401(k) buffet table.

Your investment strategy should depend on how much time you have until you'll need the money and on whether you have other financial cushions for retirement (a side business, say, or rental property). For example, if you have 20 years to go, you can afford to invest more aggressively than someone who'll need to start tapping the account in five years. But if savings will be your only supplement to Social Security, you might feel as though you need to max what your investments earn. Together, these two factors of time and need can help you determine how much risk you should take.

Many employers offer literature, seminars, and even software to help employees put together their own investment portfolios. If your company hasn't yet joined in, start to lobby for more education. After all, it's your money!

For starters, you might want to get a free sample copy of Loose Change, a newsletter featuring easy-to-understand information on personal finance that is distributed through worksites (Financial Literacy Center, 350 E. Michigan Avenue, Suite 301, Kalamazoo, MI 49007, 616-343-0770). If you like it, let the boss know.

An increasing number of companies provide their match for a 401(k) plan in the form of company stock. In addition, you may be given the option to purchase company stock as part of your 401 (k). Other companies have Employee Stock Ownership Plans (ESOPs), which give employees stock as part, or even all, of their retirement plan.

Please, be very careful about tying too much of your future to your company's future. Be especially careful if your company is small (small-company stocks are much more risky) or is closely held and you cannot get reliable, independent information about its stock from brokerage firms or from Value Line Investment Survey at your library. If your employer is already providing company stock as part of its contribution

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to your retirement, then you're probably better off diversifying by choosing other investment options.

If your employer provides only company stock as your retirement plan, then you may be in a very risky position. Maximize other opportunities to save for retirement while you encourage the folks at the top to give you more investment choices. You might even have to teach them that D word: d-i-v-e-r-s-i-f-y.

How'm I Doing?

Your account statement will show whether you've gained or lost ground since the end of the last quarter. Be sure to check it, and report any errors to your benefits department.

For 401 (k)s, it's relatively easy to find out more about specific funds in your account, which may be retail (open to any investor) or private trust accounts managed by a bank, insurance company, or investment firm. Information about retail funds is much more publicfor example, there will be a prospectus with investment policy and fee summaries, and their current value is usually published in your newspaper's daily fund listings. The same basic information about private funds is (or should be) available through your 401(k) custodian.

Tip: To research public funds, go to the library and look at Morningstar for an independent assessment of their performance. Even returns on private funds can be compared to similar types of investments in Morningstar.

Naturally, you'll choose investments that you think will bring in good returns. But a hidden factor may sap your success: the cost of administering your plan. A reasonable fee is 1% of your account assetsbut most 401(k) plan participants have no idea how much they're paying in fees. Some plans overcharge employees as much as 600%, according to Money magazine, which estimated that excessive fees could cost an employee in a high-priced plan almost $250,000 over 30 years.

Get your benefits department to explain the fees you're paying, and complain if they seem out of line. (Morningstar carries information about expense ratios for comparison.) Employers are fiduciaries for retirement plans, which means they're responsible. They don't want to risk an employee suit for failing to manage the plan properly. You may find allies among your company's top executives, who probably have even more at stake in their 401(k) accounts than you do. (Nobody wants to toss away a quarter of a million dollars.) Don't chicken out herethe brass really may not realize there's a problem.

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Be especially careful if your company is in financial trouble. Although employees' money in a 401 (k) is supposed to be kept separate from other company funds in compliance with the Employee Retirement Income Security Act (ERISA), fraud investigations are way up. The most common complaint: financially strapped companies using or borrowing against participants' money to cover company expenses. If you have concerns about the management of your plan, talk to a pension advisor at the U.S. Department of Labor's Pension and Welfare Benefits Administration (202-219-8776).

Getting Access to Your Money

Many companies will allow you to borrow from your 401(k), 403(b), or profit-sharing plan accountusually up to 50% of its value, but no more than $50,000. However, you can't borrow from a 403(b) once it's been converted to a 403(b)(7).

For people with no credit history or a poor credit history, loans from a retirement savings plan can be a godsend because they're easy to get. There's no credit application or approval process, and the interest rate is low, generally 1% or 2% over prime. (For example, if the prime rate is 8.5%, you'd pay somewhere between 9.5% and 10.5%.) You must repay the loan in roughly equal monthly installments within five years or it will be subject to income tax and an IRS early-withdrawal penalty. The good news is that the interest you pay is credited back to your accountso you're paying yourself instead of a bank or finance company.

Watch out. You may end up robbing your retirement fund if you rely too much on these loans. It may seem like you'd come out way ahead, paying interest to yourself instead of to some bank. Unfortunately, you won't be earning interest from the retirement plan's investments. So while you're taking money out of one pocket and putting it in another, which is certainly better than giving it away, the money you borrowed from your retirement fund won't be earning you anything. That can mean a smaller nest egg when you retire. Also, if you leave your job or lose it, the entire balance of the loan usually becomes due.

Besides borrowing from your plan, you can also make withdrawals for such things as medical expenses, college bills, or financial hardship. But withdrawals mean taxes (20% of the amount will be withheld for estimated taxes, and you may owe yet more, depending on your tax bracket), plus a 10% IRS penalty. In addition, you can't replace the money you've taken, nor can you make additional contributions for a year. This is one time when it's probably way better to borrow than to withdraw.

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When you leave a job, you can take your money with you, along with any employer contributions that have vested. However, if you just take the money and run, you'll get hit with taxes and a penalty. You're much better off leaving your retirement kitty with your former employer or moving it into a new employer's retirement plan, if you can. And you always have the option of rolling over your savings into an IRA. If you open a separate IRA solely for your rollover funds, you may be able to transfer the money later into a new employer's 401(k). Watch out, thoughunless your funds go directly into another retirement plan or IRA without passing through your hands, you'll face taxes and that penalty.

In a Small Business? Think Big!

Instead of a 401(k), many small companies offer their employees a less complicated retirement plan. If your employer has a Keogh profit-sharing or money purchase plan or a SEP-IRA, contributions to your account may only be made by the company. Still, that's retirement money you wouldn't otherwise have.

However, if your company has a Savings Incentive Match Plan for Employees (SIMPLE), you have a chance to kick in savings, tooand you should! Generally, here's how a SIMPLE works: You can stash away up to $6,000 a year in your plan, and your employer can match your contributions up to 3% of your compensation, also to a maximum of $6,000 per year.

Alternatively, your employer may decide to kick in 2% of your salary (up to $3,200 a year), whether or not you put anything in (and you should!). SIMPLEs are indeed simple to establish and administerso if your company thinks it's too small to offer a retirement savings plan as a perk, steer your CEO toward a SIMPLE while you murmur, "Save on taxes . . . retain and recruit top employees . . . get loose-change leverage. . . ."

Insurance:

The Broccoli of Finance

Even though more companies are sharing the cost of premiums with workers, health, disability, and life insurance remain highly valuable perks. In fact, you may not realize just how much this coverage is really worthunless you've tried to buy it on your own. Compared to individual policies, group plans tend to be cheaper, more comprehensive, and less apt to reject you because of preexisting medical conditions.

Nonetheless, thinking about insurance probably isn't one of your favorite pastimes. When you don't need the darn stuff, it costs moneyand when you do need it, it's because you're sick, disabled, or dead. But

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just as you've learned to eat broccoli (we hope), you need to take an intelligent look at this company perk, which has the potential to keep a medical calamity from wiping you out financially.

Some employers offer a plain-vanilla insurance packageone or two health plans, disability coverage, and life insurance in amounts of one, two, or three times your salary. But you might also face a much bigger array of choicesnot only more types of health plans, but more ways to allocate your benefit dollars.

Healthy, Wealthy, and Wise?

. . . if you added up all the different ways that you pay for health care, the sum would undoubtedly create "sticker shock!" . . . Current projections suggest that the average family will spend over $14,500 in the year 2000.

MARC S. MILLER, Health Care Choices for Today's Consumer

Dr. Marcus Welby would hardly recognize medicine as it's practiced these days: A virus called "managed care" has infected the world of kindly family doctors. Even traditional indemnity plans that offer free choice of providers (for which you usually pay through the patella in premiums, deductibles, and co-payments) still want to preapprove your hospital stays.

At the other end of the spectrum are health maintenance organizations (HMOs), which will cover 100% of your costsif you let them call all the shots on your care. In between, you may be offered a preferred provider organization (PPO), which will pay more of your bills than an indemnity planif you use its approved network of doctors. Newest and fastest-growing in this alphabet soup of options is the point of service (POS) plan, a hybrid of the others. It works like an HMO if you use its "in-network" providers and picks up 70% to 80% of the tab if you go out of network.

The type of plan you select often depends on your comfort level. Some folks swear by HMOs; others want the optionat least to some extentof making the decisions on who they'll see and what tests they'll undergo. Here are some factors to look at when choosing a plan:

Your medical needs. Well care for children, prescriptions, mental health benefits, chiropractic careif features like these are important to you, check out how each plan covers them.

Doctors. In looking at the network's doctors, are there several specialists to choose from in each field? Are your own doctors in the network? If not, to what extent would you be covered if you used them?

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Are the doctors compensated with a yearly per-person fee or per visit? (Chances are, you'll get better care if physicians are paid each time they treat you.) What's the review process if you don't agree with your doctor's treatment recommendations?

Out-of-pocket costs. First look at whether a higher deductible will be offset by lower premiums, or vice versa. Compare how much you spent out-of-pocket last year with how much you'd spend with each plan under consideration.

Coinsurance. How much of each bill would you pay once you fulfill the deductible? At what point would the insurer start paying 100%?

Your spouse's coverage. When you each have access to a company health plan, compare cost and features. Many group plans provide individual coverage free, so if you don't have kids, "to each his own" might be the cheapest approach. If you have children, it's best to go with the plan that offers better family coverage. (Make sure that if the spouse with the family plan quits or gets "downsized," you could still sign on to the other spouse's plan.) If you're tempted to have coverage through both employers, beware: You may not get full value from your premium dollars because of complex rules about who pays what (which in turn can lead to time-consuming squabbles).

A lifetime benefit of at least $1 million. Hey, you never know.

The fine print in the plan booklet. Find out which situations qualify as emergency coverage and when pre-certification of treatment is needed, so you don't wind up filing claims that get rejected. If you're in an HMO or POS plan, your care will be more heavily dictated ("managed") by your insurer. So it behooves you to know as much as you can in advance about how the plan is run.

Your benefits office or the insurance company's member services department should be able to help.

Ask if the plan has been in the area for at least a few years. Find out what coworkers and neighbors have to say about their experiences with the company. How are you covered when you travel around the country or overseas?

Fortunately, there are resources available to help you make these complex decisions. For instance, the National Committee for Quality Assurance accredits HMOs and provides a free accreditation status list (800-839-6487, www.ncqa.org). Major consumer magazines such as U.S.

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News & World Report rate HMOs. And the Center for the Study of Services publishes the Consumers' Guide to Health Plans ($12, 800-475-7283), which provides sound advice on choosing health plans and surveys 72,000 subscribers of 300 HMOs, rating the plans on quality of care.

If you and your employer part ways, you'll generally be eligible to stay on the company health plan until you're insured elsewhere, up to a maximum of 18 months. However, you'll pay the full premium (and a bit more). New legislation requires that any preexisting conditions must be covered if you move to another group plan after being insured for at least a year.

MSA: NEW KID ON THE BLOCK

Companies with 50 or fewer employees may now offer a sort of medical IRA called a Medical Savings Account (MSA). This is a special account maintained with an insurer, bank, or brokerage into which you can stash a certain amount of pretax money, to be spent on almost any medical or dental expense. Money you don't spend just stays in your MSA, piling up tax-free earnings for you. (If you withdraw any of it for nonmedical purposes, you'll owe tax, plus a 15% IRS penalty if you're under 65.)

Your MSA must be paired with a high-deductible health insurance policya safety net in case of steep bills. The combined cost, however, can be lower than you're used to paying for traditional insurance. If you're eligible for one of these new accounts, their tax advantages and flexibility may make them worth checking out. For a list of MSAs in your state, visit www.kiplinger.com/dailynews/dn0514972.html.

Other Perks of the Workplace

Sometimes your choices are even more complicated than where to invest your savings and which health plan to choose. Many employers offer flexible benefits plans, also known as cafeteria plans. They provide a fixed amount of benefit dollars, which you allocate based on your priorities. For example, young parents might opt to put more dollars into life insurance and child care benefits. Older employees might funnel more into retirement plans. If your spouse has a good benefit plan, too, you can carve out the best of each package.

A newer option is the Flexible Spending Account (FSA), which you fund by contributing a set amount (up to $5,000 a year) from your pretax

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needs to be prepared to make some lifestyle adjustments from time to time. But we're not identical. Our needs, interests, and dreams differ. There is no ''correct" way to go. There are as many paths to follow as there are people to follow them. What can you do to take a little stroll down your next path today?

Making changes in your life doesn't have to mean making drastic changes. Very often, reasonable baby steps that are easily managed and won't drastically upset anyone's applecart (including your own), will take you a little closer to your goal.

Can you, maybe with the help of your mate or a good friend, come up with a few baby steps you could take to get a feel for what the change would be like? You could start by asking yourself if there's another way to go, different from the way you've perhaps taken as a given, that might get you closer to the life you want. Maybe you'd like to begin by reading about how other people have changed their lives.

GERRI'S TOOLBOX: WHAT'S STOPPING YOU?

At a creative problem-solving conference, Min Basadur, a management consultant, taught me a helpful way of looking at a roadblock. Min calls it the "WhyWhat's Stopping You Analysis."

First, identify something you really want in your life. Let's say it's more time with your children. Ask a complete question, "Why would I want to . . . spend more time with my children?" Then ask, "What's stopping me from . . . spending more time with my children?"

Next, give the answer in a simple, complete sentence. For example, "I have too many outside activities that don't include the kids."

Then restate the answer to create a new question: "How might I . . . cut back on outside activities?" Or "How might I . . . include my children in my outside activities?"

The advantage of looking at a problem in this way is that it gives you something concrete to work on. Rather than just feeling terrible because you don't have enough time, money, or whatever, you can look at your problem from a perspective that makes it manageable. Because you'll be asking and answering your own questions, you'll come up with solutions that appeal to you and that you'll be able to implement. If you still find yourself stuck while doing this exercise, ask a couple of friends to help you. They may offer a perspective that never occurred to you.

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compensation. Some employers also add their own contributions. You can use your FSA to fund out-of-pocket medical expenses (including costs that your health insurance may not cover, such as glasses, dental work, and prescriptions) or care for a child or elderly parent. Some plans also allow participants to buy other insurancelong-term care, group auto, homeowner's, or additional life or disabilityor even to buy and sell vacation time.

To make the best use of an FSA, carefully weigh your future needs against your past expenses, and don't kick in more than you expect to spend. If you don't use all your FSA money by year-end, you lose it! Employers get to do whatever they want with what's left in the pot. Plan wisely, though, and you'll get a bargain on benefits. For example, if your combined federal, state, and local tax bracket is 40%, it ordinarily costs you about $1.67 to pay for $1 worth of benefits. But because you spend pretax dollars, your FSA lets you buy $1 worth of benefits for just $1.

Aside from FSAs, companies may offer subsidized on-site child care centers or child care referral services. Others are beginning to add emergency or sick-child care centersa real boon for parents who don't have to miss work if the baby-sitter (or the baby) falls ill. Some employers help with adoption expenses, too. Companies are increasingly recognizing the value of flextime and job sharing as family-friendly perks. And if your firm has 50 or more employees, you can take up to 12 weeks of unpaid sick or parental leave, provided you've worked at least 1,250 hours during the prior year.

Don't overlook Employee Assistance Programs (EAPs) if you or someone in your family needs help coping with a problem such as alcohol or substance abuse, mental illness, or a legal tangle. Besides reducing family stress, these programs may save you a good bit of time and money. (Be sure your privacy will be guarded, though.)

To get the boss to help a little more with balancing job and home pressures, get a free sample of the Work and Family Life newsletter (317 Madison Avenue, Suite 517, New York, NY 10017, 800-278-2579). If you like it as much as we do, suggest your firm distribute copies.

You can also increase your loose-change leverage by making sure your employer reimburses you for all job-related expenses. If your boss now has you traveling, you'll probably get reimbursed for your travel costs, including meals on the road. If you aren't collecting for mileage to and from the airport, or if you're making business phone calls from home after hours, you'll want to have the company pay for those, too. Keep

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receipts and good records, and submit them promptly. A few dollars here and there may not seem like much, but it can really add up.

And in case you didn't catch it in Chapter 6, last, but definitely not least in the parade of perks, is education. Along with on-the-job training, many companies pay part or all of the tuition for courses directly related to your job. Some even reimburse you for study that's unrelated to your work. If your employer offers an opportunity like this, go for it!

Stock Options:

Getting a Piece of the Pie

Some years ago, Lena Tice of Atlanta took a job with a company that offered employee stock options. She signed up immediately. "I saw it as a good way to save," she says. "I always participated to the maximum extent they allowed, reinvested the dividends and never touched it, and over the years it has really added up."

Stock options aren't just a perk for top executives anymore. Increasingly, they're being used to focus employees' attention on improving shareholder value, while giving them that team spirit. As we mentioned, some companies issue their stock as part of retirement plans, including 401(k) plans or ESOPs.

But now many companies are also giving employees incentives to buy company stock through a stock option plan, not as part of a retirement plan. Here's how it works: Stock options give you the right to buy a certain number of company shares, generally anytime during the next 10 years, at an attractive price (the option strike price or grant price). What you hope will happen is that the price of the stock will rise, and you can exercise your option. In other words, you want to buy (low) at the strike price and sell (high) at the exercise price.

You lose the option if you don't exercise it. You also lose it if the current market value of the stock is below the strike price when you're ready to buy. (This is called the underwater or Jacques Cousteau option.)

If you quit or are fired without having exercised your options, you can still use any that are vested (i.e., that you've held for a given period, typically one to five years). Options that aren't vested are forfeited.

Stock options can be a great way to increase your wealth. But they are risky. Many, but not all, companies offering this perk are smaller-sized, and as any financial advisor can tell you, small-company stocks are among the most risky. You're able to reduce your risk when you buy at an attractive price, but don't lose sight of the big picture. Diversify. That

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means you'll want to sell some of your company stock from time to time (depending on company rules) and invest elsewhereeven if the stock seems to be doing very well.

''But," you may argue, "if it's doing well, why would I want to sell?" For one thing, the way to make money in stocks is to "buy low, sell high," and if you've done that, there's no need to get greedy. Second, if you're heavily invested in the stock of the company where you work, you're putting a lot of your future in one basket. If things go sour, your job and your stock could all go south. (It happens, folks!)

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Chapter 8

Deal Yourself an Ace in the Hole

Why an "Ace"a small, side businessshould be a part of your portfolio

How to set up shop without a lot of time or money

Ways to create an Ace so it's fun as well as profitable

In order to live without a job, you must sacrifice not only boredom but stress, time clocks, regular paychecks, strained relationships, rush-hour traffic, annoying coworkers, bosses, repetitive work, imposed vacations, low expectations, office power trips, company rules, and predictability. I know, it's not always an easy sacrifice.

BARBARA J. WINTER, Making a Living Without a Job*

Once upon a time, hard work, dedication to the company, and perhaps a strong union guaranteed your job for life. Today, it's far more prudent to assume that sooner or later, you and your job will part company (if you haven't already).

When that happens, will you feel victimized, depressed, and desperate? Or will you be ready to seize the opportunity for a great new beginning? Your choice.

* Barbara also puts out a great newsletter. For a sample copy, send $1 and an SASE to Winning Ways, P.O. Box 390412, Minneapolis, MN 55439-0412.

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It's our firm beliefand long-term experiencethat developing and maintaining a teeny, tiny business of your own, what we call an "Ace in the Hole," is one of the best investments you can make for yourself and your family.

You can create your own Ace almost painlessly, with very little money, with virtually no financial risk, and in far less time than most Americans spend staring at a TV screen. You'll have protection against tough times, and the wonderful feeling of being in control of your own destiny.

You don't need to burn any bridges, mortgage the farm, quit your job, hire attorneys and accountants, work around the clockor invent a better mousetrap. You just need to pick a reasonable path, take a few well-calculated, very low risk steps, and let your Ace grow slowly. Soon, you'll have confidence, cash, and another way to make a living, should the you-know-what hit the you-know-where. You'll also get two important bonuses:

Extra income

Tax deductions

So why isn't there a business booming on every kitchen table? Despite our reputation as the land of opportunity, you've probably been led to believe that starting a business is so costly, risky, and regulated, you'd be nuts to try. Nonsense! Allow us to demystify the process.

Start Now

Begin by simply giving the possibility of creating an Ace in the Hole some serious consideration. This probably isn't the first time you've daydreamed about being your own boss, but maybe it can be the first time you take concrete steps to research your options and then to test the waters.

Take your time. Neither Rome nor Microsoft were built in a day . . . and you, hopefully, still have a paying job. What you're looking for now is an opportunity for down the road, not an earthshaking inspiration that has to be implemented by noon tomorrow. Sit down, relax, and make a list of those hobbies, interests, or skills that you really enjoy.

Skim magazines for business ideas that intrigue you. As you do, think about what you might really find interesting, exciting, and meaningfulworth crawling out of bed to do, day after day. Think about the kind of environment you want to work in, the types of people you want to be around, your ideal working day. Be serious, be silly, be creativebut fill up at least a page.

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Mull over those things that you do best. Do you make the best chocolate chip cookies your church group has ever tasted? Mrs. Fields, move over!

Ask friends and colleagues for ideas and for their thoughts on your skills and strengths. What businesses can they see you in? A friend may recognize your culinary talents as worthy of a catering venture; a neighbor who focuses on your knack for fixing computer problems may suggest it as a service others would be happy to buy. Who knows? Your friend may even become your first client!

CYBERSOURCES FOR YOUR ACE

Cruise these Web sites and their links for great ideas, inspiration, and hands-on help in bringing your Ace into reality:

Working Solo: www.workingsolo.com

Guerilla Marketing Online: www.gmarketing.com

SBA Online: www.sbaonline.sba.gov

The Idea Café: www.ideacafe.com

Business@Home: www.gohome.com

If inspiration still hasn't struck, there are lots of ways to find your niche. Skim through the Yellow Pages, scan the classified ads in newspapers, go to a flea market, walk down Main Streetand through a mall. Check out books from the library (e.g., 101 Best Home Businesses by Dan Ramsey), attend some "how to start your own business" classes, take career aptitude exams, and pay attention to how others are making a living on their own. And definitely tune in when you hear, "I wish there were someone I could call to . . . ."

Three Strategies for Ace Building

1. Do something you know. Peter Lynch, the famed investment advisor, recommends that you buy stocks of companies you know or understand. The same approach can work well with your Ace. If you're an administrative assistant by day, you could spend evenings and weekends helping small businesses with data processing chores. If you work in public relations, you may be able to promote a few private clients on the side. Just don't take on work that competes with your full-time job, unless you're prepared to be unemployed should the boss find out!

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The advantages of building an Ace from your current experience and skills can be numerous: You avoid the learning curve; you can take advantage of those contacts you already have; you know what to charge; you can gauge the workload involved in different projects; and you have a proven track record to show clients. This type of business can often be started more quickly than others, and it may show a profit faster than something brand-new.

The danger lies in burnout: too much of the same old same old. To persevere through the ups and downs of running a small business, you must do something you enjoy. You don't have to love every aspect of it, but you do have to be excited enough to come home from the first job and be willing to put in time on the second one. So if you hate the line of work you're in now, choose another approach.

2. Cash in on a passion or hobby. Imagine feeling more motivated, happier, and richerjust because you're focusing your efforts on one of your real interests. Doing something you love can be tremendously rewarding. Some entrepreneurs find themselves asking, "You mean I can get paid to have this much fun?"

Any hobby can become a business: cooking, flying, fishing, sports, stamp collecting, carpentry, electronics, music, gardening, or art. Some pay better than others, and some are easier to start than others. As long as you remain open-minded and optimistic, you can have fun while you try it out.

Be careful, though. Some people have found that turning their hobby into a profit-making venture quickly turns fun into a burden. The only way to know if that will happen to you is to try it. That's why investing a minimal amount of time and money into your start-up is so important. If you aren't having a ball, you can drop the idea without regret or modify it without too much cost.

3. Try something new. Maybe you've always been chained to a desk, longing for a job outdoors. Perhaps you want to try something more creative than what you're currently doing. Or maybe you're just itching for a change.

While starting a completely different business offers tremendous opportunities for both personal and professional growth, it's obviously harder than staying with something you know. You won't have the advantage of referrals from people who are already familiar with your reputation or talents, and you'll have to do much more research to get up to working speed.

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But if you keep at it, you may ultimately develop a brand-new set of skillsand your dream business. Fortunately, we're talking about a low-risk investment. What have you got to lose by spreading your wings a bit and trying something new?

IN A NUTSHELL

The secret to entrepreneurial success boils down to choosing something you want to be doing, keeping costs down, offering attractive prices, and delivering a high-quality product or service. It's that simple.

And Now for a Few Don'ts

Don't choose a business solely to make money. You've seen those lists of the best small businesses to start? Or maybe you were roped into a network marketing scheme that sounded lucrative but went nowhere for you. If you're hooked up to the Internet, your e-mailbox has probably been jammed with "golden opportunities." Don't even bother to read those ads that say you can make $5,000 a month parttime selling their product or buying their system. You'd have a better chance with a lottery ticket. Just send that spam to the cyber-landfill.

If you don't have a sincere interest in the type of work you'll be fitting into your evenings and weekends, you'll quit before you've begun. It's crucial to believe that what you're doing is important, but it's more important to enjoy what you do. So use those lists to generate ideas, but think hard before getting involved in a business just because it's hot.

Don't get hung up on the idea that your Ace has to be unique. It can be, but it doesn't have to be. While there's a benefit to doing something better, cheaper, faster, or with a dazzlingly brilliant twist, the only requirement is that you serve a real need at a fair price. There really are very few new ideas under the sun, and many businessessmall and largehave been successful because they provided worthwhile products or services . . . and kept improving them.

That, plus attention to detail and a genuine concern for your customers will put food on your table and pride in your heart. When you do finally

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sign up some customers, ask them for feedback, thank them when they give it to you, and try to hear what they're saying.

Don't be afraid to ask how you can serve them better next time. If you haven't heard from good customers in a while, call to find out if everything is okay and if there's something you can do for them. If you're genuine and not pushy, they'll appreciate the call.

YOU NEVER KNOW WHEN INSPIRATION MAY STRIKE

Al Lococo enjoyed his work, was well paid, and had a secure full-time job. He was in an ideal position to slowly and steadily nurture and focus his small start-up business. When he was offered a generous early retirement package, after 28 years with the firm, Al was ready. Now he's working at his Ace full-time, and loving it.

Al's original thought had been to transfer his computer expertise into a desktop publishing business. But because he was flexible and open to opportunity, Al soon found a more appropriate niche.

At a checkup, he mentioned his new business idea to his physician, who asked about Al's desktop publishing expertise (which was close to nil). Doc mentioned that he'd love to find someone to make monthly backups of the data on his computer's hard drive and at the same time check his PC for viruses.

By the time Al left the office, he had a clean bill of health, a new focus for his Ace, his first paying customer, and a great service he could provide to local doctors and other small businesses. (We love the idea of Al diagnosing and curing viruses for doctors!)

Getting Started

Once you have a list of ideas, you're ready to start narrowing them down. Think first about what you want from your business. Do you want something that will stay small, or are you hoping to be out on your own fulltime in a year? How much income will be enough to keep you interested and motivated? What types of skills will these businesses depend on? What's the market outlook? Who will your competition be?

Your research will depend a lot on the type of business you want to start and how much you know about it. The more time you invest in figuring out what will work best for you, the more likely you are to enjoy

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what you doand to succeed. Maybe you know what you likeyour hobby is knitting and you'd like to turn it into an Acebut you have no idea how.

That's what you have to research next. You might start by scanning knitting magazines to see how others are trying to make a livingor by visiting local craft and specialty stores. If you walk in during a quiet time of day and ask the owner for tips or advice, you'll probably be amazed. Most people really want to be helpful.

Ask pointed questions: "If I wanted to make $50 a week knitting, what would you recommend I do? How about $100? Could I make a living knitting?" Of course, a bit of tact is in order. It's not a good idea to walk in at a busy time, interrupt a sale, mention that you're thinking of opening a competing store down the streetand then expect the merchant to fork over the names of suppliers.

Take a spin on the Net, starting with a general search in Yahoo and Dejanews. Visit sites left and right to get ideas on how others are trying to make a living and to locate suppliers. Also visit your local librarythe original information highway. Reference librarians are great at ferreting out all kinds of information. For example, ask your librarian about the trade associations and journals that might help you learn about trends, suppliers, colleagues, and competitors.

And consider a more hands-on approach. A part-time job in a crafts store for a few hoursmaybe just to help out on Saturdayswould give you an opportunity to talk with both pros and the people who shop there. Or you could rent a booth at a crafts show for a few bucks to see what kind of reaction your knitwear gets. That means you'll need some inventoryeven if all you hope to do is get some orders for future deliveryso start clicking those needles!

Cast a wide net (whether on the Net or not) as you research your Ace. You'll get some good ideas, some leads, and maybe even some customers.

Slow and Steady Still Wins Most Races

Set your initial sights on developing a modest backup source of incomenot on creating a new corporate empire. Although you may indeed decide to take your business full-time at some point, micro-mini businesses expose you to micro-mini risksand allow you to keep the regular checks, fringe benefits, and security of your day job as you test the waters of self-employment.

In fact, the main advantage to a tabletop business is the lack of risk. Because you can start with a tiny budget and you won't need to make an

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It may sound simple and obvious, but Min has used this technique to help companies develop best-selling products, as they make and save millions of dollars in the process. Why not give Min's idea a try?

Albert Einstein discovered that matter could be converted to energy and that energy could be converted into matter. When you work, you're trading your energy for matter we call money. When you spend that money, you're really spending the time you expended to earn it.

In this giant barter we call life, you have 168 hours every week to trade for whatever you'd like. Once those 168 hours have been spent, they're gone forever! While we all begin and end life in the same way, the middle is a blank slate. It's your turn to come to the board and write your life story. Editing as you go is strongly advised. Feel free to include what you want to happen in the next chapter of your life and to think about how you could make it work.

MARC AND NANCY'S STORY

We're often asked how we've managed to support ourselves as consumer advocates all these years. The hardest part was deciding to try. Once we left the fast track, the transition was relatively easy. We're convinced that anyone with a good idea and a stick-to-it attitude can transition from (or for that matter, to) the fast track.

First, we chose to cut back voluntarily to a lifestyle that we knew we could support, no matter what happened to the economy. We don't need much money to support ourselves, and because we have no debts, we automatically save the fortune that almost everyone else wastes on interest. Every $1,000 we save means $1,400 or so (before taxes) we don't have to earn. Although we'll never be rich, we're financially free.

No debts, few desires, and lots of "spit and glue" add up to thousands of hours a year when we don't have to face a traffic jam, put on business suits, or leave home.

We rarely choose to enter a store other than the supermarket, and even there, because we grow much of our own food, our spending is modest. Pretty much everything else we buy is used, which means it's cheaper and probably better constructed.

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immediate profit, you can afford to learn from experience. Once you've proven it can work, you can always ratchet up the speed of expansion.

Remember, one of the best reasons to set up an Ace is to have something to fall back on in case your situation changes. Even if you don't see large profits in the beginning, an Ace (or two) is a solid long-term investment in yourself and your family. Ideally, yours could be your source of income sometime down the roadif you either need or want to go out on your own. Choose yours with that in mind. It always pays to treat your business as if it could provide your paycheck next year. That keeps you on your toes, looking for new opportunities and ideas. It also helps you take yourself and your work seriously.

AN ACE THAT NEVER WAS: A TRUE STORY

Will thought he had an idea for a better mousetrap, only in this case, it was a decorative toilet plunger. This new gizmo would be so attractive that everyone would be happy to have one in each bathroom. Will was sure his plunger would make him a fortune. After all, there are 165,812,000 bathrooms in U.S. households alone. All his money worries would be over.

Will spent many an hour coming up with the perfect name for the plunger. (Unfortunately, we no longer recall what it was.) So sure was he of his venture's ultimate success, he had begun to design the manufacturing plantwhich would be in Southeast Asia, where labor was cheap.

There was just one minor problem: Will had never bothered to create a prototype. He had no way of knowing if the millions of his decorator plungers he fantasized coming down the assembly line would actually plunge! In the end, Will wasted rather than invested a lot of time and effort in a fantasy, not a business.

Moral: Don't construct and equip a modern factory before you've tested and sold an awful lot of widgets.

To Market We Go

Before you put a lot of time into your Ace, make sure the idea will flythat there's a market for your product. That means creating some kind of prototype and testing it out in the marketplace. Your journey to entrepreneurial glory won't get very far until you have a product or service that will draw customersand keep them coming back for more.

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Enlist friends as guinea pigs. Ask them to wear your hand-knit sweaters and see if that generates some word-of-mouth business for you. Or contact local charitable organizations and offer to donate your chocolate chunk cookies to their next fund-raiser. Be there to get a taste of the response and to hand out a little brochure on your line of baked goods.

Take samples of your hand-carved, wooden space aliens to the local flea market. Purchase inexpensive classified ad space in the local paper to advertise that you make house calls to change oil and do other minor car repairs. Can you offer a special for winterizing? How about a free set of windshield wipers with every tune-up?

In short, find out if there is a market for what you are offeringbefore you spend a fortune or burn yourself out! The beauty of starting out early and small, before you need to, is that you can gain valuable but low-cost experiencebefore you're in a panic with no paycheck in sight.

You also have a golden opportunity to prove yet another bit of conventional wisdom wrongthat most small businesses fail because they're undercapitalized. You won't have to put the touch on friends and family or plead your case to banks and venture capitalists if you begin small and part-time, then grow slowly.

. . . for the new and growing business, too much money is a greater problem than too little. . . .

PAUL HAWKEN, Growing a Business

When you start your Ace, the idea is to invest your time, energy, and a bit of money into getting a service or product in front of customersnot to set up the ideal office. Apple Computer started in a garage, and many a fortune has been made from the proverbial dining room table.

In truth, if you start small enough, the only thing you'll have to fear is success. Want to know all the other things you won't have to worry about or do? You won't have to get bogged down in plansbe they marketing plans, business plans, financing plans, operating plans, decorating plans, or floor plans.

You won't need to spend a lot of time or money on advertising, employees, insurance, letterhead, business cards, logos, lawyers, bookkeeping, contracts, office space, phone systems, incorporation papers, fancy marketing brochures to exaggerate your importance, impressive vehicles, brand-new office furniture, or manufacturing equipment.

There'll be no need to try keeping your eyes from glazing over as you read boring tomes on accounting, market research, or capital formation

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for the small business. You also don't need to worry about finding the perfect location, location, location. In this age of toll-free numbers, e-mail, faxes, voice mail, and overnight delivery, most businesses can be started and then successfully operated right from your home.

MARC'S PORTABLE CAREERS

Over the years, I've collected a bunch of what I call ''portable careers"skills that I could put to work, anyplace, anytimeto earn money at a moment's notice should I ever need more than I have.

I've been an electrician, a professional engineer, a freelance writer, and a small-scale farmer. I've taught adult education courses, college classes, and been a substitute teacher (never again, thanks). I've bought and sold antiques, real estate, precious metals, baseball cards, and even comic books.

Since Nancy and I began teaching people how to save money, I've picked up a few other skills that I could market anywhere, anytime, such as desktop publishing and inexpensive computer upgrading. And with all the washing machines, dryers, dishwashers, copiers, fax machines, VCRs, televisions, and toasters I've resuscitated over the years, I could put out an appliance repair shingle in Anytown, USA.

For me, the bottom line has its own silver lining: No matter what happens to the economy, no matter where I'm living, I'll always be able to take one of my portable skills out of the closet, to help me make ends meet.

MARC

What's Your Bottom Line?

You may deem your Ace a success if it brings in $50 a week, or maybe you're hoping for more like $500. There's no surefire way to predict how profitable your pursuit will bebut you can do enough research to set a targeted goal. Start by finding out what you can charge. If your past experience was in another field, find out what the competition charges.

If you don't feel comfortable surveying the market yourself, ask someone to do it for you. When she struck out on her own, one consultant we know offered to run a free training program for employees if their boss would call around to see what others charged for the same service. The consultant got the information she needed, and the boss was delighted with the program.

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Once you know the selling price, estimate how much labor the product or service will take, subtract the cost of supplies or materials, and don't forget to deduct at least 20% for overhead (including taxes). This isn't easy, or an exact science, but it will give you a rough idea of how much you can earn per hour. At that point, you can think seriously about whether it's worth it.

Small business owners often tell me that making lots of money is not nearly as important to them as making enough money for their particular needs. I agree. To me, the most important thing is that I am doing exactly what I want to be doing, secure in the knowledge that I'm spending my life in the most satisfying and profitable way possible.

BARBARA BRABEC, Homemade Money

How to "Be" in Business

We hope you'll decide that dealing yourself an Ace or two is worth the investment of your timeto figure out what you might like to do, whether there's a market for it, and what you could earn initially in the process. There's no getting around it. Starting even a small business takes work, but the rewards can be tremendous. To keep your new enterprise afloat and your sanity intact, handle your fledgling business like a real business, which it is, no matter what its size.

Make sure your phone is always answered professionally, even if it also serves as your home phone line. Don't install an elaborate phone system until you need it, but do dump Call Waiting, which is an expensive nuisance.

Show up when you say you will, and do what you say you'll do, or call the customer immediately to make alternative arrangements. Letting people down and making mistakes are costlyand leave everyone wondering what else you might do wrong. So triple-check your work.

Even then, you won't be able to please all of the people all of the time. But you can return their money when you don't . . . every nickel, no questions asked. What good is a guarantee if it's shot full of loopholes? Besides, if you provide a great product or service, few people will ask for their money back.

The main thing you want is to keep them coming back. Although attracting new customers is important, take this old cliché seriously: About 80% of your business is likely to come from 20% of your clients. So treat everyone like a VIP. Win the respect of suppliers, too, and you'll get faster deliveries, plus valuable referrals.

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As for the competition, remember the old saw about Macy's not telling Gimbel's? Forget about it! Successful business owners are surprisingly open with their competitors. That's why trade associations are formed. What? There's no association for your Ace? Start one. It might be a great way to get publicity as well.

Be persistent, but flexible. If your idea isn't working, it's all right to call it quits and try something else. Learn from your mistakes and move on. That's the great thing about a teeny tiny businessthe ease with which you can change direction, purpose, or speed. Eventually, if you keep at it, regularly investing time and energy, you'll come up with an Ace that will make money, give you tax breaks, and protect you from the vagaries of our economy.

You may even choose to change your Ace from time to time. Maybe you'll teach yoga for a couple of years, then decide to write freelance articles, then breed exotic birds. Your friends and family will either admire you or call you nutswhile they're secretly jealous of how much fun you seem to be having. Who could blame them? An Ace gives you the flexibility to pursue your heart's desires while still clothing and feeding the family, ideally with a day job that you also love.

Working for yourself is the most fun you can have, and get paid for it. . . . You'll like it (maybe you already do) because it's the only way you really get to define your job and the work that you produce.

LINDA STERN, Money-Smart Secrets for the Self-Employed

Never Underestimate the Gossip Factor

The best advertising is and always will be word of mouth by satisfied customers. And it's free! Ask customers, friends, and colleagues for referrals. Not asking is a definite no!

Also seek out free publicity. Every business has something to teach or share. Become media-savvy and help reporters, editors, producers, and on-air personalities come up with interesting story angles that somehow feature your Ace. The press coverage will help you build credibility and a client base in ways paid advertising simply can't match.

The more you can tie what you're doing to an actual, real event in the community, or perhaps to an upcoming holiday, the more likely you are to get press coverage. Dream up a great idea, one you can explain clearly and quickly. Call the local paper, and ask for the appropriate section's editor. Or call the local TV station, and ask for the correct producer.

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If your initial idea gets turned down, try another angle or two a month or so later. PR pros say it takes eight tries to get a story in print. So don't take it personally if the answer is, "Thanks, but no." Keep at it. Appreciate feedback and ask for leads to others whose interest might be piqued by your work.

If there is a glimmer of interest, prepare a one-page press release. Make it read just like a story that might appear in the paper. Give it a headline, a few pithy quotes, and a minimum of puff. (Don't cross the line between informing and advertising; they won't buy it.) Make sure to include your name, address, and phone number. Get it there fast, while it's still newsworthy.

Be sure to keep the door open for pertinent pitches you might toss in the futureand for opportunities to be of service. One day soon, you may discover that local media folk recognize you as an expert, someone whose opinion they respect, find amusing, or best of all, think is newsworthy. Then, if you're lucky, they'll call you.

Start out on the Right Foot

Even in the pursuit of happiness, some restrictions may apply. If it's your business, you're going to have to fiddle with paperwork and occasionally deal with pesky bureaucracies that handle such things as zoning, licenses, taxes, and permits.

At moments, you'll probably wonder, "Is it worth the aggravation?" Our advice: Take a deep breath, fill out the blankety-blank forms, and try to remember that the rewards of your own business usually outweigh the headaches. It's kind of like raising kids.

Despite the "innocent until proven guilty" myth and the new, improved, "kinder" tax collector, the IRS can bankrupt youwhich means it pays to keep good, honest records and to file taxes on time.

Even if you've always done your own taxes, a good tax advisor, especially for the first return that includes your Ace, will probably be a good investment. You'll save money and reduce the risk of an audit. Ask specifically about deductions for expenses, including office space, equipment, inventory, supplies, utilities, travel, and publications.

Call the IRS (800-829-1040) to find out if you'll need a federal tax ID number. If you're a "sole proprietor" and don't have employees or a business bank account, you probably won't need one. But do be sure to keep expense recordsit's easy if you always pay with checks and credit cards. And save all other business-related receipts.

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Another call might be to the agent who handles your homeowner's insurance. Verify that your current policy will cover the equipment you use in your home business and any additional liability you might face should a client slip in your driveway. If special coverage seems to be in order, call around for competitive quotes.

Keeping Expenses Down

The best way to succeed is not by pumping cash into your business, but by cutting your expenditures to the bone. Rememberevery dollar spent will make it that much harder to turn a profit.

FRAN TARKENTON, FOOTBALL LEGEND AND OWNER OF SOME 12 BUSINESSES www.FTSBN.com)

One great way to get the expertise you need without having to spend a buck is to barter. Maybe your neighbor, the writer, would help with flyers, brochures, ads, and press releases for your child care business in exchange for some free baby-sitting.

Don't buy something for your Ace until you really can't live without it. Comparison shop for everythinglong-distance telephone service, bank fees, checks, office supplies, and so on. Buy used, recycle, and reuse things whenever you canincluding furniture and office equipment. For example, last year's computer technology will probably work just as well for you as tomorrow'sand will save you a nice chunk of change.

The same holds true for supplies. Don't purchase them in large quantities for your business's birth. Chances are, your needs will change. We know lots of people with boxes full of never-to-be-used business cards.

Decide before you set up shop how much time you're willing to devote to your venture, and then do your best to stick to it, which isn't always easy for Ace builders, who can work days, nights, and weekends. If that means you'll have to turn away customers from time to time, set up a reciprocal agreement with colleagues (some would call them "competitors") who will return the favor when they're swamped with business.

Above all, try not to let earning money interfere with the important job of living your life.

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SECRET IV

MAKE THE MOST OF THE MONEY YOU BRING HOME

Note the wording of this secret. it is not "bring home the Most Money You Can Make." It's "Make the Most of the Money You Bring Home." There's an enormous difference between the two, and it has to do with priorities.

The first makes a contest out of lifewhoever has the most at the end wins. While the second puts the focus on more important thingsthe life you live outside the contest.

In the moneymaking contest, very few of us can reach the finals, and you can't take it with you. There's no glory in dying rich if you've lived poorly.

We can all earn enough money for our basic needs and for satisfying a wide range of desiresif we make the most of the money we do accumulate.

As a nation, we don't make the most of every dollar. We waste money left and right, in dribs and drabs, and it adds up. As Sena-

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tor Everett Dirksen is credited with saying, "A billion here, a billion there, and pretty soon you're talking about real money."

The same is true about pennies, nickels, dimes, quarters, and dollars. A dollar here, a dollar there, and pretty soon you're struggling from paycheck to paycheck.

The stereotypical family earns almost $55,000. If you can pinch 1% ($10.58 a week), you'd have an extra $550 a year. That would add some nice slush to the vacation fund, or you could sock it away. If you invest that $550 every year at 10%, you'll have over $100,000 in 30 years.

We're going to show you how you can painlessly save money every day without giving up those things you enjoy. The further your money can go, the more you'll be able to get what you want, without making the sacrifices necessary to earn more. The key word here is painless.

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Chapter 9

Small Change Makes a Big Difference

Why you don't have to squeeze a penny 'til it hurts

Why a penny saved is worth much more than a penny earned

How you can live far better for a lot less without feeling deprived

The surprising truth about living like a millionaire

Stopping the insanity of forced giving

To get more money for something you want, you have to spend less on something else. That's all there is to it. You can climb the highest mountain, consult the wisest wizard, and you'll get the same answer.

JANE BRYANT QUINN, Making the Most of Your Money

Wouldn't it be swell to win a megamillion-dollar lottery? Who'd complain about a fat inheritance from that little old lady you once helped across the street? Or being discovered for the starring role in the next Academy Award-winning movie? Fifteen million plus a percentage of profits would certainly cheer up your afternoon. So would inventing the next hot fad.

But a perfectly wonderful, and in many ways better life can be yours, even if you never once see a seven-figure check with your name on it. Because when it comes to your wallet, small changes can make a tremen-

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Take clothing, for example. We'll do almost anything to avoid being "malled." Our wardrobes come from the Salvation Army, Goodwill, thrift shops, and garage sales. We also borrow, lend, and trade clothes. If you've seen Marc on TV, you've seen his friend Roger's suit. The silk ties that go with it cost 25 cents each at tag sales. Even daughter Robin's wedding gown was "pre-worn."

We build it, repair what we already own, scavengeand if it ain't broke, we certainly don't fix or replace it. Our seven appliances are recycled and kept humming because Marc has been willing to teach himself a lot about washing machine cycles, dishwasher wiring, and the rubber bands that make clothes dryers spin and VCRs play. Over the years we've saved thousands of dollars in purchase costs, repairs, and service contracts, not only on our creature comforts, but also on our office equipment (primarily used, of course).

Here's the Kicker . . .

A house like ours, on hundreds of pristine acres not far off the beaten path, costs a fortune. To own such a home, we'd have to abandon our cause based on Marc's book, The Banker's Secret (which explains how to pre-pay on mortgages), give up our desktop publishing company, Good Advice Press, and get "real jobs" to earn big bucks. So we rent.

Sure, we chuckle about the irony of two long-term leasees teaching homeowners how to save thousands of dollars. But thanks to our wonderful landlords, Tom and Louise Odak, renting helps make it possible for us to do what we want to do and live where we want to live.

You don't have to cut expenses to the bone the way we have to attain financial independence and find meaningful employment. There are lots of ways to get there. All you have to do is figure out which one you want to try on for size next.

MARC AND NANCY

Cultivate a Simple Attitude

By slowing down, by simplifying, by breaking some of our consuming and spending habits, by teaching our kids simple pleasures, and by adopting simple pleasures ourselves, we can create a beautiful, happy, fulfilling life. And we won't have to work as hard as we have been to maintain it.

ELAINE ST. JAMES, Living the Simple Life

If you choose to live more simply, if you cutback voluntarily, it doesn't feel like deprivation to be:

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dous difference in your bank account and in the quality of your life. Maybe the best feature of little changes is that they're within your reach now.

Don't believe us? Then keep feeding those slot machines and visiting your sickly rich uncle every weekend. In the meantime, why not take a good, hard look at where your money is going? Odds are, you'll find places where you're spending a lot of money and energy without even realizing it.

Morning coffee brewed at home or at the office could easily save a few hundred dollars a year over the high-priced spread. It may seem a small thing, but $300 a year, over a 40-year career, adds up to $12,000even if it sits under your mattress. Cutting back on one cup a day can pay for more than a year at most colleges. How many do you buy?

Or perhaps you grab a quick, $2 a day lunch at Chili & Tums Take-Out. Invest that $40 a month in a typical $100,000 mortgage, and you'd save $33,867 in interest, pay the loan off early, and still have years left to invest your $40 somewhere else! (Interested? See Chapter 13.)

One couple we know discovered that they were paying over $700 a year in ATM fees. They were easily able to cut that by more than half just by making an effort to go to their own bank's ATM, which is free. (When they do have to use a foreign ATM, they take out larger withdrawals, because it's the same fee no matter how much you take out.) By saving $350 a year at 10% for 30 years, they'll have an extra $65,931.

Now what if you could find just five "little" things to cut from your spending? Save $5 a week on each, and you'd have $1,300 by year's end. Invest that at 8% for the next 18 years, and there'd be more than $50,000 sitting and waiting for Junior to enter college, or for you to take a year off.

GERRI'S TOOLBOX: WRITTEN PROOF

Don't believe that a little money can add up to big bucks? Then try this powerful little exercise: For one month write down every penny you spend. Yes, that means every single one, whether it's 35 cents at the pay phone or a few quarters in the vending machine.

It's tedious, we know, but we've yet to talk with anyone who has stuck with it who didn't learn something surprising, and helpful, about where their money was going. Try it for a month and let us know what you discover. We're pretty confident you'll see that the little things really do add up.

Montana State University offers a handy check register for tracking spending. Gerri and her clients love it. Send $1 to: Check Register, Exten-

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sion Publications Office, Montana State University, Bozeman, MT 59717. Another good tool for taking control of your spending is The Budget Kit by Judy Lawrence.

Ben Franklin Talks Taxes

In Ben's day there were no income taxes, and a penny saved was indeed a penny earned. Today, there's not much point in talking pennies, and Ben would have to say the following mouthful: "A dollar earned leaves less than 72 cents after taxes, whereas a dollar saved is $1.40 you'll never have to earn, assuming you're in the 28% tax bracket."

Not as pithy perhaps, but since 1913, when income was first taxed, the gap between earned and saved money has widened. Ben would be amazed to discover that a penny saved today is worth nearly twice as much as a penny earned.

The key to absolutely safe, tax-free investing today is saving money. Fortunately, this doesn't mean doing without. Shopping smarter is one of the best ways to realize double-digit returns on your money, risk-free and guaranteed. Even seasoned investors would be hard pressed to find similar returns, especially on small sums.

For example, say your favorite apple juice normally costs $2.29. On sale, at $1.50, you're guaranteed to save 34%, tax-free. But the yield is actually over 52%because $1.50 will buy what usually costs $2.29. Where else could you get a 52% return on a measly $1.50 investment? At $1.50, buy all you can store!

With investments in supermarket stock regularly paying off like this, you really want to fill 'er up when your favorite staple items are on saleeven if it's herbal tea at the health food store or hazelnut decaf at the gourmet shop. No need to give up the luxuries . . . just buy them smarter! The profits to be had at your local "commodities markets" are truly incredible.

Similarly, by spending an extra minute in the produce aisle, you can earn at least 10%, guaranteed. How? Next time you buy prepackaged fruits or vegetables, weigh a few bags before tossing one into your shopping cart. Take a 5-pound bag of carrots, for example. It must weigh at least 5 pounds. But packers don't have the time or patience to find the perfect-weight vegetable, so they invariably put in extra. That means you can get a bonus half pound or morefor free. It's painless. Try it next time you buy potatoes, apples, oranges, onions, or any other prepackaged produce.

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You could start a purchasing club with neighbors and buy goods wholesaleor at least at the big discount clubs. Whether you need a lot of diapers, daffodils, toilet paper, or tennis balls, find out who sells it in bulk, and you'll pay half. If you split the spoils with others, you won't have too many of those huge boxes all over the place!

Why Bother?

Have you ever passed up a penny lying on the street? Figure it's not worth bending down for a cent, right?

Back in the introduction, we suggested taking a large jar and, starting with a single penny, doubling the number of those copper coins you threw in each day for a month. At the end of the month, we said you'd have more than $5 million. Not bad.

Instead of the large jar, picture a checkerboard. Starting with a single penny on space one, each day double the number of coins you put on subsequent spaces (two coins on space 2, four on space 3, eight on space 4, etc.). In 64 days, you'll be the richest person on earth! There will be about 9,223,372,000,000,000,000 coins on space 64that's over 9 quintillion pennies. The number of pennies on the entire board would be 18.4 quintillion, or $184 quadrillionroughly 3.5 billion times as much as winning a $50 million lottery.

So if pennies mean little to you, give them to us! We'll pile them on a checkerboard. When it's full, we'll pay off the national debt, the debts of every man, woman, and child, and still have plenty left over to eradicate world hunger and poverty.

It Was by Their Own Choice

Madison Avenue can't sell us anything we don't want but it certainly knows how to make us want what it's selling.

The Spendthrifts* always drive the hottest cars and take budget-busting vacations to wildly expensive, trendy places. Their neighbors, the Savvys,* earn as much, but drive commonsense cars, which they maintain well enough to keep on the road for a very long time. For the Savvys, vaca-

* Not their real names . . . but you already knew that!

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tions are more often family camping events, visits to relatives, or adventure days to nearby attractions.

The Spendthrifts are beginning to struggle with the realities of paying for a college education or two, funding their retirement, and helping out their old folks. The Savvys, meanwhile, have a comfortable nest egg already built up, know where their children's college money will come from, and earn their living in ways that allow them plenty of time to deal with family emergencies . . . and pleasures.

Simplistic example? Yes. But it may be more realistic than you think. All across America examples of the Spendthrifts and the Savvys abound:

My parents weren't poor, they were broke.

BILL COSBY on The Today Show, 5/19/98

The issue is not how much you make, but what you do with what you have. Even if the Spendthrifts made twice as much as the Savvysthey could still end up twice as deep in debt and with less than half as much at retirement. Now you tell us, who will live happier ever after?

How to Dispose of $2 Million

Assume for the moment that you were going to receive more than $2 million. Would your financial problems evaporate? How would you invest that fortune? How would you spend it? How much would you put aside for your retirement years?

Two million dollars. That's a pile of dough, right? Actually, it's a conservative estimate of what the average working couple will earn in their lifetime. Where does it all go?

The nonprofit, nonpartisan Tax Foundation estimates that between all of the taxes we pay either directly or indirectly (not only income taxes, but sales and real estate taxes, too), about 38 cents is extracted from every dollar we earn. That takes care of about $750,000.

The average family raises children$180,000 each (before college)and owns a home. By the time they've paid off the mortgage, another quarter of a million will have been eaten upplus the home has to be furnished.

A new, financed car every 5 years over a 50-year driving career could cost upward of $200,000, not counting gas, maintenance, or insurance. A leased car would cost even more.

And then there are groceries: another quarter million or so. Plus there's clothing, insurance, vacations, recreation, gifts, phones, electricity, heat, maybe satellite TV, medical bills to be paid, and credit card

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interest. Is it any wonder that nearly three-quarters of us have nothing left by week's end?

How to Pinch Pennies . . . Without Feeling Deprived

You may be convinced that unless you win the Publishers Clearing House Sweepstakes or drastically cut back on your pleasures, you'll never break free of debt and get ahead. Enter those contests if you must, but while you're waiting for the prize patrol, why not invest in simple, painless changes that fit in well with your lifestyle?

We aren't big fans of deprivation, and we doubt that you are, either. We don't care how you pinch your pennies, just that you start doing it. No need to spend hours baking homemade everything, getting your hands (and the floor) filthy trying to recycle vacuum cleaner bags, or pinching your pennies so tightly that your austerity budget drives everyone around you nuts.

Can't give up the morning stop at Dunkin' Donuts? Don't! Come up with other ways to cut your expenses. Perhaps we can help you come up with a few.

For example, what if someone would be happy to come over and show you some easy ways to save money on your electric bill? Wouldn't it be worth a bit of your time? Well, most utility companies will send an expert to survey your house and, for free, show you how to reduce your power consumption. The first step is easy. Call and schedule an appointment.

Many of the recommendations you're likely to hearlike caulking around doors and windows, insulating switches and outlets on outside walls, or covering the air conditioner in winterwon't cost much. Others won't even get your hands dirty, like resetting the timer on your thermostat, or lowering the water heater's temperature. Some utility companies even offer grants, no-interest loans, or partial payment for energy-saving improvements. Ask! The money you save will be your own, month after month. Your lifestyle won't have to change, and you'll be doing your bit for the environment.

It's easy to reduce costs without changing your way of life, without giving up those material things that give you pleasure, and without feeling deprived. Take the telephone, for example. Giving it up would be terrible for most of us, but with one phone call, you can probably lower your costs significantly.

Even if you never do anything else to save money on your phone bill, ring up your current carrier and ask if you're on the plan that will cost

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you the least. Call AT&T at 800-222-0300, MCI at 800-444-3333, and Sprint at 800-746-3767. Despite endless ads trumpeting their great deals, most folks still pay top dollar to the big three. In fact, we've seen estimates indicating that more than half of us still pay our carrier's highest rates.

While you're at it, disconnect Call Waiting. This nuisance feature is expensive and, for most of us, absolutely unnecessary. Invariably, as you're interrupted again and again, you compile a long list of people to call backat your expense. Remember, in the event of an actual emergency, your loved ones can always dial 0 and ask the operator to break in on your conversation.

When you're ready to contemplate the pros and cons of other carriers, get Tele-Tips, a very complete analysis of the seven major carriers and their assorted plans, available from the Telecommunications and Research and Action Center (TRAC). Send $5 and a business-sized SASE (with 55¢ postage) to TRAC, P.O. Box 27279, Washington, DC 20005, or go to www.trac.org.

In some areas, you may have to pay for ''local long-distance calls"calls that are automatically handled by your local phone company, but are billed separately, like long distance. Sometimes the rate the local phone company charges for these calls is much higher than the low long-distance rate you've negotiated. Compare rates, then simply ask your long-distance carrier for a code you can punch in before you make those calls, and they'll be billed at the lower rate.

Raising the deductibles on your insurance policies ought to be good for a few hundred dollars every year, and with a little thought, we know you can come up with lots of other ways to painlessly cut back a bit on your spending. But if you want to prime your pump, the newsletters and Web sites we recommended in Chapter 1 will help. It also pays to peruse publications such as Family Circle, Woman's Day, Woman's World, and Good Housekeeping. They're full of good penny-pinching ideas, and your local library no doubt has a slew of books on the subject as well.

AN ABERRATIONA GOVERNMENT PROGRAM THAT WORKS

It's easy to find fault with virtually every government program. Many serve special interests, cost way too much, treat the public callously, and/or enforce stupid regulations.

There are exceptions, and we're happy to highlight one of Uncle Sam's best-kept secretsthe Cooperative Extension Service. Whether you work

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40 acres with a mule, need your suburban soil analyzed because the azaleas keep dying, or want to set up a community gardening program on empty city lots, this agency can help.

Co-op Extension is also a great place to get practical, up-to-date advice on home buying, nutritious snacks, day care, energy conservation, money management, hurricanes, canning, caning, caninesyou name it.

Located in nearly every county, each Extension Service develops its own horticulture, family finance, child development, housing, and nutrition programs, with the help of a state and national information network.

The Catch

While there's probably one of these handy, dandy agencies near you, it may not be easy to find. Check the "Government" section of your phone book, under the state or county listings. No Luck? Call your town clerk or librarian, or log on to www.reeusda.gov/statepartners/usa.htm.

The 10% Solution

The road to economic independence is paved with nickels and dimes, but pinching pocket change alone won't put you on the road to financial freedom. It's what you do with what you save that makes the difference between a debt-filled life and one where you have a lot more options.

Over the years, we're offered lots of opportunities to force ourselves to save: various life insurance programs, Christmas clubs, savings bonds through payroll deductions, and more recently, biweekly mortgage-conversion plans.

We don't feel that "forced" behavior is the best way to invest in your future or to take control of the present. To be successful, you need to be committed. And if you're really committed to changing your lifeany aspect of your lifeyou'll be disciplined enough on your own to make it happen.

If your salary were cut back by 10%, you'd make adjustments, wouldn't you? Now what if that pay cut comes about because you skim 10% off your gross every weekby paying yourself first? If you earn $50,000 a year, that would be $100 a week. Stuffed into your mattress over a 40-year career, you'd ultimately be sleeping on $200,000! But put that tenth of your earnings to work, and amazing things could happen. Invested at 8%, $100 a week would grow to more than $1.5 million at the 40-year mark.

Invest it where? We'll cover this in more detail elsewhere, but here's a sneak peek at the best two places to invest:

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1. Your 401 (k) or 403(b) at work, especially if your employer matches funds.

2. Your debts. Depending on your tax bracket, paying down a 17% credit card balance is like earning 20% to 25% before taxes. Plenty of investors would jump at a risk-free investment offering that kind of profit. Yet they pass up those returns every month by rolling over a balance on their credit cards.

In addition to the 10% we hope you'll pay yourself, you can put aside another 10% or more, by simply shopping smarter. In fact, saving money on what you buy is the third best way to realize double-digit returns on your money, completely risk-free.

The Question That Can Save Thousands

When you consider major purchases, ask yourself: "What will this cost me in days or years worked before I've paid it off?" Your answer may help you save a bundleas well as a lot of stress.

Let's talk about one of life's most expensive days, although we could just as easily be talking about a car, or a house, or a sailboat. Say your daughter is getting married. That's the good news. The bad news is that dream weddings these days cost about $17,000.

If your combined federal, state, and local tax bite puts you in a 35% bracket, you'll need to earn over $26,000 before taxes to pay for that one beautiful day. That's $9,000 more than you thought it was going to cost. Here's how to do the math. Take the purchase price ($17,000) and divide it by what you have left after taxes, in our case 65% (which is 100%35%), and voila, you have to earn over $26,000.

If you earn $50,000 a year, you'll have to work for more than half a year just to pay for the big bash, and that's assuming that you have $17,000 sitting in the bank waiting to be plunked down on this blessed event.

If you have only $5,000 in cash and charge the other $12,000 to one of your credit cards, that glorious day could set you backare you sitting?-more than $45,000. And if you keep sending in just those minimums on your card, you'll be paying for that wedding until your daughter's golden anniversary . . . yup, 50 years from now! Your great-grandchildren will be adults, and their children could have already begun school by the time the wedding's paid off. Whoa!

If you don't think that one wedding day is worth upward of a year of your life, maybe you can agree on a less expensive party, or maybe some-

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one else would like to help foot the bill. Either way, you could choose to pass some of the savings on to the newlyweds for the down payment on their vine-covered cottage.

FOR THE MATH OF IT

Use this technique to decide if any major purchase is really worth the price. First, price the item you're thinking of buyingand if you won't be paying cash, add in any finance charges.

To calculate what you'd have to earn before taxes, divide the total cost by the appropriate number, listed here for your calculating pleasure:

TAX DIVIDERS

RATE

DIVIDER

15%

.85

28%

.72

31%

.69

35%

.65

39%

.61

Here's an example. You want to buy a couch for $1,000. You plan to finance it for five years at 14.75%. The salesperson tells you that your monthly payment will be only $23.66. Over the next 60 months, that means you'd pay about $1,400 ($23.66 × 60).

Assuming you pay 28% in taxes, divide that $1,400 by .72 and you'll discover that the $1,000 couch will cost you nearly double what you thought you'd be spending ($1,944). That's the dollar cost.

Now let's talk about your life cost. Figure out roughly what you make an hour (if you're paid a yearly salary, divide it by 2,000 hours, which is 50 weeks times 40 hours). Let's assume you earn $30,000 a year. That's roughly $15 an hour ($30,000 divided by 2,000). To earn $1,944 will cost you almost 130 hoursover three weeks of full-time labor!

Do you want to spend the next three weeks working for that couch and nothing but that couch? If so, sign the credit slip. If not, sit on the old one a while longer, buy a good used couch or a slipcover, or consider taking a course in upholstery. (That course could be a great investment in yourself. You'd learn a skill that could save and earn you big bucks.)

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Is It Worth It to Me to Do It Another Way?

Real frugality is not about doing without things or activities that are important to you. Real frugality is determining what really is important. Real frugality is about setting priorities. And if cable television, European vacations, or steak are important to you, well whose business is it?

LARRY ROTH, The Simple Life

If doing the math makes your eyes cross, then think of Irene and Kevin Wrennerand what your alternatives arenext time you're making a decision about whether to spend big bucks.

When Irene accepted Kevin's marriage proposal, there was no ring in his pocketjust a book of clever cartoons he'd sketched of Irene and her family. They decided to select their rings together, so Irene would have a say, and her engagement and wedding rings would match.

Shopping for that jewel of love, the Wrenners found themselves asking, "Should we spend $5,000 or $6,000 on a modest-sized gemstoneone that isn't too yellow, brown, or flawed? The more we contemplated paying for a rock that could be lost or stolen," as Irene explains it, "the less appealing the whole idea seemed."

Was there an alternative? Irene and Kevin began to wonder about the price of a ring set with a one-carat cubic zirconia. So they revisited three jewelers. "Not one jeweler entertained our suggestion," Irene reports.

"The mystique of the more popular rock is what keeps these folks in business," Irene said. "Selling a low-priced clone would reveal the very foolishness on which, I believe, they thrive: the idea that only a precious diamond will do."

For the Wrenners, it wouldn't do. They found an out-of-town jeweler who would supply, cut, and mount a one-carat cubic zirconia in a beautiful settingfor $75just 1.5% of what they easily could have spent.

Irene's rock is nearly as brilliant, and far more perfect than any commercial diamond they'd seen. How does she know it's as good as the rest? As Irene puts it, "I work in northern New Jerseyland of nail polish, real jewelry, and big, dazzling rocks. Yet I receive constant comments on the beauty of my bargain ring."

With the money they saved on their ring, Irene and Kevin took a wonderful trip to Prague and Budapest to explore Irene's heritage, followed by a journey to Finland, the land of Kevin's ancestors. Although more than 70% of couples contemplating marriage spring for the real thing, the

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Less focused on meaningless material possessions.

More self-reliant.

More family-oriented.

Less career-oriented.

More concerned about the environment.

Carrying little or no debt.

Working at something you enjoy, even if it pays less.

Leading a slower-paced life.

Leaning toward a healthier diet.

A recycler, reuser, and repairer, rather than a replacer.

Do all practitioners of voluntary simplicity wear ragged clothes and live on mountaintops eating brown rice? Hardly. You'll find simple livers in penthouses as well as in country cottages.

As trends forecaster Gerald Celente explains in his book, Trends 2000, voluntary simplicity doesn't mean doing one specific thing differently. Instead, it's doing many little things, all in answer to these three main questions: "How much do I really need? How much do I really want? How much am I willing to do to get it?"

Simple living isn't necessarily easy living. In fact, often, it's much more physically demanding as well as emotionally challenging. It's not always easy to march to a different drummer. But consider the alternative:

When we believe the advertiser's fiction that "you are what you consume," we begin a misdirected search for . . . the next thing that will make us happy: a new car, a new wardrobe, a new job, a new hairstyle, a new house, and so on. Instead of lasting satisfaction, we find only temporary gratification. After the initial gratification subsides, we must begin againlooking for the next thing that, this time, we hope will bring some measure of enduring satisfaction. Yet the search is both endless and hopeless.

DUANE ELGIN, Voluntary Simplicity

The real trick to simplifying your life is to do it slowly. There's no hurry. It's not like a furniture sale. Prices have not been marked down "for the next 12 hours only." You have plenty of time to choose areas where you can cut back a littleby being thrifty or creative. With just a bit more emphasis on your ingenuity, you'll find all sorts of clever ways to make your life simpler, more enjoyable, and easier on yourself and your family.

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Wrenners came up with a perfectly reasonable alternativefor themto spending their share of the astounding $2.7 billion that a year's worth of lovebirds spend on diamond engagement rings.

By the way, according to our favorite retired diamond dealer, the average diamond is a pretty lousy investment. Its value is unlikely to appreciate enough to ever return what you paid, even if you were to sell it privately.

Speaking of dealers, while there certainly are honest ones, some aren't. It's not easy to be sure how much a particular diamond is worth or that the stone you bought is the one actually mounted in your setting. Of course, there's no need to worry if it's a cubic zirconia.

Whether you're buying an engagement ring or a new car, or making a career changefirst weighing your priorities and the alternatives is a gem of an idea! It won't cost you any moneybut could save you a pile. It might even bring you and your mate closer together and improve the quality of your lifeas it did for Kevin and Irene.

THE DIFFERENCE BETWEEN NEW AND USED

The things we buy, whether clothes, cars, toys, furniture, or appliances, are only new until we buy them. Once we own them, they're used. Therefore, everyone eats off a used table, wears used clothes, washes their used clothes in a used washing machine, and drives a used car. It comes down to: who used it first, for how long, was it well maintained, and does being first matter enough for you to pay the inflated "new" price?

Grandma's Table

Few of us would long enjoy sitting on wooden crates. They're not comfortable; we'd get splinters; they're not particularly attractive; and like much of the furniture being manufactured today, they're not as durable as they were in days gone by.

So we rush out to the giant clearance sale at the local furniture farm and plunk down our card for a bedroom, dining room, or living room ensemble that costs a fortune and, like those wooden crates, isn't anywhere near as durable as Grandma's.

Now here's the strange part. Grandma's dining room table and chairs can be bought for a fraction of the cost of a new set and will be worth as much, or more, when you go to sell them. And a new set will be worth almost nothing as soon as you get it home!

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Tip: Buy good used furniture. Whether at the Salvation Army, a moving sale, or an antique store, good furniture is always available at a very fair price.

Auctions can be fun family outings, especially country auctions, where treasures can often be found among the boxes of junk. Between auctions, moving sales, the classifieds, and thrift stores, a home can often be furnished, beautifully, for less than the cost of a new couch.

Let someone else buy the modern junk to fuel the nation's economy. Stick with the tried and true. It'll shore up your economy.

GERRI'S TOOLBOX: WALK ON BY

Ever walked into a store intending to buy one thing and walked out with a lot more . . . of something else? Impulse purchases can drain your pocketbook faster than Roto-Rooter can unclog your drains. Here's one small but powerful change you can make in your tactics: Just walk away! If you walk away from an item you're considering, chances are, you won't return. Tell yourself that if you really want it, you can always come back. If you really do want it, you will.

Paul Richard, vice president of the National Center for Financial Education (www.ncfe.org) suggests another smart strategy. Before you make a purchase, take the time to visualize three other ways you could spend that money. Make this a habit, and you may just find yourself stopping impulse purchases dead in their tracks.

But if you find that the credit card bills just keep on growing anyway, leave the plastic at home. Research shows that people will spend moreas much as an additional 30% or morewhen they're using plastic rather than cash. If the plastic's not in your pocket, maybe you'll lose interest before you get around to coming back to make the deferred purchase.

Of course, the absolute best way to avoid impulse purchases is to avoid temptation by staying out of malls and marts and putting those mail-order catalogs directly into the circular file.

QUESTION: My problem is that I really like to shop. I admit that I relax by going to the mall and hunting bargains, and I know I'm spending

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more than I should. Please don't tell me to take a walk instead, I've tried that and it just doesn't work for me.

CONFESSED SHOPAHOLIC

ANSWER: Since it's the rush of buying that you're hooked on, why not try to channel it into something more productive?

Maybe you can emulate Lee, who describes herself as "just your average housewife." She's created a fun way to make extra cashby turning her garage sale finds into weekly contributions of around $25 to her family's nest egg.

"Early in the summer, I bought a double baby stroller at a garage sale for $25, thinking I'd use it with my two young children," Lee says.

But her 3-year old preferred to walk, so Lee was stuck wondering what to do with her new purchase. She took it to a children's store and sold it for $35. "That led me to ask what things they wanted most, so I could look out for them at garage sales," Lee explains.

"Then, at a garage sale around the corner from my sister's house, I bought another double stroller for $8." She sold it a few hours later, at her sister's garage sale for $45! She's also had success buying and selling antiques.

If turning your shopping habit into a cash-based business doesn't appeal to you, try a part-time job at the mall. That will surely cure your desire to hang out there in your spare time, and maybe you'll get an employee discount, too!

Of course the best thing you could do would be to find a more productive way to spend your time. How about shopping for a soup kitchen or elderly neighbors? Or starting a shopping service for harried executives?

Rein in Holiday Spending

Christmas comes but once a year. It's the happiest time of year for retailers, because Americans shell out some $160 billion a year on fa la la la la, alone. New gift-giving holidays are being created all the time, in case we have any credit still available after buying for birthdays, weddings, anniversaries, baby showers, Valentine's Day, Mother's Day, Father's Day, Grandmother's Day, Secretary's Day, and Boss's Day. During Pet's Week, many a "lucky" Fido gets a rhinestone-studded chain, a ceramic bone with his name engraved on it, or some other trinket to help fill up a closet in his colonial-styled doghouse.

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For many of us, the holiday spirit gets lost in a frantic search for giftsand by the need to use high-interest credit cards to pay for them. At last count, Americans had more than $455 billion revolving on their plastic. The sad truth is that once we whip out our charge cards, many of us fall prey to impulse buying and spend substantially more than we had planned.

Haunted by Hallmark

Does true love (even moderate friendship) need an influx of corny sayings to survive? We don't believe so. Does going broke prove love, appreciation, deep religious belief, or friendship? Hardly!

Why not invest in your future rather than in overcommercialized, make-believe holidays? Stop buying your share of the 7 billion greeting cards Americans send each year at a cost of over $7 billion. Whatever happened to that old-fashioned handwritten note saying, "Hope you feel better soon," or "I'm thinking of you"? Think of all the time you could save by never going card shopping again!

Avoiding "Love Token" Poverty

Admit your sanity. With 30% of Americans seriously overweight, why do we spend $940 million on sweets for Easter and another $725 million for Valentine's Day? Talk to everyone you exchange gifts with and change the rules. Stop it altogether, or agree to set a lower limit or to exchange only homemade goodies, or perhaps buy presents only for people under 21.

At a minimum, agree not to trade meaningless junk just to give something. Suggest that your family and friends pool resources. Buy the bride, birthday boy, or long-married couple a really significant present. And remember, "significant" doesn't have to be expensive.

About 10 years ago, Harry Lazare, who used to work with Marc and Nancy, got tired of struggling with their old, persnickety, hand-crank can opener. He gave them a sturdier, more reliable (also nonelectric) model. Hardly expensive, but Harry's gift was so thoughtful and so needed that they were delighted, and to this day, think of Harry every time they take it out of the drawer.

Start some inexpensive traditions: A group-cooked meal, a trip to your favorite museum or park . . . perhaps something that really celebrates what the holiday is supposed to commemorate (like a birthday visit to the town where you were born).

With families getting so complicated these days, more and more of us are conflicted about where to have holiday meals. Do we join this side of

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the family or that . . . or that? Years ago, Nancy, Marc, and Marc's children began to celebrate Thanksgiving on virtually any day but the fourth Thursday of November. It's become so much fun, they try to have numerous Thanksgiving dinners throughout the year.

Think of all the benefits to celebrating the holidays a month earlier or a month later: While you prove your independence and sanity, you'll also avoid the hype, the crowds, the costs, and the hassles.

When You Care Enough to Give the Very Best

A perfect gift for new parents or someone recuperating from surgery is a home-cooked meal. For a loved one who's temporarily bedridden, why not send an assortment of your favorite books?

If they aren't already in your repertoire, how about learning to make soups, breads, jams, or herb vinegars? Then you can put together gift baskets of your goodies. Like everything else, if you do it yourself, you can save money and really personalize the assortment.

Can you knit, do needlepoint, make wooden toys, or compile some of your favorite recipes?

Or give the gift of time and offer to babysit for a niece, nephew, the neighbor's child, or your grandkid. Let their frazzled parents take a kid-free minivacation, even if it's only a peaceful night's sleep! Or agree to donate some of your timetogetherto a homeless kitchen or another worthwhile organization.

Or share a skill. If you're a master gardener, commit to helping a friend develop a green thumb. Can you strum a guitar, make a bench, reupholster a couch, or teach magic? We'd rather learn a skill than get a hideous tie. Wouldn't you?

All year long, keep your eyes out at church rummage sales, garage sales, auctions, and consignment shops for gift ideas. Recycled toys that you've cleaned up are great for kids. Special dishes, picture frames, or antique tools can also make perfect presents.

HAVE A VERY MERRY UNBIRTHDAY!

When you see something that you know will be useful, affordable, appreciated, or just plain enjoyed, why not declare your own holiday? There were some very wide smiles on Marc's children's faces the day he unexpectedly drove up with a very much used bicycle built for two strapped to the car's trunk.

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Sarah, the bundle-of-energy daughter of our researcher, Marcy Ross, received an instant family heirloom from a doting aunt and uncle, who stripped and repainted an old children's rocking chair they found at a tag sale.

Vacations and Getaways:

Ways to Save Money While You Have Fun

Once a month, spend a romantic evening at home. Bundle the kids off on sleep-overs, prepare a great meal for two, unplug the phone, light some candles, and enjoy. Take the $50 a month that you'll save on dinners, and invest it in your $100,000 mortgage. You'll save almost $40,000.

Vacation a week before or after the season. You can easily save half on both the airfare and lodgingswithout sacrificing your tan or a single downhill run. Plus, places of interest will be less crowded and shopkeepers more eager to please.

Compare airports. Similar flights from nearby airports to the same destination can have dramatically different fares. Gerri has often cut her airfare in half by driving an extra half hour to Baltimore-Washington International Airport. (Parking is cheaper there, too.)

Vacation at home. Stock the refrigerator. Tell everyone you'll be out of town for the week. Cancel the newspaper. Unplug the phones. Have the post office hold your mail. Visit local attractions. Then use the thousands you'll save to pay down your debts and retire a few years early.

Stay with faraway relatives and friends, but don't expect them to fund your vacation. Offer to help with groceries, be prepared with your own transportation, and check out guidebooks from your local library so you can keep yourselves entertained if your host needs a break. You'll still save a lot, and your hosts will be that much more likely to welcome you back.

MOTEL MADNESS

You can easily be quoted four different rates for the same room at the same motel on the same day. ''That's totally unfair and unkind . . . forcing travelers to be so assertive," says Nancy Dunnan, managing editor of Travel Smart,* a monthly newsletter filled with travel tips and deals.

If you're not desperate for a room, you can get a better rate by following these Travel Smart tips:

* For a free sample copy of Travel Smart, call 800-327-3633, and mention Invest in Yourself

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1. Don't expect the best deal from a chain's toll-free number. Call the motel directly. Once you're quoted a rate, ask if it's absolutely the lowest rate possible.

2. Never accept the first rate you're offered. Ask about specials.

3. Plan ahead and book early, before all the discounted rooms are sold out. The motel guides that you can pick up at state welcome centers, rest areas, and gas stations often offer great rates.

4. Don't walk in with large pieces of luggage if you hope to negotiate a rate. Once a motel or hotel sees you've reached the "point at which you'll collapse," Nancy Dunnan explains, you've lost much of your bargaining power.

5. Mention any membership or affiliation that could qualify you for a discount. In addition to AAA and AARP, let the clerk know if you're there to visit someone in a hospital, a member of the military, a stockholder in the chain, or if you're eligible for a corporate discount.

6. Hesitate, and you may be offered a "fallback rate," perhaps for a room without a view or near the laundry.

7. If you can't get the lowest rate, ask for a freebie. It might be a coupon or voucher good on another stay, a room upgrade, or a free breakfast.

If you discover that you didn't get the best rate, and the manager isn't helpful, then when you return home, Nancy Dunnan advises that you start complaining at the topthat is, write to the president of the hotel chain. Be sure to get the names of staff who were unhelpful, so you can be very specific in your complaint.

To add punch to your letter, make it clear that you'll be sending copies to the Better Business Bureau, the local newspaper in the town where you stayed, and the consumer affairs offices at organizations such as AARP and the AAA. Then send them off.

Live like a Millionaire

Do the words tightwad or frugal conjure up images of stinginess or poverty for you? If so, it might surprise you to learn that one characteristic that many of the wealthiest people in America share is frugality. In their best-seller, The Millionaire Next Door, Drs. Thomas Stanley and William Danko explain that three words describe millionaires in America: " Frugal, Frugal, Frugal."

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While most portraits of the rich tend to focus on how they made their millions, Stanley and Danko are the first to focus on an important truth: Most truly wealthy people also tend to be very careful about how they spend their money. In fact, after 20 years of studying these prodigious savers, these two researchers have come to the conclusion that "Being frugal is the cornerstone of wealth-building."

The leaner your spending is today, the fatter your cushion will be tomorrow.

CHRISTINE DUGAS, Fiscal Fitness: A Guide to Shaping up Your Finances for the Rest of Your Life

Millionaires Humberto and Georgina Cruz built their fortune on very average salaries. In some years, they saved and invested up to 66% of their income. Humberto, a top-notch personal finance writer, certainly practices what he preaches!

While we Americans tend to glamorize free-spending, high-earning businesspeople, athletes, and celebrities, in truth many of them aren't rich at all. Many of them are flat broke, or on their way to being there. They spend what they earn and have no way to tide themselves over when the income stream isn't running high. And because they know only how to spend, they don't know how to live well when they have less.

For some inspiring stories about celebrities, including a few who have rebounded from years of debt to financial success, read The Rich & Famous Money Book by Jean Sherman Chatzky.

But whether they get it right the first time or on the rebound, what makes millionaires successful? First, most know how much they spend on everything. They pay attention to all that small stuff and are very careful with their resources, spending much less on luxury items than you would expect. They tend to drive cars longer and don't often lease. They don't spoil their kids, and they save or invest 20% of their incomebefore taxes! (Compare that with most of us, who'd love to be able to save 10% of our income after taxes.)

You may never become, or even want to become, a millionaire, but next time you're watching your pennies, remember, you're in good company.

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Chapter 10

Penny-Pinching for Fun and Profit

Techniques for making penny-pinching fun

The all-important question to ask yourself

Secrets of successful "hondlers"

Shopping myths debunked

Don't confuse frugality with depriving yourself.

JONNI McCOY, Miserly Moms

If you enjoy yard sales, flea markets, and thrift shops, you're penny-pinching for fun and profit. If you like to use coupons while you're shopping, send in for rebates, or watch for sales before you head to the marketplace, you're penny-pinching for fun and profit. Ditto if you love the smell of sun-dried clothes and also appreciate the savings on your electric or gas bill.

When you get a great buy on a dress, a computer, or a car, you're penny-pinching for profit. If you feel good when the deal's done, you're penny-pinching for fun, as well.

But there are times when this strategy just doesn't make sense. It's late at night, you're driving home in the rain, the gas gauge is on E, but there's a cheap gas station about 20 miles ahead. You could save 10 cents a gallon by pumping your own gasif you can make it that far. Or you can stop right here at a pricey, full-service station, and let someone else weather

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the storm. If you choose to penny-pinch now, you may profit, but if you run out of gas, you sure won't have any fun. Sometimes it's dollar-foolish to be penny-wise.

Often, though, it can be fun, even a challenge, to get the best value on those things we buy. And the less we spend, the more we'll have for other things down the road. For example, take toys. If you have young children, you probably find yourself spending more than you'd like on toys.

Spring-cleaning season is a great time to collect hand-me-down toys from friends and relatives. Scrub them up, make sure they're safe and intact, then give a couple to the kids. Put the rest away until you need a birthday present, Christmas gift, or reward for a jobor report cardwell done. They'll be just as appreciative, and you'll have that much more to spend on something that would really be meaningful.

You know how quickly children get bored with toys, so why not start a toy library in your community, where kids can check out toys for a few weeks, then return them for something else? (You'll have less clutter, too, which is another reward for you.)

The Toothpaste Syndrome

The commercial comes on. Someone whose mother or father is a dentist tells you how wonderfully white and cavity-free her teeth are because she now uses new, improved, dental association-approved, cavity-fighting, plaque-removing, breath-sweetening Quite White Toothpaste.

And then she squeezes out a line of Quite White from one end of her toothbrush to the other and partway back. Actual dentists say a pea-sized dab of paste is all we need. Whose recommendation do you trust?

The message we get is that our teeth will be glaringly white, just like hers, if we overconsume this particular brand of toothpaste, which to all intents and purposes is identical to all of the other brands on the shelf.

Overconsuming is the modern way. The toothpaste syndrome is contagious. We live in bigger homes than our parents, we eat more food than ever before, we use more power, we buy much more than we need, and we think that's the way it has to be.

When Gerri was an exchange student in Japan for a year, her host mother was horrified by the amount of dishwashing soap Gerri used, claiming that what Americans consider a perfectly normal amount of soap would make everyone sick. Gerri assumed just the opposite: Using as little soap as her Japanese family did wouldn't get the dishes clean!

Many times, what or how much we use is just a matter of habit, with no

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That in turn will open you up to all sorts of other lifestyle possibilities and career changes.

For leads on how to simplify your life in the cyber age,* go to:

The Simple Living Network: www.slnet.com

Millennium Institute: www.igc.apc.org/millennium/links/simplive.html

The Simple Living Journal: www.simpleliving.com

The Use Less Stuff Report: www.cygnus-group.com/ULS/About_ULS.html

Center for a New American Dream: www.newdream.org

The Balancing Act

A little fantasy. A little reality. A dash of cash. A cache of skills. A bit of courage. A desire for change. And patience for the process. These ingredients, if mixed in the right proportions, will coalesce into a balanced life for you. No pain. Lots of gain. Unfortunately, much as we'd like to, we can't tell you what the exact proportions are or what the final result will be.

And there's another problem. Even when everything in your life seems to be in perfect balance, you can't slack off. The mix is unstable. Achieve one fantasy and another pops up. Look around, and the reality of your life has changed. Put some money aside and an unexpected expense knocks at your door. Become proficient at a job and all of a sudden, the need for it disappears.

Investing in yourself isn't a one-time thing, any more than investing in the stock market should be. Yes, some lucky or brilliant investors buy a stock when they're young, hold onto it for life, and keep getting richer and richer. And some people know early on exactly what they want to do with their lives and never have a moment's doubt that they're joyously living the life they set out to create.

For most of the rest of us, we need to adjust, fine-tune our life decisions, and set off in a new direction from time to time. Balance is the goal to aim forbalance between your money, time, and values.

* The World Wide Web is new, and we're all still finding our way around. Sites disappear, names change, new sites appear. You're bound to find that some of the virtual places we send you to have been swallowed by black holes. Sorry. Let us know about the ones you do find and the ones you don't find, the ones you like and the ones you don't like. As we hear about changes, we'll post them on our Web site, www.investinyourself.com

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basis in reality. Whether it's food on our plates or the detergents we pour into the washing machine, using just enough to get the job done is the sensible, money-saving way to go. Make a family contest out of guessing how much laundry detergent it really takes to do a load of laundry. To establish minimums, experiment!

Obviously, there are some things you can't skimp on: You don't want to take half as much insulin or to change the oil in your car half as often as the manufacturer recommends. But try to recognize conditioned responses and habits for what they are. Where it can't hurt, try using less. Then use the money you save to pay off debts, invest, or treat yourself to something speciala reward for good behavior.

Not Asking Is an Automatic "No!"

Price checking pays big returns on all sorts of goods and services. For example, a few calls to local fuel oil companies got Sally a low rate and a year's free service on her oil burner.

She was pleased with the price and service, but a year or so later, in doing her annual checking around, discovered that a competitor was offering fuel for 10% less. Sally promptly called her fuel company. The response? "We'll match any price you can get."

Sally stayed, but her annual fuel bill of $1,200 was reduced by $120, the equivalent to Sally earning $171.43, before taxes. In her 30% combined federal/state tax bracket, she'd have to earn 14.3% on a $1,200 investment to come up with that $171.43. Sally enjoyed her few minutes of price checking and profited rather handsomely in the bargain.

Whether it's to get a better credit card interest rate, lower insurance premiums, or the best phone dealsometimes all you need to do is ask. True, some of those times, you may need to ask and ask again. But if you want to guarantee that you'll save a lot of money over the years, memorize this phrase: "Not asking is an automatic no!"

Yes, they may very well say no! But if you don't ask, you'll never know how much you might have saved. Another example: For three years running, Pete has phoned to cancel his credit card, citing the high fee. Each time, the card issuer has offered him a gift certificate, good anyplace the card is honoredif he would pay the fee and keep the card. Total savings: $165. Will they give him the same deal next year? Pete doesn't know, but he'll sure dial the toll-free number and ask!

I smell a refund. When Linda decided to cancel a whopping 20 credit cards, she had to asksometimes insistbefore she received the $175 in

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prorated refunds on annual fees that she deserved. Later, when she paid off her home equity line of credit, it took many calls before a supervisor finally agreed to "modify policy," and send her a $23 refund on that unused annual fee. In total, Linda's stick-to-it attitude earned her nearly $200 in rebates.

HEAVEN IN STAINLESS STEEL

My personal favorite "not asking" story involves the large, commercial plant table with four lit shelves where I've started most of our vegetables and flowers from seed, for the last 9 years.

Marc's brother Alan (known to all in Woodstock, New York, as "Just Alan," which is the name of his gift store there) was making his regular run to the dump in his pickup, when another truck arrived. On board were two men and a big stainless steel plant table.

"Are you throwing that out?" Alan asked, incredulously. Their "yes" was followed by Alan's quick offer to help move the tablefrom their truck to his.

It was in perfect shape. Not a single fluorescent bulb had to be replaced. You should've seen my eyes light up when Alan brought over the table later that day.

NANCY

WindfallFree for the Asking

Wouldn't it be fun to find some money you've long since forgotten about or misplaced? Look under the various cushions in your living room, then call your state's comptroller, as well as the comptroller in states where you've previously lived. Over the years, as you've moved, you may have forgotten a small bank account or a utility deposit. Eventually, that money gets turned over to the state. While the amounts are usually in the $25 to $50 range, the largest unexpected windfall (so far) in New York's history was $900,000.

Loretta, a former Floridian, got a letter from an outfit that offered to collect on some long-forgotten bank account for herfor a price. At Nancy's suggestion, Loretta invested in a call to Florida herself . . . and soon deposited a check for over $10,000!

To get the right phone numbers for the various states where you've lived, go to the National Association of Unclaimed Property Administra-

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tors' Web site: www.unclaimed.org. You'll also find links to the 30 or so states that offer information about unclaimed funds on-line. In some cases, you'll even find databases that you can search. (If you don't have Web access, send an SASE for a list of state unclaimed property administrators to NAUPA, P.O. Box 7156, Bismarck, ND 585077156.)

When we were double-checking our facts for this book, we discovered that New York had three checks just waiting for Marcincluding one from the 1970s. We can't explain why, because Marc had called the state's unclaimed property office a couple of times over the years, and these funds didn't appear. But it was sure a welcome fringe benefit of writing Invest in Yourself! The total? We don't know yet, because it takes the state months to process claims. But the wait is no big item when it comes to money you forgot you had in the first place.

DO IT WITH A FRIEND

We're often surprised by how many peopleeven those in important positionsare hesitant to dial for dollars. If you've got a touch of phone phobia, get a buddy to help you.

Having a friend nearby when you make these calls can boost your confidence and your effectiveness. You can brainstorm together before you pick up the phoneand while you're on it, for that matter.

Never hesitate to ask the service rep to hold on for a moment. Think of all the times they've put you on hold! And you should always feel free to call back later, when you have another thoughtor more courage.

Doing it with a friend really does make it less scary for those of us who are more easily intimidated than we'd like. Getting to share the experience also turns something that may seem to be a chore into fun. It's exciting to "take on the system" togetherand win.

Remember, it's likely that you will win if you keep at it. You can get the interest rate on your credit card lowered, a refund on shoddy merchandise, a discount on your long-distance phone bill . . . you name it! Persistence pays off.

The person at the other end of the phone may get huffy at first, but don't be intimidated! Persist, and don't hesitate to go up the chain of command. You have nothing to lose, and chances are, you'll get a better deal. In the end, most businesses realize it's a lot cheaper to keep current customers happy than to prospect for new ones. They know that happy customers refer their friends, while the unhappy ones spread that word, also.

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The All-Important Question to Ask Yourself

You're looking through a junk mail catalog and all of a sudden something strikes your fancy. Or it's 4 o'clock in the morning and you just can't sleep. So you turn on the TV and click to an infomercial, figuring if anything can put you to sleep, that surely will.

But wait! You can get a new cleaning tool that slices, dices, removes wallpaper, sings lullabies, and walks the dogfor only three easy installments of $19.95. And if you order right now, you'll get an emergency tool kit for your car, worth $49.95, absolutely free. Plus, if you mention that you have trouble sleeping (who else would be watching this?), you'll also get, absolutely free, this magic pillow guaranteed to have you asleep in three minutes! Call right now. This humdinger is not available in stores.

Or you're walking down Main Street and notice that the furniture store has recliners on sale"This week only! No interest and no payments until the year 2076!" (You left your binoculars home, so you can't see the small print.)

Sitting at the computer, an e-mail message comes up: "How would you like to make $5,000 a week? No selling! No cold calls! No inventory to buy. Takes only four minutes a week of your time. But hurry, this $1,968 price is good only for a short time." Remember:

The best way to avoid making a bad decision is to not make a quick decision.

CLARK HOWARD AND MARK MELTZER, Clark Howard's Consumer Survival Kit

How can you resist these opportunities? So you take out your credit cardbut before you make the call, click on the icon, or enter the store, ask yourself: If I didn't need it yesterday, why do I need it now?

Buying something you don't need and didn't even know existed five minutes ago is no bargain. Fill in the blank:

If it sounds too good to be true, ____________________________________.

Slammed, Crammed, Spammed, and Scammed

Pinching our own pennies can be fun and profitable, but it's sure no fun when someone else pinches them. Billions of dollars are wrongfully extracted from our savings every year by outright scam artists. Many of the victims are old, lonely, and vulnerable. Others are young and naive. But we're all potential victims. Who among us has not been taken?

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Americans get ripped off in a myriad of ways. Some of the less subtle ways, like plain old-fashioned robberies, are as old as history. Others reflect the inventive nature of humankind. As new opportunities present themselves, con artists immediately appear to take advantage of them. In the end, most rip-offs are self-inflicted. It's our greed, gullibility, basic trust, belief in good luck, and lack of consumer education that unite to do us in.

Gotcha!

Here are some of the tried and proven scams and schemes that get some of us all the time, all of us some of the time, and many of us time after time, year after year:

Boiler room operations that tout bogus stocks, precious-metal opportunities, and newly discovered gold mines or oil fields.

Phony roof and driveway repairers who "just happen to be in the neighborhood" or pretend to represent some official agency.

Those wonderful chain letters, business opportunities, and multi-level marketing schemes that guarantee riches beyond belief.

Identity thieves who use binoculars to get your calling card number at the airport, or who dumpster-dive to get your credit card, social security, or other numbers and then live it upon you. Watch what you toss, and where.

Bogus charities, door-to-door magazine sellers, and correspondence from companies with government-sounding names.

Postcards that ask $5 and up for postage and handling on your "guaranteed valuable" prize.

Almost anything with a 900 number or an 809 area code (which is the 900 equivalent in the warm Caribbean).

Credit repair clinics, guaranteed credit cards, large loans regardless of past credit historyall are as fishy as they smell.

Any telephone call promising a fortune to be made, "but you must act now."

Nobody Can Rip You off Without Your Help

Victimizing seniors is so commonplace that con artists have a name for it: "Getting Granny."

MARK GREEN, The Consumer Bible

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Every year, $40 billion is lost to telemarketing scams alone. The elderly are especially vulnerable. The National Consumers League puts out a useful, free brochure to help seniors protect themselves. It's called They Can't Hang Up (1701 K Street NW, Washington, DC 20006,202-835-3323).

We're all regularly besieged by sales pitches and promos in the mail too. A few years back, the staff at Kiplinger's Personal Finance Magazine evaluated some 300 pieces of their junk mail. Most of the financial offers ''deserved a quick trip to the landfill. . . . Not one of the life insurance offers we received was worth considering." We're happy to say that Kiplinger's ended its piece by recommending our booklet, Stop Junk Mail Forever (see page 328).

To avoid being ripped off, here are 10 easy steps to take:

1. Always comparison shop. The bigger the purchase, the more important price checking becomes.

2. Buy only from companies you know.

3. Toss all bulk-rate mail, preferably into a recycling bin.

4. Don't buy anything from anyone on the phone you didn't call. As soon as you get a call from a stranger, ask "Are you a telemarketer?" If so, request that your name be removed from their list, say goodbye, and hang up.

5. Ask about return policies before you buy.

6. Use the Internet as an easy way to research products and check prices. Buy only what you are looking for, from organizations you know, not things you happen across. Try to get local sellers to match legitimate prices.

7. If the price is so low that you can't believe your good fortune, don't believe that it is good fortune.

8. Never sign a blank contract or an agreement you haven't read. "Standard" contracts are not written with the consumer's best interests in mind.

9. Buy with a credit card that will protect you should the product or service not live up to its promise. (There are rules. Read your card agreements. Read all agreements. Even read instruction manuals. The more you read, the more you know.)

10. Send a postcard to Handbook, Consumer Information Center, Pueblo, CO 81009, and request a free copy of The Consumer's Resource Handbook. You'll get detailed consumer tips about car

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repairs, buying mail order, telemarketing, credit, privacy, product safety, scams, etc. Even more helpful are the names, addresses, and phone numbers of virtually anyone in government or industry who can help resolve consumer problems.

SURF, CALL, OR SEND TO SAVE

When you want product information, fraud warnings, low-rate credit cards, or money-saving advice, go to www.consumerworld.orgthe most comprehensive site of consumer information. Also visit www.consumer.gov, a great resource for info from Uncle Sam.

For info on scams, investigations, and links to groups that can help, visit www.fraud.org, or call the National Fraud Information Center at 800-876-7060before you give out your credit card number, a check, or other personal information to someone whose motives you question.

If you find your heartstrings tugged by an appeal for charity, first check out the organization with your local Better Business Bureau, which works with the national Philanthropic Advisory Service to provide information on charitable and nonprofit organizations. Between October and December, you can get a free copy of Give but Give Wisely by sending an SASE to Holiday Giving, Council of Better Business Bureaus, 4200 Wilson Boulevard, Suite 800, Arlington, VA 22203-1838. (The rest of the year, this quarterly newsletter is $3 an issue.)

You can also request Wise Giving Guide from the National Charities Information Bureau, 19 Union Square West, New York, NY 10003, or surf to www.give.orgor www.guidestar.org.

Not only does the Federal Deposit Insurance Corporation (FDIC) protect our savings accounts up to $100,000, but it also publishes a very informative newsletter (not only about banks), which you can get for free from FDIC Consumer News, 801 17th Street NW, Room 100, Washington, DC 20434,800-276-6003. Or you can read it at www.fdic.gov.

Secrets of Successful "Hondlers"

Some people seem to be born negotiators. They can wrangle a great price out of anyone, and leave with the seller feeling good about the deal, too. But perhaps, like us, you hate confrontation and would rather shell out a bit more, or not buy an item, than haggle over it. Don't worry. If you hate

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to bargain but you love to get bargains, you're not doomed to pay full price on everything for the rest of your life.

Instead of haggling, let us teach you to "hondle," which is a Yiddish word that suggests a gentler, kinder, more humorous approach to getting what you want for less. Our "hondling" strategies can turn even the most timid into stress-free supersavers.

Know what you are willing to pay for the thingamabob. What do you really think it's worth? Decide in advance, and don't pay more!

Ask for help. For example, you could say, "Money's tight these days, can you help me out on the price?" People like to be helpful, and it usually keeps things friendly. However you put it, say it with a smile.

Be noncommittal. If it's clear that you love the gizmo and must have it, you won't be offered a rock-bottom price.

Pick your moment. Conventional wisdom says shop early for the best selections. Sometimes, though, you can get a much better buy if you shop late. End-of-month quotas to fill, end-of-day flea marketeers who don't want to drag the stuff home, and people selling snowblowers in June are likely to go for lowball offers. Many years ago, Nancy and Marc sold comic books. By the boxful they're very heavy, so during the last hour of a convention, the two were easy marks for bulk buyers.

Play "Let's Make a Deal!" You'll get a chuckle, if not a special combo price, by saying "Let's make a deal" when you buy a few items at once. Try it next time you're at a tag sale, consignment shop, or flea market.

Lowball it based on what the bottom line is likely to be. That way, there'll be room for some healthy give-and-take. But watch out, especially if you've fallen in love with the blasted thing. Someone else may take your potential score home while you're cleverly positioning yourself out of the ball park.

Look the item over carefully and talk about what you see. Pointing out even slight imperfections, especially if you're nice about it, may help you get it for less.

Tell it like it is. Let 'em know you're a penny-pincher, a tough (but friendly) bargainersomeone who'd go way out of the way to get the best deal. Nancy will often (laughingly) warn a merchant right away that Marc is as cheap as they come. She says it sets the right tone.

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Have patience for the process. You won't get the best deal if you're in a hurry. "Hondling" takes time.

Know when to walk. Not sure you want it at the current price, but can't seem to get it at a lower one? Take a hike. Maybe the salesperson will follow . . . and meet your price. If not, think of all the money you just saved!

HOW TO NEGOTIATE IN SILENCE

Sky Stargel, author of The Blue Book of CarBuying Secrets, tells it best, describing a negotiation over a beautifully carved teak turtle in a South Korean market. Chief Warrant Officer Donally looked at the wooden statue but said nothing. The shopkeeper quickly dropped his price from $40 to $35. The officer still said nothing.

The merchant shouted, "$30!" Donally moved away, and the price fell to $25. "Donally stood his ground and shook his head no. The storekeeper began to talk faster, and blurted out 'OK GI, it's yours for $20, and that's my last offer.' "

Donally responded by heading for the door, but before he got there, the salesman said, "$15." That was Donally's magic number. "Without speaking a word, Donally had negotiated . . . a 62% reduction."

The More You Save, the More You'll Have

There are lots of ways to cut the cost of those things you buy. And with every dollar you save being worth about $1.40 you'd have to earn, not spending a dollar earns you an immediate 40% profit. (That old tax thing again.)

Spend less, so you'll have more. When you go out to dinner, split an appetizer and dessert with your dining partner. You'll save money, and maybe your waistline. Drive to town less often, buy fewer new work outfits, and use e-mail to cut your phone bills.

For great ideas on how to spend less at the supermarket, read Eat Healthy for $50 a Week by Rhonda Barfield and Cheap Eating by Pat Edwards.

Start a bidding war. As you comparison shopbe it for insurance, cars, contractors, attorneys, plane tickets, a refrigerator, or new lawn chairslet 'em know you'll be getting at least three estimates and that you're going to go with the one who offers the best price.

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Snitch. If you find out that a mail-order house or shopkeeper Jones offers the very same item for less, ask shopkeeper Smith to keep up with the Joneses and beat the best price you've found.

Do it yourself. Diane saves piles of money because she learned how to give haircuts. She's been the house barber since marriage, and her husband and three sons always look neat, trimmed, and handsome. Even though haircuts are relatively cheap where they live, Diane & Co. saved over $200 in one year alone.

If you blend your baby's bananas and sweet potatoes yourself, you can save a fortune on baby food. The only difference is the outrageous cost of those little jars. In just a few minutes, you can process a week's worth. Put individual servings in ice cube trays, and relish all the money you're saving.

THE BEST TIP OF ALL

Avoid temptation. Stay home and read a book. Daydream.

Take a walk or a hot bath. Visit a friend. Have a tag sale.

Help out at the local animal shelter. Write to us with your best

Invest in Yourself ideas.

Put Something Else on the Table

Can you trade or barter for some or all of the cost? Barter opportunities abound everywhere. "I'll fill Johnny's cavities if you'll paint my family's portrait." "I'll type your term paper if you'll cut the grass." "I'll watch your kids Saturday night if you'll take mine next week."

Home renovations, car repairs, and vacations are just a few of the pricey items that folks have bartered for their time and talents. If you're cash poor, trading time or services instead of money can be a great way to get things you need or add some luxuries to your life. Be imaginative!

On the other hand, bartering can wreck a relationship, unless both parties are very clear about the terms. "I didn't agree to fill three cavities" . . . " I never agreed to a room-sized portrait." For small barters, there's probably no need to make a big deal of the agreement, but for major projects, such as a home renovation or some expensive dental work, lay out what each person will do, when they'll do it, and who pays for what supplies. You might want to put it in writing so there isn't any disagreement later on.

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Challenge Authority

As you carve out your route, you'll be resisting a lot of messages from well-meaning folks (many with something to sell), who will tell you how you should do a certain something. Here are some of the messages we fight every day:

You must save a substantial amount of money so you'll have a secure retirement.

A home of your own is your most important investment.

The stock market is the best way to amass wealth.

Small businesses usually fail, most often due to a lack of capital.

Throughout this book, we'll show you why questioning conventional wisdom may be the best thing you can do in shaping the life you want. Money alone, no matter how much you have, won't buy a satisfying retirement. Renting may make a lot more financial sense for you than owning. You can earn high, risk-free returns without buying a single share of stock. And, like the three of us, you can start a successful small business without a big bankroll.

Here's another example: Some "experts" will tell you that you'll need a mountain of money for your kids' college educations, and you better start savingyesterday. But perhaps one parent would rather stay home to raise the kids, instead of taking a full-time job. In the long run, which is the better investment? Sacrificing some possible savings for college or sacrificing the time with your children when they're young? Some investments simply can't be measured in dollars and cents. It's your call.

So next time the experts tell you that you should do this or that, ask why. What will happen if you do it another wayyour way?

More!

At some point we begin to think we'd like something more, and not just money. We start thinking we'd like more satisfying relationships, a more livable home, more relaxing vacations, more of a sense of community.

Although there's no right time to make major life changes, there are wrong times: in a fit of anger, right after the death of a spouse, or on an impulse.

Changes, except those triggered by catastrophes, rarely happen overnight. We go over them again and again in our minds before we can act. Don't beat yourself up about it.

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At its simplest level, you can barter directly. Design an ad for an auto body shop in exchange for getting your dented fender fixed. Build a deck for the orthodontist as payment for your child's braces. Swap day care for computer skills . . . a refinished antique chest for a week at a charming bed and breakfast. The possibilities are endless.

There are barter exchanges and clubs around the country that create opportunities for a broader range of trades, by letting people accumulate credits for their products and services. You can paint a real estate office, but use your credits to buy a computerassuming the real estate agent, the computer store, and you belong to the same barter club.

Exchanges publish member directories, and they report transactions to the IRS. (Yes, unless you're swapping two objects or services of identical value"If you babysit Tuesday, I'll watch the kids on Thursday," for exampleit's taxable.) Exchanges typically charge a cash fee of 10% of the transaction.

Having an entire community in on the trading has proven to be a successful formula for Ithaca, New York, thanks to Ithaca HOURS, a barter network. Over 2,000 people have participated, and payment is in colorful local currency representing hour, half-hour, or quarter-hour increments (with an approximate value of $10 an hour). The network has generated over $2 million in barter exchanges since 1991.

Some 1,500 trading opportunities are listed in Ithaca's "HOUR Town" directories. Among the hundreds of businesses that accept HOURS for payment are child care centers, chiropractors, bakeries, hair salons, and car washes. Participants have bartered organic produce for roofing, jitterbug lessons for food, and bar mitzvah preparation for violin repair. HOURS have also been accepted for rent, loan payments, and medical bills.

The Ithaca model has been adopted around the United States and Canada. To help other communities get started, Ithaca HOURS sells a "Hometown Money Starter Kit" for $25. For more information, contact HOUR Town at P.O. Box 6578, Ithaca, NY 14851, 607-272-4330, or on-line at www.lightlink.com/ithacahours.

Warning: Exchanges come and go, so it's wise not to accumulate too many credits, lest you be left in the lurch when your barter club shuts down. You could also be stuck if your club doesn't have a broad enough member base. What if there's no place where you want to spend credits?

It pays to be cautious when you're bartering. Since it doesn't feel like you're spending money, you're more likely to use your barter credits frivolously. Also, you might well "overpay" for an item that would be cheaper

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if you were paying cash. And in a direct barter, there's always the possibility that you'll do your job and then get stiffed by the other party. (Unless you're confident that the other person is reliable and capable, you might want to delay completing your end of the bargain until you're satisfied with what's being exchanged.)

That said, start thinking about how your talents, skills, and even that spare room in your house can be swapped for something you really need or want. Marc and Nancy still have around 10,000 comics left over from their flea market days. They'd gladly trade them for almost anything. Make an offer!

NEGOTIATING NO-NO'S

If you don't need it, don't buy it. If you're not sure you want something, but are mildly tempted by a price reduction, this is probably a bargain you can live without. Sleep on it.

Don't reveal your bottom line or volunteer much information. Never tell salespeople how much you can afford per month! Once you do, you can rest assured that they'll find ways to make sure your final cost is at least that, every month.

It's no bargain if you put it on your credit card and don't pay the bill off by the due date. Interest could run anywhere from two to five times more than your carefully negotiated price. What a deal!

Don't get angry or give ultimatums you don't mean. But do feel free to push it a bit. What do you have to lose by trying for a better deal? Just keep it light and friendly. When in doubt, remember, not asking is an automatic no!

Don't buy new if you can possibly avoid it. Comb the newspapers, penny savers, supermarket bulletin boards, and tag sales for good, used stuffbe it a washing machine or ice skates. Used costs a lot less than new, is often better made, and generally helps save the environment. (Refrigerators are a quandary. Used ones cost less than new and save all of the energy and materials necessary to build a new one. But they tend to be less efficient and use more power.)

Don't shop when you're in a bad mood, when you need a nap, or on an empty stomach. You'll end up hungrier, more tired, cranky, poorer . . . and angry at yourself for having spent the money.

Don't dicker if it's already a fair price, especially if it's very cheap. There's no need to take advantage of someone just to save a buck. If

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you get a "steal," you're probably robbing someone. Getting a great bargain is good enough.

Don't be an "Ugly American" when you travel. Over the long haul, will you really treasure the trinket more if you paid a dime or two less?

Six Shopping Myths Debunked

Myth: Avoid convenience foods. They cost too much.

Reality: Keeping convenience foods on hand may be your best strategy on those nights when the kids are starving, you're late, and you don't have any time to cook. A frozen pizza with a saladeven one from a plastic bagbeats the cost of a delivered pie, and it's much less expensive and quicker than an outing to a restaurant.

Better yet, make a list of your best 10-minute meals and keep the ingredients on hand. And be sure to freeze extra portions when you cook your family's favorites. The kitchen's a mess anyway; it doesn't really take any longer to make twice as much; and you'll have the best of both worlds at your fingertips: great meals, fast.

Myth: Bigger is a bargain.

Reality: Don't assume the largest box is always the best buy. For example, a 32-ounce box of baking soda tagged at 89 cents sat next to a 64-ounce box of the identical brand. The 64-ounce box was $1.89. Buying two small boxes would save 11 cents. While that may not seem like a lot, in Chapter 12 we'll show you how 10 cents a day can save thousands of dollars and years of payments on credit card bills.

Not far from the baking soda sat two brands of salt in 26-ounce boxes, one for 45 cents and the other marked 55 cents. Saving that dime earned a guaranteed 22%, tax-free. You can't get that kind of guarantee on Wall Street.

Myth: Shop with a list and buy only what you need.

Reality: Stocking up is far better than putting money in the bankon items you know you're going to buy eventually anywaywhether it's tuna at the supermarket, panty hose at the department store, or contact lens solution at the drugstore. Stores like Costco and Sam's Club can save you moneybut not always. Price-check to be sure, and avoid loading up on big bargains you don't really need or want. Remember, tossing stuff into the wagon because it seems like a great buy is an expense that marketers have worked very hard to get you to incur. Impulse shopping is often a lousy investment.

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Our society bombards us with advertisements, fosters myths about the importance of acquiring things and "keeping up with the Joneses," and promotes instant gratification rather than teaching us about the value of saving, budgeting, and prioritizing for long-term goals.

OLIVIA MELLAN, in Money Harmony

Myth: Always buy generic.

Reality: If your family has a favorite brand of peanut butter and can't stand the store brand, you won't be saving money when you throw it away. Try generic, but if your gang thinks it's no good, don't force it. On the other hand, don't buy brand names when quality doesn't vary or matter much. Go for the cheapest sugar, flour, salt, dry beans, bleach, boxed pasta, and so on.

Myth: Name-brand pharmaceuticals work better.

Reality: Generics, whether for prescription or over-the-counter drugs, can save you a lot, and they must be medically equivalent to their name-brand cousins. Not sure? For the over-the-counter varieties, compare the active ingredients on the backs of both labels. (Confirm your discovery with the pharmacist if you're at all unsure.)

Ask your doctor about generic equivalents every time a drug is prescribed, and also ask if there are any samples, so you can try before you buy. If samples aren't available, ask for a short-term prescription as well as a long-term one. Fill the small one first. If you have a bad reaction to the drug, you won't be throwing out a large bottle of expensive medicine.

Myth: Always look for the lowest price.

Reality: Don't agonize to get the rock-bottom price if it means a big effort to save a little money. Sometimes it pays to spend a little more for a generous return policy, excellent service, faster delivery, or a convenient location. Nancy often pays a bit more to local shopkeepersespecially when it'll save her the drive to, and the hassle of being in a mall. It's nice to keep the money in the community, too.

Free Is a Great Price

Freebies are everywhere! If you keep your eyes open, you're likely to find lots of opportunities for great stuff at the right price: nothing! Here are some ideas to get you started:

Volunteer in exchange for discounted or free services. Concert halls, ski resorts, theaters, or the local pool may welcome you with open arms, offering free or significantly discounted passes.

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Complain vigorously when you get defective products, bad service, or shoddy merchandise. Chances are, you'll get a substantial price reduction. Gerri's received airline discounts, a free humidifier that she's used for more than four years now, and coupons for free food in response to letters she's written.

Whether you call the company's 800 number, send e-mail, or write a letter when a product doesn't perform to your liking, you'll almost always get a freebiejust because you told 'em so.

Although they do sometimes go unanswered, writing "I am outraged" letters has another benefit: It can be very therapeutic. Once you get it off your chest, it's easier to move on.

Complimentary letters are also much appreciated and may be acknowledged with coupons or other giveaways, such as recipe books. For example, Gerri's friend Bill got a whole box of free vitamins thanks to a few words of praise that he sent in.

Take free classes to learn things you'd like to be able to do for yourself. Retailers such as Home Depot, IKEA, or REI often offer excellent free classes, teaching anything from how to wallpaper your home to rock climbing. Not only are the classes free, but you might be able to save a bundle by putting your new skill to work. (Well, maybe not by rock climbing, but you'll be all set to have a great, safe time up in them thar hills.)

Stay healthy with free classes at local hospitals.

Become a product tester or member of a focus group. You'll earn free samples or, better yet, cash. Look in your Yellow Pages under "market research firms." Sometimes these deals can add up to between $50 and $100 or more. Can you believe $75 to try out a new moisturizer? Being a mystery shopper can also yield free meals and moolah. Call Shop 'N Chek at 800-669-6526.

Just ask! In southwest Michigan, Gerri's father and his friends load up on as much free turkey as they can possibly eat. How? A turkey farmer lets them take the perfectly healthy birds that just didn't make it through the trip to the slaughterhouse. The group sets out very early in their "turkey-mobile," and they split the proceeds among themselves and the less fortunate. The farmer is happy to get the recently deceased birds off his hands. (You vegetarians can work out similar deals for overripe fruit or vegetables that farmers don't have time to harvest.)

Marc and Nancy mulch their garden with tons of wood chips they get for free from power company line crews, as well as with leaves, grass, and

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hay from their farm-country neighbors. Their magazines are ''borrowed" from the local recycling center (often before they hit the newsstands), then returned for others to read. The ink-jet printer used to churn out this book's manuscript had been tossed out by someone who obviously couldn't bear to be a generation or two behind the technological times. Nancy found it at the curb, and it's worked perfectly ever since. They even get their paper clips for freethe bank can't possibly use all the ones depositors bring in.

IF IT'S BROKE . . . MARC SAYS, "FIX IT!"

While it's true that each of the cars, computers, appliances, and miscellaneous other possessions that Nancy and I own suffer from a lack of routine maintenance, it's also true that most of them yield to patches and proddings when asked to perform just a bit longer. I'm no great mechanical genius, but I enjoy taking things apart. I've been doing it for nearly half a century, and I urge you to give it a whirl.

In the early days, few of the gizmos I took apart ever got back together. Then a clock or two actually started running again. Sometimes in the right direction. These days, most of what I tackle comes back to life. Nancy's always amazed (actually, so am I).

The $250 White Sock

Put a pair of socks into your washing machine and sooner or later, only one will be returned to you. Where does the other sock go?

Well, I recently found out. Fortunately for me, it wasn't my sock. Unfortunately for its former owner, that sock cost some $250 to replace. Maybe more.

For reasons that may better fit in our next book than this one, I needed some junked washing machines. Two local appliance dealers were happy to let me cart off as many as I wanted (otherwise, they would have had to pay to dispose of them).

Having kept our own machine working long past its prime and having helped friends resuscitate theirs, I confidently plugged in the first junker. It had a bad relay and was a piece of cake to fix.

The second machine was so old and battered I used it for parts. But the third machine was a true heartbreaker. The motor wouldn't turn because the pump was jammed. It took me only a few minutes to take that pump apart and find the white sock!

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The World Needs More Tinkerers

Some family probably bought a new machine, at a cost of at least $250, because they thought, "It isn't cost effective to have that old washer fixed." Too few of us know how to fix things ourselves. Instead, we junk our gadgets (as well as our planet) in the process of burying the old and building the new. I think it's nuts, but at least I'll never have to buy another washing machine!

My Basic Repair Philosophy

To save a bundle, which eliminates the need to earn a bundle and a half (once you factor in taxes, the cost of getting to and from work, and dressing for the part), Nancy and I buy virtually everything used, but in good working order. There's the 15-year-old $25 dishwasher, cars, trucks, furniture, clothing, garden tools, our desks and the computers that sit on them, the $2,000 phone system we salvaged for $50 . . . you get the drift. We also gratefully accept hand-me-downsall our file cabinets, a refrigerator, our washing machine, the dryer, VCRs, and the living room TV.

By the time the gizmo has gasped its apparent last breath, we've no doubt gotten more than our money's worth. If I can fix it, we'll be ahead of the game. If I can't, at least I might be able to figure out how it works, so I can jury-rig the next one that breaks.

When I just can't figure out what's wrong and we need to call in a pro, I watch the repair being made and ask questions. Learning how to do new things is one of the best investments I can make in myself.

Don't know where to start? The Reader's Digest's New Complete Do-It-Yourself Manual is a terrific resource. Also go to www.learn2.com, where you can learn how to do just about anything. And don't forget to call the appliance manufacturer. Some companies have technicians ready to guide you over the phone, and others have service manuals that will walk you through the repair, step-by-step. There's probably a toll-free number. (Call 800-555-1212 to find out.)

While nothing lasts forever, everything Nancy and I own is expected to try.

MARC

Don't Bank on It

Whatever money you do save by using these strategies, you'll want to put to good use. You'll want to see it grow, not shrink! But that may be exactly

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what happens at your bank. Like all services, shop around to make sure you're getting the best deal possible.

It used to be that banks paid you interest on your money in the hope that you'd trust them with it. They would then lend your money out to your neighbors and the businesses you patronized. When you wanted to buy a house, they'd lend you someone else's money. Their profit was the difference between what they paid and what they charged. If you didn't have enough on deposit to cover a check, they'd pick up the phone and call you. You'd stop by with money to cover the check (if not today, well "tomorrow will be fine").

Kiss those days bye-bye. Today's typical bank has instituted fines for so many infractions that they make traffic courts seem downright consumer-friendly!

Banks are not your friends.

EDWARD F. MRKVICKA, JR., Your Bank Is Ripping You Off

Before you sign on for credit cards, CDs, checking accounts, car loans, mortgages, or any other bank services, shop around! Banks aren't all alike on the interest rates they charge or pay, and they're not alike when it comes to bank fees, either. To compound the confusion, even when a bank seems to be offering you the best deal in town, it may not be. To compare rates, make sure you get the annual percentage yields (APYs).

There are still a few local banks that offer truly free checkingwith no minimum balance required and no fees whatsoever. Others offer "free" checking only if you have your paycheck directly deposited, if you're a senior citizen, or if you maintain a minimum balance. (But beware. Drop below the minimum and the fee could wipe out the piddling interest you might have earned and then some.)

Nonprofit credit unions usually charge fewer and lower fees than banks. That's the good news. Unfortunately, there's not always a credit union nearby that you can join. To find out if there's one that'll have you, call the Credit Union National Association at 800-358-5710, or check www.cuna.org for information.

Checking fees pale when compared to some of the other fees. Get cash from a foreign (not your bank's) ATM, and you'll incur charges of $1 to $2. Some banks even charge if you deal with a live teller.

Then there's overdraft "protection." Banks will not automatically deduct that loan from your checkbook even when you've deposited more than enough to repay it. Why should they, when they can keep extracting up to 18%? And not just on your overdraft. When some banks dip into

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your overdraft account, they transfer amounts in multiples of $100 (even if you owe only pennies!). You could be paying interest on $99.95 that you didn't even need to borrow. And unless you specifically tell your bank to pay off the overdraft, you could be paying that interest forever.

Banks love it when you bounce checks. Nader's Raiders estimate that it costs the bank less than $3 to process each of them, but you'll pay $15 to $25. A quick profit of 500% to 830%. Even worse is the fee you'll pay when someone bounces a check on you. That's like being issued a traffic ticket because someone hit your car!

Be careful when you ask for help at the bank. You may pay a "research fee" of $15 to $25 an hour for assistance in balancing your checkbook or locating copies of a wad of checks you've misplaced. Even if you need a copy of just one check or checking statement, don't expect the bank to make a copy gratis. You'll probably be asked to pay a photocopy charge.

And if you rent a safe-deposit box, be sure to take good care of the key, or you'll be charged a "drilling fee" of $75 to $150. But if Bonnie and Clyde withdraw the valuables you have stored in your box, tough luck! (You might want a separate insurance policy if your valuables are sufficiently valuable.)

For an eye-opener on bank fees, see Table 10.1.

IT'S ONLY PAPER

Don't buy checks from your bankthey're way too expensive. To get both business and personal checks for about half of what the bank charges, call Checks in the Mail, 800-733-4443; Current, 800-533-3973; or Image Checks, 800-562-8768.

What should you do if a check is lost? Possibly nothing! With fees averaging around $15, a stop-payment order rarely pays on small amounts, and legitimate businesses will return a duplicate check should the first one surface from the post office's netherworld.

Need a money order? The post office sells them for less than most banks, unless your minimum balance entitles you to free bank checks.

Don't Be Late!

A late-payment fee on a loan could cost you $15 or more. What's worse, a record of that late payment could make it to your credit report, where it

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TABLE 10.1 Those Pesky Bank Fees

The following is an actual list of one bank's fees.

Service

Fee

Service

Fee

Account closedby mail

$ 5.00

Money ordercustomer

3.00

Account closedwithin 180 days

15.00

Money ordernoncustomer

5.00

Account reconcilementper hour

20.00

Notary feenoncustomer/per document

2.00

ACH filing feeper file

7.50

Overdrawn account fee

ATM cash withdrawal surcharge

noncustomer

1.00

Businessapplied daily

as of second business day of

overdrawn balance

18% APR

ATM debit card transaction

(point-of-sale)

.25

Personalapplied daily as of third

business day of overdrawn balance

$5.00

ATM lost card replacement

5.00

Photocopy of Check (less than 60 days)

1.00

ATM funds transfer feeforeign ATM

1.00

Photocopy of Check (60 days or older)

4.00

ATM transaction @ foreign ATM

cash withdrawal

1.00

Photocopy of statement

5.00

ATM transaction @ foreign ATM

balance inquiry

1.00

Printout of statement/per sheet

2.00

Bank audit confirmationdebit to account

Protest feescustomer

20.00

Cashiers checkcustomer

6.00

Protest feesnoncustomer

40.00

Certified check

10.00

Reporting abandoned account to NYS

50.00

Check cashingnoncustomer

5.00

Research timeper hour

25.00

Checkprinting fees . . . varies depending

on selection

Rolled coinper roll

(commercial accounts)

.10

Collection of couponsper envelope

5.00

Safedeposit drilling

100.00

Collectionsdomestic

15.00

Safe-deposit box late feeper month

1.5%

Collectionsforeign

25.00

Savings accountsexcess

transaction fee

25.00

Counter checkeach

.50

Special savings request

10.00

Deposited check returned fee

10.00

Stock/reregistration

50.00

Early closeoutfirst select club

15.00

Stock/buy and sell

50.00

Fax serviceper page

1.00

Stop payment

15.00

Foreign draft

25.00

Strapped currencyper strap

(commercial accts)

.10

Insufficient (NSF/OD) funds

per item paid

20.00

Telephone transfers

1.00

Insufficient (NSF/OD) funds

per item returned

25.00

Travelers checks (percent of amount)

>1%

IOLA accountper month

15.00

Treasury bills and notesredemption

50.00

IRA closeout

25.00

Other bills and notes

50.00

Legal papers processLevy's

Restraining Notice, etc.

100.00

Treasury direct tenders

50.00

Loan coupon book replacement

10.00

Uncollected funds fee

(on collected balances over$1,000

per item

15.00

Loan payment check returned

7.00

Undeliverable statement fee

10.00

Lost night depository key

5.00

Wire transferdomestic/incoming

10.00

Lost passbook replacement fee

10.00

Wire transferdomestic/outgoing

20.00

Lost safedeposit box key fee

25.00

Wire transferforeign

35.00

Money market excess transaction fee

per item

25.00

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To create the portfolio that's right for you, you've got to invest time and energy in figuring out what you really wantand what will get you there. While the good life is different for each of us, and one-size-fits-all formulas don't work, everyone, no matter how deep in debt, no matter how unhappy at home or at work, can change direction and make dreams come true, without being irresponsible or reckless. Sometimes all it takes is a bit of fine-tuning. At other times, major modifications may be in order.

Once we become adults, we often lose track of life's simple pleasures and of our own personal goals. We take a wrong turn or two, then spend a good part of our lives doing things we'd rather notwhile not doing many of those things we'd enjoy. While we may obsess about how unhappy we are, we don't focus clearly on what we can do to change the situation: on how we can invest our time, energy, and yes, our money to consciously create the life we want.

Change is scary. It takes courage, and often arouses conflicts with the ones we love. That's probably why so many folks stay in the ruts they've dug, unhappily spending a good portion of their days wishing they could get out, but not being able to do anything constructive to make it happen.

Getting from where you are today to where you'd like to be is rarely a goal that can be achieved instantly, any more than you could expect to lose weight and improve muscle tone overnight, or succeed at a new business, sport, or hobby the first time out.

Deciding what you want, and then figuring out how to get there requires some planning, commitment, time, and knowledge. But the journey can be as satisfying as the destinationif you don't put yourself on a starvation diet to achieve your goals. (They never work, anyway.)

Perhaps you really can't stand your job, but you're working too many hours to look for a new one, and you need the money too much to quit. Or maybe you'd really like to start an exercise program so you'll have more energy, but you're too tired to get started.

To get what you want in life, you first have to make room. And that means letting go of the things you don't want, even though you may have invested a lot of time and money in them along the way. While this is often difficult, the benefits will make it well worth the effort.

You can change your life. We know, because we've changed our lives, and we've spent a combined 38 years helping others make smart choices about their finances and their futures.

We'll help you pull it all togetherby keeping you focused on you, and on how your investments of time, money, and energy can best benefit you

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Major changes take time. They deserve serious research and planning. Not only do we have to be personally prepared, but in fairness to the other key players in our lives, we want them to have a chance to prepare as well. That's why we usually give the boss two weeks' notice.

"Some people plan meticulously for a two-week vacation . . . yet don't thoroughly educate themselves for making lifestyle decisions that affect their whole future."

MARILYN AND TOM ROSS, Country Bound! Trade Your Business Suit Blues for Blue Jean Dreams

Before making major life changes, procrastinate. Go shopping. Not mall shopping. Go to the library or go on-line, and try to focus on concrete next steps that you could take to learn more about the pros and cons of your options.

If you come up against a brick wall, either of your making or perhaps your spouse's, it sometimes helps to get logical. List the pros and cons of any lifestyle change you're considering. Be as objective and clearheaded as you can about the likely consequences for you and your family. It doesn't matter how many possible outcomes you consider.

What does matter is that you take the time to think through the alternatives and the effects that they're likely to have. What would the benefits (if any) be for you?

Once you've done that, it's time to switch gears. Go back and rate each one based on how good or how bad that outcome would make you feel. Then it's time to get some other input. While there is a lot to be said for getting expert help, no matter what lifestyle issue you're working on, most of us have free access to incredibly perceptive expertsour close friends and family members. Their perspective on the objective pros and cons, as well as on the emotional side can give you a whole new way to look at your options.

Don't overlook your local newspaper, the weeklies (U.S. News & World Report, Newsweek, Time), and monthly magazines. Many of their syndicated columnists and personal finance writers have devoted years to developing their expertise. Then they put in even more time to distill it all for you, analyzing the key money versus lifestyle debates.

Invest a Few Bucks for a Lot of Great Ideas

For other important viewpoints, spend a few bucks and a few minutes to get samples of our favorite newsletters:

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may get in your way of securing creditat least low-cost creditfor the next seven years.

Have trouble keeping track of your payment due dates? Ask your bank or the lender to automatically deduct your payment from your account, but don't pay a fee for the convenience.

And don't pay a fee to turn in those pennies you've pinched and rolled up.

Important: Develop a relationship with your bank manager, and you'll discover that rules can be changed and pesky fees waived for good customers who ask or complain. Don't be bashful. It's your money!

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SECRET V

TURN YOUR DEBTS INTO GOLDEN INVESTMENT OPPORTUNITIES

Owing money amounts to financial Russian roulettewith every chamber loaded! You never know when a job loss, a medical emergency, a divorce, or maybe just a leaky roof will trigger a cash crisis. So it's smart to keep your debt load to a minimum.

There's another reason why it's smart to pay down your debts: It can save you a fortune, which means you won't have to earn another fortune and a half.

Believe it or not, getting out of debt isn't all that hard to do, and what's more, every debt the average consumer carries can be turned into a high-yield, rock-solid investment. There's gold in those debts!

In the same way that a robin starts building her nest with a single piece of straw, a single dime a day is all it takes to build up your family's nest egg. In the next few chapters, we'll show you why it often makes no sense to put whatever money you can squirrel away into a savings account, CD, bonds, stocks, or even mutual fundsif you're weighed down by plastic and a load of other debts.

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Chapter 11

Invest in Your Debts

Turn the tables on lenders and save a fortune

The myths that keep Americans in the hole

How to invest for high-yield, risk-free returns

Small investments that add up to big bucks

Which comes first: paying down debts or saving?

Terry Savage's Law of Deep Holes:

"When you're in a deep hole, stop digging."

TERRY SAVAGE, Chicago Sun-Times SYNDICATED COLUMNIST

The story goes that when the infamous Willie Sutton was asked why he robbed banks, he responded, "Because that's where the money is." He may have been a crook, but Willie was no dope. He picked the right targetbut would have made out better if he'd invested in a bank, instead of breaking into that last one.

As Willie well knew, banks have lots of moneybecause we keep giving it to them! They handle virtually every penny we earn, save, and spendand they make money on all of it all the time. In exchange for the use of our money, banks pay us a tiny, token interest rate, if they pay us anything at all.

Then before we've accumulated enough to be able to pay for our homes, cars, college educations, vacations, furniture, clothes, even dinners out, we go back to the banks and borrow money (often our own!) at much higher interest rates.

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While there are times when borrowing can dramatically improve your life, the real costs in time and money are also dramatic and are often overlooked. For example, believe it or not, it could take a year of your life just to earn enough to pay for that new car in your driveway. That's right: a whole year at work to gross enough before taxes to pay for a new set a wheels and the interest on the car loan.

Since none of us can give up food, shelter, and life's other bare necessities (to say nothing of its pleasures) for an entire year just to pay for our means of transportation, the banks and car dealers are right there with offers of long-term financing and "low, low" monthly payments. (See Chapter 14.)

The most expensive part of buying something you can't afford is often the interest you'll be charged on the money you had to borrow to pay for it. Need proof? Consider this bit of American folklore: All your life you've been told that your home will be your most expensive purchase. We're about to prove that's simply not true.

First off, consider all the assorted taxes you have to pay year after year. Every year, the typical married couple shells out an astounding 38% of what they earn to various tax collectors. No other cost of living even comes close.

Second in line for most Americans is their mortgage, which will almost certainly cost more than their house. In fact, by the time you've paid off your mortgage, you could spend enough to buy two housesyours, plus a much nicer one for your lender.

Wouldn't it be great if you could have your dream house and everything else you want while still holding onto more of your hard-earned money? Well you can. By making even small regular investments in your mortgage, car loan, and credit card bills, you'll slice your interest costs to a fraction of what they otherwise would have beenand increase your net worth at the same time.

THREE MYTHS THAT KEEP AMERICANS IN THE HOLE

Myth 1: You Are What You Wear . . . Spend . . . Own.

Each day, America's collective consciousness is exposed to 12 billion display ads, 2.5 million radio commercials, and more than 300,000 television commercials.

CYNTHIA CROSSEN, Tainted Truth

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We're reminded day in and day out that success is having the most and the hippest stuff on the block. By the time kids graduate from high school, they will have watched more than half a million TV commercials. Again and again, we older folks are told to buy this product or that to look younger and sexieror at least to smell better.

Heard often enough, these messages sink in and have been known to echo in our egos when that first gray hair or wrinkle emerges. Whether it's moisturizing creams, hair replacement systems, or exercise equipment to tone the abs we never knew we had, the message is clear: You have to keep on spending to look your best.

The result? Outstanding consumer debt has long since passed the $5 trillion mark. That's $5,000,000,000,000.

Myth 2: "Don't Leave Home Without It."

"Master the moment." "It's everywhere you want to be." These are just some of the things credit card issuers whisper in our ears to lure us into spending more than we can afford. And they've put Americans in the hole to the tune of about $455 billion, all because we say two little words, "Charge it."

Credit cards are a great convenienceif you use them to pay for things you can afford and would have bought anyway. Too many of us, though, use those little pieces of plastic as a license to spend impulsively, and we pay a heavy price in hefty interest charges that roll on and on, month after month, year after year.

Myth 3: If You Care Enough . . . You'll Go Into Hock.

Nothing typifies this love cost more than the De Beer's ads touting "a diamond is forever." How much should you spend on a rock to celebrate your engagement? "Two months' salary," they advise. "Spend less and the relatives will talk. Spend more, and they'll rave."

"Think romance. And don't compromise," one ad continues. "This is one of life's most important occasions. You want a diamond as unique as your love." You already know that we say, "Think cubic zirconia"if you must show the world your intentions.

A better motto would be: "Spend your money on living, not on impressing." Take over some chore your mate hates. That'll really say "I love you."

Compounding Can Cut Both Ways

People deep in debt have no choice. They have to go to work tomorrow, whether they like their jobs or not, in order to pay for yesterdayand for

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the interest they owe on it. With fewer bills, you'll be freer to take advantage of all the options that debt-free living offers. For example, you might choose to earn less, so that you can do something you love, rather than something you ''have to do" to pay bill after bill. Or you might decide that now is the time to treat the family to a vacation no one will ever forget.

While getting out of debt may seem like an impossible dream, it doesn't have to be that way! By investing in your debts just as your lenders do, you turn the tables on them. You immediately begin to earn what they charge you on your credit cards, your car loan, and your mortgagenot what they pay on savings accounts or CDs.

Believe it or not, it's easy to turn every debt you owe into a safe, highly profitable, tax-free investment, even if all you have is the pocket change you toss onto your dresser every night. The secret is to follow your lender's lead, and put the power of compound interest to work for you.

Consider how compound interest works for banksat the rate they charge, not what they pay. For example, on a $100,000, 8% mortgage, you'd be expected to pay at least $734 every month for 30 years. If that's all you send in every month, by the time your loan is paid off, the bank will get $264,149 from you, plus the interest they'll earn by lending that money out again and again.

Here's an even more depressing thought: To pay out that much on a mortgage, the typical couple whose total tax bite is 38% may well have to earn over $400,000 just to pay for the loan. While there may be some compensating tax deductions for home ownership, you were probably amazed in Chapter 4 to discover how trivial they can be.

And Now for the Good News

While you can't pay less than the required monthly payment, you can send in more. The more you pay in advance, or pre-pay, the quicker you reduce the amount you owe, and the less interest you'll pay, month after month. The less interest that gets deducted from each of your payments, the more that goes to principal, month after month.

And like an old-fashioned locomotive picking up speed, the more principal you repay, the less interest you'll owe, and the more of each payment that will be credited to your account. More principal, less interest, more principal, less interest, more principal, less interest . . . chug, chug, chug, chug, chug, chug, chug.

Then soon you're up to speed. Your loan gets paid off faster and faster, until years before you ever thought you could, you'll be holding a mortgage-burning party. You'll celebrate with tens of thousands of dol-

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lars in your asset column that would otherwise have gone to your lender.

If you put 83 cents a day in a piggy bank, by the end of the month it will have grown to $25. And $25 it will be, forever. If you put that $25 in your savings account, it'll grow at maybe 3% a yearbefore taxes. But if you collect that spare change and follow your banker's example, you'll pocket a bundle.

Send in $25 every month with your required payments on that $100,000 mortgage, and you'll save more than $23,000 over the life of your loan. If you're anything like the rest of us, you could use that money. So why would you give an extra $23,000 or more to your bank?

It's easy to save even more. Let's stay with the $100,000 mortgage, which has a required payment of $734 a month. If you can come up with an even $800 a month, you'll save $48,421. As an added bonus, those monthly pre-payments of $66 ($800 $734) will cut the term of your loan by 7.5 years.

In Chapter 13 we'll answer all the questions you probably have about the pros and cons of pre-paying on your mortgage, but for now, let's focus on the results. What happens when you invest in your mortgage or other debts? It's a lot like what happens when you make deposits into any safe investment, say a savings account.

Your money grows in two ways. First, it grows by the amount you deposit. Second, it grows by the interest that your deposit earns, month after month, year after year. Pre-paying on your mortgage and other debts takes advantage of the same powerful assets-building miracle that a smart 20-year-old can use to retire a millionaire. By making tax-deferred monthly deposits of only $190 (assuming 8% interest), the youthful investor is taking advantage of the same powerful technique that lenders have employed since before money was first invented: compounding.

A 50-year-old, on the other hand, would have to put aside $2,890 a month (also at 8%) to join the millionaire's club at 65. The longer your money has to grow and the higher the interest rate, the less you'll have to "plant" at any one time.

To end up with the identical $1 million nest egg, starting at age 20, you'd have to deposit $102,600 over the next 45 years. But because of the 30 fewer years less compounding time, the half centurian would have to fork over more than five times as much.

Now consider two neighbors who both buy $125,000 homes with the help of $100,000 loans at 8% for 30 years. They each make a $25,000 down payment and have $1,000 a month to use for mortgage payments and/or

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anything else. Neighbor 1 faithfully sends in the required $734 every month and spends the remaining $266 on one thing or another. At the end of 30 years, neighbor 1 will have spent $289,149 to buy a $125,000 house.

Neighbor 2, the hero (or heroine) of our tale, faithfully sends the bank the $1,000 each month. After 14 years, the mortgage is paid off, which means that neighbor 2 won't have to fork over $734 every month during those next 16 years. While neighbor 1 still has 16 years of house payments to make, neighbor 2 has saved over $98,000by turning an 8% debt into an 8% investment.

But can you get a higher return someplace else? Keep reading.

An Even Better Investment Opportunity

Right down the road from neighbors 1 and 2 live two families, the Savvys and the Spendthrifts. Remember them from Chapter 9? The Savvys enjoy cooking meals at home together. They love to garden, take walks, and otherwise entertain themselves on weekends in the great outdoors. They pull the plastic from their pockets only for purchases they'll pay off immediately. The Savvys are paying down their mortgage, saving for their children's educations, and putting money aside for their own retirement. Perfect, aren't they?

The Spendthrifts just love to shop. They hit the mall every weekend, watch the home shopping channels with telephone and credit cards at the ready, and eat out morning, noon, and night. Even though they pay just the minimums on their credit cards, the Spendthrifts find it harder and harder to make it from one payday to the next.

Whoops. They've just topped out on one of their nine cards, the one that has a $3,500 credit limit and carries a 17% interest rate. When this month's card statement arrives, it will show a minimum payment due of only $70, which they'll scrape together and send in.

If they never charge another purchase on that card, and even if they always send in each required payment on time, instead of $3,500, they'll have to payare you sitting?$11,162. That's more than three times what they had charged. To pay back that $11,162, the Spendthrifts would have to earn over $18,000 assuming they pay 38% in taxes (federal, state, local, sales, etc.). And that's on just one of their credit cards. No wonder they're always broke!

Someone ought to tell them that by adding a measly dime a day to their required payments, they'd save $1,862 and be on the road to a brighter future. That $3 a month investment would save the Spendthrifts 17%,

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risk-free, tax-free, and guaranteed, which, because of their tax bracket, is the same as earning over 27% before taxes. Where else could they invest a thin dime and get such a high return?

If they could add $10 a month, the Spendthrifts would save $3,810 on this one piece of plastic. Just $25 a month (that 83 cents a day that they'd never notice, invest, or miss) would keep well over $5,000 in their pockets and have the card paid off in about 8 years, rather than the over 35 years that it would take making only minimum payments. Which way do you want the story to turn out for you?

In Chapter 12, we'll go into more detail about credit cards, and show you how you can dramatically cut their cost and consolidate your debts for maximum savings. Meanwhile, if you happen to bump into the Spendthrifts at the mall, why don't you suggest that they stroll over to the bookstore and buy a copy of Invest in Yourself? If they go home and read it together, they'll save a fortune!

Climb the Stairs for the Highest Returns

Imagine a staircase with each of your debts and other investment opportunities as steps. The higher the interest rate, the higher the step. No doubt your savings account will be on the bottom step, and your piggy bank, shoe box, sugar bowl, or lump under the mattress would be on the ground floor.

At the top of the stairs, if your employer contributes, is probably your 401(k) plan. With a substantial immediate boost from what your boss kicks inoften 25% or moreit may be an investment opportunity that you just can't afford to miss. See "Which Comes FirstInvesting in Debts or Your 401(k)?" on page 212.

Next in line, as you walk down the flight, is probably a credit card bill. Put every penny you can toward that priciest piece of plastic until it's been paid off, and pay the minimums on all your other bills. Then earn the maximum amount you can on the next step down, probably on another credit card, and then perhaps on a car loan or maybe your mortgage.

Stocks are a little tricky. You might want to think of them as being on an elevator or an escalator. Sometimes they'll be on a higher step than your mortgage, sometimes a lower one. Even though in the very long term, stocks fall pretty high on the staircase, they can take you for quite a ride. Sometimes they can even be below the bank CDs. (Really!)

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Mary Hunt

The Cheapskate Monthly

P.O. Box 2135

Paramount, CA 90723-8135

562-630-8845

www.cheapskatemonthly.com

Edith Flowers Kilgo

Creative Downscaling

P.O. Box 1884

Jonesboro, GA 30237-1884

770-471-9048

www.mindspring.com/~kilgo/

Jim Jorgensen

It's Your Money

118 Camino Pablo

Orinda, CA 94563

800-558-4558

www.itsyourmoney.com

Larry Roth

Living Cheap News

7232 Belleview Avenue

Kansas City, MO 64114

816-523-3161

Marc Myers

Moneysworth

P.O. Box 53751

Boulder, CO 80322

800-816-4744

Robert E. Frank

No-Debt Living

P.O. Box 282

Veradale, WA 99037

509-927-1322

www.nodebtnews.com

Diane Rosener

A Penny Saved

P.O. Box 3471

Omaha, NE 68103-0471

402-556-5655

Austin Pryor

Sound Mind Investing

P.O. Box 22128

Louisville, KY 40252-0128

502-426-6284

www.soundmindinvesting.com

Humberto Cruz

Winning at the Savings Game

P.O. Box 4410

Chicago, IL 60680-4410

800-788-1225

Send them each $1 and a self-addressed stamped envelope (SASE). While you're at it, send a buck for a sample of Marc and Nancy's newsletter, too:

The Pocket Change Investor

P.O. Box 78

Elizaville, NY 12523

914-758-1400

www.goodadvicepress.com/pci.htm

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Mutual funds are also tricky, and where they fall depends on what the fund invests in. An all-stock mutual fund is going to be higher on the staircase than an all-bond or money market mutual fund, but with a lot more risk.

Whatever you do, don't hang out on the bottom of the stoop! Today's highest-yielding, safest investments are toward the top of the stairs, where your debts live. After taxes and inflation, your nest egg earns virtually nothing at the bottom, in a savings account. But up at the top, it could earn you a tax-free pile.

How can it be tax-free? Because you didn't officially earn the money. You don't have to pay taxes on money you save by investing in your debts. (Shhhhh. We don't want Uncle Sam to realize that there's yet another investment he can tax.)

It's Safest toward the Top

Since the higher up the investment staircase you can go, the more your money will earn, we urge you to consider using savings, bonuses, and tax refunds to pay off your revolving debts. Not only will you earn more than you could if you put that money into other investment vehicles, but there's also no risk. Investments in your debts are 100% safe, because the returns are guaranteed and protected from the roller-coaster rides common in the currency, precious-metals, stock, and commodity markets.

No matter what's going on with the economy, credit card users regularly pay five to six times more on their cards than they earn on their savings accounts. Whenever you can earn that much by investing in your credit card bills, go for it! The only way to beat the investment opportunity offered by the plastic in your pocket would be to put your money into your 401(k)assuming that you'd receive an employer match and that the money's safely invested. Even then, chances are you canand shouldstill scrape together a few extra dollars to pay down those credit cards each month.

And while more risky investments like stocks might beat your mortgage's interest rate, if your heart sinks when the Dow dives, you might want to send some or all of that money upstairs, too. But you don't have to get carried away: Having a diversified investment portfolio certainly makes sense.

Still, the spread on the staircase is so great that you may want to move some rainy-day funds up top, too, especially if you're going to adopt the other components of the Invest in Yourself philosophy. While invading your emergency funds may seem risky, if you have ready access to cash via

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a credit card or a home equity line of credit, you'd be covered in the event of a real crisis.

And because you're going to follow the advice we give in Chapter 12, where we focus on all sorts of ways to save on those plastic monsters, your cost, should such an eventuality arise, will be lower than what you're paying today. Then, of course, you'd promptly pay off the bill, right?

By seriously investing in your debts now, you'll soon be all paid up . . . at which time you'll be stuck. You'll either have to invest in riskier securities, or in those FDIC-guaranteed options at the bottom of the stairs that essentially earn zip, zilch, zero, nada, rien, sifuri, ling, rei, nul, boopkusespecially once you take dear old taxes into account.

More Than Money

But there's more to think about when you develop your own debt investment strategy than just saving the most money. If you'd feel better knowing the roof over your head was actually yours, start by pre-paying as much as you can on your mortgage. True, you won't save as much at 8% as you would at 17%, but peace of mind is worth a lot, too. And chances are, you owe a lot more on your home loan than you do on a credit card. We sure hope that's true!

Of course, you can always do some of both. Send in $25 against the balance on your highest-interest credit card, and send in $25 on your mortgage. The most important thing, from our point of view, is to develop your own unique investment strategy, one that takes into account the fact that your debts are a key part of your portfolio. You'll save the most money by paying your most expensive debts first, but if it's going to work, the strategy you develop has to be one you believe in enough to stick with over the long haul.

You can start by simply pooling the pocket change that every member of the family ends up with virtually every day. Or you can make a pact to pre-pay with every penny you pile up thanks to the other money-saving ideas we mobilize you to try. Or maybe it's time to hold a contest, to see who can scrimp and save the best (without feeling deprived, of course), and to free up the most money for the family's get-out-of-debt fund.

However you go about funding your debt-busting crusade, get going! By investing as much as you can in your debts, you'll end up with the most money, the greatest peace of mind, and the largest number of options for how you spend your timeand your newly found wealth.

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The deeper you dig, the more you save. The more you save, the less you need. The less you need, the freer you are.

WHICH COMES FIRSTINVESTING IN DEBTS OR IN YOUR 401 (K)?

QUESTION: I'm 27 years old and have five credit cards at rates ranging from 12% to 19%, with the 19% currently in its "teaser" stage of 6.8%. All are at their limits of roughly $5,000 each.

I have a 401(k) plan with my new job that has no matching funds, but I have no nest egg in case I lose my job. My question is about the sequence of events. All the financial self-help advice books say to:

1. Pay off your highest-interest credit card first, then move on to the next one.

2. Contribute early to your retirement plan.

3. Pay yourself first.

4. Have a nest egg for emergencies such as unemployment.

But they don't say which one to do first! And my calculator is very tired trying to figure out what contributions to my retirement account are costing me because I am not using that money to pay off the credit cards. Or is it the other way around: Paying off the credit cards is costing me money because I am not contributing to retirement early and getting the maximum benefit?

And when should I get around to having a three-month nest egg in case I lose my job and still have to pay all my bills? And what about paying myself first? If I send money to a mutual fund via automatic withdrawal rather than doing the other three exceedingly important things with my money, what am I losing?

I'm sure I'm not the only one with these types of questions. But so far, no expert has been brave enough to prioritize these four very important pieces of advice, for fear that we won't think the other three are important.

ALICE IN WONDER(ING) LAND

The Chicken or the Egg?

Dear Alice,

For starters, you'd definitely benefit by embracing our Invest in Yourself philosophypay off your expensive debts, save money without feeling

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deprived, cultivate a simple attitude, and start a small home business for extra cash.

The most important thing you need to know, in our humble opinion, is that there is no magic formula. How you prioritize between your debts and your 401(k) is a judgment call that has more to do with your psychological makeup and your attitude about how you're going to live the rest of your life than with the pros and cons of one investment opportunity versus another.

Is a New Day Dawning?

From our perspective, the important question you need to answer is, "Are you ready to change your spending ways?" To have $25,000 in credit card debt at age 27 is quite a load to carry! Charge any more, and you could end up in really big trouble in the here and now, let alone in your golden retirement years.

Even if you never charge another penny and religiously send in the minimum payments every month, you could still be paying on your five credit cards by the time you hand in your executive rest room key. In fact, it could take over 45 years to pay those debts off. Yikes!

So right off the bat, we advise you to do three things:

1. Stop charging.

2. Find ways to cut back on your spending.

3. Put every penny you can toward paying off those plastic monsters.

Together, in our view, these are the best ways for you to invest in your futureto pay yourself firstright now. Also, in this section of the book, we'll show you lots of specific ways to cut the cost of your debts. Do it!

Figure out a plan for getting out of debt in no more than five years. If the payments that would be required look unrealistic on your income and budget, then it may be well worth a call to a credit counseling agency (see page 223) for help developing a debt repayment plan that will allow you to dig out in that period of time.

Choosing between contributions to your 401(k) and putting every penny toward your debts would be a tougher call if your employer offered an attractive match. We'd probably still vote for tackling your debts first, but since that's not the case for you, we recommend that you forgo those contributions until you've dug yourself out of the hole.

Of course, for those lucky folks whose employers do match their contributions, the math is different. For example, if your employer contributed 25 cents for each dollar you put into your retirement fund, you'd receive an immediate 25% return. The more your boss contributes, the better the

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instant return. Under this circumstance (which is unfortunately not yours), the 401(k) money, tax deferred, would indeed beat the 17% tax-free savings on credit cards. But even under this scenario, you'd still need to wait more than 30 years to reap the harvest at retirement!

Once you're out of debt, it would certainly make sense for you to plow some money into your 401(k), and to create an emergency savings fund. The good news is that once you do pay off those debts you're going to feel rich.

Gerri learned that from experience. She ran up a stack of credit card bills when she was twentysomething. But then she used the exact strategies we outline in this bookshe paid her most expensive debts first, cut her spending, traded down to an economy car, and took on some freelance writing projects to generate extra cash (which she earmarked solely for debt reduction). In a couple of years, she was debt-free, able to save more than she could ever have imagined, and rightly proud of herself!

A Few Further Facts for You to Consider

Over the long term, the stock market has not paid anywhere near what the average credit card charges.

While it's great to think ahead and take advantage of all the compounding your retirement money would do (assuming you choose good places to put it and the market doesn't totally crash), you've got a lot of living to do between ages 27 and 59 1/2, if you're lucky. Get debt-free as soon as you can.

As for an emergency fund, the three of us recommend that you forget about it for now. Hunker down and get out of debt. Soon, you'll have ample credit available on the plastic in your pocket to help you weather a real emergency.

To combat your fear of a job loss, create an Ace in the Hole, a small home business that can bring in some money and provide some tax deductions, even as it offers you a way to make ends meet, should the dreaded pink slip arrive. It can also give you some extra cash to pay those debts off faster.

Keep looking for and taking advantage of those teaser rates on credit cards. Switch balances as often as necessary for the lowest rates. Before you do, though, make sure there are no extra charges for transferring balances on each card, and that the teaser rate will apply to your transfers. We hope our other pearls of wisdom on plastic in Chapter 12 will help inspire you to take control of your debts. Let us know how you make out!

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Chapter 12

Your Future Is Not in Plastics

How to avoid that costly malady: MPS

Four methods for getting out of debt fast

Smart debt consolidation strategies

How low can you go? Getting low-rate cards

Going on a debt diet is a lot like going on a diet to lose weight: If your diet is unreasonably strict, you're not going to stick to it very long.

GERRI DETWEILER, The Ultimate Credit Handbook

In The Graduate, that classic 1967 movie, a family friend offers Ben, Dustin Hoffman's character, some prophetic advice: "Plastics. There's a great future in plastics. Think about it."

While plastics were the last thing on Ben's mind, the rest of us sure bought the idea lock, stock, and usurious interest rates. Back in 1967, when Mrs. Robinson seduced Ben, credit card issuers were just beginning to seduce Americans with the lure of plastic. Now, we're a nation buried in the stuff.

Mortgaging Your Future

Credit cards seem innocent enough, and on the face of it, they are. But when you're carrying credit card debt on a regular basis, you're committing your future time, energy, and freedom to purchases you made yesterday. Paying off that debt frees you, and it's one of the best financial

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investments you can make in your future. In fact, paying off your credit cards is one of the best investments you can make, period.

If you carry card balances, next time you make a purchase, ask yourself, ''Is this something I would be willing to take out a loan to finance?" If not, it shouldn't be going on your card. When you revolve balances, you are taking out a loan.

Believe It, or Go Broke

Unlike mortgages and most other loans, credit card contracts don't set a time limit on repayments and don't require a set payment every month. Instead, they calculate each month's required payment based on a percentage of what you owe at the end of that month's billing period.

Ideally, from the banks' perspective, you'll send in just the minimum on time every month, and you'll keep on charging happily ever after. That way, they can keep you in hock until sometime just this side of the twelfth of never, because for decades to come, the part of each payment that goes to interest would eat up most of every check. The lower the required minimum, the longer they can string out the term, and the more you'll pay.

Fall for it, and you're suffering from "Minimum Payment Syndrome," or MPS, as Scott Burns,* the personal finance columnist for The Dallas Morning News, calls this "deadly malady" that could afflict you for the rest of your life. Table 12.1 shows just how costly credit cards can be, if you only send in the required amount. For example, if you owe $3,500 at 17% and suffer from MPS, you'll pay out $11,162 over 35 years. Fortunately, the cure for MPS is simple and requires no doctor visits: Always pay more than the required minimum.

As we mentioned in Chapter 11, a dime a day will save $1,862 on that $3,500 credit card bill. You can come up with an extra dime a day, can't you? To see how much money you can save in your personal pay-off-plastic program, take a look at Table 12.2. Pre-paying is a painless way to earn yourself a tidy profit as you quickly become an ex-benefactor of the plastics industry.

Credit Cards Can Be Your Friends

Don't get us wrong. We're not saying that you should cut up your cards. In fact, there are times when having a credit card is almost mandatory

* If Scott's column isn't carried in your local newspaper, you can read his advice on-line at www.scottburns.com.

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TABLE 12.1 MPS Can Be Expensive

Total Cost/Time If Not Pre-Paid

11%

13%

15%

17%

19%

CARD BALANCE

$

YRS

$

YRS

$

YRS

$

YRS

$

YRS

$ 1,500

2,518

14

2,906

16

3,456

19

4,304

23

5,799

30

2,500

4,364

18

5,088

21

6,123

24

7,733

30

10,598

41

3,500

6,210

21

7,269

24

8,789

28

11,162

35

15,398

47

5,000

8,979

23

10,542

27

12,789

32

16,304

40

22,598

54

7,500

13,595

26

15,997

31

19,456

37

24,876

46

34,598

62

10,000

18,211

29

21,451

33

26,123

40

33,447

50

46,597

68

12,500

22,826

30

26,906

35

32,790

42

42,019

53

58,599

73

15,000

27,441

32

32,361

37

39,456

44

50,590

56

70,598

76

20,000

36,672

34

43,270

39

52,790

47

67,733

60

74,598

82

25,000

45,903

36

54,179

42

66,123

50

84,875

63

93,598

86

30,000

55,133

37

65,088

43

79,456

52

102,019

66

112,599

90

40,000

73,595

39

86,906

46

106,123

55

70

31,598

93

50,000

92,056

41

108,724

48

132,790

58

170,590

73

188,599

100

* Based on minimum payments of 2% of the balance, with a $10 minimum. These figures were calculated with The Banker's Secret Credit Card Software.

when renting a car, for example. The major car rental services won't accept checks. To pay by cashif the company will take it at allyou'll have to fill out an application weeks ahead, pay an application fee, and then plunk down a hefty cash deposit, assuming you "cash qualify."

Properly managed, a piece or two of plastic in your pocket can be handy as well as harmless. For example, credit cards can save you money by allowing you to make purchases when the sales are hottestor when the cash in your wallet is loneliest. And they're great when you want to make a catalog purchase or even when you need a short-term loan. Often, you can get a better rate on a credit card than you could get at the local bank.

Speaking of borrowing money, there's no stronger credit reference than a couple of currently held Visa, MasterCard, or Discover cards, if you've paid them on time, over time. They're seen as better proof of your creditworthiness than a mortgage or a car loan. Why? Because those are secured loans, backed by a house or vehicle, while credit cards are unsecured and therefore riskier. However, because banks like to play follow the

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TABLE 12.2 Dollars/Months Saved by Pre-Paying on Your Credit Card Bills

INTEREST RATE

CARD BALANCE

PRE-

PAYMENT

11%

13%

15%

17%

19%

$1,500

3

245/45

379/55

600/73

1,003/102

1,856/159

25

725/125

1,044/147

1,518/178

2,282/227

3,683/312

50

843/143

1,193/166

1,704/198

2,510/249

3,960/335

100

919/155

1,287/178

1,817/211

2,644/261

4,116/348

$2,500

3

349/50

547/64

881/84

1,505/120

2,871/193

25

1,178/150

1,725/180

2,559/221

3,937/287

6,530/405

50

1,431/176

2,056/207

2,983/251

4,476/320

7,211/441

100

1,611/193

2,282/225

3,261/270

4,813/339

7,616/462

$3,500

3

421/53

663/67

1,078/90

1,862/129

3,610/209

25

1,545/163

2,287/197

3,435/245

5,364/321

9,061/458

50

1,942/194

2,815/230

4,129/282

6,270/363

10,246/505

100

2,246/216

3,204/253

4,617/307

6,874/389

10,988/533

$5,000

3

499/55

791/70

1,293/94

2,257/136

4,439/222

25

1,991/175

2,979/212

4,533/266

7,192/352

12,396/509

50

2,600/212

3,809/253

5,652/311

8,701/404

14,449/569

100

3,111/239

4,475/282

6,506/342

9,786/438

15,821/606

$7,500

3

589/56

939/72

1,546/97

2,723/141

5,429/232

25

2,563/185

3,878/226

5,985/285

9,666/380

17,056/557

50

3,498/228

5,185/273

7,802/339

12,211/444

20,693/633

100

4,369/261

6,348/310

9,337/379

14,227/489

23,347/684

$10,000

3

655/58

1,045/73

1,729/99

3,060/144

6,153/237

25

3,004/191

4,580/233

7,134/295

11,662/397

20,921/585

50

4,227/237

6,317/285

9,601/356

15,211/468

26,181/673

100

5,451/275

7,982/327

11,846/402

18,237/521

30,297/734

$12,500

3

705/58

1,129/74

1,872/100

3,326/145

6,729/240

25

3,363/194

5,156/237

8,086/302

13,336/407

24,226/604

50

4,840/243

7,279/293

11,148/367

17,832/485

31,081/700

100

6,400/284

9,432/339

14,099/419

21,895/544

36,756/770

$15,000

3

747/58

1,198/74

1,990/101

3,545/146

7,200/243

25

3,666/197

5,643/241

8,897/307

14,777/414

27,109/617

50

5,370/247

8,116/299

12,505/375

20,159/496

35,501/721

100

7,246/291

10,734/348

16,144/431

25,256/561

42,784/798

(table continued on next page)

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(table continued from previous page)

TABLE 12.2 (Continued)

INTEREST RATE

CARD BALANCE

PRE- PAYMENT

11%

13%

15%

17%

19%

$20,000

3

813/58

1,307/75

2,177/101

3,892/149

7,954/245

25

4,159/200

6,441/245

10,232/313

17,169/425

31,968/635

50

6,252/253

9,519/306

14,804/385

24,152/513

43,233/749

100

8,703/300

12,999/360

19,742/447

31,258/587

53,763/839

$25,000

3

864/59

1,391/76

2,322/102

4,164/149

69,078/938

25

4,551/202

7,078/248

11,306/317

19,112/431

71,657/947

50

6,970/257

10,670/312

16,224/309

27,499/524

73,939/955

100

9,930/306

14,923/368

22,836/458

36,499/603

77,232/967

$30,000

3

906/60

1,460/75

2,442/102

4,388/150

83,094/982

25

4,878/204

7,610/249

12,206/319

20,748/435

85,742/989

50

7,576/259

11,645/314

18,328/397

30,381/531

88,169/997

100

10,989/311

16,596/373

25,551/466

41,155/615

91,813/1,008

$40,000

3

973/59

1,570/76

2,631/103

4,740/150

111,125/1,051

25

5,402/205

8,465/252

13,658/324

23,404/440

113,861/1,056

50

8,562/262

13,239/319

20,998/404

33,165/541

116,492/1,062

100

12,753/316

19,402/381

30,148/478

49,140/631

120,672/1,072

$50,000

3

1,024/59

1,655/76

2,777/103

5,015/151

139,156/1,103

25

5,813/206

9,140/254

14,808/325

25,517/443

141,947/1,108

50

9,347/263

14,515/321

23,147/407

39,051/547

144,716/1,113

100

14,189/319

21,704/386

33,952/484

55,834/641

149,282/1,121

*Note: These numbers are based on minimum required payments that are 2% of the balance, with a $10 minimum. They were calculated with The Banker's Secret Credit Card Software.

leader, if one lender has trusted you to borrow money based on your signature alone, others are sure to follow.

Another plus for credit cards is that they offer some protection when services or products that you've charged don't live up to expectations. Some offer cash rebates, frequent-flyer miles, extended warranties, or collision insurance on car rentals. And when traveling in far-off places, they generally give you good exchange rates on purchases.

Pay less than you charge, though, and those friendly, helpful cards turn into ferocious, budget-busting, money-guzzling plastic monsters. So whenever you're tempted to whip out a card and charge something, think realistically about how you're going to pay it off. A great buy on a sweater,

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Do Over

You've had it. "I can't take one more day of this," you say to yourself as you stew yet again in a massive traffic jam. So where will you be tomorrow? Right. Stewing in another traffic tie-up. It's okay. You can break the pattern. But give it time. Stop being angry at the other drivers and start thinking of what you can do about it. What are your alternatives?

Can you leave for or from work earlier or later? Take the bus or train? Move to the city? Get a new job? Work at home? What alternative is most appealing? How can you give it a whirl?

You've had it. "I can't take another day of this," you say to yourself after one more fight. So where will you be next Tuesday? Right. Stewing from yet another stupid fight.

You can break the pattern, but give it time. (Unless it's a truly dangerous and abusive relationshipin which case, put down this book and get to a shelter right now.) Perhaps one day, one partner threatens to leave or actually does leave. Often, there's a reconciliation followed by a repeat of the pattern. The final split, if there is one, comes only after the yo-yo string finally breaks.

If that sounds like your home life, it'd be great if you and your partner could devise some rational ways to work out your differences. Maybe you can come to some new understandings. Perhaps it's time you finally agreed to get some counseling. Rarely is a bad relationship solely the other person's fault. It takes two to tango, two to bring a marriage to new heights, and two to break it apart.

Maybe you'll decide to go your separate ways. If you have children, the way you part and how you relate to each other after you do, will affect them for the rest of their lives. There are at least 50 ways to leave your lover, as Paul Simon has sung. It's well worth investing the time and energy to find one where your trials do not become your kids' tribulations.

Fighting scares the children and makes them feel guilty. It also wastes time, money and resources that could have been spent more positively on your children.

VIOLET WOODHOUSE AND VICTORIA F. COLLINS, Divorce and Money

You may want to find someone in your community to help make this already stressful transition a little easier on you all. Your physician or minister, the school psychologist or guidance counselor, or your friends and relatives can help you find a therapist. Speaking of stressful situa-

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for example, won't seem as wonderful once you realize that by the time you get around to paying it off, you'll pay two, three, four, or more times as much as the sales tag said.

Taming the Plastic Monster

While you may be ready to turn over a new leaf as far as future charges are concerned, if you're saddled with a pile of credit card bills and wondering where to begin, there are several methods for digging yourself out of the hole. The approach you choose should be the one that appeals to you most. After all, you'll have to stick with it for a while (at least two years in most cases).

Method 1: The basic. Focus on the credit card that charges you the highest interest rate. Stop charging on that card. Every month from now on until the debt is paid off, if you do nothing else to cut the cost of your debts, try to pay as much as you can on the one with the highest interest rate, while paying the minimums on all the others. When you get that one paid off, cut it up, close the account, and start paying as much as you can on the card with the next-highest rate, and so on.

Method 2: Level or fixed payments. If you can afford to make the minimum payments on your credit cards this month, then you can afford to send in the same amount next month and the following monthsuntil it's bye-bye debt. For each of your credit cards, instead of sending in the decreasing required payments each month, commit yourself to always sending in at least as much as you're required to send in right now. As each card gets paid off, transfer the amount you'd been sending in to the highest-interest debt you still have. It's one of the easiest ways to get a running start on becoming the new, credit-savvy you.

For example, say you owe $10,000 on a typical 17% credit card bill. The required payment this month would be $200. If you simply send in that same amount every monthas opposed to the ever decreasing amount that will be required in future months (assuming you don't charge anything more)you'll save $15,929 and over 42 years of payments. The same $200 will save you even more, of course, if you can consolidate your debts onto a lower-cost card. Stay tuned. We'll show you how to do that, too.

Method 3: Pay fast, feel good. If you really need to see some quick results to stay motivated, consider paying off the card with lowest balance first, regardless of its interest rate. You'll feel a sense of accomplishment that

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can help you stick with your debt-reduction program. Come up with a low-cost way to celebrate, and figure out which debt you'll wipe out next.

Method 4: Twice as often, twice as good. Making biweekly payments can save you the most. Why? Because your card issuer must credit your payments when they're received. So a half payment every two weeks will result in 26 half payments a year, which is the equivalent of 13 monthly payments, not 12. The extra month's worth of payments will all go toward paying off your outstanding balance.

You probably won't hear about this "advanced" method to pare the plastic anywhere else, and while it can save you the most, it's a little complicated. So be sure to follow our instructions exactly!

Choose the piece of plastic that carries the highest interest rate, and stop charging on that card. Let's say it's at 17%, and you owe $3,500. Your required payment this month could be anywhere from around $70 to $105we'll assume $70, which is typical.

If you send in only the minimum amount every month, by the time you pay off that $3,500, your total tab would be $11,162over three times more than you charged. In other words, every $35 dinner would cost you more than $100 by the time you paid it offa process that would take three and a half decades.

Before you lose your appetite, let's go back to that $70 you owe this month. Get it in by the due date, and start pinching your pennies. We have faith that you can come up with half of that, $35, in the next two weeks, and that you can scrape together at least another $35 every two weeks for the foreseeable future.

Believe it or not, if after sending in this month's $70 minimum, you send in $35 every two weeks from here on, you'll cut your interest bill by a whopping $5,453. And you'll be debt-free in less than 7 years, not more than 35. Neat, huh?

Make sure you get your check in every 14 days to the billing address on the monthly statements the card company sends you. Don't let the due date and minimum payments on those statements confuse you, but do verify that there are no unexplained charges or fees. Get your checks there like clockwork, every two weeks, and don't charge anything else on the card.

Develop Your Own Payoff Plan

You can often mix and match these methods for maximum savings. For example, you may decide to tackle your highest-rate card first, while you

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stick to a level payment on the others. Or you might try to pay the lowest balance off first, but pay the current minimums on your other cards using the biweekly payment method.

However you decide to pay off your cards, send in even more whenever you can. The more you pre-pay and the sooner you do it, the more you'll save and the freer you'll be. (To see how much you'll save, and to double-check the card issuer, you can run payoff plans using The Banker's Secret Software, or we can run the numbers for you. See page 327.)

You're likely to be most successful if:

You have a clear plan. Use Table 12.3 on page 227, or our Banker's Secret Software to develop a specific plan for paying your debt off in the fastest, but most realistic, amount of time. Even if you're deeply in debt, as long as you stop charging, you can get yourself out of hock in a much shorter time frame than you realizeprobably three to five years.

You put your plan on autopilot. If you're going to use the fixed-payment method or the biweekly method, talk to your credit card company and/or bank to see if it can deduct your payments directly from your checking or savings account each month (or every 14 days)for free. This assures that you won't make a lower payment or accept a skip-payment offer. Don't worry, you can generally cancel automatic payments with three business days' notice if you change your mind, but you might want to find out if your bank would charge a fee to stop the service.

You leave home without it. Take the plastic out of your wallet and put it somewhere safe, where you can't get to it easily. If you're worried about having a card for emergencies or identification, ask your bank or credit union for a MasterCard or Visa debit card, which will take purchases directly out of your account. If you must carry a credit card, then carry only oneno moreand keep it out of sight.

You have support. It's tough to admit you're in debt, but having loved ones who can help you, without judging, can be a real boon when you're struggling to stay out of the mall and on your plan. If you're too embarrassed to tell folks you're on a debt-reduction plan, then tell them you're saving for an important goal, such as a down payment on a house. Make sure you avoid situations where you know you'll be pressured to spend more money than you can afford.

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GETTING HELP TO WIPE THE SLATE CLEAN

Even though your situation is far from unique, being in debt may seem like the end of the world. You may be afraid to answer your phone or open your mail. Your self-esteem may be shot. Your stomach, back, and head probably ache. . . . But there is good news . . . you can get the bill collectors off your back and give yourself a fresh financial start.

ROBIN LEONARD, Money Troubles: Legal Strategies to Cope with Your Debts

Years of overspending have a price, and for more than a million people every year, that price is bankruptcy. Many who take this step hope it'll give them a new beginning . . . a clean slate, so to speak.

While bankruptcy may get people off the hook with creditors, it leaves an indelible mark on their credit reports, for up to 10 years. We've counseled many folks who have been through bankruptcy and are now finding it tough to rebuild their credit. And when they can get credit, they invariably must pay a higher rate of interest and/or put up more collateral.

Sometimes, bankruptcy is the only way out. Our goal is to keep you from getting in so far that getting out requires drastic steps. But if you're thinking about it, or just can't stick to a payoff plan alone, a nonprofit credit counseling agency can help you create a budget, and, if necessary, negotiate lower payments with your creditors. Their services are low cost or freebecause they're funded by creditors. Here are two reputable resources:

Debt Counselors of America

800-680-3328

www.dca.org

National Foundation for Consumer Credit

800-388-2227

www.nfcc.org

You may also want to consider joining or starting a Debtor's Anonymous (DA) support group in your area. DA is based on the Alcoholics Anonymous 12-step model and encourages participants to take on no more debt. For information, send an SASE to:

Debtor's Anonymous

General Service Board

P.O. Box 400, Grand Central Station

NewYork, NY 10163-0400

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To read about the DA approach, we recommend How to Get Out of Debt, Stay Out of Debt & Live Prosperously by Jerrold Mundis.

How Low Can You Go?

Whatever method or methods you use to tame your plastic monsters, your money will go further, and you'll be out of debt faster, if you can get a lower interest rate. So it's smart to invest the time to get the lowest rates you can, and then to consolidate your highest-interest debts to save even more.

Start with the cards already in your wallet. Call each card issuer's customer service number and say the appropriate version of: "I'm getting offers for a lot of cards with much lower rates and no annual fees. Will you lower my interest rate and waive my fee?"

Experience proves that these calls often result in savingsbut don't expect an immediate, cheery, "delighted to be of service." You'll probably be put on hold while your record is reviewed. If the verdict isn't to your liking, ask for a supervisor. You may need to assert yourself up the chain of command, but if you have at least a year's history of timely payments (even of only the minimum required), getting an interest rate lowered or an annual fee waived should be relatively easy. Don't be intimidated, no matter how inflexible the credit card company may seem.

Ask specifically about being switched to a lower-rate, variable-interest card. And if you're nervous about future rate hikes, don't be. A fixed rate guarantees nothing when it comes to credit cards. Issuers can raise a fixed rate at any time, with only 15 days' advance written notice. And then, they often canand often willapply the new, higher rate to any outstanding balance as well as to new purchases.

Note: To ensure that your victories won't be fleeting or hollow, monitor them by regularly checking your statements and dialing for dollars when necessary. Pesky fees have been known to reappear the following year.

Junk Mail Can Pay

Card issuers send out 3 billion solicitations a year, so somewhere in today's pile of junk mail may lurk an offer for a card that starts with a teaser rate of 5.9% for 3, 6, or maybe even 12 months.

Before you apply, know that even if the application says "preapproved," lenders can turn you down because of predetermined criteria, which they

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don't have to reveal. So if your credit report isn't stellar, hold off. Between 75% and 90% of all applications for low-rate cards are rejected.

Assuming you can get a card with a low teaser rate, you'll save the most by transferring your debt to another teaser card before your current rate expires, and then doing the same again and again, until you're out from under. If you're likely to burn out playing "switch" every few months, settle for the lowest steady rate you can get, stop overcharging, and start pre-paying.

When your lowest-rate cards are charged to the hilt, call and ask for a credit line increase. If you've been paying your bills on time, most issuers will be happy to give you more credit. That's how they make their gazillions. Then transfer balances from your higher-interest cards. Do not use the credit line increase as an excuse to spend!

In addition to carefully perusing the offers that come to you bulk rate, you can find a comprehensive list of low-rate cards at www.cardtrak.com. Or send $5 to CardTrak, P.O. Box 1700, Frederick, MD 21702. For a free list of low-rate offers (updated less frequently) send an SASE to Consumer Action, Low-Rate List, 717 Market Street, Suite 310, San Francisco, CA 94103, or go to www.consumer-action.org.

IMPORTANT PROVISOS ABOUT DEBT CONSOLIDATION

Debt consolidation will only get you into more trouble if you or your mate are going to keep on charging and otherwise spending money you don't have.

Avoid the consolidation loans that pitch one easy monthly payment, which usually means long payback periods and total interest charges that would have to be measured in light-years.

Watch out for expensive balance-transfer fees and higher interest rates. Ask every card issuer to waive any fees before you transfer, and make sure the advertised interest rate is for transfers, not only for purchases.

Freedom in 36 Months

We hope that seeing how little you'd have to come up with to pay off your debts in three to five years will inspire you to make the effort. For example, say you owe $10,000 at 17% and make only the required payments each month. You'll send in $33,447 over the next 50 years.

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Now say you transfer your balance to an 11% card. You could completely pay off the $10,000 in five years, by sending in just $217 a month. That's only $17 a month more than this month's required payment on a typical 17% card. (Take a gander at Table 12.3.)

If you follow through, after you've transferred your $10,000 balance to an 11% card and send in that $217 a month, you'll be debt-free in five years, and you'll save $20,402. That's more than twice as much as you had charged! See Table 12.4 to see how much you can save by consolidating and sticking to a payoff plan.

It's Raining!

If transferring your balance to lower-interest cards won't work, don't despair. There are other alternatives. Do you have money in a savings account? Although you've always been warned to keep an emergency fund in the bank, if you have a hefty credit card balance, you have a rainy day!

Use your low-interest savings account to pay down your high-interest card balance. That will give you credit equivalent to the amount you paid down. In a true emergency, you could take a cash advance.

For other borrowing options that require no credit check, consider debt consolidation loans against:

Retirement savings such as 401(k), 403(b), or profit-sharing plans.

The cash value in an insurance policy.

Investments such as stocks and bonds (which are called margin loans).

The equity in your home.

While any of these loans could save you money, be careful! You'll be borrowing against your future. We want you to consolidate your debtsnot compound your money troubles. Also, none of these options is risk-free.

A better choice, if you can get it, is a low-cost loan from a well-heeled friend or relative. It'll save you a bundle, and your benefactor will also profit if you're sure (and they're sure) that you'll make the agreed-upon payments.

There are two types of debt consolidation loans we urge you to avoid:

1. Home equity loans that offer to lend you more than the value of your homeup to 125%and often have very high closing costs of as much as $5,000 on a $25,000 loan. If you have to sell, it's a pretty safe bet that you won't be able to get more than your house is worth.

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TABLE 12.3 After You've Consolidated, Pick a Monthly Payment to Pay Off Your Debt in Three to Five Years

CONSOLIDATION LOAN RATE

DEBT

YEARS

8%

9%

10%

11%

12%

13%

14%

$ 5,000

3

157

159

161

164

166

168

171

5

101

104

106

109

111

114

116

$ 7,500

3

235

239

242

246

249

253

256

5

152

156

159

163

167

171

175

$10,000

3

313

318

323

327

332

337

342

5

203

208

212

217

222

228

233

$12,500

3

392

398

403

409

415

421

427

5

253

259

266

272

278

284

291

$15,000

3

470

477

484

491

498

505

513

5

304

311

319

326

334

341

349

$17,500

3

548

557

565

573

581

590

598

5

355

363

372

381

389

398

407

$20,000

3

627

636

645

655

664

674

684

5

406

415

425

435

445

455

465

$25,000

3

783

795

807

818

830

842

854

5

507

519

531

544

556

569

582

$30,000

3

940

954

968

982

996

1,011

1,025

5

608

623

637

652

667

683

698

$35,000

3

1,097

1,113

1,129

1,146

1,163

1,179

1,196

5

710

727

744

761

779

796

814

$40,000

3

1,253

1,272

1,291

1,310

1,329

1,348

1,367

5

811

830

850

870

890

910

931

$45,000

3

1,410

1,431

1,452

1,473

1,495

1,516

1,538

5

912

934

956

978

1,001

1,024

1,047

$50,000

3

1,567

1,590

1,613

1,637

1,661

1,685

1,709

5

1,014

1,038

1,062

1,087

1,112

1,138

1,163

Note: These numbers, calculated using The Banker's Secret Loan Software, will help you save a bundle on your debts. For more information, see page 327. To save the most, first consolidate to get the lowest interest rate you can. Then pay off your debt as fast as you canpreferably in three to five years. This table originally appeared in Debt Consolidation 101: Strategies for Saving Money & Paying Off Your Debts Faster, written by the authors.

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TABLE 12.4 After You've Consolidated, How Much Can You Save?Based on a $10,000 Credit Card Balance with a 2% Minimum Required Payment

Card interest

13%

14%

15%

16%

17%

18%

19%

Total card cost

$21,451

23,555

26,123

29,329

33,447

38,931

46,598

CONSOLIDATION LOAN INTEREST

YEARS

AMOUNT SAVED BY CONSOLIDATING

8%

3

10,170

12,274

14,842

18,048

22,166

27,650

35,317

5

9,285

11,389

13,957

17,163

21,281

26,765

34,432

9%

3

10,003

12,107

14,675

17,881

21,999

27,483

35,150

5

8,996

11,100

13,668

16,874

20,992

26,476

34,143

10%

3

9,835

11,939

14,507

17,713

21,831

27,315

34,982

5

8,703

10,807

13,375

16,581

20,699

26,183

33,850

11%

3

9,665

11,769

14,337

17,543

21,661

27,145

34,812

5

8,406

10,510

13,078

16,284

20,402

25,886

33,553

12%

3

9,494

11,598

14,166

17,372

21,490

26,974

34,641

5

8,104

10,208

12,776

15,982

20,100

25,584

33,251

13%

3

9,321

11,425

13,993

17,199

21,317

26,801

34,468

5

7,799

9,903

12,471

15,677

19,795

25,279

32,946

14%

3

9,147

11,251

13,819

17,025

21,143

26,627

34,294

5

7,490

9,594

12,162

15,368

19,486

24,970

32,637

15%

3

8,972

11,076

13,644

16,850

20,968

26,452

34,119

5

7,177

9,281

11,849

15,055

19,173

24,657

32,324

16%

3

8,795

10,899

13,467

16,673

20,791

26,275

33,942

5

6,860

8,964

11,532

14,738

18,856

24,340

32,007

17%

3

8,616

10,720

13,288

16,494

20,612

26,096

33,763

5

6,540

8,644

11,212

14,418

18,536

24,020

31,687

18%

3

8,436

10,540

13,108

16,314

20,432

25,916

33,583

5

6,215

8,319

10,887

14,093

18,211

23,695

31,362

How to use this chart: Say you owe $10,000 at 17%. If you send in only the minimum, you'll spend $33,447. But if you get a lower interest rate11% for exampleand pay it off in five years, you'll save $20,402 (which we show on the chart in bold). These numbers were calculated with The Banker's Secret Loan Software. For more information, see page 327. This table originally appeared in Debt Consolidation 101: Strategies for Saving Money & Paying Off Your Debts Faster, written by the authors.

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2. Loans from finance companies that charge very high rates23%, for example. Customers are attracted because of ads focusing on the low monthly payments. But as we hope we've made clear by now, low payments are an expensive trap that will stretch out your term of debt and dramatically increase your total interest costs.

No Credit? Bad Credit? You Can Get a Card

Even though thousands of issuers are heavily competing for a spot in most people's wallets, getting that first card can seem like an impossible task. It's not! And if you had some hard times a while ago, even though you eventually paid the bills, getting that next card may also seem like a hopeless fantasy. It's not!

To improve your record, you may be tempted to sign on with an outfit that promises to erase your bad credit history. Don't! Once credit bureaus suspect that a ''credit repair clinic" is involved, they can refuse to even investigate the disputed information. In the end, your wallet will be lighter, but your bad credit rating will be intact. If you need hands-on help with credit problems, get it from one of the nonprofit counseling services listed on page 223.

Even if you have a good job, a mortgage, and a car loan, you could still be turned down for a bank card because of an "insufficient credit history." If you've never had a credit card before, lenders have no way of knowing how responsible you'll be should times get tough. They reason that most people would pay their mortgages and car loans first, letting credit card bills slide.

The last thing card issuers want to do is take a chance. Hence two good, old-fashioned catch-22's:

How do you get experience if no one will give you that first card?

How do you get a new card if you can't prove that you've changed your spendthrift ways?

The answer to both these questions may be a "secured card," which almost anyone can get. These Visas and MasterCards look and act exactly like the unsecured pieces of plastic in your neighbor's pocket. The only difference is an interest-earning security deposit that you have to leave in the issuer's bank.

The credit line on your secured card will be 100% to 150% of the amount you deposit as collateral. The more cash you can tie up, the more you can charge. The less you can put aside, the less you'll be able to spend.

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tions, if alcoholism is tearing your family apart, read The Goodness of Ordinary People by Faith Middleton.

Testing the Waters

Marc remembers being on a Florida beach with his grandmother, some 50 years ago. He would run right into the waves, while Grandma would enter the water an inch at a time. She'd bend down to splash some water onto herself, first on one arm, then the other. Grandma was testing the waters, acclimating herself to the change in temperature. To Marc, it seemed to take her forever to do what he did in an instant, without a care in the world. (Marc's more like Grandma now, and his grandchildren will no doubt remember him in the same way that he remembers her!)

There's a lot to be said for testing the waters. Think of it as further research and insurance. Before diving in, know what you're apt to find, protect yourself as best you can from surprises, and make sure you have a way out.

Find a way to try on your dream life, to make sure it fits. To test the waters:

Take a leave of absence.

Try another job part-time, after hours, or on weekends.

Volunteer.

Vacation on your fantasy island . . . preferably not as a tourist.

If you're not ready to leave the drawing board yet, consider the following:

Do some more research.

Find or create a support group or study circle. (If you'd be interested in one in your area that meets to discuss voluntary simplicity, go to www.slnet.com

Go for some counseling.

Taking Your Dreams for a Test-Drive

Once you've dreamt up your fantasized life, don't jump ship to try it out. You may discover that you absolutely love it, or you may decide to head back to the drawing board. Writer Mary Rowland and her husband Robert toyed with the idea of escaping the city for the country, but they

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Being limited to charging only what you can afford is an obvious advantageyou won't get in over your head. There's another secured card advantage that's often overlooked: You'll probably earn more interest on the security deposit than you would at a local bank.

On the downside, secured cards usually come with high interest rates. So charge only what you can really afford, then pay off the bill every month. (The secured card issuer won't deduct payments from your collateral account. You must send in a check or make arrangements for automatic withdrawals from your bank account.)

When you can't pay in full, pay as much as you can. By always paying more than the minimum, you'll save a fortune in interest. In any event, never be late with a payment, even if all you're sending in is the minimum.

Your aim is to show a pattern of timely payments. You don't have to charge big purchases or string out your payments over many months. Just use your card occasionally for an item you would have bought anyway.

If you always make sure to pay at least the required minimum, on time, you'll soon be on your way to getting a less costly regular cardfollowed by an avalanche of preapproved offers for yet more plastic.

Important: Unless the bank that issues your secured card reports to the major credit bureaus, your timely payments will not help you build or reestablish your credit. Before signing up, ask if the bank reports to all three major bureaus, and verify that it won't flag the card as "secured" on those reports.

Deal only with a known and reputable card issuer. The woods are full of secured card scam offers. Get a list of reputable secured card issuers from CardTrak, at www.securedcard.com, or send $10 to CardTrak, P.O. Box 1700, Frederick, MD 21702. A free list of secured cards that is updated less frequently than CardTrak's is available by sending an SASE to Consumer Action, Secured Card List, 717 Market Street, Suite #310, San Francisco, CA 94103, or go to www.consumer-action.org.

Score High at the Rating Game

Who decides whether you'll get the credit you want? Most likely, a computer, of course! If you get a passing score, you'll get the card or loan. If not, you'll receive a form letter offering reasons for your rejection that are often cryptic at best.

The number one secret to keeping a good credit rating is paying your bills on time. Even if you eventually pay what you owe, late payments will show on your credit report for seven years, making it hard for you to get other credit or to graduate to an unsecured card.

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Secret number two is to make sure yours is not one of the many credit reports that contain mistakes. You can get a free copy of your report if you've been turned down for credit within the last 60 days. If not, you'll have to pay eight bucks (in most states) to see yours. Here are the three major credit bureaus:

Equifax

P.O. Box 105783

Atlanta, GA 30348

800-685-1111

Experian (formerly TRW)

P.O. Box 2104

Allen, TX 75013-2104

800-682-7654

Trans Union

P.O. Box 390

Springfield, PA 19064-0390

800-888-4213

When you send for your credit report, include: your full name (including a maiden name or generation, such as senior or junior, I or II), your social security number, your date of birth, your complete addresses for the past five years, your daytime and evening phone numbers, and your spouse's name. Be sure to sign and date your letter and include something that proves your current addressa copy of your driver's license, for example.

When your credit report arrives about two weeks later, take a hard look. If an error mars your appearance, get it corrected right away. Some typical boo-boos include listings of long-since-closed accounts, debts incurred by other people with names similar to yours, and credit problems caused by your ex-spouse on an account for which you didn't share responsibility.

WE'RE PROUD TO SAY

The best source for more information about credit is The Ultimate Credit Handbook by coauthor Gerri Detweiler. Every card-carrying American ought to read it. See page 327.

MARC AND NANCY

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Amazing Grace

When interest rates no longer mattergrace periods do! As long as you're carrying a rollover balance, grace periods are of no benefit. But once you start paying your balance in full every month, ask when your billing cycle ends. By shopping a day or two after the billing date, you'll be giving your money the rest of the month plus the next grace period to earn you interest (or at least to accumulate) before your payment comes due. It's like getting a 45-to 55-day loan for free.

Remember, this will not work on cards that offer no grace period or that you don't pay off each month. That's because interest charges will begin to accrue immediately if there is any balance due at the end of the previous month's grace period. Therefore, when you're finally on a pay-as-you-go basis, get yourself a friendlier, no-fee card with at least a 25-day grace period.

In the meantime, for purchases you will not be paying off in full each month, use a card with a low interest rate and send in as much as you can each month. And don't wait until the due date to make your payment. The way credit card interest works, you'll save more by paying your bill as soon as you get it.

For those purchases you will be paying off in full, use a credit card with a grace period and, preferably, no annual fee. (The interest rate won't matter if you'll never have to pay it.)

Credit Card Common Sense:

Quick Tips to Save Money and Grief

Try never to use your credit cards for cash advances. When it comes to borrowing money, there are few ways more expensive than cash advances. Some banks charge interest, some charge fees, and many charge both.

If you're a compulsive buyer, limit your card use to the American Express charge card, which doesn't allow revolving credit. If you don't pay those bills in full and on time, your next charges will be turned down.

Department store cards generally charge the highest interest rates around. Use these cards only when there's a real benefitan extra 10% off, for exampleand when you know you'll be paying off the bill immediately. Otherwise, use a cheaper piece of plastic.

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Report missing or stolen cards by phone immediately. Then follow up with a letter.

Sign new cards as soon as they arrive. Cut up and carefully dispose of expired cards.

Never give out your card number over the phoneunless you initiated the call. And never write your card number on a postcard or on the outside of an envelope.

Open credit card bills promptly and check them for unauthorized charges as well as for billing errors. Report unauthorized charges and billing errors in writing to the customer service address indicated on your statement. Don't enclose your letter with your payment. (Just calling will not protect your legal rights.)

Keep out of the protection racket. Your card issuers have probably offered you a "protection service," where for a small charge, they'll keep a list of all your credit cards in case any are lost or stolen. Don't go for it. Just keep a list of your card numbers, expiration dates, and the phone number of each card issuer in a safe place. (Do this now. Don't be sorry later that you didn't.)

When he was 83-years-young, Walter, a flight instructor in Las Vegas, came down to earth long enough to share his secret for easily compiling your list of credit cards (and sundry other important papers or pieces of plastic).

"Once every six months, empty your wallet or purse of credit cards, licenses, guarantee cards, etc. Place them on a copying machine, then file the [photo] stat in a safe place," advises this World War II pilot, adding, "Don't forget to remove the originals."

HINTS FOR HOLIDAY SPENDING

Turn your debts into a high-yielding Christmas club. If you regularly run up holiday bills that you can't pay off immediately, here's an easy way to make sure they're gone by the following year: Divide your balance by 10 and add at least that to each minimum payment. For example, say Santa charged $2,000 to one of your cards this year. If you send in $200 a month over the required amount, the bill will be paid off in time for next year's holiday binge. Can't afford $200 a month? Send in as much as you can every month, then charge less next Christmas.

If you've been contributing to a Christmas club in the hope that it would solve your holiday spending problem, consider this: Most Christ-

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mas clubs pay a very low interest rate. Investing that same amount of money in your credit card debt will save you at least three times what a Christmas club typically yields.

Shop carefully, just like Santa does. Avoid impulse buying by making a list and checking it twicethen leave your credit cards at home and go window-shopping. After you've decided what to buy, add up the cost of your proposed purchases and make sure the sum is manageable. Then take your cards shopping and buy only what you planned.

The Credit Card Convenience Trap

Mrs. Doubtfree, an elderly widow, believed that the checks her credit card company sent really were to be used "just as you would any check." She didn't realize she was borrowing money instead of using her own. She'd already written 29 of those "convenience checks," totaling over $16,000, when Gerri came to her rescue and got higher-ups at Mrs. Doubtfree's credit card company to agree to waive all of the finance charges and to accept a repayment plan that fit Mrs. Doubtfree's tight budget.

So-called convenience checks are more like cash than credit cards, and often expensive cash at that. While MasterCard, Visa, and American Express may come to your aid in a dispute over a charged purchase, if you use one of their pseudochecks, you're on your own. Should the product never arrive, disintegrate on first use, or not be what you expected, you'll essentially be told, "Tough luck!"

If you get this response and have other cards, certainly threaten to cancel theirs. Be persistent, and talk to supervisors, but don't be surprised if your threat fails, especially if there's a lot of money at stake. Card issuers know you have no legal recourse. Shame on them! And shame on our legislators for continuing to allow these checks to be sent out unsolicited.

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Chapter 13

Your Mortgage Is a Great Investment

Welcome to the greatest show on earth: how to change $25 a month into $23,337. No magic involved!

Myths that keep Americans from investing in their mortgages

Choose the loan that will save you the most

How to know when it's time to refinance

The ARMs scandal, and what you can do to stop bank overcharges on your adjustable rate mortgage

By pre-paying, you invest nothing extra to save thousands. Pre-payments are not additional costs. They are simply advances, small amounts that you pay sooner

MARC EISENSON, The Bankers Secret

First comes the dream, be it a vine-covered cottage in the country or a colonial on Woodcroft Circle. Then comes the search, the discovery, the dickering, the closing, moving dayand 30 years of monthly payments.

As we've shown, even without including real estate taxes, insurance, maintenance, utilities, or those legal fees and other closing costs you'll incur both when you buy and when you sell, a $125,000 mini-castle financed for 30 years at 8% could cost $289,149 (the $100,000 you borrowed, the $25,000 you put down, and the $164,149 you paid in interest).

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With so much of your money at stake, it's smart to manage your mortgage at least as carefully as you do your other investments. The good news is that saving tens of thousands of dollars on your mortgage is the proverbial piece of cake. All it takes is small, pocket change, pre-payments. There's a special bonus, tooa tremendous personal emotional benefit. You'll actually be able to achieve the American dream, which, after all, is to own your own homenot to maintain it for some bank!

Table 13.1 shows how regular pre-payments of $15, $25, $50, and up will save plenty on our sample $100,000 mortgage. As you'll see, the more you invest in your loan, the less your home will cost and the sooner it will be yours, free and clear.

So why don't all homeowners invest in themselves and their families by speeding up the day when they'll own their homes free and clear . . . and in the process, save tens of thousands of dollars that would otherwise be wasted in unnecessary interest costs?

Myths That Keep Homeowners from Investing in Their Mortgages

Myth: It sounds too good to be true.

Truth: We admit it. Anything that promises to save you big bucks sounds like a get-rich-quick scheme. And we've all been warned to avoid deals like that. However, investing in your mortgageeven minuscule amountsreally does reap great rewards. It's no gimmick.

Myth: I can't afford to pre-pay.

Truth: If you borrowed that $100,000 at 8% for 30 years and sent in only an extra 25 cents a day, you'd save $7,986. A dime a day would save $3,317. Can't afford dimes this month? Send in pennies, but get into the pre-payment habit! Figure out where you can cut back, even just a little. Then send in what you can, when you can, and turn your biggest debt into a profit center. You'll save a pile and at the same time give yourself the peace of mind that owning your home free and clear can bring. (See Table 13.2.)

Myth: I can get a better return someplace else.

Truth: Maybe you can! In terms of traditional investments, if you have a good 401(k) plan at work with employer matching, take full advantage of it. But in general, the greater the return, the greater the risk. And there's nothing safer than investing in the roof over your head, or rather, the mortgage on it.

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TABLE 13.1 The More You Pre-Pay, the More You'll Save

Down payment:

$25,000

Loan amount:

$100,000

Interest rate:

8%

Loan term:

30 years

Required monthly payment:

$734

Total interest, if not pre-paid:

$164,149

Total outlay without pre-payment:

$289,149

PRE-PAY

SAVE

REDUCE TERM BY YRS/ MONTHS

PRE-PAY

SAVE

REDUCE TERM BY YRS/ MONTHS

$ 15

$ 15,054

2/03

$ 350

$108,404

18/00

25

23,337

3/07

375

110,719

18/06

50

39,906

6/02

400

112,841

18/11

75

52,484

8/02

425

114,793

19/03

100

62,456

9/10

450

116,597

19/07

125

70,610

11/03

475

118,268

19/11

150

77,431

12/05

500

119,821

20/03

175

83,240

13/05

750

130,930

22/06

200

88,260

14/04

1,000

137,506

23/11

225

92,649

15/01

1,250

141,871

24/10

250

96,524

15/10

1,500

144,986

25/07

275

99,976

16/05

1,750

147,322

26/01

300

103,071

17/00

2,000

149,140

26/06

325

105,866

17/07

Note: These numbers were calculated with The Banker's Secret Loan Software (created by authors Marc Eisenson and Nancy Castleman, see page 327).

Of course, you don't have to choose one or the other. You can go the limit on your 401(k), for example, and still have no trouble coming up with a $25 a month pre-payment on your mortgage. We have faith in you!

But remember, if you carry a balance on a credit card, by all means pay that off first. Earn upward of 20% tax-free while you can.

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TABLE 13.2 Peewee Pre-Payments

Based on a $100,000 Mortgage at 8%

for 30 Years

PRE-PAY

SAVE

10¢ a day

$ 3,317

25¢ a day

7,986

50¢ a day

15,054

$1.00 a day

27,072

Myth: I'll lose my only tax deduction.

Truth: It's not your only tax deduction, assuming you itemize. You'll still be able to take write-offs for property taxes. Tax deductions may ease the bite, but they don't make paying interest a profitable venture. The more interest you pay, the less money you'll keep.

It never pays to send your lender $1 in the hopes of getting back 28 cents or so from the IRS. Anyway, higher standard deductions mean that the first $7,100, (as of the 1998 tax year) spent on a couple's mortgage interest could be saving $0!

Even if you itemize, pre-paying pays. Say you send in $25 a month more during just the first year of our sample $100,000 mortgage. Because of compounding, that $300 in advance payments will save you $2,808 in interest over the loan's lifeeven if you never pre-pay another cent.

But in that first year, you'll only pay $11.26 less in interest than had you not pre-paid. For someone in the 28% federal tax bracket, that would increase the tax burden by $3.15. Where else can an investment of a mere $3.15 return $2,808, guaranteed?

Myth: My bank will be angry if I pre-pay.

Truth: (a) Banks don't have feelings, and now that everything's computerized, there probably won't be anyone at the bank who even knows that you're pre-paying. (b) These days, banks make much of their mortgage profits up fronton points and closing costs. (c) When you pre-pay, the bank accumulates money with which to make new loans (which brings us back to "b").

Myth: I'm probably going to be moving in the next few years, so pre-paying doesn't make sense.

Truth: While homeowners do tend to move every five to seven years, they generally go from one mortgaged home to another, creating what we

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call a serial mortgage. Unique to each borrower, these loans are made up of the various mortgages a family takes out over the years.

Regardless of how often you move, every dollar you invest in your mortgage will earn you money at the rate you're currently paying. Have an 8% fixed-rate loan? Your pre-payments will yield 8%.

If you keep pre-paying, no matter what home loan you have at the moment, the ultimate result will be an early escape from mortgage debtmeaning years of mortgage payments you'll never have to make.

All along, you'll have more options for the next house, and the next. For example, you'll be able to put more money down on the next new housebecause your pre-payments on the old one mean you owe less. You may decide you can afford a bigger houseor you might want to lighten your load with a smaller mortgage. You'll have a choice, and someday, your home will actually be yourswhile your neighbors will still have decades of payments left to be made on their most recent homes!

Myth: I'll get hit with a pre-payment penalty.

Truth: Pre-payment penalties are rare. Even when they can be imposed, most banks don't bother. Penalties on small pre-payments are so tiny, it'd cost the lender more than they'd collect to do the bookkeeping and billing.

And while we're on the subject of bookkeeping, you'll be happy to know that these days, lenders almost always credit pre-payments correctly. However, to make certain that there will be no confusion, include a note with your first few pre-payments that says something like, ''Please credit the additional amount I've sent in this month to the outstanding principal balance on my loan."

If you want to make sure the lender is properly crediting your pre-payments, run out a schedule with The Banker's Secret Software, or get us to run one for you (see page 327).

Myth: My banker says my pre-payments will be subtracted off "the back end of my loan."

Truth: What you send in today immediately comes off the amount you owewhether or not your banker understands how the math works. Since you owe less, more of next month's mortgage payment will go toward reducing your balance, while the amount that goes toward interest will decrease. Your loan will cost you less and be paid off earlier because you've pre-paid.

Myth: Pre-paying is so complicated, I'll need to hire someone to do it for me.

Truth: Nonsense! Although there are a lot of ads out there for biweekly conversions or other mortgage-acceleration programs, they're expensive

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really weren't sure it would work for them, both professionally and personally, or for their two kids, Krista and Thomas.

So they tried it out, by spending six weeks at a friend's country home, where they confirmed that living outside the city would indeed be fine for all of them. They sold their co-op and now live in upstate New York's beautiful Hudson Valley.

Consultant and author Kent Brunette's dream car was a BMW, but he wasn't sure he wanted to commit to the payments. So for six months, he practiced paying for oneby making BMW-sized payments on the Jeep he was then driving. In the process of test-driving his fantasy, Kent confirmed that he could keep up with the higher BMW payments. As a bonus, he paid off his Jeep early, saving quite a bit on interest.

Compare Kent's approach with that of others who decide they must have the car of their dreams, and end up struggling with impossible monthly payments.

Brenda and Terry Chain saved enough money to leave their Alaska home in an RV for leisurely travel in search of their dream, which was owning and operating a small resort in the lower 48. Because they could afford to spend the time visiting a number of different places, they learned a lot along the way. When they discovered the Beachcomber Resort in Lake Ozark, Missouri, they knew they had a great deal, and went for it right away.

You don't want to buy the magic carpet without taking it for a flight. Find a way to take your fantasy out for a spin.

GERRI'S STORY

I never set out to become a consumer advocate, but soon after college, I fell into a job with the nonprofit credit education organization, Bankcard Holders of America (BHA). Pretty soon, that's what I was! Within several years, I was executive director of the organization, a high-visibility position in that field.

The job was great in many ways, forcing me to develop skills I would never have thought myself capable of doing: public speaking, interviews on television and radio, writing a book. Although there were many benefits to working at BHA, as time went by, I started recognizing an independent streak in myself that just wouldn't let me fit into a regular job anymore.

Deciding to go out on my own was one of the toughest decisions I've ever made. In the small town where I grew up, my parents and my friends'

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and absolutely unnecessary. Send in what you can, when you can, and watch your home equity grow!

Biweekly Warning

The only similarity between real biweeklies and these conversion plans, which we call pseudo-biweeklies, is that your money will be electronically extracted from your account every two weeks.

Although they electronically transfer funds every two weeks from your account, pseudo-biweekly sellers simply send the bank your required mortgage payment once a month, just as you always did, and in our less-than-humble opinion, ought to continue doing.

Then once or twice a year, the excess that accumulates from your biweekly payments will also be sent in. Guess who gets to work the float?

If your bank won't credit your payment every two weeksand most won'tthere's no benefit in your sending in biweekly payments. While pseudo-biweekly sellers claim to offer something special, the truth is that you can easily save more without outside help, and without all those fees and charges.

All you have to do is divide your current monthly mortgage payment by 12, and send in that amount as a pre-payment with each month's check. For example, let's go back to our sample $100,000 loan, which has a required monthly payment of $734. Divide that $734 by 12, and you get $61.17.

Send in a pre-payment of $61.17 every month along with your mortgage check. There'll be no start-up or "service" fees, you'll get the benefit of the float, your pre-payments will be deducted from your balance sooner, and you'll save more than you would with a pseudo. In this instance, your $61.17 a month will save you $45,916.

The pseudo-biweekly sellers try to make pre-paying sound complicated, and they want you to believe you're not disciplined enough to invest in your mortgage on your own. This is one high-return investment where you just don't need to pay a broker!

You can pre-pay on your own. After all, you write out your mortgage check every month, don't you? It doesn't take a whole lot of discipline to write out a slightly larger check. There's probably even a line on your mortgage coupon for entering your principal pre-payment amount. What could be easier? The larger the checks you write and the sooner you start sending them in, the more you'll save and the sooner you'll be living debt-free.

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Sample Mortgage Coupon

Important tip: If you really don't think you can trust yourself to add that additional amount every monthjust ask your lender to electronically extract it from your checking account once a month. Most will be happy to do it for freeeven lenders who market pseudo biweeklies! There's no need to pay for a mortgage-conversion program or a special pre-payment plan of any sort.

Note: For the complete story on pre-paying, with lots of tables so you can see how much you'll save, read The Banker's Secret, by Marc Eisenson (see page 327).

ADJUSTABLE RATE MORTGAGE MADNESS

Back in the late 1970s, when interest rates were competing with space probes to see which could go highest, fastest, bankers found themselves in an upside-down world. Instead of paying low and charging high, they were stuck paying depositors upward of twice the interest they were collecting on outstanding mortgages.

To avoid a future repeat, the adjustable rate mortgage (ARM) was called into service. While there are many variations on the theme, the basic ARM has an interest rate that is adjusted once a year, in accordance with some indexthe interest rate on Treasury bills, for example. That way, if rates go through the ceiling, mortgage payments will follow suit, and the bank stays in the black. On the other hand, if rates drop, homeowners get a break. (The annual rise or fall is usually limited to 2% with a lifetime cap of 6%.)

The concept was clear, the risk was obvious, the benefits included low introductory rates and the possibility of even lower rates in the future

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but there was one problem. Many lenders simply couldn't follow their own instructions for calculating rate changes on ARMswhich isn't surprising, considering how complicated they've made those rules. Many a bank mistake was made.

The major lenders have long since worked out the kinks, but with loans being sold and resold, your current lender could be taking money out of your pocket! (It also might be charging you less than it could.)

While not simple, it is possible to check the numbers yourself. Especially if you're the type who likes to crunch numbers, learning to check your own adjustable interest rate is a good idea and a worthwhile investment of your time. After all, you may be dealing with these changes every year for the foreseeable future.

For excellent do-it-yourself ARM-checking instructions, send $3, check or money order, to HSH Associates, Dept. ACK, 1200 Route 23, Butler, NJ 07405.

Buying the Right MortgageNew or Refinanced

To find the right mortgage takes some effort, but the money you'll save by shopping wisely could save you a fortune and a lot of headaches.

Whether you're financing a new home or refinancing, you'll have plenty of choices. In addition to banks, you may be able to borrow from the seller, a relative, an insurance company, or through a mortgage broker. Getting the loan that fits you best is unfortunately not as simple as finding the one with the lowest interest rate.

If you haven't already done so, get the address of the credit agency that local lenders use and order a copy of your credit report. It'll cost a few bucks, but correcting errors now can save you grief, time, and money later. (See page 231.)

With an accurate credit report and a bit of current info on your income, local lenders should be able to give you a firm sense of how much they'll commit. Why dream of a home that'll be out of your reach?

Don't look so good on paper? Self-employed? Focus on "no-peek" loans. Translation: Your financial capabilities will not be subjected to as rigorous a review. You'll pay a higher rate and probably have to put up a substantial down payment (25% to 30%) in exchange for more privacy.

The real estate industry, including lenders, would love to see you buy the absolutely most expensive home you can afford. In fact, once you pro-

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tect them with pricey private mortgage insurance (PMI), they'll be happy to see you buy more than you should rationally own. Buy what you need, not the most house that someone who will benefit from the transaction says you can afford. The fortune you save will be your own!

Next, you need to guesstimate how long you'll own this home. The best loan for a short-term owner isn't necessarily best for a long-term owner. Settling in for life? Consider a mortgage with higher up-front costs (such as points) and a lower interest rate.

Moving in five to seven years? You may be better off with a higher rate rather than points. And your best bet may very well be an ARM with a low introductory rate.

Because ARMs are unpredictable, the next question you'll want to ponder involves your willingness and ability to gambleespecially if you'll be in the house for many years. Taking an ARM rather than a fixed-rate loan is a gamble. As with the stock market, no one knows what tomorrow will bring, and each home buyer needs to decide which way to go based on their own risk tolerance.

Can you protect yourself from the risk of future rate hikes, avoid them, or cover the additional costs should they rise up to their cap? In other words, instead of paying 8%, could you afford 14% if it came to that$1,185 a month versus $734 on our $100,000 example?

You have three possible weapons in your arsenal against accelerating ARMs: convertible mortgages, two-step loans, and graduated payment mortgages (GPMs).

1. Convertible mortgages give you the opportunity to bail out of an ARM if rates climb. Generally, from the end of your loan's first year to the end of year 5, you can convert an ARM to a fixed ratefor a fee, of course. It'll be tied to the then current rates, so it may not be as low as the fixed rate you could take out now. But you'd be protected from yet higher interest.

2. Two-step loans, also called "7-23s," are the flip side of convertibles. You get a fixed-rate loan, typically for the first seven years. Then it becomes an ARM for the remaining term. If you sell in less than seven years, higher interest rates won't affect you, nor will you benefit if rates drop. But if you keep the house past year 7, you'll face an unpredictable eighth yearand future. Of course, at that point you could refinance to a fixed-rate loan or even to a new ARM with an introductory teaser rate. But who knows what rates will be like then?

3. Graduated payment mortgages, a third permutation, start out with a relatively low monthly payment, which then increases. While not techni-

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cally an ARM, because the rate remains constant, the monthly payments give it the feel of an adjustable mortgage. A GPM will let you buy a more expensive home than you otherwise could, on the theory that your salary will rise enough over time to cover the payment increases. If the theory's wrong, you could lose your home. Watch out! Also make sure the monthly payment is at least high enough to cover the interestor your debt will increase every month.

Apples to Apples, Oranges to Oranges

To decide which loan is most likely to cost you the least, set up a chart similar to Table 13.3. The figures you compare should include the loan amount plus its related closing costs and any points (what we call the comparative amount). Crunch the numbers for the period of time you intend to own your home.

TABLE 13.3 Sample Mortgage Comparison Work Sheet

BASED ON $100,000 LOAN

LOAN 1

LOAN 2

LOAN 3

LOAN 4

Term

30-Year

30-Year

15-Year

30-Year

Rate

Fixed

Fixed

Fixed

Adjustable

Interest rate

9.125%

8.5%

8.875%

6.25%

ARM: change period

n/a

n/a

n/a

2 Years

Interest cap

n/a

n/a

n/a

2%

Lifetime cap

n/a

n/a

n/a

6%

Points (in percent)

0

3.125%

0

2%

Points (in dollars)

0

3,125

0

2,000

Closing costs

2,500

2,500

2,500

2,500

Comparative amount

102,500

105,625

102,500

104,500

Monthly comparisons

834

812

1,032

643*

Total cost: 5 years

148,411

149,591

143,827

144,291

15 years

231,739

228,664

185,762

257,740

30 years

300,221

292,373

n/a

361,347

Notes: These numbers were calculated with The Banker's Secret Software (see page 327).

* The required payment could climb to $779 after two years, to $918 after four years, and to $1,060 after six years.

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Aside from the potential total cost to you, you also need to factor in whether you have the cash on hand to pay points and/or an adequately high, steady income to consider 15-year loans.

Given these options, if you'll be moving in five years, the 15-year fixed will end up being slightly less expensive, but the 6.25% ARM might be more appealing, even though it has points, because of the far lower monthly payment. You'd more than recoup your $2,000 in five years. But if you expect to own for 15 or 30 years, you might want to take loan 2, the 30-year fixed-rate loan at 8.5%, and then pay it off as quickly as you can.

But, wait, you say, loan 2 will cost far more than loan 3. True, unless you pre-pay loan 2. If you can come up with loan 3's $1,032 monthly payment, and you send that in on loan 2, you'll be out of hock sooner and cheaper.

Unless you're absolutely certain that you'll be able to meet the higher payment every month, take a 30-year loan-and pay it off as if it were a 15-year loan. You'll enjoy substantial savings, and if money ever becomes tight, you'll be able to pay the lower 30-year amount. As another example, a $100,000 loan at 8% interest for 30 years would require a monthly payment of $734, while a 15-year loan at the same interest rate would require $956. That additional $222 each month would save more than $92,000 in interest. But you'll be in trouble if times get tough and you can't scrape together that $222.

Solution? Take a 30-year loan and send in $956 each month. The loan will be paid off in 15 years, and you'll still save the $92,000, but you'll have flexibility. If the road gets rocky, you can just send in $734! And if times turn golden, send in more and pay off the loan even faster.

Note: You can often get a slightly better interest rate on a 15-year loan than you can on a 30-year loan. But the risk of being overextended, for many folks, far outweighs the slight additional benefit to signing up for a shorter-term mortgage.

Banks Don't Own All the Money

If you can avoid taking out a brand-new mortgage, you're bound to save. If possible, consider assuming the current mortgageeven if the interest rate is slightly higher. Chances are, closing costs will be lower than with a new mortgage. However, to make sure that it's the best deal for you, read the fine print and crunch the numbers. (Most conventional mortgages aren't assumable, but FHA and VA loans generally are.)

See if the sellers will finance part or all of the sale. If they don't need the cash in one lump sum, your mortgage may be a great investmentfor

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them. And although lending to loved ones can be risky business, consider asking cash-rich friends or relatives for a loan. It's a good way for everyone to benefitif it's carefully done. You pay them a higher rate than they'd earn at the bank, and it'll still cost you less than the bank would charge you.

Maybe you can find a local investor who lends mortgage money. Real estate brokers, lawyers, and accountants should be able to offer some good leads to cheap money and to loan funds that are available to those with less-than-stellar credit reports. Mortgage brokers, who only make money if you close, are often the most likely to hustle under these circumstances.

A FEW MORE WORDS ABOUT ARMS

When it comes to adjustable rate mortgages, it's smart to be prudent. Always assume the interest rate will increase at the maximum rate allowed on every change date. As you can see from Table 13.3, played out over 15 to 30 years, an ARM (loan 4) can get very costly! Of course, if you're not averse to some risk, you could come out ahead with an ARM, if you're in luck and rates stay level, or better yet, drop. It's your decision. We just want you to base your money decisions on factas well as your personalityrather than on myth, misrepresentation, or eenie, meenie, miney, moe!

Seven Smart Steps to Cutting Closing Costs

1. Before applying for a loan, ask if the application fee is refundable should you be turned down. Ask for junk fees to be waived (e.g., underwriting or commitment fees or document-processing charges). And try to negotiate on the other closing costs, such as legal fees, the appraisal, and points.

2. Title insurance companies pay out on an infinitesimal percentage of premiums. But you'll still be required to buy title insurance to protect your lenderin case the seller wasn't the only, or the "real," owner. If the seller has owned the property for just a few years, see if you can get a discounted "reissue rate" from the seller's title insurer. Similarly, see if the lender will accept an updated version of the previous owner's property survey. This will save 50% or more, compared to the cost of a new one.

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3. Question escrow. Although it's standard bank policy, you don't have to acquiesce without a murmur. Try to negotiate a clear contractual out that will eventually let you pay your own taxes and insurance. Meanwhile, periodically ask the lender for an escrow analysis. If there's more than a small excess (for contingencies such as tax increases), ask the lender for an explanation.

4. Skip mortgage life insurance if you have a choice. There are lots of cheaper term policies that will pay the same or moreand won't require you to list the bank as your beneficiary. Let your heirs decide when to pay off the mortgage.

5. Be in really good hands. The last thing you want is for your house to burn down, leaving your family out in the cold. Lenders, however, are much more concerned about their collateral, which you'll be obliged to insure. The right policy and insurer can save you money now, and grief later, should a disaster strike. (See Chapter 4.)

6. Talk with your tax preparer before you set a date for the closing. It might save you money.

7. Give a last look. Arrange to inspect the house one last time as close to closing as possible. (An hour before would be almost perfect.) If there's a problem, be it a broken window, frozen pipes, or a missing dining room fixture, you might be able to get reimbursed by the seller at the closing.

Refinancing Could Cost You

The conventional wisdom is that it makes sense to refinance when there's a 2% spread between what you're paying now on your mortgage and what you can get on a refi. We say it pays to look at loan rates in your area regularly. The newspaper probably runs them every Sunday, or maybe a lender will send you some junk mail pitching new low rates. You can also find current mortgage rates at www.hsh.com.

"Refinance now," the banker says. "The rates aren't going to get much lower, and I can save you $144 a month."

Assuming you borrowed $100,000 eight years ago at 10% for 30 years, should you refinance? Answer: It depends on what you do with the $144 a month difference in the monthly payments$878 at 10% versus $734 at 8%. Chances are, your banker won't mention that of the $84,288 you've already paid, $77,759 went to the bank as interest and only $6,529 went to

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pay off the loan. But sooner or later, you'll discover that you still owe $93,471.

"And, what with points and closing costs, you'll want to borrow . . . oh, say . . . $98,000 for 30 years. Let's make it an even $100,000. Take the family to Disney World. Just sign here." So, there you arehaving already spent over $84,000with a new loan for the same amount you borrowed eight years ago. And if you're not careful, the new loan is going to cost you more than holding onto your original mortgage, over $33,000 more in this example.

Why? Because you agreed to an extra eight years of debteight more years of paying almost nothing but interest. To beat the bank at its own game, first refinance when the calculations on a comparison worksheet similar to Table 13.3 indicate you should. Then invest the difference (that $144 a month in our example) in your new mortgage. You'll be sending in exactly what you paid before refinancing, but you'll save over $43,000. As a bonus, you'll be debt-free four years sooner than had you kept your original loan, without altering your spending habits a bit.

Important: If you owe a lot on those plastic monsters in your wallet, invest that $144 a month into your high-interest credit card bills instead. Then, when the cards are clean, transfer that amount to your mortgage. Come up with a few more dollars, and you can pay your debts off even faster, save yourself more, and get your family that much farther down the road to financial independence.

A Secret Refinancing Program

If you've held an FHA-insured mortgage for at least six months and are up-to-date on mortgage payments, you can refinance at market rates with no qualificationunder the FHA's Streamline Program.

It doesn't matter if you're self-employed, unemployed, or even have a bad credit rating (as long as you've made timely mortgage payments). Streamline is a true no-documentation loan. The dwelling doesn't need to be owner-occupied, and it's okay if the real estate market is declining. There are no credit checks or employment verifications, not even a meeting. And no appraisals are required for a Streamline, if all you're doing is refinancing your outstanding balance. You'll need only to complete an application. However, if you want to fold in closing costs, an appraisal will be required.

Some minor restrictions do apply. Designed to help people save money on their monthly payments to reduce the danger of foreclosure, Streamline loans are limited to the unpaid balance of your current FHA mort-

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gage. In other words, you can't borrow more than you oweto remodel the kitchen, pay off some credit card bills, or take off for Rio, for example.

For the complete Streamline story, contact your FHA lender. If your bank doesn't offer the program (not all do), ask for the name and number of a lender who does, or contact your regional FHA office.

ANOTHER FHA SECRET

If you've paid off an FHA-insured home, and you held the mortgage for seven years or less, you may be entitled to a rebate on the up-front mortgage insurance you paid. To find out if HUD owes you money, call 800-697-6967, go to www.hud.gov/cgi-bin/refund2, or write to the U.S. Department of Housing and Urban Development, P.O. Box 23699, Washington, DC 20026-3699.

Special Attention:

Veterans

Are you one of the 800,000 veterans with existing VA loans who should consider refinancing? Uncle Sam wants to make it easy for you to qualify for an Interest Rate Reduction Loan (IRRL). There's generally no credit check or appraisal. The closing costs, if any, are minimal, and most can be folded into the new mortgage. Call local banks and/or mortgage brokers to find your best IRRL deal.

Denied the Right to Refinance?

In many parts of our country, depressed real estate markets have left some families with mortgage balances higher than their property's current market value. In the strange logic of bankers, these families will remain good credit risks if they keep their high-interest loansbut they'd somehow be bad risks if their interest rates and monthly costs were lowered and thus more manageable.

This trap can't be easily avoided. Like all other investments, homes can and sometimes do lose value. What to do? It's not easy to cut your losses with a house. In the worst-case scenario, you can walk away from it. But you'll still be liable for any shortfall at the bank's foreclosure sale, plus taxes if the bank forgives part or all of your deficient balance.

If you have adequate savings and you plan to stay in the house, you might want to make a large payment against the outstanding principal of your mortgage. If you don't have an extra pile of cash, make small

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parents worked in basically the same jobs all their lives, so I didn't really have any entrepreneurs as role models. I also worried about how I could survive without a regular paycheck, especially since I live in one of the country's most expensive areas.

One thing that helped immensely was paying off my debts. I racked up a nice chunk of credit card charges after college, and it took me a couple of disciplined years to pay off the seven or so cards that I had maxed out. But once I did, the strategies that I had used to pay off debt, plus tracking my spending and trying to make conscious choices before buying, helped me save moneyso I was able to leave with a little safety net.

After BHA, I landed an assortment of writing and consulting jobs that have allowed me to continue to work from home. It hasn't always been easy. In truth, there have been some real rough spots. Some things I've tried have gone absolutely nowhere. But more important, there have also been some great times, times I've worked on a variety of fun and challenging projects, like the two autumn months I spent in the Hudson Valley collaborating with Marc and Nancy on a credit hotline, enjoying spectacular hikes on the weekends. Or the time I found myself in a recording studio taping spots for a radio show I was cohosting. Even though the day was long and exhausting, I kept smiling, thinking, ''This is so much more fun than being in an office!"

I love how I work, and I love my commute (two flights of stairs). I get to collaborate with great people, and I can say, "Thanks, but no" to projects I don't want to undertake. I hope through this book, Marc, Nancy, and I will inspire you to find a way to do what you love. We believe you can!

What Do You Think Has Most Kept You from Changing Your Life?

Fear of lost income?

Dread of upheaval at home?

Fear of change?

And what do you most want to change? Nancy knew it was time to change her life when she realized that she was spending many hours every single day thinking she had to leave New York City, even if it meant changing her great job. She just couldn't take the crime rate or the crowds any longer. What she really longed for was a nice, big garden.

How many hours a day do you focus in your mind's eye on changing

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advance payments whenever you can. Your goal is to increase your home equity enough so the bank will approve your application to refinancehopefully before rates climb again.

Take heart, if you have to sell and take the loss, the odds are good that your next home's price will have also dropped. You'll get less at the first closing, true, but you'll have to come up with less at the second one.

Can't bear the thought of selling for less than you paid, or less than you think your house is worth? Find a tenant for your old house. If you carefully check references, charge fair rents, find a good property manager in your absence, and get adequate security up front, being a landlord can be a safe, profitable way to weather a depressed market.

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Chapter 14

Driving a Winner

Why your typical car will cost you half a million dollars!

Ten rules of the road that will save you significant sums

The great debate: rebate or low rate?

The truth about leasing your next vehicle

A simple strategy that can save you hundreds on insurance

The drive-in bank was created so the real owner of the car can see it once in a while.

AUTHOR UNKNOWN

At its most basic, buying a car is like buying a pair of shoes. Are you looking for comfort, speed, style, or image? Once you've decided not to go barefoot, you can get there from here in a pair from Neiman Marcus, from Goodwill Industries, or from some place in between.

And when you've decided not to depend exclusively on shoe leather, mass transit, or your in-line skates, any vehicle from a brand-spanking-new Rolls Royce to a well-used Volkswagen Bug can get you to and from the officeone in luxury (although you'll occasionally be bothered by requests for Grey Poupon), and the other with a somewhat different feel and image.

Aside from size, purchase price, comfort, and prestige value, a Rolls differs significantly from a VW when it comes to paying for such things as registration, insurance, sales tax, fuel, maintenance, garage spaceand mustard.

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Americans own an average 1.77 cars, drive them about five years, and spend a delightful hour and 13 minutes a day, on average, behind the wheel. (Don't you just love statistics?)

Well, here's a crucial statistic to apply to your 1.77 cars: The AAA pegs the cost of owning and operating a car at about 45 cents a mile. Think about how much driving you'd be doing if there were a taxi meter on the dash clicking off 45 cents every time you drove another 5,280 feet!

Obviously, it depends on the car. A new Rolls costs more per mile to operate than a used VW Bug. But sticking with averages for just a bit longer, Americans drive about 15,000 miles each year. Assuming 60 years behind the wheelhopefully it will be longerthat's a total of 900,000 miles, or about 16 trips around the equator, plus one round-trip to the moon!

At 45 cents a mile, that's an average investment in our cars of $405,000after taxes. Before taxes (at 28%), we'd have to earn $562,500 in today's dollars just to drive where we want to go. In fact, the actual dollar amount will be more like $1.5 million once you factor in inflation. (We went for a modest 3% a year increase.) And you wonder why you're always feeling broke?

Now what if we told you that there was a pretty easy way for you to cut that cost dramatically? Would you invest some of your time to save a few hundred thousand dollars?

Doing Anything Important for the Next 11 Months?

If you're thinking about buying a brand-new car, here's a particularly illuminating way of looking at the costs. Say you've done battle to whittle down the $20,000 manufacturer's suggested retail price (MSRP) to $18,000not including any rebate or ''low-cost financing." You decide to pocket the manufacturer's $1,000 incentive, which brings your total cost down to $17,000. Right?

Wrong! Let's assume you finance 90% of that $17,000 ($15,300) at 8% for four years. That'll add $2,629 in interest to the $17,000, for a total cost of $19,629. Right?

Wrong again! Even if you disregard your new car's sales tax, registration, and insurancewhich will add up to way more than pocket changethere are still state and federal income taxes to factor in. If you get hit for 28%, you'd need to gross some $27,262 to pay for your new horseless carriage. That's more than 50% higher than the $18,000 rock-bottom price

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you negotiatedand the equivalent of almost 11 months of hard labor for someone earning $30,000 a year.

And now for the final insult: Your shiny new car becomes a used one the instant you drive it off the lot, and quickly loses 20% or more of its market value to depreciation. The bottom line: You'll pay more than $27,000 to buy a car that'll be worth maybe $15,000 should you decide (or need) to sell it.

Do you really want to spend the better part of a year workingnot for food, clothing, or shelter, but just to pay for the privilege of parking that recently-new-but-now-used car in your driveway? You'd have to work even longer if you wanted to actually drive it.

The decision's yours. Us? We'd rather buy the cream puff you're about to trade inas would most car buyers. Despite the hype, three times as many used cars as new cars get sold each year! It makes sense. Someone else will have taken the heaviest depreciation loss; you'll have an already broken-in means of transportation; and it's a lot easier than you may think to make sure you get a reliable vehicle at a fair price.

THE DIFFERENCE BETWEEN LOOKING RICH AND BEING RICH

Do you need a shiny new car to show clients, business associates, neighbors, or family that you're successful? Apparently most millionaires don't. According to Thomas Stanley and William Danko, authors of The Millionaire Next Door, 37% of them bought their most recent car used. And 25% haven't purchased a new car in four or more years.

Before You Buy or Lease Your Next Car, Read These 10 Rules of the Road

The time to repair the roof is when the sun is shining.

JOHN F. KENNEDY

Rule # 1:

Think Twice before Getting Rid of Your Current Car

Before you do anything else, seriously consider whether you really need a replacement car. You have alternatives:

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Get it fixed. In many states, you could replace a transmission, or even an engine, for what the sales tax alone will cost on a new set of wheels.

Go without. If you live in an area with good mass transportation, you could do yourself and the environment a favor by ditching one of your cars. Buses, trains, or cabs might suit you finewhen walking or biking won't do.

Try to downsize to one (or no vehicles). Park the car for a while. See if you would survive comfortably enough so that the money you'd save this year, and maybe next year and the next, would be worth the trade-off.

Keep your clunker for local driving, but for longer hauls where a more reliable vehicle would be in order, rent one. It might even cost you less than 45 cents a mile! (Charge it to a gold card that will pick up any damages your own insurance won't cover.)

If you decide to retire that hunk of steel and plastic you've been driving, don't wait until you're desperate. You may end up spending more than you want, and/or you may have to settle for something less than you had in mind. The best time to car shop is while you still have a working vehicle available. Whether it's yours, your sibling's, or your neighbor's, having a backup can take the desperation out of car shopping.

Rule #2:

Decide What You Really Want

When you've decided it's time to put another car in your garage, prepare yourself by unemotionally deciding what you need in these four categories: features, reliability, safety, and economy. Feel free to also think about what type of car you wantbut if you come up with two different answers, focus on what you need. It'll work better for you and cost less in the long run.

Some car decisions should be obvious, but obviously they're not! For example, if you live in a large city and never intend to use your car to travel through jungles, climb roadless mountains, drive through sand, or haul heavy loads, you can skip the four-wheel-drive sports utility vehicle. If you have a spouse, four children, and two dogs, a two-seat sports convertible might be a tad impractical.

With few exceptions, most auto makers build cars of similar size and quality in each price range. Some excel in one area but not in others. You may have to choose between the smoothest ride and the fastest acceleration, or between maximum front-seat legroom and backseat comfort, or between rapid body rusting and early transmission trouble. Despite the

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hype, there is no perfect car. Engineers have had to compromise all along the way.

Whether you're considering a new or used car, a couple of hours spent at the library checking the various current consumer guides and magazine stories will arm you with the information you need to create a list of possibilities. There are also some good Web sites: www.edmunds.com, www.intellichoice.com, www.compare.net, and www.kbb.com. Between them, you'll find all the details about any car you might want to consider. (You can even buy a new or used car over the Web at www.autobytel.com or www.carsmart.com.)

To save the most, be flexible. Pick more than one alternativefor example, a Toyota Camry, Ford Contour, or Oldsmobile Cutlass. The more generic you can be in your thinking, the better. If you'd be happy with any of the many four-door, six-cylinder cars with automatic steering, air-conditioning, front-wheel drive, and cruise control, you'll have many more options. Similarly, consider clone cars. For example, the Geo Prizm and the Toyota Corolla are virtually identical twins, but the Prizm will cost you less, new or used. The same is true for the Ford Taurus and the Mercury Sable.

Rule #3:

Know Your Bottom Line . . . and Stick to It

Figure out how much you can comfortably afford to invest in your transportation. Yes, a car is an investment, but not in the traditional sense. Unlike stocks, bonds, or mutual funds, your investment in an automobile is guaranteed to depreciate. Unless you buy a classic car, you're going to see the value go down, down, down. But also unlike stocks, bonds, and mutual funds, you can use a car in daily life, while securities often have no practical value until they are liquidated.

Remember when we said buying a car is no different than buying a pair of shoes? Yet some new car shoppers spend less time choosing and buying a $20,000 car than they do buying footwear. Wake up! If you invest the time and effort to carefully consider your needs and budget, you'll be far less likely to be swayed into a lousy deal. The money you save can then be invested in far more meaningful ways, again and again. Need we mention that you are not obligated to spend every nickel you can commandeer?

Rule #4:

The Less Debt You Carry, the Richer You'll Be

Those who know suggest you come up with about 20% of the final price. While 100% would save you the most, the journey to financial freedom

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frequently finds us financing the fare. You'll also need some other cash on hand for sales tax, registration, and a higher insurance premium.

To get a handle on the insurance question, pull out your list of possibilities and call your insurance company for quotes. The difference in the cost of insurance may help you narrow down your choices more quickly. With some models, for example, a red one may cost more to insure than a more subdued color. (Honest!)

And if you're going to finance the car, you'll need to know how much you can borrow. While we'll shortly be reminding you to never, ever tell a salesperson how much you can afford to pay each month, you yourself need to know what that figure is. You also need to know about loan rates.

Call a few lenders and ask for current loan rates on both new and used cars. Once you have those numbers in mind, look at Table 14.1. Find how much a month you've decided you can comfortably afford to pay, then look for the current interest rate. At a glance, you'll see how much of a car loan you can carry for varying terms. For example, say you can afford $300 a month (not including car insurance). At 7%, you can borrow anywhere from $6,701 for two years, to $15,151 for five years. At 9%, the range would be $6,567 to $14,452.

For monthly payments that are not shown, the math is easy. Say you can afford $600 a month. How much could you borrow at 7% for three years? Three times as much as $200, or twice as much as $300. Either way, the number you come up with would be about the samein the range of $19,400.

Once you know how much you can borrow, there's an easy way to figure out how much your loan will cost. Say you're thinking about spending $300 a month to borrow $15,151 at 7% for five years. First multiply the monthly payment by the term (in months). For example, $300 times 60 months (five years) equals how much you'll pay$18,000. Then subtract the amount you'd be borrowing ($18,000 $15,151 = $2,849 in interest). A two-year loan would get you $6,701 and cost you only $7,200 (24 × $300), for an interest charge of $499. Which is the better deal for you? (The last payment is usually somewhat smaller than the others, so these numbers are approximate. For exact numbers, you can use The Banker's Secret Software. See page 327.)

When it comes to loans, remember: Time is of the essence. The more you put down and the quicker you pay off the loan, the less you'll spend. If a short-term loan would take more out of your pocket each month than you can afford, can you come up with more up-front cash? No? Then maybe you'd be better off with a cheaper car.

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TABLE 14.1 How Much Can You Borrow?

IF YOUR MONTHLY PAYMENT IS

$100

$200

$300

$400

$500

$750

YOU CAN BORROW

RATE

YEARS

1%

2

2,375

4,750

7,126

9,501

11,876

17,814

3

3,545

7,090

10,635

14,180

17,725

26,588

4

4,703

9,407

14,110

18,813

23,517

35,275

5

5,850

11,700

17,550

23,400

29,250

43,876

3%

2

2,327

4,653

6,980

9,306

11,633

17,449

3

3,439

6,877

10,316

13,755

17,193

25,790

4

4,518

9,036

13,554

18,071

22,589

33,884

5

5,565

11,130

16,696

22,261

27,826

41,739

5%

2

2,279

4,559

6,838

9,118

11,397

17,095

3

3,337

6,673

10,010

13,346

16,683

25,024

4

4,342

8,685

13,027

17,369

21,711

32,567

5

5,299

10,598

15,897

21,196

26,495

39,743

7%

2

2,234

4,467

6,701

8,934

11,168

16,751

3

3,239

6,447

9,716

12,955

16,193

24,290

4

4,176

8,352

12,528

16,704

20,880

31,320

5

5,050

10,100

15,151

20,201

25,251

37,877

9%

2

2,189

4,378

6,567

8,756

10,945

16,417

3

3,145

6,289

9,434

12,579

15,723

23,585

4

4,018

8,037

12,055

16,074

20,092

30,139

5

4,817

9,635

14,452

19,269

24,087

36,130

11%

2

2,146

4,291

6,437

8,582

10,728

16,092

3

3,054

6,109

9,163

12,218

15,272

22,909

4

3,869

7,738

11,607

15,477

19,346

29,019

5

4,599

9,199

13,798

18,397

22,997

34,495

13%

2

2,103

4,207

6,310

8,414

10,517

15,776

3

2,968

5,936

8,904

11,872

14,839

22,259

4

3,728

7,455

11,183

14,910

18,638

27,956

5

4,395

8,790

13,185

17,580

21,975

32,963

15%

2

2,062

4,125

6,187

8,250

10,312

15,468

3

2,885

5,769

8,654

11,539

14,424

21,635

4

3,593

7,186

10,779

14,373

17,966

26,949

5

4,203

8,407

12,610

16,814

21,017

31,526

Note: This table was prepared with The Banker's Secret Software (see page 327).

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Rule #5:

Buy Used, Buy Smart, Save Big

With new cars costing what many of our parents paid for their homes, and depreciating in value faster than a speeding bullet, it's not surprising that good used cars are in demand. We think the amount of money you can save is well worth the time and effort you'll have to put into finding onefor your next car and the next and the next.

The good news is that manufacturers and dealers are drowning in a sea of low-mileage, recent-vintage used cars, thanks to all of those people who have been talked into leasing in the last few years. Many of these pre-owned vehicles have been given a thorough going-over (up to a 150-point checkup), are reconditioned, and come complete with manufacturer's warranties.

Begin your used-car search focused on those options you consider vitalbe it low mileage, an automatic transmission, cruise control, and/or air-conditioning. Then be on the lookout for suitable vehicles that are for sale. Ask everyone you know to do likewise. See if your mechanic knows of one for sale and can tell you what's been repaired on itand what hasn't. Read the classifieds regularly, and check the bulletin boards in supermarkets and local laundromats; www.onlineauto.com also offers nationwide used-car classified ads.

If you hear, see, or read about a car that might work for you, call right away. If it's a good deal, it won't last long. But do beware. No deal is so good that another, perhaps better one, won't appear shortly.

Call local dealers and tell them that you're especially interested in cars they originally sold or leasedand then serviced. Ask what they have in stock and get a sense of the asking price. If you're familiar with the going price (from using www.edmunds.com, for example), you may be able to whittle down the price before you even see a car.

Certainly before you make an offer, find out what the creature is really worth. Asking your local bank for the current market value, and how much they'd lend on it, is a good barometer of its real value. You can also consult the blue books and guidebooks as well as the Internet sites we've mentioned.

Don't be afraid to dicker! Most people ask a higher price in expectation of a buyer wanting to negotiate.

The no-haggle auto superstores are taking the negotiations out of a lot of used-car buying, which is great if you hate to dicker. But you may be able to spend less if you go through the usual give-and-take with a private buyer or at a traditional dealership.

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AVOID "CURBSTONERS" FRAUD

"Curbstoners" resell cars that dealers can't unload by making it appear as though they are being sold by private individuals. David Solomon, editor of Nutz & Boltz, a monthly newsletter ($22 a year, 800-888-0091), says these autos are often the "worst of all used cars," and many have serious problems. To avoid them, try to establish that the person showing the car actually owns it.

If the owner can show you a pile of service receipts with his or her name on them, you're okay. But watch out if someone says, "I'm selling the car for a relative who has moved" or "My friend's out of town." Although these cars often look very clean, they may well be junk. Stick to a car sold by an owner who can document its history, or buy from a dealer, where at least you have a little leverage if the car turns out to be a small yellow citrus fruit.

Rule #6:

Make Sure It Fits

As suitable candidates appear, ask the seller lots of questions: How many owners have there been? Has the car been in an accident? Where and how was the car driven? Ask to see the car's service papers. You want to know about routine maintenance as well as any problems that the car may have had in the past. Are there any current problems? If the dealer or present owner seems evasive or offended, move on.

Really get to know a car before you buy. Start by looking over the exterior, then check the interior to make sure the windows, doors, heater, air conditioner, radio, power takeoff device (these used to be called cigarette lighters), and various dashboard gizmos work properly. There are few things as frustrating and as chilling as a power window that doesn't want to go up . . . in a snowstorm!

If the buggy is still looking good, take it for a spin. Test-driving a car for 15 minutes will tell you almost as much as kicking the tires. (Nothing!). Ask the dealer or current owner to let you drive it for long enough to answer a few questions.

Is it comfortable for you and yours? If not, the price and options won't matter. Are the controls conveniently located? Can you change the radio station without taking your eyes off the road? Would you need to grow 6 inches in order to reach the pedals and see out the window?

Give it a good solid workout. Does it have pep, does it shake, rattle, and roll? Drive it up hills, on highways . . . everywhere. See how it handles,

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your life? When you mentally play out the change, however you define it, what's the first obstacle you come across? For Nancy, back in 1980, it was the money. "How could I possibly support myself? Even though I made over $40,000 a year, had only my one mouth to feed, and had great benefits, I lived paycheck to paycheck. I was stuck. Then it finally dawned on me that since I was so dependent on that paycheck, I'd be most comfortable coming up with a way to change my life without giving up my income stream."

Once that lightbulb went off, Nancy quickly arranged to cut down on her hours at the officeto go into the city three or four days a week and work from home the rest of the time. Her plan was to gradually move her base of operations to upstate New York, where she would buy a house. Same job, different home address.

She made arrangements to crash three nights a week at a city friend's home, and started looking to buy a house upstate. Her hope was that she'd eventually find a way to make a living outside the city, but she realized that keeping her city job was a wonderful, albeit temporary, bridge.

"Once I found that bridge, I could begin to explore my alternatives, not just to think about them all day long. All of a sudden, things began to fall into place. I decided where I wanted to buy a house and began looking at properties. I had about given up, when someone said, 'I know the person who'll help you find a house.' That's when I met Marc, and the rest, as they say, is history."

How can you begin to explore your alternatives now? Are there any bridges you can build that will make it easier for you to move in the direction you want to head?

The Domino Effect

When you begin to make changes in your situation, you build your courage for the next change or new experience. And so one change follows another. You hate your job, so you start a small home business of your own. Your business grows, so you feel you can leave your job. And you door at least you take some vacation days or a leave of absence to try it out.

You have more time for your business, so it continues to grow, and you also have more time for yourself and your children. You get to know them better, and you have more freshly cooked, healthful family dinners together, at home. You save money on day care and sitters, to say nothing of restaurants.

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and listen for any unusual noises. You get the idea! Spending time answering questions like these about any car you're considering is a very worthwhile investment.

The last time Nancy was in the market for a used car, a dealer let her take and test a Grand Prix for the weekend. All it took was the drive home to convince her that this car was no cream puffit was more like a lemon meringue!

When a car passes your road test, write down its make and model as well as its identification number (which is at the bottom of the driver's side of the windshield). Call the Auto Safety Hotline at 800-424-9393. Stay on the line, and ask a live representative if there have been any recalls. Also ask for the manufacturer's phone number. Then call the manufacturer and ask if any recall and/or warranty work has been or should be performed on that particular car, where it was originally bought, and whatever else you can learn.

Before you finalize the deal, buy yourself some peace of mind by paying for a bumper-to-bumper examination of the car you're considering. Whether you opt for an independent inspection service or your favorite mechanic, you'll want your doctor of vehicular construction to assess how the owner maintained it, to check the odometer for tampering, to look for a bent frame or other signs of accidents, to evaluate what items may soon need to be replaced, and to provide you with an estimate of how much they'll cost to fix. It's well worth the cost of putting the car you're considering under a microscope to find out whether it's junk or a jewel. Then renegotiate based on your mechanic's inspection. Maybe you can get the owner to pick up or share the cost of anything that will need to be fixed.

Rule # 7:

Buy New, and Still Save by Shopping Smart

Just in case you choose to take the road less traveled and buy your next car new, here is how you can save money, too.

New-car shopping used to mean walking into a dealership with a vague idea of what you wanted and, after going up against a sales pro, leaving with something far more expensive than you had in mind. These days, it's easy to learn to the penny how much the dealer paid for the car and each of its options, whether there are any manufacturer's incentives or rebates being offered to either the dealer or the buyer, and how to avoid some of the sales ploys that have milked unwary buyers for years.

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Assuming you know which cars will serve your needs, shop price (and service). Ask around for feedback from others who've bought from the dealers you're considering, especially those convenient to where you live or work.

Before you enter the showroom, write down the model, accessories, and current pricing information to review as the negotiation process unfolds.

The one sure way for anyone to avoid getting taken is to become an informed and disciplined shopper, period.

W. JAMES BRAGG, Car Buyer's and Leaser's Negotiating Bible

Invariably, the salesperson's first question will be "How much can you afford a month?" Never, never, never, never make your decision based solely on the monthly payment!

Before you negotiate, make sure you take the car for an extended test ride, just like the one we suggested in Rule #6, with one extra proviso: If you're going to buy a four-cylinder car, don't test a six-cylinder car.

While negotiating, don't discuss a trade-in or a lease. You want each dealer's best price for the car you're thinking about buying. After you're satisfied that you have a bottom-line price quote, you can discuss the trade-in value of your car. If the price the dealer offers for your current car isn't right, sell it privately or to a different dealer. Or maybe you'd like to donate it to one of the many charities that now accept used carsfor example, the National Kidney Foundation (800-488-CARS, www.kidney.org).

TOOLING UP FOR A TRADE-IN

To get a good sense of what a private sale might bring, check the classified ads in a few local newspapers and on the Net. Focus on models like yours, with similar mileage and equipment (see Rule #5), and assume 10% or so for give-and-take.

To find out what a dealer would pay, clean up the car inside and out, then drive over to a few car showrooms. Ask the used-car managers what they'd pay for yours outrightnot as a trade-in. Later, you'll have this information filed away for bargaining leverage, regardless of whether you trade it in or sell it to a private buyer.

Low Rate or Rebate?

When negotiating the purchase of a new car, you might be offered a choice of, for example, 3% financing or a $1,000 rebate. The key here is the word or.

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TABLE 14.2 The Great Debate: Rebate or Low Rate? Go for the Rebate If It's More Than . . .

LOAN AMOUNT

$10,000

$13,500

$17,000

TERM OF LOAN IN YEARS

DEALER

BANK

2

3

4

5

2

3

4

5

2

3

4

5

3%

7%

430

647

870

1,100

580

873

1,174

1,484

731

1,099

1,478

1,869

8%

540

812

1,094

1,385

728

1,096

1,477

1,869

917

1,380

1,859

2,354

9%

649

979

1,321

1,674

876

1,322

1,782

2,259

1,103

1,663

2,244

2,845

10%

760

1,147

1,550

1,967

1,025

1,549

2,092

2,655

1,291

1,950

2,634

3,344

11%

871

1,317

1,782

2,264

1,175

1,778

2,405

3,056

1,480

2,238

3,028

3,849

12%

983

1,488

2,016

2,566

1,326

2,009

2,721

3,463

1,670

2,529

3,426

4,361

4%

7%

323

487

656

831

436

657

886

1,122

550

828

1,116

1,412

8%

433

652

880

1,116

584

880

1,189

1,507

736

1,109

1,497

1,897

9%

542

819

1,107

1,405

732

1,106

1,494

1,897

922

1,392

1,882

2,388

10%

653

987

1,336

1,698

881

1,333

1,804

2,293

1,110

1,679

2,272

2,887

11%

764

1,157

1,568

1,995

1,031

1,562

2,117

2,694

1,299

1,967

2,666

3,392

12%

876

1,328

1,802

2,297

1,182

1,793

2,433

3,101

1,489

2,258

3,064

3,904

5%

7%

216

326

440

558

292

439

594

753

368

555

748

948

8%

326

491

664

843

440

662

897

1,138

544

836

1,129

1,433

9%

435

658

891

1,132

588

888

1,202

1,528

740

1,119

1,514

1,924

10%

546

826

1,120

1,425

737

1,115

1,512

1,924

928

1,406

1,904

2,423

11%

657

996

1,352

1,722

887

1,344

1,825

2,325

1,117

1,694

2,298

2,928

12%

769

1,167

1,586

2,024

1,038

1,575

2,141

2,732

1,307

1,985

2,696

3,440

(table continued on next page)

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(table continued from previous page)

6%

7%

108

164

221

281

146

221

299

379

184

279

376

478

8%

218

329

445

566

294

444

602

764

370

560

757

963

9%

327

496

672

855

442

670

907

1,154

556

843

1,142

1,454

10%

438

664

901

1,148

591

897

1,217

1,550

744

1,130

1,532

1,963

11%

549

834

1,133

1,445

741

1,126

1,530

1,951

933

1,418

1,926

2,458

12%

661

1,005

1,367

1,747

892

1,357

1,846

2,358

1,123

1,709

2,234

2,970

Note: These numbers were calculated with The Banker's Secret Software (see page 327).Simple Instructions: No Assembly Required

It's your lucky day. The car dealer's offering you 3% financing for two years or a $500 cash rebate, your choice. And the bank just approved a $13,500 loan at 8%. What should you do?

First, find the 3% dealer rate. Look over to the 8% bank rate, then across to where $13,500 and two years meet. It'd take a rebate of $728 or more to beat the dealer's low interest rate. So you'd go for the dealer financing.

Now let's say the dealer is offering a 4% loan rate, or a $1,000 rebate. Assume that the bank alternative would still be $13,500 at 8%, but this time, you're thinking about a three-year loan. Which one is the better deal? With $880 as the break-even point, you'd take the bank loan, and go for the dough! To maximize your savings, you'd use that $1,000 rebate as a lump sum pre-payment.

If your loan amount doesn't appear on the chart, all you have to do is some really simple math. For example, the break-even rebate point for a $20,000 loan would be twice as much as for a $10,000 loan at the same interest rate. So to equal 3% dealer financing, you'd need a rebate of $1,080 (2 x $540), assuming an 8% bank loan for two years.

But what about interest rates that aren't in the table? Say you can get 7.5% bank financing on $10,000 for two years, or a 3% dealer loan. The rebate would have to be halfway between the $430 at 7% and the $540 at 8%or $485. At 7.25%, you'd go a quarter of the way upto $458.

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Watch out. If you opt for the ''superspecial" loan rate, tempting though it may be, you won't get the manufacturer's cash rebateso you'll either have to borrow more money or come up with a larger down payment.

If you do go for the rebate, you'll save even more by using it to increase your down payment. Before you choose low rate or rebate, use our handy dandy "Great Rebate Debate" Table 14.2 to find out which deal is better.

Rule #8:

Shop as Hard for the Loan as You Do for the Vehicle

Whether you opt for a used car or choose a shiny new high-speed, fully equipped symbol of success, there may be a car loan in your future. If so, here's how to save money and avoid hassles.

Begin by finding out how you look. An honest face won't get you a loan, and neither will references from fine, upstanding members of the community. These days, you're only as good as your current credit report. Get a copy of yours, and fix any mistakes. (See page 231.)

Then dial a deal. When it's time to seriously shop for a car loan, set up a table and list what's currently being offered by local lenders. While a percent or two does make a difference, the total cost of your car will depend much more on how long you take to pay off the loan.

Credit unions generally offer lower-rate auto loans than do banks. So if you belong to a credit union, check there first. (To find out if you're eligible for membership, see page 197.) Another alternative is a local bank where you have accounts. Allowing payments to be automatically deducted from your account, or just being a loyal customer, could cut your rate by anywhere from 0.5% to as much as 1.5%. Ask.

And if you're buying from a dealer, listen to the financing spiel. While dealers often act as commissioned sales reps for local banks (adding their cut to your cost), they do sometimes offer good ratesespecially when the manufacturer is pushing a certain model by subsidizing the loan.

Wait until you've gathered a good sampling of rates before you give out any personal information. Even if you haven't discussed financing, once some car dealers have your name and social security number, they'll pull your credit report. Each time such an inquiry is made about you, it becomes part of your credit history, and lowers your creditworthiness in the eyes of some lenders. If you hand over your license (perhaps to test-drive a model) specifically say, "I don't want you to pull my credit report until and unless we sign a deal. I don't want the inquiry on my report." Unfortunately, there's nothing you can do immediately to verify that a

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sales rep has respected your wishes. But should you later discover that one did not, we hope you'll speak up.

Don't sign any papers or commit yourself to dealer financing until you've had a chance to consider your future togetheryou, the car, and the loanaway from the sales pros at the dealership. You have other options.

For example, a home equity loan is often touted as an easy, tax-advantaged way to finance a car. But be careful. The tax benefits are often highly overrated, and if you can't meet the payments, you could lose your house, to say nothing of your car.

Since home equity loans typically have such long terms (10 or 15 years), even if the interest rate is lower, unless you pre-pay, your debt could easily outlive your car and dramatically increase its cost. On the other hand, if you know you can be trusted to manage your debts, and if you'll have enough deductions to itemize them on your taxes, a home equity loan might save you money. To guarantee that it does, plan to pay it off fast, say in no more than three years or 25,000 miles.

And then there are true loser loans. Keep away from loans that front-load the interest, called Rule of 78s or sum-of-the-digits. Fortunately, they've been outlawed in some states, but maybe not in yours. Like most bad deals, these don't come with warning labels.

Make sure yours is a plain, ordinary, simple-interest loan. Then if you always send in more than your required payment, you'll cut your loan's cost, your time in hock, and your money-related stress level.

Lest we forget, beware of optional extras. And that doesn't just mean rustproofing, undercoating, and expensive extended warranties. Dealers and bankers will gladly broker credit and disability insurance, telling you, "They're for your own protection." Nonsense! If you feel the need for extra coverage, call a few insurance agents and comparison shop for whatever additional term or disability coverage you are seeking.

THE CAR IS DEAD. LONG LIVE THE LOAN!

Don't let the lure of low monthly payments leave you "upside down"limo lingo for when your wheels are worth less than the amount you still owe on them. A long-term loan will almost certainly leave you owing more than you could sell the car for or collect from your insurer should it be totaled.

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Rule #9:

Look before You Lease

. . . when you lease a car, you have all the headaches and responsibilities of ownership, with none of the benefits.

JACK GILLIS, The Car Book

The lease bug is surely on the loose, accounting for almost 30% of new car sales. The more you know about this highly touted "alternative" to buying, the less likely you are to get stung.

Warning: Leasing is forever. It's symptomatic of the buy-now, pay and pay-later modus operandi that has become the American way. Think about it. When the lease ends, what will you do? Begin a new lease on a replacement buggy? Come up with a pile of cash to buy the car? Take the bus? You could end up making "low monthly payments" for life!

But if you buy, the loan payments will probably stop before the car does. So after you've been shown the figures proving that a lease will cost you far less than an equivalent loanlook further down the road. After a loan's been paid off, the car will actually be yours, free and clear, but payments on a new lease will have just begun.

Dealers just love to lease. They usually get a higher price for the car, because Americans haven't yet learned that leases should be negotiated. Instead, shoppers pay top dollar and take the hit for those first few, very high depreciation years. Then the lucky dealer gets back a well-maintained, low-mileage used carto sell or lease again, as well as the opportunity to sell, or better yet, lease a new car to the customer who no longer has one.

SMALL PRINT = WARNING

That tiny type on the bottom of your TV screen . . . under the flashing "$325 a month" . . . gives you just a clue to your actual cost. In addition to the fine print about the up-front cash you'll have to fork overas well as the sales tax, registration, and insurance, which all come to a pretty penny on a new carthere's still income tax to factor in.

If you're in the 28% tax bracket, you'll need to gross about $450 every month to make a typical $325 lease payment.

Lease for 60 years and you'll pay $234,000 for the privilege. If you earn $100 a day, you'll work for just under a week a monthevery year for the rest of your leasing daysjust to cover the leases. Of course you'll have to

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come up with yet more money to pay for gas if you actually want to drive the car.

Our job is to save you money, no matter how you choose to live. And while leasing is rarely the least expensive way to spend your transportation dollars, the costs can be cut. Here are our ABCs for leasees:

Always buy first. Price shop as if you were going to buy. Only after you've agreed to a bottom-line price should you break the news that you might consider leasing. And in case you didn't hear us before, never, never, never answer the question, "How much can you afford a month?" Once sales reps have that number, all they have to do is reel you in.

Before you sign anything, insist on taking home a sample contract to study. Be sure you understand every single word. It could save you a wad. When you lease, your monthly payment and total costs depend on how much you pay up front, how many miles you drive, what interest rate you pay, what the future resale value of your car will beplus up-front fees, end of lease fees, early termination fees, excessive wear and tear fees. If they can dream it up, you'll be asked to pick it up.

But you can try to negotiate even the smallest fee. For example, you'll probably be offered "gap" insurance for a few hundred dollars, to protect you from an early termination fee, which will kick in if you introduce the car to a tree or opt out of the deal for any other reason. Sometimes the dealer will throw it in. Ask.

Closed-end leases are better. With an open-end lease, you could be hit with a whopping termination charge, should the car be worth less on the used market than was originally anticipated. With a closed-end lease, the future resale value is the leasing company's headache.

Negotiating for a high resale value will lower your costs. If the market value of your car ends up being less, the dealer eats the loss. If it ends up being even higher than the agreed-upon residual, you might choose to actually buy the critter at that bargain price.

Driving how far did you say? Most leases permit 12,000 to 15,000 miles a year. If you cruise further, you'll pay morea dime or two per mile. At 15 cents, an extra 10,000 miles will cost you an extra $1,500, adding $50 a month to a 30-month lease. Ouch!

Early birds win again. Lease early in the model year to avoid midseason price hikes and a lower residual value. In other words, it'll be cheaper.

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Finance companies owned by the manufacturers (such as GMAC) sometimes subsidize leases, which can significantly lower the cost of leasing. Go to www.intellichoice.com/lease for a current list of subsidized leases.

Unfortunately, these bargains are likely to be for the least desirable cars on the lot. And you'll still need a replacement when the lease ends! If you're willing to buy the car at the end of the lease, why not buy a "post-leased" car right now?

Guess who gets the rebate? The leasing companyunless you structure the deal differently. (Remember, everything's negotiable.) Sometimes a dealer will give you the benefit of any rebate to make the sale, but don't depend on it. Ask!

Here's the catch: The reason lease deals look better than purchases is because you aren't buying the whole car. You're only buying the difference between the new car's cost and its probable value after the lease is over. While your monthly payments may be lower, at the end of your lease all you'll have is an empty garageunless you shell out some big bucks to buy the car or sign on the dotted line for another lease.

When you buy a new car, after five years or so of driving, you can at least sell it-maybe for 50% of its original value. Buy a used car, and you'll pay less up front, and if you take good care of it, you'll probably still be able to get something for it when you get your next car.

Interest can't be saved. While we urge you again and again to pre-pay your loans, don't put your pocket change into a lease. While most car loans will cost far less if you always pre-pay, it won't save you a nickel on a lease. When you lease, you pay the full price, whether or not you send payments in early.

Rule #10:

Shop for Insurance, Too

The easiest way to deal with the confusing issue of insuring your cars is to make a single call to any broker or large insurance company, ask for a quote, sign up, and get back to whatever you'd rather be doing. Let it automatically renew every year, and you'll never have to think about it again.

From the perspective of investing in yourself, there's a small problem with this approach: cost. For example, our researcher, Marcy Ross, took the time to get a bunch of quotes for the same exact coverage on her family's two cars. They varied by $400!

Overpay by that amount every year for a not untypical 60 years of driving, and voilà, you've wasted $24,000. Instead, if you were to invest that

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$400 every year at 7%, you'd have $370,729. Too bad for Marcy, though. Her current carrier was the one with the bargain rate. So while she gets the satisfaction of knowing her rate is the best, she won't get an extra $370,000not this way at least.

Insurance, as annoying, crazily confusing, convoluted, and costly as it can be, is for your financial protection. If you're involved in an accident and the inevitable lawsuits, having the wrong coverage, or limits that are too low, could literally destroy your world!

So to save money and more, it pays to invest some time in pursuit of your best option. In most comparison shopping situations, price checking is simple, "How much is your yellow widget with the brass doodad?"

Not so with auto insurance. Everything varies for everyone. Two neighbors driving identical cars may well pay different rates for the exact same coverage from the same insurer! Not only does the price quote depend on the car being insured, it depends on where you live, how much you drive, what your car is used for, how old you are, your gender, your driving record, your marital status, your credit record, how many other drivers are in your household, their ages, and more, more, more.

Then there are all the separate costs for a list of unfathomable protections, some of which may be mandated by your state.

"What's It All About, Alfie?"

Here's a quick glossary for your confusion and pleasure:

Bodily-injury liability. Covers you for the medical expenses, lost wages, pain and suffering, and/or funeral expenses of the occupants of the other car. In a no-fault state, it would also cover the passengers in your car.

Property-damage liability. Pays for damages to other people's cars or property. State minimum mandated coverage for liability is often notoriously lowespecially if you have assets like a home or significant savings worth protecting in case of a lawsuit. Experts recommend that most people carry a 100/300/50 liability split, which means $100,000 of coverage for each injured passenger up to a $300,000 limit per accident, and $50,000 in property damage coverage. It's becoming more common in these litigious times to see a $1 million umbrella policy (for car and home liability protection) recommended to people who have substantial assets that could be at risk in a lawsuit.

Collision and comprehensive. Collision covers repair or replacement of your car, no matter who caused the damage. Comprehensive covers repair or replacement of your car if it's stolen or damaged by events such as fire, flood, or wind.

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You need fewer work clothes, the dry cleaning bill evaporates, and you find that you need fewer things to console you for what your job was making you miss at home. In short, your expenses go down and your pleasures go up. Your job no longer binds you to where you've been living, and you begin to think about moving to a place where you've always wanted to live.

You develop new hobbies and interests. You're more alive. You watch less TV and do more in the community. Change, you begin to realize, is good.

But it's not always easy. There are ups and downs. The new business grows slower than you hoped, you feel lonely working at home, there's less money than you expected, and you're putting in longer hours.

What went wrong?

Maybe nothing. It's hard to change your life, especially when it's not your choice . . . a divorce, a layoff, a flood. But even when you've finally done what you've always wanted to do, there are bound to be bumps in the road.

And the process of beginning to change is a long and winding road. It's been on your mind for a long time, you've gone back and forth, you've had to make hard decisions, you may have to hurt someone you love.

A friend of Marc's used to say that waiting for something to happen would be a lot easier if only he knew exactly when that something would occur. So he'd set a date, not as a goal, but as a way of getting past the when and on to the "What can I do to make it happen?"

With determination, time, a good support network, and a belief in your right to be happy, you can and will break free. You get to decide when.

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Tip: You can cut the cost of your collision premium as well as the liability amount by 10% if you take a traffic safety course. Often offered at local adult ed programs, they're very informative as well as money savers, and if you have a bunch of tickets on your record, you can drop some of those bad points by taking the class.

When your car is well past its prime, you might want to save some money by dropping collision and comprehensive. There's a lot of debate about how long you should maintain this coverage. Some experts say to drop it when a car is five to seven years old or if the premium represents more than 10% of the value of the car. (Keep in mind that it's the blue book value that's paid out, which may be much less than you think the car is worth. Your bank's loan department or your insurance broker can quote the current value of your car.)

We've seen recommendations that you drop coverage when a car's book value is less than $4,000, and still others say $2,500. In the end, it's your comfort level that should determine the value of this coverage as your car ages. Let's assume the Kelley Blue Book lists the trade-in value of your car at $3,500 and you're currently paying $300 a year for collision/comprehensive, with a deductible of $500. Each year that you don't total the car, you've saved $800. What are the odds of you driving another three or four years without a major accident? We hope the odds are with you! We'd drop the coverage and continue to drive as safely as we could, understanding that we're taking a small risk, but not an unaffordable one, especially since the value of the car will be dropping over the next few years as well.

Most experts agree that it's wise to go for the highest deductible you can manage. Over the years, the savings will probably more than cover the deductible should you ever make a claim.

Medical payments coverage. Your health insurance covers this same ground, but it may help your poorly insured passengers.

Personal-injury protection (PIP). Also covers medical payments and funeral costs, along with some protection for lost wages. Some no-fault states require it; in others it's optional.

Uninsured-and underinsured-motorist coverage. Pays if you're hurt in a hit-and-run accident or injured by a driver who has minimal or no coverage.

Miscellaneous coverage. Includes glass breakage, rental reimbursement, and towing.

Where to Shop

Most state insurance departments offer comparison pricing guides for car insurance. Check your local library for your state guide, or go to the

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National Association of Insurance Commissioners' Web site (www.naic.org). And there's no lack of magazine articles and books at the library where you'll glean more recommendations. Also check out these Web sites: www.bbb.org/library/autoins.html, www.insure.com/auto, www.insweb.com/auto, and www.hwysafety.org.

If your rate rises or you're turned down for coverage, get a copy of your Comprehensive Loss Underwriting Exchange (CLUE) report from Choice Point (888-497-0011). If the insurance company requested the report to make the decision, the copy is free. Otherwise, the cost is usually $8. It could show mistakes on your past claims experience.

Even garden-variety clerical errors could cause you to pay more or to not have the coverage you wanted. Look over quotes (which should be made in writing) and your policy carefully. One survey revealed that insurance agents gave inaccurate information one-third to one-half the time when providing premium comparisons.

Now that you're thinking about it, call for quotes today, even if your policy is not due to expire soon. The more time you have to shopand to thinkthe more you'll save.

WHEN SAFETY COMES FIRST

Investing in the safest car you can afford is among the best investments you can make. Not only may your choice save your life or the life of a loved one, you may also get better insurance rates.

Look for a car with a high safety rating from the National Highway Traffic Safety Administration (NHTSA). Call 800-424-9393, or visit www.nhtsa.dot.gov.

If you're buying through a dealer, request a copy of the car's insurance-loss data for injury/collision published by the Insurance Institute for Highway Safety. Dealers are required to provide this information upon request. Or send an SASE for "Injury Collision & Theft Losses" to Highway Loss Data Institute, 1005 N. Glebe Road, Arlington, VA 22201, or visit www.carsafety.org.

Simple Strategies to Cut the Cost of Driving

If the car isn't moving, but the engine's running, you're getting 0 miles per gallon. Make all adjustments to mirrors, seat belts, hair, childrenwhateverbefore starting up.

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Turn off the engine whenever you'll be sitting for 60 seconds or more, and you'll save on gas.

Properly inflated tires will save money on fuel costs. Buy a decent tire gauge and use it. Also, make sure your tires are properly balancedanother gas-saver.

Don't use gasoline with a higher octane rating than is recommended in your car's owner's manual. "Higher octane = better performance" is nothing but a marketing ploy.

Replace your own air filter. It's incredibly cheap and easy, and can improve your gas mileage. (If Gerri can do it, you can do it.)

A tune-up, when needed, can cut your fuel costs as much as 20%. The trouble is, today's cars don't need the old fashioned kind of tune-up (points, plugs, condensers, idle adjustments) that we gladly paid for every 15,000 to 25,000 miles in the good old days. Read the recommendations in your owner's manual. You may be pleasantly surprised.

Sun shades, the kind you put in the windshield of your car, can do more than help keep the car coolerthey can also keep the dashboard and upholstery in better shape, and save fuel during the "hot" season by reducing the load on your air conditioner.

Get the radiator flushed and re-filled with antifreeze every couple of years. If it gets too clogged and dirty, you may end up replacing the radiator.

Change your oil regularly and use good oil and filters. And change the transmission fluid every 20,000 miles or so.

Choose the best oil by selecting those brands that have the letters "SJ" after the viscosity numbers (like 10/40).

Have the timing belt replaced when the manufacturer recommends it, usually at 60,000 or so miles. When it breaks, the car stops and you'll have to pay for towing, and possibly for serious damage.

Wash your car. Don't forget the underbody, where rust can develop.

When something sounds wrong, have it checked out. Turning up the radio to drown out the noise may prove to be an expensive antidote.

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Chapter 15

Controlling College Costs:

No Problem

When it comes to financing college, your best investment isn't money

Choosing the right school

The truth about paying for college

Negotiating with financial aid officers

The perfect pre-paid college tuition plan

There are extremely talented and capable people who never went to college for a single day. And, as everyone knows, some of the most incompetent boobs on our planet have degrees from prestigious universities.

JOHN AND MARIAH BEAR, College Degrees by Mail & Modem

$280,416

That's one estimate of the cost to send a newborn to an Ivy League school 18 years from now. Other projections put the figure as high as $360,000. In other words, college could easily cost as much as or more than your family's homeand the mortgage on it. What's worse, those numbers don't include the roughly $180,000 it's estimated to set you back between the time one of your future graduates is born and the day you drop him or her off at Bankbreaker U.

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Before you put the kids up for adoption, take on a second job, remortgage your house, or otherwise sell your soul, let's take a look at some less depressing college planning facts.

Not Everyone Needs or Wants to Attend College

While college is a very valuable learning and growing-up experience for many high school graduates, there are exceptions, and one of them may be yours. A high school diploma can be more than adequate for those students who don't thrive in an academic environment or who have career goals that don't demand a college degree.

Thomas Edison never attended college. In fact, he never graduated from high school. Billionaire Bill Gates was a Harvard dropout. Other degreeless achievers include ABC anchor Peter Jennings, former British Prime Minister John Major, Lands' End founder Gary Comer, and according to one survey, almost half of the wealthiest 1% of American entrepreneurs!

A good plumber, carpenter, auto mechanic, executive assistant, electrician, or entrepreneur can easily earn more than the best teacher in townwithout spending a fortune on tuition. So can mail carriers, aircraft mechanics, telephone installers, tool and die makers, self-taught computer programmers, as well as superstars of stage, screen, and ballfields.

Not Everyone Who Attends College Needs to Go Far Away from Home

Tuition, in most cases, is just the frosting. Room, board, and travel home can eat up as much or more of the cake. To cut costs, you might choose to have your college-bound students leave the nest slowly, by beginning their higher education at a local, inexpensive community college and then transferring to a four-year school. Even then, an in-state college won't pinch much, nor will a private schoolif your child can get a great financial aid package, which means one that isn't heavily based on loans. A good aid package can cut the cost of an Ivy League experience to the same or less than one offered by the state.

Not Every Student Needs to Graduate from Harvard, Yale, or Princeton

Not all college graduates end up in careers for which they were trained, and quite a few end up working at a job or in a field that's unrelated to

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their majoror even in one that doesn't require a degree. From there, it's a short leap to the conclusion that most kids can avoid an expensive school altogether, without hurting their careers.

Students who will be going on for a master's degree or doctorate can take their pick of''cheap" colleges first. After they've excelled at "Discount U," they can attend Yale's law school, and come out with an ivy-covered diploma at a greatly reduced price. In the real world, it's the last one that counts. That first degree might not even make it as a wall decoration.

Not to Worry

If you practice what we've been preaching, you'll have a good head start on paying for college. By making the most of your money and paying off your credit cards, auto loans, mortgage, and whatever student loans of your own you may still be lugging around, you'll save tens of thousands in bank interestmaybe even enough to pay for a college education or two.

It also pays to continue to fund your 401(k) or 403(b) retirement plan to the maximum of your ability, especially if there is an employer match. Most schools don't take what's accumulated in your retirement account into account when they calculate your share of the costs. However, should you need it later for college tuition, 401(k) and IRA money can be withdrawn (although you will pay taxes and you may be hit with penalties).

Even If You Start Late, You Can Save Big for College

Every $25 a week you can trim from your spendingby brown bagging lunch, mowing your own lawn, eating dinner out less often, or whatever strikes you as dispensablemeans a potential $16,300 you could accumulate by the time today's eighth-grader finishes college in nine years (assuming you invested the savings and earned a 7% return on your money).

KRISTIN DAVIS, Financing College

While we have no argument with the truism that the sooner you begin socking away money for college, and the more you stockpile, the more you'll have, we'd like to emphasize that an excellent college education can come cheap, even if your child is not a brilliant student or an Olympic-quality athlete. So put aside what you can (including your fears), but also think long and hard about how much of an investment you're really willing to make in those four yearsand how much of a financial burden you're willing to let your children take on for themselves.

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In a nutshell, here's how college financing works: You fill out at least one all-important financial aid form in early January of your child's senior year in high school. The colleges where your child has applied will use that information to decide how much you'll have to pay. Known as your expected family contribution (or EFC), it's based on your income and assets, as well as your child's income and assets.

Once a college figures out your EFC, it then proposes a plan to help you handle the rest of the cost-for tuition, room, board, books, even for traveling homethrough loans, grants, work/study programs, and scholarships. Some schools are more realistic than others in apportioning the total costs. The less realistic schools leave a gap that you'll also have to cover.

In all, there are some 3,200 accredited colleges and universities in the United Statesincluding at least a few reasonably priced ones that would offer your child a perfectly fine and fun four years. Investing the time and energy into helping your child pick the right school can ensure a better educational and social experience at far less cost.

Pulling Together

We know it's not always easy to find the right time and the right way to talk to teens about money, about their future, and about yours. But the best investments for college can be made in the few years before applying, and they involve little or no money.

Today's kids know that college is expensive. What they may not know is that without planning on all your parts, their campus years could cost more than anything else. While we all want the best for our children, if you can't afford to finance a four-year trip to an ivory tower, just say so . . . and calmly discuss the options. Besides, an Ivy League school may not be best for your child.

Finding a way for the whole family to get on and stay on the same page about playing the college game could save you a fortune, and keep a mountain of debt off the graduate's back, as it builds a happier high school experience for you all.

Go Easy on Your Kids

Life is tough enough without feeling pressured to excel all of the time at everything you do. It's the same for kids. Growing up should and can be fun.

Honestly, wouldn't you rather have well-rounded, happy kids at good schools that want them badly enough to offer them a great aid package, than obsessive, stressed out, overworked, and always exhausted children

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attending prestigious universities? That said, without putting your children under enough stress to drive them to the brink or beyond, instill an Invest in Yourself attitude in your high schoolers.

Encourage them to do their job for the family and work hard for good grades, participate in extracurricular activities that they're really interested in, explore the world, develop hobbies and skills, care about others, and find a niche where they can really excel. They need to know that you see them as important contributors to the family's future, and that their efforts, beginning in ninth grade, can dramatically affect the entire family's financial future.

Varsity letters are nice for those who can get them, but the most important letters for your kids may be PSAT, SAT, and ACT, the standardized tests that most (but not all) colleges take very seriously. By starting the college search early, your child can find out whether any of his or her top choices require those testsand what other criteria they weigh most heavily.

Increased scores are potential money savers and therefore excellent investments for many families. Prep courses, review books, and computer software can all boost the numbers on these important (if not always respected as accurate) exams. For free help, simulated tests, sample questions, and/or free software, go to www.testprep.com, www.ets.org, www.collegeboard.com, www.act.org/aap/index.html, www.kaplan.com, and www.powerprep.com.

Encourage your children to prepare one way or another. If they need an immediate payoff to go at it enthusiastically, come up with a suitable reward. (Bribery within the family has great investment potential, and is perfectly legal.)

Preparing Your Child for the College Olympics

It's not too early by the sophomore year to begin looking at collegesor at least at their catalogs, videos, Web sites, and the numerous write-ups you'll find in college selection guides, magazines, and books. On the Web, you can visit www.petersons.com, www.usnews.com/usnews/edu/college, www.universities.com, and www.review.com.

Some of our favorite books on choosing a college are The Insider's Guide to the Colleges, compiled by the staff at the Yale Daily News, Colleges that Change Lives: 40 Schools You Should Know About Even if You're Not a Straight-A Student by Loren Pope, and The Fiske Guide to Colleges by Edward B. Fiske. For students who do well in school and on the SATs, Ivy

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League Programs at State School Prices by Robert R. Sullivan is worth a read. For reviews on other books about choosing a college and on the admissions process, go to www.collegeaid.com.

Find a way to have the college search be a pleasant experienceand a priorityfor you both. Ask questions to help your teen tune in to his or her preferences in a school. The criteria might include: big, small, near, far, liberal arts, specialized, active fraternity/sorority life, specific sports or arts programs, lively city, quiet country, religious affiliation or not, north, south, east, west, or midwest, intern or co-op opportunities, two- or three-semester schedule, and perhaps the opportunity to study abroad.

As for a career choice, that can wait. Many college graduates earn degrees in fields they never even considered back in high school. Being exposed to new possibilities, after all, is one of the major benefits of attending college. Some would say that the classroom learning is the least valuable of what higher education has to offer.

While you and Junior can arrange for some school visits at any time, be sure you've gone to quite a few campuses by his junior year in high school. Oh, and difficult as it may be, give your children plenty of space on these college jaunts. (Remember how embarrassed you were when Mom and Dad trailed behind you, asking all the "wrong" questions?)

Official tours are nice, but sleep-overs in a residence hall with real, live students are a lot betterand in our view, mandatory at any school your child is seriously considering. While there, Junior ought to sit in on a few classessome that freshman take (those lectures with lots of other students) and at least one more advanced class, ideally in a subject he thinks he might major in. While you're there, stop in at the financial aid office and see if you can get a quick course on how the process could best work for you.

If your teens are resistant to the college search, come up with some enticements (a bribe), so they can get an immediate payoff for investing the time and energy. ("Visit State U next weekend with us and we'll chip in so you can buy the billion-watt music system you've been wanting.")

A Fine Balancing Act

You know what schools look for in studentsgood grades in serious academic subjects and on the SATs, leadership qualities, a record of community activities, a few advanced courses on their transcripts, and skills on the ball field or in the orchestra. Top students get accepted to more schools, are offered more non-loan aid, and are in the best negotiating

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position for pitting one school's offer against another's. Not surprisingly, students who merit them are the ones who get Merit Scholarships.

But students who might be less than exciting to one school might be gems to another, whether it's because they'd be in the top 25% of that particular school's entering class, or because they're attractively"alien" to an admissions department looking for diversity. A Midwestern school might be eager for kids from New England, while a New England school might be thrilled to have an Alaskan or two.

Be Realistic

If your child is an all-around high school star, with brains, brawn, and band, some school is bound to offer a full scholarship. Your college costs could be zero.

If your child is not a well-rounded, straight-A student with glowing letters of recommendation, leadership qualities, and near-perfect SAT scores, an acceptance letter from Stanford is unlikelywhich may very well be great news!

By being realistic about interests, academic capabilities, and personality, your child can focus on schools where the fit would be right, and where he or she has a very good chance of being accepted.

HAPPY NEW YEAR!

It's January 1 of your child's senior year in high school. To start the year off right, fill out a Free Application for Federal Student Aid (FAFSA), which you can get from the high school guidance office, college financial offices, many libraries, or on-line (www.ed.gov/offices/OPE/express.html). By and large, colleges base their aid decisions on this one crucial form put out by the Feds.

Because the amount of aid available is limited, early birds can peck from a full pot. But those whose applications arrive nearer to a school's deadline, which could be as early as January or February, may face an empty one. Therefore, even if your taxes aren't prepared by then, and you'll have to submit an estimate (followed later by an amended form), your first investment this year should be the time it takes to fill out your FAFSA. Get it in right after January 1 of your child's senior year. The grant you save may be your own!

Fill out the FAFSA as accurately as possible, and be sure to sign it. If you don't, you'll go to the end of the line, which means you very well may get nothing.

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Some colleges, especially private ones, will also ask for the College Scholarship Services's PROFILE form, and there may be separate aid applications put out by the individual schools as well as by your state. The financial aid officers at each college will use these forms to decide how much will come out of whose pocketstarting with yours. Make sure you find out from each school exactly which forms they'll want, and get them in as early as possible.

The ideal situation is for your child to have intelligently applied to a few schools that would be as thrilled to have her as she will be to attend. The perfect school would place her on its top 25% wish list for the year, and have a nice, large endowment so it can offer a juicy grants/scholarship package, or be so low cost that you can swing it.

With more than one such acceptance in hand, you'd be in a good position to negotiate. To take your best shot at a better deal, ask for an extension on the deadline for making a final decision, and talk to each financial aid officer. Explain your family's current alternatives, and why a more generous aid packagesimilar to the one from Competing College would make the differencein your friendliest way, of course.

Since each year requires a new financial aid application, which could result in a cutback on future help, now's the time to try for aid and tuition guarantees, too.

You'll have the least bargaining room if your child is accepted on early decision (and has forfeited the right to go elsewhere). On the other hand, if your child's heart is set on a school, she'll have the best chance of being accepted by applying for early decision.

If her first choice is a school that isn't particularly generous, we think your best alternatives are to either say, "No!," or to come up with a plan to raise the money. Don't worry, you won't need it all by the first day of her freshman year. Much worse from our perspective would be to let your child graduate with a doctorate in debt.

Out-of-state, state schools present a unique opportunity. If your child decides early enough that he really wants to attend one, has a good chance of being acceptedand if you're flexiblean early move to that state will drop the tuition dramatically. (Lots of families move for the right elementary school. Why not college?) While it may not cut your family's expected contribution, your child can graduate debt-free and you won't have to go into hock, either.

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The Great Scholarship Myth

There is more money in being an informed consumer and taking charge of the aid link-up process than in all the scholarship hunts ever conducted!

ANNA AND ROBERT LEIDER, Don't Miss Out

Don't get suckered by ads from outfits who'll assure you that billions of dollars worth of scholarships are going to waste because you haven't sent them a check for a computer-generated list. Don't waste the time or money.

We have nothing against applying for scholarships legitimately, but even if your child could get an award, it will probably not save you a nickel. Why? Because in creating your aid package, the school's financial aid officers will deduct the scholarship from the college's part of your aid packagenot from your family's expected contribution.

Still, it would be wonderful to see your child receive the special honor he deserves. To pursue the scholarship question, ask at the high school, as well as where you work, pray, and belongbe it the VFW, NAACP, ILGWU, or the Boy Scouts. And visit these Web sites: www.salliemae.com, www.collegeboard.org, and www.fastweb.com/fastweb.

Doing Your Homework

The more you know about navigating the financial aid maze, the more aid you'll get. Even if your family's income is over $100,000, if you play the game right, you can get a generous financial aid package, especially from a well-heeled private school.

The more time you invest in learning how the financial aid game is played before (preferably well before) application time, the less your child's future learning will cost you. And with tens of thousands of your dollars at stake, the hours you put into reading, researching, and then reasoning with your young 'un could save you from a retirement filled with debt.

PLAY THE COLLEGE FUNDING GAME! GET TO ANSWER KEY ETHICAL QUESTIONS!

Here are two particularly common and troublesome issues:

1. If your family has the money, is it fair to move your income and assets around so that your kids can get grants, subsidized loans, need-based scholarships, or work/study hourseven though that will limit the funds available for needier families and students? We leave this question for you to ponder.

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2. Whose essay is it? Often the key to admission, the personal essay should be great, but it should also be real, and preferably moving. The best time for kids to write theirs is during a vacationfor example, the summer before their senior yearwhen the pressure is off and there's lots of time to think, write, review, edit, and rewrite. When school is back in session, suggest that they ask teachers and guidance counselors to read and comment on their essay, then help them edit it again and again.

Would it make more sense for mom or dad to write the application essay, or to hire a pro to do it? Nope. The admissions people see thousands of applications. Like Santa Claus, they know if you've been bad or good. So be good for goodness sake!

The Higher Your Income, the More You'll Pay

While one group of experts is scaring you into saving all you can so that you'll be able to foot the college bill, another group is telling you not to save, because the more you have, the more you'll have to pay.

Colleges expect parents to help foot the bill. On average, every year they're supposed to shell out up to 5.65% of their assets, and up to 47% of income (after various allowances and exclusions). But they're rarely expected to foot the whole bill, and it's not hard to cut your EFCif you plan in advance, even just a little in advance.

The financial aid officers at the various colleges have discretion and can be reasoned with. For example, if you've had unusually high medical expenses, are footing the graduate school bill for another child, have a younger child in private school, or just lost your job, some schools will take that into account and adjust their offers accordingly.

While the parents' income gets hit hard and their assets get plucked, the student's assets and income both get clobbered! Excluding the first $1,750 of what they earn, college students are expected to contribute up to 35% of their assets and half of their after-tax earningsnot once, but in each of their four years at school. The more money your kids have in their name, and the more money they earn, the more they'll have to contribute.

From the "Rules Are Nuts" Department

If your child plans to pay for extra college expenses (like pizza) by delivering newspapers at 4 A.M. come rain or shine, or is a computer whiz intent on putting aside big bucks by doing programming after school, be

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proud. But break the bad news of how college math works: Fully 35% of everything the student puts aside will automatically go directly to the college each year before other financial aid is even considered. And, after a small allowance, so will half of everything earned from January 1 of the junior year in high school until December 31 of the junior year in college. Those are the rules.

It may make a lot more sense for your kid's college investment time to be spent studying, volunteering, participating in athletics or the drama department, preparing for the SATs, reading college catalogs, visiting schools, deciding which ones are most appealing (and why)even sleeping. There'll be plenty of time to make money after college, unless, of course, your kid will be applying for graduate school aid.

One way your teens can help to cut college costs is to cut the time they spend in college. Taking advanced-placement courses in high school will help. So will any college-level summer courses they take while they're still in high school. To be seriously considered by a serious college, it'll pay for them to take serious courses, including as a high school senior. The time to slack off has not yet arrived.

If your kids are anything but slackers, they could cut costs by completing college in three years rather than four. (When checking school statistics, look at the percentage of students who graduate in three, four, or five years and more.) With every year being a major expense, less campus time might be worth considering, especially if graduate school bills are likely. And don't forget about Uncle Sam footing the bills. If your child has an interest in entering the military, it's a win-win situation.

Families Are So Complicated Now

The finances of noncustodial parents are generally not considered by financial aid administrators when calculating a family's expected contributionalthough some private colleges do factor them in. But that doesn't mean that your child's noncustodial parent shouldn't help with the costs! (Here's hoping your ex isn't a deadbeat.)

Stepparents, on the other hand, must include their income and assets on the federal financial aid form, and most schools expect them to pick up a parent's share of the tuition. (Talk about a marriage penalty!) From a purely economic point of view, if one natural parent is wealthyor remarried to someone who isand the other one is struggling, it would be less expensive for the child to live with the poorer parent. Hey, we don't write these crazy rules, we just report them.

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LOOPIDY LOOPHOLE

If your adjusted gross income is less than $50,000, you may be able to exclude all of your assets from the aid formulas. Your home, yachts, gold bricks will all be safely hidden if you and everyone in the household who has to file tax returns is eligible to (and does) file either the 1040EZ or 1040A. There are exceptions, of course, but isn't it nice to know that some of our wealthiest families can send their children off to school without having to mortgage their chateaux on the Riviera?

Ways Everyone Can Use to Save on College

Even some of the wealthiest Americans, using creative but legal loopholes, feed at the trough of public and private college funds. One perfectly legal ploy is to lower your income in the first crucial tax year that colleges focus on when determining how much you'll have to pay. That year starts on January 1 of your child's junior year in high school, and it ends on December 31 of that same calendar year (at which time Junior will be a senior).

If you were planning to take a year off anyway, this is the year to hang up your hat for awhile. And if you have some capital gains to take, do it earlier, say in your child's sophomore year.

Another great way to cut your expected share of college costs is to have a business of your own. If you need any extra motivation to create your Ace in the Hole, here it is! Ideally, you want something up and running in your child's junior year. (The IRS has a bad habit of assuming businesses that aren't profitable in at least three out of the last five years, aren't businesses at allbut hobbies.) A small business can provide tax benefits and can cut your college costs because business assets are assessed at a lower rate than personal assets.

By and large, the schools don't care how deep in debt you are. You'll be expected to contribute as if you weren't. Another good reason to pay off those bills! Say you need to buy a new(er) car. You'd decrease your assets by spending money in your savings account for it, and therefore, your EFC would go down.

Interestingly, if you borrow from a bank or a car dealer to buy the car, in addition to finance charges, you'd have to come up with more money

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to pay for collegebecause you haven't reduced your assets. A better bet might be to borrow against your home equity (if your child is applying to schools that count it, which many private colleges do), or to borrow against your investments (e.g., a margin loan against stocks). While auto loans are not deducted from your assets, loans against your home and investments are.

The possible mix of grants, loans, and work/study opportunities will vary from school to school, state to state, or public to private institution. But with the major exception of those private schools whose calculations include home equity, your family's up-front cash contribution will (at least in theory) be the same, whether your child goes to Princeton or Podunk U. The biggest difference in final costs will result from the fact that loans need to be repaid, while grants do not.

If you are not able, interested, or willing to become very well informed, an early meeting with a qualified specialist in financial aid rules may save you a fortune. Tax preparation and college aid applications are very different. A tactic for saving money on one may cost you money on the other. Be aware, though, that while most planners are up to speed on topics like retirement planning, experts in college financing are tougher to find.

So how do you find such a specialist? Ask guidance counselors, other parents, and friends for recommendations. The International Association for Financial Planning (800-945-IAFP) can refer you to any of their members in your area who specialize in college financial planning.

Dee Lee, a Certified Financial Planner with Harvard Financial Educators in Harvard, Massachusetts, says that a good planner should be up front about his or her expertise. If the person you contact has only a smattering of college finance experience, ask for a referral to a colleague who specializes in the area. (See page 309 for information on finding a general financial planner.) Once you find your way to an advisor, ask to talk to several clients he or she has helped through the intricacies of college money.

Philip Johnson, a Certified Financial Planner in Clifton Park, New York, who specializes in college financial planning, advises parents to trust their instincts in choosing an advisor. How long have they been advising? Who are some previous clients you can speak with? What are the credentials they bring to the table? You know the drill!

If you're immediately presented with an investment vehicle that's designed to hide assets, watch out. You want to feel comfortable with an advisor, and have the sense that you're getting recommendations based on your particular situationnot a canned solution that's ethically dubious.

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THE BEST PLACES TO GO FOR A CURRENT COURSE ON COLLEGE LOANS, GRANTS, AND TAX CREDITS

Sorry, we wish we could see into the future as well as into the minds of our lawmakers, but alas, we cannot. Tax laws, school policies, as well as the entire application process for aid and entrance are as complicated as the ''simplified" tax code, and they're constantly being revised. Ever wonder why so many of the best college guides are annual?

The details are going to change. That's guaranteed. Keep up-to-date by reading the books we recommend, the catalogs from the schools your child is considering, and the stories on the latest in college finance that regularly appear in the personal finance magazines and the weeklies.

You'll find up-to-date information, worksheets, and helpful links at the following Web sites: www.finaid.org, www.collegeboard.com, and www.collegeaid.com.

Among the must-read books is certainly Don't Miss Out, the classic, annually updated guide to financial aid by Anna and Robert Leider. Also updated annually and worth a read is Paying for College Without Going Broke by Kalman A. Chany. We're partial to Financing College by Kristin Davis, too, and to a greatly reassuring book, The College Admissions Mystique by Bill Mayher, which shares the secret of how even the class dolt can attend Harvard while explaining how to find (and get your child admitted to) the right school.

Also, call the Department of Education at 800-4-FED-AID for a free copy of the regularly updated The Student Guide: Financial Aid.

Homing in on Handling Home Equity

Home equity isn't considered to be an asset by most public colleges and universitiesbut some private schools do count it in their formulas. That means the more home equity you have, the higher the contribution these schools would expect you to make. Does that mean it's a mistake to pay off your mortgage as quickly as possible, because it increases your home equity?

We believe that the interest you'll save by paying down your mortgage will be far greater than any increase in what you might be expected to pay for college. Keep pre-paying, keep pre-paying, keep pre-paying. In fact, depending on your child's age, you might want to use your mortgage to create a pre-paid college tuition plan, as we explain belowbut avoid other pre-paid college tuition plans.

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If you do need to borrow money to help finance college, a line of credit against the equity in your home may be your best betin terms of both the interest rate you'd pay and the possible tax deductions you could receive. The more equity you have, the more this is an option.

Once you borrow against your home, of course, the value of that asset will shrink. So in subsequent years, the schools that count it when they crunch the numbers will have to lower your expected contribution accordingly.

If you'll have to borrow to pay for college and you don't have a home equity option, your best bet may be to get your child to take out the loaneven if you plan to pay it back. Kids often get a lower interest rate, which isn't charged until after they graduate. That'd make it cheaper for you to pay the blasted thing off, which of course you'd do as soon as possible. For more information, go to these sites: www.salliemae.com and www.nelliemae.com.

Pre-Paid College Tuition Plans

We like the word pre-paid, but we warn against pre-paid college tuition plans. Most contain just too many provisos. Some will heavily penalize you if, a decade and a half from now, your child chooses another school, transfers, moves to another state, decides not to go to college at all, or isn't accepted for admission. By limiting a student's future choices, school-sponsored and, to a lesser extent, state plans increase the likelihood of school/student mismatches.

As if that weren't bad enough, some plans require large initial deposits, when most parents can least afford them, and are almost certain to pay less than virtually every other investment possibility open to middle-income parents.

But perhaps worst of all, those pre-paid dollars may be deducted dollar for dollar (not at 5.65%) from any other aid you might have gotten, including grants. In the end, the family with a pre-paid tuition plan is likely to pick up far more of the college costs than they would have without the plan!

What's a parent to do?

Consider mutual funds, CDs, and annuities. Take all the tax credits you can, and don't discount the likelihood that scholarship and grant money will be available. And if you're a homeowner, create a pre-paid college tuition fund of your own by investing in your mortgage. Increases in home equity accumulate tax deferred (and often end up tax-free). When properly used, a home equity line of credit makes it easy to withdraw

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money at any time, without penalty or taxes. They're relatively inexpensive and increasingly available. While some schools will count home equity when developing a financial aid package, many won't.

The interest charged on home loans, as we're being constantly reminded, is still (at least potentially) tax-deductible. And mortgages pay a better return than the pre-paid college tuition plans. Yet this surprisingly powerful repository for college savings is far too infrequently mentioned.

Here's how to create yours: Let's say you have a $100,000 mortgage at 8% for 30 yearsand a newborn. If you add in a $141 pre-payment every month to the required $734 payment, for a total of $875, you'll shave 12 years off the term, and you'll save over $75,000 in interest. When your child goes off to college at age 18, you'll have $875 a month that you can use for college tuitionor anything else you might likeplus all that equity you've accumulated in your castle.

Home equity represents a key part of your family's savings program. It certainly makes more sense to build on that exceptional asset, than to sign up for one of the school, state, or private tuition plans. And if the student you've been saving for doesn't go to a costly school, gets piles of assistance, or becomes a billionaire during high school by inventing the next technological breakthrough, you get to keep all your equity.

How a Single Word Can Save $10,000 or More

Grandparents who have the resources can directly pay all or part of a student's tuition without affecting their estate taxes. On top of that, the well-heeled elder set can give another $10,000 each, gift-tax-free, every year to the student, to the parents, and to anyone else (our address is on page 311).

If, however, grandma and grandpa can't pay the entire tuition, but want to take some of the burden off you, everyone might come out ahead if they pay none of it! At least none of it directly to the college. The schools will happily accept part of a year's cost from anyone, and then they'll reduce their aid package dollar for dollarbut you'll still have to come up with your EFC.

If your folks are thinking about giving your child a tax-free gift in the form of a check, just say no! Your kid might blow the money on something else. Better if the old folks gift the money to you and your spouse. Or maybe they can help you pay off the loans once your child has graduated.

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UGMAUgh!

If you've set up Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts and would rather not see more than a third of that money going off to college each year with your kids, you might want to spend it down before January of your student's junior year in high school, that crucial first year that colleges consider.

Before depleting their accounts, you'll want to get some personalized, professional advice. The basic rule is that UGMA or UTMA money has to be used for things that benefit your child, but that wouldn't automatically be your responsibility, the way that food or clothes are. And don't neglect to document those expenses, say, for computers or college prep courses. The IRS may be curious to know where it all went.

There's another possible problem with custodial or trust-type accounts: A child who's reached legal maturity can withdraw everything in the UGMA or UTMA till and plunk it all down on a neatmobile or some other noneducational fantasy.

It's Not over until the Last Bill's Been Paid

Four years of college fly by quickly. But all too often, what many college graduates face is a rough time sweating out repaying all the loans they took out to cover their share of the college bills. One study found that the average graduate will need a salary of at least $38,512 just to cover living expenses and the payments on their student loans and credit card debts!

Unfortunately, too many young people have been saddled with debts they can't handle, and the result haunts them for years to come. Some 1 million former students have already defaulted on their loans, and another 11% each year are joining those stressful ranks. Don't let that happen to your kids.

Choosing a college you can afford often becomes a better and better idea as time goes by. If we've convinced you that paying down debts as quickly as possible is the way to go, help your kids apply the idea to their loans, which, like mortgages, can end up costing twice what was borrowed! And a bad payment record can kill your kid's real-life "permanent record card"that all-important credit report. Explain to your kids that late payments will show on their credit reports for seven years, which could hurt their ability to get a job, rent an apartment, obtain a mortgage, or buy a car.

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SECRET II

PUT YOUR FAMILY FIRST

Only you can decide on your priorities, although lots of people and organizations will try to influence your decisions. Parents, teachers, children, charities, friends, churches, bosses, political parties, advertisers, strangers on the bus will all try to tell you what's best for you and yours. The advantage we have at the moment is your attention, and we suggest you direct it toward your family.

Whether you have a spouse, 2.2 children, a cat, and a dogor whether you live by yourself, there are key people in your life. Whatever you call the people closest to you, you're part of a family. No matter who is elected the next president, no matter what new technology becomes available, no matter how much your boss depends on you, in the event of a personal crisis, you'll turn first to your family. Make sure you regard them as the resource they are for you. Their care and feeding come first.

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There are, however, so many different options for borrowing, repaying, consolidating, and in general dealing with student loans, defaults, and federal record-keeping errors, that an entire book would be required to walk you through them. That book is Take Control of Your Student Loans by Robin Leonard and Shae Irving, two crusading attorneys at Nolo Press.

There's another treacherous form of debt for college kids: credit cards. About two-thirds of the nation's 9 million college students already have at least one credit card, and 20% have four or more pieces of plastic! Their average balance is about $2,200. Many received their first offer while they were still in high school.

Students Are Worth Their Weight in Gold

In the lending business, no one is courted as heavily as college students. They're offered their plastic on a silver platter for three reasons:

1. With the average adult American already holding 8 to 10 pieces of plastic, students represent an untapped market of more than 15 million potential cardholders.

2. Students have decent repayment records, probably because their parents typically pick up the tab when the kids can't pay. Applications may ask for the parents' incomeeven when they are not being asked to co-sign for their college kid's card.

3. Most important, cardholders tend to be loyal to their first card, so issuers scramble to get the premier spot in each student's wallet.

What should the parents of college-bound students do to avoid the additional, hidden cost of a college education that credit cards represent?

Tell It like It Is

Explain to your teenagers why they're such hot prospects for the credit card industry. Your kids don't want to be ripped off, and they may resent what's behind the industry's hype.

Share your credit card experiences. While they've often seen you pull out the plastic to charge something, have they ever seen the bills? Sit down with them and go over a credit card statement. Explain the finance charge, grace period, and minimum-payment trap. If you've recently paid off debts, or if you're trying to do so now, show how much it's costing you, and why it's so difficult to get ahead when you pay only the minimum.

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911

David Hunt, the former president of AT&T Universal Card, gave his daughter a credit card when she went off to college. He told her that she could only use it for emergencies. His definition of an emergency: "If you can eat it, drink it, or wear it, it's not an emergency."

Set limits before they head off for school, and explain what'll happen if they run up bills they can't pay. Will you be able, or willing to bail them outor will they be on their own? Lay out the consequences. If you want some help clueing them in on how credit cards work, get them Gerri's audiotape, "Smart Credit Strategies for College Students" (see page 328). Kids can pop it into their cassette players and hear the lecture in language they'll understand.

Of course, the best way to teach proper credit card management is to practice it! And if you're really on the ball, you'll do what a family we'll call the Chargitts did. They scrimped and saved for years to help put their two children through school. Long before that first tuition bill arrived, the Chargitts, their daughter, and the university developed a workable financial aid plan.

Although they knew exactly what to expect and were prepared, the Chargitts paid that first bill with plastic. And they've been charging every college bill since then.

Now if you're thinking that we're about to say, "Horrors!," read on, because the Chargitts earned gold stars in our book. They figured out a wonderful way to reward themselvesbig-timefor being good debt managers.

The Chargitts chose their two credit-cards-for-college very carefully, with a special eye toward both the grace period and the special benefits they could receive. They made sure to absolutely never carry a balance on those cards, and to always pay their college credit card bills in fullbefore the due date.

They picked the card to use depending on whether they wanted to earn more free airplane tickets or vacation stays. Thanks to their card companies, when last we heard from the Chargitts they had already taken five round tripsa mix of family vacations and medical emergencies. And they're still racking up the freebies, now that their son is in college.

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Red Flag

Do notwe repeat, do notfollow the Chargitts' example unless you're absolutely certain that you'll pay the credit card bill off by its due date. But if you have the money and know you can trust yourself, by all means, go for a frequent-flyer card. You generally earn one mile for each dollar you charge. A few of these cards have a cap that restrict you from earning more than, say, 50,000 miles a year, but hopefully the tuition bill won't be more than that! A list of frequent-flyer and rebate cards is available for $12 from CardTrak, P.O. Box 1700, Frederick, MD 21702, www.cardtrak.com

To cope with all the money issues your grad will encounter, we recommend Get a Financial Life by Beth Kobliner and The PostCollege Survival Handbook by Jo-Ann Johnston.

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SECRET VI

MAP OUT YOUR OWN FINANCIAL FUTURE

How bright your financial future will be depends on both the way you view your portfolio, and the way you manage it.

As we've made abundantly clear, to truly prosper, your portfolio has to include a lot more than just your investments of money. How you spend your time, focus your energy, and handle your debts are all crucial to achieving a secure, more fulfilling life. But manage the money you must.

No matter how old you are, how many mistakes you've made in managing your finances and your time up until now, how "numbers-phobic" you are, or how much you really don't like to deal with this stuff, you can get on the right trackif you take charge, plan, and follow through to create the future you want.

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Chapter 16

Financial Planning Made Easy

You can learn this stuff, and you must!

How to become a multimillionaire on a typical salary

Getting creative to get what you want

Finding investment opportunities that match your values

Your best financial planner is you.

KEN AND DARIA DOLAN, Straight Talk on Money

Financial planning. With the possible exception of "public speaking" or "April 15," no two words spark more dread than these two. One study by the International Association for Financial Planning found that more people would rather have a root canal, clean the oven, or bathe the dog than create a financial plan!

If the idea of financial planning leaves you sweating, relax. You're not going to have to become a CNBC junkie or read The Wall Street Journal every day (although paying attention to financial news is not a bad idea). Taking control of your financial life is not as tough as you may think, and it's certainly not as painful as a root canal.

Besides, you really have no choice. At some point, you're going to have to make investment decisions, even if it's just(!) to decide which mutual funds are best for your 401 (k) or IRA. A decision you don't think through is still a decision, and often a bad one. But these decisions are just too important to ignore.

As much as you may be trying to put off creating a financial plan, you can't afford to do so any longer. Without a plan, your goals are likely to be

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just dreams, and things like a happy and lengthy retirement may not be a realistic option.

Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.

GEORGE S. CLASON, The Richest Man in Babylon

Even assuming no dramatic changes in your fortunes or stellar investments over the course of your working life, you're going to earn a fortune. Say you and your mate are age 25, and your family income is equivalent to the U.S. medianlast estimated to be $54,910. Assuming you'll both be working until you're 65, even if you never get a raise, not even for the cost of living, you're going to bring in over $2 million. If your salary goes up just 3% a year, like inflation, you'll earn over $4 million. (See Table 16.1.) That makes you a multimillionaire, all right.

If you land a promotion or even just get cost-of-living increases, you'll rake in even moremaybe more than $12 million. Conversely, if you decide to retire earlier than age 65, your take will be less. In any case, you're going to earn a fortune.

So what are you going to do with it? Watch it slip away, or put it to good use?

True, none of this is exactly fun stuff, but you were the one who followed our earlier advice, and now you're stuck. Instead of being deep in debt, you're starting to float on a cushion of cash security. Trust us. The more you learn about financial planning, the more empowered you're

TABLE 16.1 How Much Will You Make:

Turning the Median Salary of $54,910 into Millions

ANNUAL RAISES AND

COST OF LIVING

40-YEAR

INCOME TOTALS

0%

$ 2,196,400

1%

2,699,245

2%

3,360,655

3%

4,237,494

4%

5,408,458

5%

6,982,814

6%

9,112,730

7%

12,010,709

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going to feel. A great place to start is with The Only Investment Guide You'll Ever Need by Andrew Tobias.

Trust Your Instincts

Remember the story of Marc's son, Adam? He wanted to sell his penny stocks, but let his broker talk him into holding onto them. Soon, they were worthless. No one can predict what the economic or investment climate will be in the future. But there'll be plenty of experts telling you why the market surged or crashedafter the fact. Never let anyone talk you into something that makes you feel uncomfortable.

It is hard to know what or who to believe. A bright young researcher spent a lot of time looking at various personal finance articles and books for an article one of us was writing. She came back overwhelmed. ''The problem is, there are so many different viewpoints," she said. "How can you tell who's right?"

That's the dilemma. There is no single correct financial plan just waiting for you to find it, so it can turn you into a tycoon. There are a variety of approaches, each with its own collection of pros and cons. Your job is to make the best decisions for you and your family from among all those options being offered.

A good financial planner can help you set priorities and develop concrete strategies, but only you can examine your dreams and set goals for your life.

RICHARD SCHROEDER, Certified Financial Planner and Registered Investment Advisor, Williamsville, NY

Okay, so with all those millions at stake, you're ready to invest in your future by learning as much as you can and then trusting yourself. But with over 9,000 mutual funds, thousands upon thousands of stocks, annuities, estate plans, life and health insurance policies, how can you even know where to start?

Start at the end, with a plan based on your goals. What do you want, and what will it cost? Then, sketch a flexible blueprint for getting where you want to go. For the best chance of success, commit your plan to writingeven if it's just scratched out on a piece of notepaper. Research sponsored by Consumer Federation of America and NationsBank shows that at all income levels below $100,000, people who have a written financial plan are likely to have twice as much in savings and investments as people without a written plan. Twice as much!

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You may think a financial plan is complicated, something you can't create until you've taken a course in finance, or something that you have to pay a financial planner big bucks to develop. Not true. A financial plan may get complicated if you have a complicated situation. But for most of us, it's pretty basic.

Back to Basics

The way to wealth is straight forward and simple: Spend less than you earn, avoid debt, and then save and invest for growth.

If you can stick to these basics, you're way ahead of the game (and most of your neighbors). Don't even think about more complicated strategies until you are comfortably and faithfully adhering to the basics. It's not worth your time or energy to spend hours pouring over stock strategies when you still have huge credit card debts hanging over your head. If you try to focus your energy on too many things at once, you'll just get distracted, discouraged, or both.

It bears repeating . . . and repeating . . . and repeating . . . paying off your expensive debts is one of the highest-return, safest investments you can make in yourself and your future. Start with your high-interest credit cards. When they're paid off, begin pre-paying your auto, student, and home loans as well. Not only is paying down your debts a great financial investment, it'll bring you an added measure of freedom, because you won't be chained to a paycheck just to pay those bills. So put debt reduction at the top of your list of goals.

Then take the time to think through your other goals. What do you really want? To retire with enough money to travel the world? Or do you want to travel long before you retire? Are you preparing to send kids to college, or are you planning to go back to school yourself? Would you like to build a savings cushion so you can stop reaching for those credit cards every time you hit a bump in the road of life?

IT'S NOT ALWAYS ABOUT MONEY

Some important goals may not immediately seem appropriate to your financial plan: things like spending more time with your family or loved ones or

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losing weight. As unrelated as they may seem, include them on your wish list. You may find that they are inextricably linked to your financial plan.

Spending more time with the kids may mean switching to part-time work or taking a lower-paying, less stressful job. Or it might mean spending the money on a housekeeper to take over some of your home chores. Losing weight may mean joining the local gymor maybe it will mean more money in your pocket if you eat out less. So write them all down.

It's easy to think that if you won the lottery or got a big fat raise your financial problems would be over. But the truth is, you'd probably have new problems. So put the fantasy solutions aside for a moment and tap your creative side. You may want to get together with a few friends over coffee once a week for a month or so to brainstorm ways you can each achieve some of your dreams, without an unexpected windfall. The $2 million to $12 million you're going to earn will be plenty. Let winning the lottery be a bonus, not a means to your ends.

Maybe one of your dreams is to be able to escape to a house in the country on weekends. Problem is, you don't have the money for a second home. Getting creative, you may be able to work a house swap, rent a cottage, or even borrow a neighbor's camper in exchange for baby-sitting during the week.

The idea is to get your heart and mind thinking in ways other than pure dollars and cents. If you're very clear and focused on a goal, you may find solutions falling right into your lap. But you have to ask questions and be ready to seize opportunity when it comes your way.

At What Price?

After you've had a chance to really think about your goals, decide which ones are serious and admit which ones are just wistful fantasy (the boat that would be fun to have, but a pain to keep up and a huge money drain).

Then put a price tag on each of your goals. It isn't easy to figure out how much you'll need in your retirement fund 20 years from now, or how much college will cost you in 15 years. But as we showed in Chapters 5 and 15, you can do it!

Take advantage of all those magazines, books, and mutual fund brochures that offer worksheets to help you plan ahead. But if the number that pops up leaves you gasping for air, take a deep breath and remember, Rome wasn't built in a day, and your future won't be, either. Besides, those calculators are guidelines, not hard-and-fast rulesand

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and your family. We'll ask you the key questions, and remind you of what your alternatives are for finding the answers that will work bestfor you. But you're the boss. You get to make the final decisions.

Often, your best investment in yourself will be to do more research, so you can really figure out where you stand and what you want. We'll frequently refer you to our favorite books, Web sites, and other resources. But there are great resources right there in River City, where you live. Your friends, relatives, and clergy may be a lot more help than you realize. But you have to ask! Learning more about a subject is a great way to tune in to the pros and consfor youof a career or lifestyle change, for instance.

But if at the same time, you listen carefully to what's going on inside your mind, that great snowball effect will start to happen. As you learn more, you'll try more. Some of what you try will make you happier, and hopefully, wealthier. Soon you'll be motivated to push yourself even further to create the life you really want.

WE'RE JUST THE MESSENGERS

In many ways, this is a personal book. It grew out of our lives and our work, which are inseparable. We try our best to intentionally do things for money that we would want to do anyway. Over the years, thousands of people like you have come to us for advice. What you'll read here is what we've gleaned from their experiences and from our own.

While our message is clear, ''You can take control of your future," we hope you won't confuse the message with the messengers. Our goal is to inspire you to create the life you want to live. We'll tell you how we did it, and how others who succeeded did it as well, but you'll have to chart your own course.

We'd love to hear about where you've been, where you are now, and where you hope to be after you've put the ideas in Invest in Yourself to work. Write and let us know! For snail mail, it's Invest in Yourself, c/o Good Advice Press, P.O. Box 78, Elizaville, NY 12523. Our Web address is www.investinyourself.com. Feedback@investinyourself.com is our e-mail address.

Your personal rut may be well worn or only recently started. Some ruts are deeper than others, and some could more accurately be described as trenches. But none are so deep that you can't get out.

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It's our hope that you'll make good financial decisions that will enhance your life. But we believe and intend to convince you that much more important than your financial portfolio, is how you invest your time and energy on behalf of your family and your future.

We'll help you analyze your time and energy investments so you can objectively gauge the kinds of returns you're earning. If it's time to rebalance and dump some underperformers, we'll help you find a family-friendly way to do it.

Unlike financial matters, this is one job you can't turn over to some advisor. It's up to you to become a savvy life investor. If you don't put you and your family first, who will?

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many of them were designed by salespeople, hoping to sell you a (sometimes unnecessarily expensive) investment program.

Most people quickly discover that they have a bunch of goals competing for the same out-of-reach dollars. If that's where you are, don't throw up your hands in despair. Instead, set priorities. Adjust your expectations. Revise your time schedule and seek out your alternatives.

Here's an example. Marta wants to retire earlyat age 55then travel. She's paid off her credit cards, and is well on her way to a mortgage-burning party. She earns enough to cover her basic living expenses, and is beginning to build a savings account, but she hasn't yet got enough set aside to fund her travels. What can Marta do?

She could postpone her plans, and save a little more by working until she's, say, age 58. She can scale back her fantasy. Instead of heading to the Fiji Islands, she might satisfy at least some of her wanderlust in the United States and Mexico. Before she exits from the workforce, Marta could create an Ace in the Hole to help fund her travels, save on taxes, and give her more flexibility when she does retire. A really creative solution might be for Marta to organize specialized tours as her Ace, or find part-time work guiding groups abroad for a tour company, or volunteer for overseas duty with an international organization.

By carefully and realistically planning ahead, Marta will achieve most, if not all, of her goals. But without doing some planningand following throughshe'd probably discover too late that her fantasies would have to remain just that: fantasies.

Make It Happen!

The number one enemy of personal finance is procrastination.

Dave Chilton, The Wealthy Barber

Once you've set your goals and figured out roughly how much you need to get there, start investing for them. There are three fundamental principles for making a savings and investment plan work:

1. Start nowthe sooner the better! Whether you're 25 or 55, starting now is key. Chances are, whatever you're saving for isn't going to get less expensive, it's going to get pricier. And the sooner you start, the more time you'll have to take advantage of compound interest's magic.

Here's a refresher on how that magic works: Let's say you can save $100 a month. If you invest it in something earning 8% a year, at first glance you might figure that you'd have $1,200, plus $96 in interest at the

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end of the year, and 10 times that much, or $12,960, at the end of a decade. But in reality, of course, you'll end up with much more$18,295because you'll be earning interest on the interest your money earns.

Small delays in getting started can make a big difference. Say you sock away $2,000 a year in your IRA, starting at age 25. If you earn 10% annually, at age 65, you'll have $1,054,013. Your sister waits until age 40 to get started, so she'd have to sock away $9,533 a year to match your nest egg at retirement, assuming she gets the same return on her investment. (Of course she won't be able to put that much into an IRA.)

If you haven't saved enough, don't let these figures discourage you. Whatever your current age, you're still younger than lots of others who haven't done much yet either!

Even if it's just a token amount, start putting money toward your top-priority goals. Commit to them by setting aside a regular amount. Pocket change will do if that's all you have. Once you get started and are faithful to your goal, you'll probably find yourself creating a momentum that will propel you in your planned direction.

2. Pay yourself first. Maybe it's a cliché, but it's great advice: Treat your savings or investment plan like a priority bill that has to be paid first, and your wealth-building program will be on the fast track. Don't wait until the end of the month, then save whatever's left, if anything. Choose a comfortable amount to put away each payday, even if it's just a few dollars.

Here's one strategy: Once you've paid off your credit cards, car loan, or even your mortgage, and are already in the habit of making those regular payments, why not transfer them to a savings, money market, or investment account? You're used to paying it to someone else, so how about giving it to yourself for a while?

3. Stick with it. Set a specific goal. Saving 10% of your pay is a good place to start, but if that sounds too steep to you, try 5%. That's what personal finance expert Jane Bryant Quinn did when she was a single parent in her twenties, wondering how she would make ends meet. She really didn't think she could afford to put aside anything, but a friend urged her to get started with that small amount, assuring her she'd never miss it. She didn't. Later, she bumped it up to 7%, and eventually to 10%.

Wherever you start, put your savings and investment plan on autopilot. Have your financial institution or mutual fund company deduct payments directly out of your bank account. After a couple of months, you won't miss it. We promise!

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While you're at it, consider paying the bills this way, too. Why write out a check and pay postage each month, when you can have the money for your bills taken directly from your bank account? At many banks, virtually every regular bill can be paid automatically, and if you ever decide to cancel the direct payments, you need only notify the company at least three business days in advance of the next due date. Save time and almost $4 a year in postage per bill. Gerri not only has her mortgage payment taken directly from her bank account, but a small pre-payment is also deducted at the same time. Simple savings.

Watch out, though. You won't save a penny unless you actually have the money in your account. In fact, if a bunch of electronic transfers end up on your overdraft protection, you'll pay a pretty penny for this convenience. And if you decide to cancel the withdrawals, there may be a fee.

Choose the Right Places

The way financial professionals talk, you'd think only someone with an MBA could invest successfully. But really, it's more a matter of saving as much as you canliving below your meansand remembering this rule: Fast and flashy rarely pay off in the long run.

Today's hot stock or hot mutual fund is likely to be tomorrow's dud. If you want to play with the high rollers, you've got to be willing to invest a lot of time and energy learning the game, and you've got to have the stomach for the ride. If that turns you on, great. If not, keep reading.

You Gotta Take Risks

There are risks in every kind of investment, with the possible exception of paying off those expensive credit cardswe just can't find a downside there! The risk in parking your stash in a bank account or certificates of deposit is that your money won't keep pace with inflation. Stocks are among the riskiest of investments, although, when the Dow is on an upswing, many people seem to forget that what goes up often comes down.

Before you invest, minimize your risks by making sure you know the potential for loss as well as the possibility of reward. Remember, a high-return, low-risk investment is an oxymoron, except in paying down your credit card debts, of course. (Sorry, we just won't stop reminding you how important it is to pay down your expensive debts.)

What you want to do is take appropriate risks based on your comfort level, your time frame, and the nature of your goals. If you have a short time before you will (or might) need the money, don't put your money in high-risk stocks. It may not be there when you need it. If you're saving for

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a far-off goal, then you can afford to take more risks. In fact, you probably can't afford not to, because over the long run, "safe" investments like certificates of deposit or bonds barely keep ahead of inflation.

Obviously, we're talking about the financial aspect of risk here, not the emotional one. Most of us try to avoid personal risk, or at least try to avoid thinking about it. Otherwise, how could people with a good imagination really enjoy getting on an airplane? But once the decision is made to fight gravity, we try to choose an airline with a good track record, take along a book or some work for distraction, and resign ourselves to a little turbulence along the way. (Getting into a car is actually a far greater risk, but we take that in stride, too.)

Investing isn't all that different: Choose a fund or funds (or individual stocks or bonds) with an objective that matches where you want to go. Review the investment's past history to see if it's performed at least as well as its peers, and make sure you're prepared for the kind of volatility (fluctuations in value) that it's previously demonstrated or might incur tomorrow. It also helps to have confidence in the "captain" and "crew"the fund's manager, or the company's senior management.

Then comes the hardest part: Once you've made the best choice you can, let the pilot fly the plane. Don't bail out in a downdraft! You'll end up on foot again, perhaps with less money than when you started out.

Asset Allocation

How you divide up your money among different investments is called your asset allocation. Asset allocation is simply the right mix of investments to help you reach your goals. You don't want to get carried away. Having 16 different funds for your retirement money is overkill.

As you know, we're big fans of diversifying, whether it's for your job or your investment portfolio. When you put a lot of your resources in one place, you're taking a lot of risk. The purpose of diversification is to reduce risk.

So don't put all your money in one basketeven if it seems to be the hottest investment going. From time to time, you'll hear about someone who lost their life savings in an investment scam. It's painful to lose any money, and it's especially painful when you lose it to a scam. Still, you have no business putting most of your future on the line in a high-risk investment. At least spread it out among several different investment options.

There's no hurry. You're in for the long haul. When your broker, your cousin, a telemarketer, or a neighbor in the supermarket tells you about a

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once-in-a-lifetime opportunity, forget it. There may still be some free lunches, but there are very few legitimate you-must-act-immediately, once-in-a-lifetime offers! For more advice on creating an asset allocation plan, check out The Lifetime Book of Money Management by Grace Weinstein, or visit www.dolans.com, or www.soundmindinvesting.com.

Once you have made your choices, don't micromanage your money. The worst thing you can do is to check your investment performance every day, or even every week. When you focus on the short term, you're more apt to panic at temporary market dips and switch your money around, missing out on sudden market rallies, and paying an awful lot of commissions in the process. Resolve to ignore your account between quarterly statements. If you've chosen your investment allocation wisely, your portfolio should be able to keep going . . . and going . . . and going for years with just periodic tune-ups.

DO IT YOUR WAY

On his radio show, a financial planner once railed at Gerri for pre-paying an extra $25 a month on her mortgage. His view was that Gerri's money would grow faster in the stock market. True. Maybe. At that time, her mortgage interest rate was 7% and risk-free. Since her retirement portfolio was heavily weighted in stocks, she figured those pre-payments were a good way to diversify and get a decent return along the way.

Gerri wouldn't have felt comfortable putting all her savings or investment money toward her 7% mortgage. How she was allocating her assets was based on her goals, her plans, her comfort level, and her choice of asset allocation. That planner's was different, and yours may be, too. It's up to you to decide what makes sense for you.

What's Uncle Sam's Share?

There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible . . . nobody owes any public duty to pay more than the law demands; taxes are enforced exactions, not voluntary contributions.

JUDGE LEARNED HAND

There's no getting around it. Financial planning involves taxes, and it's not a simple topic. For most of us, just trying to put away the maximum that we can into tax-deductible or tax-deferred retirement plans is challenge enough. But once you've reached the point where slick (but always

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legal) tax-avoidance moves make sense, hit the books, do some research, and consider buying some professional help, either from a financial planner with expertise and experience in tax planning, or from a tax advisor with financial planning expertise. If you're dealing with a retirement plan distribution, a large inheritance, or some other complicated situation, having a pro on your team is very likely to be a worthwhile investment.

Until you get to that point, here are some general rules to keep in mind:

When you own stocks, you pay taxes on dividends every year (even if you have them automatically reinvested), and you pay taxes on capital gains when you sell them.

You pay income taxes on the interest your bonds pay youwith important exceptions. Interest paid on municipal bonds is exempt from federal tax (and in many cases, state tax as well). Interest on Treasuries (sold by the federal government) is exempt from state tax.

If you own mutual funds, you'll have to pay three different taxes. You'll get a 1099-DIV form each year that reports dividend and capital gains earnings, each of which have separate tax consequences. Then, when you sell your funds, you get to pay taxes on your profits. Keep excellent records, and April 15 will be only a headache, not a migraine.

No advice is complete without an exception or two: You don't pay taxes on investments in tax-sheltered retirement accounts such as IRAs, 401 (k)s, 403(b)s, or Keogh's until you withdraw the money. Then you pay income taxes on what you withdraw, except for the exception to the exceptionthe Roth-IRAs, which allow you to put after-tax dollars away for retirement and then withdraw them tax-free under the right circumstances.

Protect Yourself and Your Family

Besides saving and investing, there are a few other important parts of a financial plan you must take care oflife insurance, a will, and possibly an estate plan. They're not fun details, but they're essential to your peace of mind and the future of those you love.

If you don't have a will or adequate insurance, get it taken care of now! (See Chapter 5.)

Invest in Your Knowledge

A little time spent learning basic financial strategies can go a long way toward making you more confident and richer. Just don't try to digest

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everything at onceor you will feel ill. Pick a single topic that's of most interest or of the greatest urgency, and start there. For example, let's say you want to open an IRA and invest it in mutual funds.

Start by reading about IRAs and mutual funds in two or three of the following books: Terry Savage's New Money Strategies for the '90s by Terry Savage, Dun & Bradstreet Guide to Your Investments (updated annually) by Nancy Dunnan, The Truth About Money by Ric Edelman, The Only Investment Guide You'll Ever Need by Andrew Tobias, The Lifetime Book of Money Management by Grace Weinstein, Mutual Fund Superstars by William E. Donoghue, or 4 Easy Steps to Successful Investing by Jonathan Pond. You don't need to read the whole book now, just what they say about mutual funds and IRAs. (Go to our Web site or send for our catalog for recommendations of the best books on a variety of topics. See page 328.)

Don't be surprised to discover that these folks disagree on some points. If the market weren't full of differing opinions, there'd be no one to buy when you wanted to sell, and no one willing to sell when you wanted to buy. Listen to the experts, then go with what makes sense to you.

If you prefer to do your research on-line, visit these sites:

www.kiplinger.com

www.talks.com

www.fyiowa.webpoint.com/finance/invest.htm

quicken.excite.com/forums

www.investor.nasd.com

www.pioneerplanet.com/archive/wealth/index.htm

www.bankrate.com

www.fool.com

www.wealthbuildernews.com

moneyinsider.msn.com

Head to the library and look through recent personal finance magazines like Kiplinger's Personal Finance, Money, and Your Money. Also review personal finance articles in BusinessWeek, Forbes, and Fortune. Look at their mutual fund ratings and pick a few whose goals (long-term, short-term, bond, stock, options, foreign) match yours. See how they've done over at least the last five years. Ten is much better. (But remember that past history does not guarantee future performance.)

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Once you've selected several funds that look promising, ask the reference librarian for a copy of Morningstar or Value Line Mutual Fund Survey. Look up each of the funds and study its track record, management, and outlook. Finally, when you've narrowed your choice to a couple, call the companies for their prospectuses, and look them over before you invest.

If you happened to choose something besides mutual funds to focus on, the following resources can help you check out your choices. Most of these are expensive, so find out which ones are available at your library.

Annuities: Morningstar's Variable Annuity/Life Performance Report (800-735-0700).

Bonds: Standard & Poor's Bond Guide (800-221-5277) or Moody's Bond Record (800-342-5647).

Stocks: Value Line Investment Survey (800-833-0046) or Standard & Poor's Stock Reports (800-221-5277).

If you're itching to get into the stock market and invest in individual stocks, one way to become more knowledgeable and confident is to start or join an investment club. There are investment clubs of all types, with members of all ages and experience levels. For information on how to start one, contact the National Association of Investors Corporation (NAIC) at 248-583-6242 or www.betterinvesting.org. The nonprofit NAIC can provide you with a wealth of information on everything from starting your own club to evaluating stocks.

Keep Costs Low

Comparison shop. Always ask about expenses, such as commission costs, marketing fees, and administrative charges. Get them in writing. The more you can do yourself, the less you'll pay. But beware, Cousin George's advice may, in the long run, cost you a lot more dough than a professional advisor or fund manager.

When You Need Help, Get It!

If taxes make your eyes cross, but you want to pay as little as you can, if investment jargon goes over your head, but you want to make as much on your money as you can, keep in mind that there's no reason you have to go it alone. A good financial planner and accountant can help make your life much simpler and richer (and probably save you some money as

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well). But no one is omniscient. Even those high-priced mutual fund managers beat the market only about 20% of the time.

Do You Need an Advisor?

Good question. No short answer. We encourage you to learn as much as you can, of course. But there may be a time when you want an expert's personalized advice. For example, you may want an advisor to:

Help with tax strategies or retirement planning where a mistake or oversight can prove to be very expensive in the long run.

Create an estate plan, write your will, or review one you've prepared yourself.

Review your financial situation and asset-allocation decisions and advise how you might do better.

Help you whip your disorganized financial life into shape!

Manage your money, if you have a healthy pile socked away, but don't have the time to devote to its oversight.

Choose a long-term-care policy (be careful of commission-based planners here, especially if they offer a limited number of policies).

Help you navigate a financial transition, such as divorce, retirement, or death of a spouse. Choose carefullyyou'll be stressed enough without worrying about the advisor's honesty!

Develop a plan for minimizing the cost of your kid's college education.

A good advisor will empower you by helping you learn. There are no dumb questions when it comes to your financial education. Assume nothing, question everythingand you're likely to learn a lot along the way.

So how do you find a financial advisor? First you have to know what you want from them. The more specific you can be, the better. Do you need budgeting help, investment strategies for retirement or college, tax advice, and/or estate planning? If you need narrow help (e.g., for creating an estate plan), find a specialist in that area. If you need a general plan, find a financial planner who can help you create one. And if you have only a limited amount to invest, avoid the ones who specialize in the lives of the rich and famous.

There are a few ways that financial professionals get paid: by fee only, which can be either a flat fee, a percentage of the money they manage, or a set fee for certain services; by fee offset, which is a set fee minus com-

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missions on any products they sell; by commission only, where they get paid only if they sell something; or by fee plus commission, where planners charge a fee and also sell products on which they're paid commissions.

There is a lot of controversy about these different compensation methods. Some folks say you should never work with someone who is paid on commission because they may recommend products that are best for their financial future, not necessarily yours. On the other hand, fee-only financial planners can be expensive and out of reach for someone starting out or someone with a modest amount to invest. The truth is, there are good advisors in all of the camps.

Finding a Planner

There are four primary sources for financial planners. Each offers useful, free brochures and referrals.

1. The American Institute of Certified Public Accountants offers referrals to CPAs with specialized experience in financial planning (888-999-9256, www.aicpa.org).

2. The Institute of Certified Financial Planners offers referrals to financial professionals who have received the Certified Financial Planner (CFP) designation (800-282-PLAN, www.icfp.org).

3. The International Association for Financial Planning, a trade group composed of many types of financial planners, provides referrals to its membership, (888-806-PLAN, www.iafp.org).

4. The National Association of Personal Financial Advisors offers referrals to fee-only planners (888-FEE-ONLY, www.napfa.org).

Select at least three planners who seem appropriate for your needs, set up appointments with each one, and interview them just as you would if you were hiring them for a jobwhich you are. Find out why they expect they can do a good job for you, how they are paid, and how much they charge. And realize you will pay them, whether or not you directly write out a check. Ask about their experience and credentials, and check them out.

Speak to at least three client references. (Just don't expect other clients to give out confidential information about their money.) You might also ask how they research the products they recommend. (Later, it will be up to you to check out those products.) Ask to see a sample financial planand ask how the planner would tailor it for you.

Always check out their background before handing over your money. You can get a free disciplinary report from the National Association of

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Chapter 2

Making the Most of Your Time

Investing your time, energy, and money for better returns

How to figure out what's really important

How to raise your quality-of-life quotient and bring your portfolio back into balance

Investing in futuresyour family's

Treat each other like you are the most important people in the worldlike each other's thoughts, and feelings, and well-being are more important to you than anyone else's. If you take care of each other in this way you will enjoy the great happiness and contentment that a wonderful marriage can bring. And your family and friends will be gladdened and enriched by your happiness. I can't take credit for this wisdom. I learned it from the most wonderful woman in the world, my wife Beth (hey, we can all use some extra points at home).

DR. HOWARD EISENSON, IN A WEDDING TOAST

Time is a concept invented by humans, the only creatures on earth who can live in the past, present, and future. For all other species, the future is meaningless, the past is quickly forgotten, and the present offers plenty of time to deal with basic needs (sustenance, shelter, sleep, and sex).

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Securities Dealers at 800-289-9999, www.nasdr.com/2000.htm. That report will tell you about most securities violations. Even better, order a comprehensive disciplinary report from the National Fraud Exchange at 800-822-0416, ext. 34. The NAFEX database searches disciplinary records in the securities industry, plus real estate, banking, and more. (Their fee is $39 for the first search, and $20 for additional searches ordered at the same time.)

Just because an advisor is nice, doesn't mean he or she is any good. That's why credentials and experience are so important. And by the way, really think carefully about working with someone in your social group, church, or membership clubs. The question to ask yourself is, if you needed to ''fire" this person, could you do so comfortably? What would the repercussions be? For more on choosing a financial advisor, see The Right Way to Hire Financial Help by Chuck Jaffee.

Note: If what you really want is for someone else to manage your investments for you, call AdvisorLink (800-348-3601), which can refer you to a money managereven if all you've got is $15,000 in a mutual fund. Ask for its free investor kit.

Investing with Your Heart

If you don't want your kids to smoke, do you want to invest in companies that sell cigarettes to children overseas? Socially responsible investing is becoming more popular as people look for places where their money will meet their personal as well as financial needs and values. Here are a few resources if you're looking for investments that match your values:

GreenMoney Journal (800-318-5725 or www.greenmoney.com)

Council on Economic Priorities (800-729-4237 or www.accesspt.com/cep)

Co-op America (800-584-7336, www.coopamerica.org)

The Social Investment Forum (202-872-5319 or www.socialinvest.org)

The Clean Yield Group (800-809-6439)

Institute for American Values Investing (888-469-3863, www.americanvalues.com)

Conclusion

Someone once said, "Life is a journey, not a destination." While we may take different paths, for most of us, the destination is similar. We want to

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give our loved ones a better life, make a contribution to our little piece of the planet, feel good about our time on earth, and hopefully, have fun along the way.

Consciously or not, you've chosen the path you're on now. Where you go from here is your choice. You can get out of debt, live better on less, and have more of what you want, and less of what you don't. You can create a brighter future for yourself and your family. It may not happen overnight, or in quite the way you expected, but one thing is guaranteed: You'll change and your life will change. Why not consciously try to make it for the betterto create the life you want?

Take your time. Try on a few changes for size. See what fits, pick a few for now, and set aside others for another time or place. Set the bar high, but don't beat yourself up if you don't make it over the top the first couple of tries. And whatever you do, don't forget that small changes can make a big difference.

Planning where you want to go helps, as we've shown. But as John Lennon said, "Life is what happens while you are making other plans." So plan your itinerary, but at the same time be flexible and take advantage of interesting side trips that pop up along the way. Who knows where they'll lead?

We know that the tools we've given you in Invest in Yourself can help you to move in a positive direction. Please let us know how you're doing and what you've learned along the way that we can share with others.

For now, put the top down, crank up the tunes, and enjoy the ride! (But do fasten your seatbelt.)

We welcome your stories, tips, and feedback. Please write to us at Invest in Yourself, c/o Good Advice Press, P.O. Box 78, Elizaville, NY 12523. Send e-mail to us at feedback@investinyourself.com, or visit our Web site, www.investinyourself.com.

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Brabec, Barbara. Homemade Money. Cincinnati: Betterway Books, 1997.

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Burgess, William E. The Oryx Guide to Distance Learning. Phoenix: Oryx Press, 1997.

Burkett, Larry. Women Leaving the Workplace. Chicago: Moody Press, 1995.

Campbell, Jeff. Clutter Control. New York: Dell, 1992.

Campbell, Jeff. Speed Cleaning. New York: Dell, 1991.

Cane, Michael Allan. The Five-Minute Lawyer's Guide to Estate Planning. New York: Dell, 1995.

Carlson, Steve. Your Low-Tax Dream House. Hinesburg, VT: Upper Access, 1989.

Celente, Gerald. Trends 2000. New York: Warner, 1997.

Chany, Kalman A. Paying for College Without Going Broke. New York: Princeton Review, 1997.

Chatzky, Jean Sherman. The Rich & Famous Money Book. New York: Wiley, 1997.

Chilton, David. The Wealthy Barber. Rocklin, CA: Prima, 1993.

Clason, George S. The Richest Man in Babylon. New York: Signet, 1988.

Clifford, Denis, and Cora Jordan. Plan Your Estate. Berkeley: Nolo Press, 1996.

Clifford, Denis. Nolo's Simple Will Book. Berkeley: Nolo Press, 1997.

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Covey, Stephen. The 7 Habits of Highly Effective People. New York: Simon & Schuster, 1989.

Crossen, Cynthia. Tainted Truth. New York: Touchstone, 1996.

Dappen, Andy. Shattering the Two-Income Myth. Brier, WA: Brier Books, 1997

Davis, Kristin. Financing College. Washington, DC: Kiplinger/Times Business, 1996.

Detweiler, Gerri. The Ultimate Credit Handbook. New York: Plume, 1997.

Detweiler, Gerri, Marc Eisenson, and Nancy Castleman. Debt Consolidation 101: Strategies for Saving Money & Paying Off Your Debts Faster. Elizaville, NY: Good Advice Press, 1997.

Dolan, Ken and Daria. Straight Talk on Money. New York: Simon & Schuster, 1993.

Dominguez, Joe, and Vicki Robin. Your Money or Your Life. New York: Penguin, 1993.

Donoghue, William E. Mutual Fund Superstars: Invest in the Best, Forget About the Rest. Seattle, WA: Elliott & James, 1995.

Dugas, Christine. Fiscal Fitness: A Guide to Shaping Up Your Finances for the Rest of Your Life. Kansas City: Andrews and McMeel, 1995.

Dunnan, Nancy. Dun & Bradstreet Guide to Your Investments. New York: Harper Perennial, 1998.

Edelman, Ric. The Truth About Money. Washington, DC: Georgetown University Press, 1996.

Edwards, Kenneth W. The Homebuyer's Survival Guide. Chicago: Dearborn, 1994.

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Effros, Bill. How to Sell Your Home in 5 Days. New York: Workman, 1998.

Eisenson, Adam, illustrated by Joseph Walden. The Peanut Butter and Jelly Game. Elizaville, NY: Good Advice Press, 1996.

Eisenson, Marc. The Banker's Secret. New York: Villard Books, 1991.

Eisenson, Marc, and Nancy Castleman. The Banker's Secret Loan Software. Elizaville, NY: Good Advice Press, 1997.

Eisenson, Marc, Nancy Castleman, Marcy Ross, and "The Stop Junk Mail-Man." Stop Junk Mail Forever. Elizaville, NY: Good Advice Press, 1997.

Elgin, Duane. Voluntary Simplicity. New York: Quill, 1993.

Englander, Debra. How to Be Your Own Financial Planner. Rocklin, CA: Prima, 1996.

Enterprise Foundation. A Consumer's Guide to Home Improvement, Renovation and Repair. New York: Wiley, 1995.

Feinberg, Andrew. Downsize Your Debt. New York: Penguin, 1993.

Fiske, Edward B. The Fiske Guide to Colleges. New York: Times Books, 1998.

GeRue, Gene. How to Find Your Ideal Country Home: Ruralize Your Dreams. Zanoni, MO: Heartwood, 1996.

Gillis, Jack. The Car Book. New York: Harper Collins, 1998.

Glink, Ilyce R. 100 Questions Every First-Time Home Buyer Should Ask. New York: Times Books, 1994.

Gordon, Harley. How to Protect Your Life Savings from Catastrophic Illness. Boston: Financial Strategies Press, 1997.

Green, Mark. The Consumer Bible. New York: Workman, 1995.

Hansen, Mark Victor, and Jack Canfield. Chicken Soup for the Soul. Deerfield Beach, FL: Health Communications, 1993.

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Hawken, Paul. Growing a Business. New York: Simon & Schuster, 1987.

Hochschild, Arlie Russell. The Time Bind. New York: Metropolitan, 1997.

Howard, Clark, and Mark Meltzer. Clark Howard's Consumer Survival Kit. Marrietta, GA: Longstreet Press, 1995.

Jaffe, Charles. The Right Way to Hire Financial Help. Cambridge, MA: MIT Press, 1998.

Johnston, Jo-Ann. The Post-College Survival Handbook. New York: Macmillan Spectrum, 1997.

Jorgensen, James. It's Never Too Late to Get Rich. New York: Simon & Schuster, 1995.

Kasdin, Karin, and Laura Szabo-Cohen. Disaster Blasters: A Kid's Guide to Being Home Alone. New York: Avon, 1996.

Kehrer, Daniel. Kiplinger's 12 Steps to a Worry-Free Retirement. Washington, DC: Kiplinger Books, 1995.

Kobliner, Beth. Get a Financial Life. New York: Fireside, 1996.

Kristof, Kathy. Kathy Kristof's Complete Book of Dollars and Sense. NewYork: Macmillan, 1997.

Lank, Edith. The Homebuyer's Kit. Chicago: Dearborn, 1997.

Lawrence, Judy. The Budget Kit. Chicago: Dearborn, 1997.

Leider, Anna and Robert. Don't Miss Out. Alexandria, VA: Octameron, 1997.

Leonard, Robin. Money Troubles: Legal Strategies to Cope with Your Debts. Berkeley: Nolo Press, 1997.

Leonard, Robin, and Shae Irving. Take Control of Your Student Loans. Berkeley: Nolo Press, 1997.

Levinson, Jay Conrad. Guerrilla Marketing. Boston: Houghton Mifflin, 1993.

Lonier, Terri. Working Solo. New York: Wiley, 1998.

Matthews, Joseph. Beat the Nursing Home Trap. Berkeley: Nolo Press, 1993.

Mayher, Bill. The College Admissions Mystique. New York: Noonday Press, 1998.

McCoy, Jonni. Miserly Moms. Elkton, MD: Full Quart Press, 1996.

Mellan, Olivia. Money Harmony. New York: Walker & Co., 1994.

Middleton, Faith. The Goodness of Ordinary People. New York: Crown, 1996.

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Rogak, Lisa Angowski. 100 Best Retirement Businesses. Chicago: Upstart Publishing Company, 1994.

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INDEX

A

AARP Home Equity Information Center, 96

Ace in the Hole, 143156, 214. See also Small businesses

Adjustable rate mortgages (ARMs), 241243, 246

Adult Learner's Guide to Alternative and External Degree Programs, 120

Advertisements, effect of, 204205

AdvisorLink, 310

Allowances, 5759

American Association of Homes and Services for the Aging, 106107

American Express, 232

American Institute of Certified Public Accountants, 309

American Society of Home Inspectors, 80

Annuities, information source, 307

Assets, 32

allocation of, 303305

Automobiles. See Car(s); Car buying

Auto Safety Hotline, 260

B

Balance, achieving, 1821

Bamford, Janet, 85

Banker's Secret, The, 16, 235, 241

Banker's Secret Loan Software, The, 93, 222

Bankruptcy, 223

Banks, 203

fees, 196200

and mortgage pre-payments, 238

Barfield, Rhonda, 188

Bartering, 156, 189192

Basadur, Min, 1415

Bear, John and Mariah, 120, 273

Beat the Nursing Home Trap, 107

Benefits, employee, 128142

Bennett, Steve and Ruth, 54

Bernstein, Daryl, 66

Better Than a Lemonade Stand: Small Business Ideas for Kids, 66

Biweekly payments, 221, 240241

Blue Book of Car-Buying Secrets, The, 188

Bodnar, Janet, 67

Bonds, information sources for, 307

Borrowing, 203204. See also Loans

Brabec, Barbara, 153

Bragg, W. James, 261

Brokers, real estate, 8384

Brunette, Kent, 24

Budget Kit, The, 161

Building inspectors, 8081

Burgess, William E., 120

Burkett, Larry, 43

Burns, Scott, 216

BusinessWeek, 306

C

Campbell, Jeff, 36, 39

Cane, Michael Allan, 99

Car(s), 251272

buying, alternatives to, 252253

cost of, 251252

driving costs, cutting, 271272

needs for, 253254

Car Book, The, 266

Car Buyer's and Leaser's Negotiating Bible, 261

Car buying:

budget for, 255

financing, 255257

inspecting, 258259

insurance shopping, 268271

leasing, 266268

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loan shopping, 264266

low rates versus rebates, 261264

new cars, 260264

safety issues, 271

trade-ins, 261

used cars, 258259

CardTrak, 225, 230, 292

Career(s):

coaches for, 118

counseling for, 115116

exploring, 116119

Caretaker Gazette, The, 71

Carlson, Steve, 86

Castleman, Nancy, 7, 1516, 2526, 4951, 181, 325

Celente, Gerald, 17, 125

Center for a New American Dream, 18

Center for the Study of Services, 139

Change(s), 14, 27

domino effect of, 2627

involuntary, 34

obstacles to, 2526

in occupation, 115

preparing for, 3840

testing, 23

timing of, 1920

Chany, Kalman A., 286

Charitable and nonprofit organizations, information on, 186

Chatzky, Jean Sherman, 177

Cheap Eating, 188

Cheapskate Monthly, The, 21

Checks, buying, 198

Chicken Soup for the Soul, 118

Child care, 4546

employer-subsidized, 140

during summer, 4445

Childcare Aware Hotline, 45

Children, 5455

businesses and jobs for, 6566

costs of raising, 5556

and estate planning, 101102

investment learning for, 6768

money, teaching about, 6364

money management by, 5659

needs versus wants, 5963

quality of life, 4143

savings plans for, 5758, 6667

and yard sales, 6465

Chilton, David, 300

Chores, trading, 3536

Christmas clubs, 233234

Cigarette smoking, expense of, 39

Clark Howard's Consumer Survival Kit, 183

Clason, George S., 296

Cleaning, 36

Clifford, Denis, 99

Closing costs, 7779

cutting, 246247

Clutter, removing, 3637, 39

Clutter Control, 39

Coaches Training Institute, 118

Coinsurance, 138

College. See also College costs

attendance decisions, 274275

searching for, 277281

College Admissions Mystique, The, 286

College costs, 273292

financial aid process, 276, 280282

grandparent contributions, 288

negotiating, 278279

pre-paid tuition plans, 287288

preparation for, 283285

saving for, 6667, 275276

stepparent contributions, 283

student contributions, 282283

student loans, 289290

College Degrees by Mail & Modem, 120, 273

Colleges That Change Lives, 277

Collins, Victoria F., 22

Commissions, real estate broker, 82

Commonsense Guide to Your 401(k), 111

Company stock, 133134, 141

Comparison shopping, 185. See also Shopping, smart

Complaining, and price reductions, 194

Compound interest, and debt investments, 205209

Comprehensive Loss Underwriting Exchange (CLUE), 271

Computer literacy, 120121

Con artists, 183186

Consumer Action, 225, 230

Consumer Bible, The, 184

Consumer Federation of America, 297

Consumers' Guide to Health Plans, 139

Consumer's Guide to Home Improvement, Renovation and Repair, A, 41

Consumer Information Center, 185

Consumer's Resource Handbook, The, 185186

Consumption habits, 179180

Cooperative Extension Service, 165166

Cosby, Bill, 163

Country Bound! Trade Your Business Suit Blues for Blue Jean Dreams, 20, 71

Covey, Stephen, 38

Creative Downscaling, 21

Credit bureaus, 231

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Credit cards, 205, 215234

benefits of, 216217, 219220

and college students, 289292

convenience checks, 234

for credit problems, 229231

debts, investing in, 208209

grace periods, 232

and holiday spending, 233234

interest rates on, 224229

minimum payments, 6, 216, 217

paying off, 167, 220222

paying off versus saving, 212214

pre-paying on, 218219

secured, 229230

tips for use, 232234

Credit counseling programs, 223224

Credit ratings, 230231

Credit reports, inquiries into, 263

Credit unions, 197

Credit Union National Association (CUNA), 197, 264

Crossen, Cynthia, 204

Cruz, Humberto and Georgina, 21, 177

D

Danko, William, 176177, 253

Dappen, Andy, 43

Davis, Kristin, 275, 286

Debt Consolidation 101, 227228

Debt Counselors of America, 223

Debtor's Anonymous (DA), 223224

Debts, 6

consolidation of, 225229

paying down, 201

Deductions, itemizing, 72

Detweiler, Gerri, 7, 2425, 123124, 179, 215, 231, 291, 304, 326

Disaster Blasters: A Kid's Guide to Being Home Alone, 44

Distance learning, 119120

Divorce and Money, 22

Dolan, Ken and Daria, 295

Dominguez, Joe, 37

Donoghue, William E., 306

Don't Miss Out, 281, 286

Driving, costs of, 271272

Dr. Tightwad's Money-Smart Kids, 67

Drugs, generic, 193

Dugas, Christine, 177

Dun & Bradstreet Guide to Your Investments, 130, 306

Dunnan, Nancy, 130, 175176, 306

E

Eat Healthy for $50 a Week, 188

Edelman, Ric, 306

Education:

distance learning, 119120

and employability, 119

employer-subsidized, 141

Edwards, Kenneth W., 78

Edwards, Pat, 188

Effros, Bill, 8283

Eisenson, Adam, 63, 6768

Eisenson, Howard, 31

Eisenson, Marc, 7, 1516, 5153, 152, 195196, 235, 325

Elderly persons, scams on, 184185

Electronic transfers, for bill paying, 301302

Elgin, Duane, 17

Emergency funds, 212214

Employee Assistance Programs (EAPs), 140

Employee benefits, 128142

cafeteria plans, 139

Employee Assistance Programs, 140

Flexible Spending Accounts, 139140

insurance, 136139

retirement savings plans, 130136

stock options, 141142

Employee Retirement Income Security Act (ERISA), 135

Employee Stock Ownership Plans (ESOPs), 133

Employment, 111114

Encyclopedia of Associations, The, 116

Enterprise Foundation, 41

Equifax, 231

Escrow, 247

Estate planning, 97101

Estate taxes, 99

Executors, 101102

Exercise, 40, 97

Expected family contribution (EFC), 276

Experian, 231

Extended Care Information Network, 107

F

Family:

focusing on, 2953

spending time with, 5, 37

support from, 13

Family Circle, 165

Family-friendly companies, 44

Family life:

child care, 4546

improving, 4648

FDIC Consumer News, 186

FHA Streamline Program, 248249

Financial aid, for college, 276, 279283

Financial Literacy Center, 133

Financial planners, 308310

for college financing, 285

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Financial planning, 6, 295311

advisors for, 308310

asset allocation, 303304

and taxes, 304305

Financial Times, The, 125

Financing College, 275, 286

Finding & Buying Your Place in the Country, 71

Finestone, Neil, 130

Fiscal Fitness, 177

Fiske, Edward B., 277

Fiske Guide to Colleges, The, 277

Five-Minute Lawyer's Guide to Estate Planning, The, 99

Flexible Spending Accounts (FSAs), 139140

Flextime, 4344

Forbes, 306

Fortune, 306

4 Easy Steps to Successful Investing, 306

401(k)s, 130135, 167

borrowing from, 135

employer contributions, 213214

investment strategies for, 133

403(b)s, 131, 132, 167

borrowing from, 135

403(b)(7) custodial accounts, 132

Frank, Robert E., 21

Fraud, 183186

Free Application for Federal Student Aid (FAFSA), 279

Free products and services, 193195

Frugality, 169, 176177

Funds, unclaimed, 181182

G

Generic brands, 193

GeRue, Gene, 71

Get a Financial Life, 292

Get a Life: You Don't Need a Million to Retire Well, 87, 97

Gifts:

budgeting for, 58, 172173

homemade, 174175

Gillis, Jack, 266

Give but Give Wisely, 186

Glink, Ilyce R., 78

Goals:

roadblocks to, 1415

setting dates for, 27

Good Advice Press, 3, 16

Good Housekeeping, 165

Goodness of Ordinary People, The, 23

Gordon, Harley, 108

Grace periods, 232

Green, Mark, 184

Growing a Business, 151

Guaranteed investment contracts (GICs), 133

H

Habits, costs of, 39

Hansen, Mark Victor, 118

Harry the Gorilla, 6364

Harvard Financial Educators, 285

Hawken, Paul, 151

Health:

investing in, 4953

and life insurance, 104105

and retirement, 97

support groups, 50

Health care insurance, 105106, 136139

Health Care Choices for Today's Consumer, 137

Hewitt Associates, 131

Highway Loss Data Institute, 271

HMOs (health maintenance organizations), 137139

accreditation and rating services, 138139

doctors in HMO networks, 137138

Medicare, 105

Hobbies, as small businesses, 146

Hochschild, Arlie Russell, 42

Holidays, 173174

Holiday spending, 172173

on credit cards, 233234

Home(s):

buying, 7174

depreciation of, 249250

inspecting, 7980, 247

insuring, 8485

location of, 7071

market value, 81

renting, 7376

worth of, 79

Home businesses, 5, 143156. See also Small businesses

Homebuyer's Kit, The, 78

Homebuyer's Survival Guide, The, 78

Home equity:

and college tuition contributions, 286287

loans, 226, 265

Home Equity Conversion Kit, 96

Home improvement projects, 41

Homemade Money, 153

Homeownership, 7173, 7781. See also Mortgages

closing costs, 7779

insurance, 156

profit from, 7576

property taxes, 86

versus renting, 7376

selling, 8184

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We Homo sapiens never have enough time for our chores and responsibilities, let alone our pleasures. Every year we buy umpteen time-and energy-saving devices that will supposedly free us up to accomplish yet more and more every day. Every year we have less time to do those things that matter most to us.

Between FedEx, faxes, and the freeways of cyberspace, we've managed to create instantaneous crises that require speed of light solutions. No longer do we have time to think, contemplate, innovate, or even procrastinate. We are always rushing, always running late.

From an Invest in Yourself perspective, making the most of your time isn't a matter of time management, or squeezing as many chores, meetings, and projects as possible into your day. That's not making the most of your timeit's making the least of it!

Making the most of your time means making choices, then working it out so you can do what you choose. Making the most of your time means doing nothing when nothing is what you want to do and staying up all night to work on a project, read a book, or dance until dawn, when that's what you choose.

There are lots of reasons we can't always do exactly as we please, including the need to earn a living, the desire to stay out of prison, and the hope of maintaining our key relationships. However, we can dramatically increase our life's options by decreasing our outside dependencies.

While there are numerous paths leading to personal freedom, our favorite is the path of most resistanceresistance to unnecessary expenditures of our three key assets: time, energy, and money. The more frugal you are with these assetsthe less of them you commit to projects that have little personal meaning for you, the more you'll have for those that do and the better you'll feel about the quality of your life.

Thinking about your time and energy as investments, just like the money you have in the stock market or the bank, is a good way to become conscious of how these two assets are performing in your life portfolio. In the same way that a good Wall Street investment appreciates in value, you want your investments of time and energy to offer high yields. They should make you feel goodhappy, satisfied, energized, or relaxed. If you're lucky, they may even help you make money.

But if it's Monday morning and you're tired of the grind, then your portfolio may be unbalanced. Is it full of too much work, too many chores at home, too hectic a schedule, too much guilt? Then stop making bad investments! It's that simple (and complicated).

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Hometown Money Starter Kit, 190

Hondling, 186188

Howard, Clark, 183

How to Find Your Ideal Country Home, 71

How to Get Out of Debt, Stay Out of Debt & Live Prosperously, 224

How to Protect Your Life Savings, 107108

How to Sell Your Home in 5 Days, 8283

HSH Associates, 242

HUD Housing Counselor referral line, 96

Hunt, David, 291

Hunt, Mary, 21

I

I Could Do Anything If I Only Knew What It Was, 115

Impulse buying, 60, 171

Income, one-income living, 43

Inflation, and savings, 92

Insider's Guide to the Colleges, The, 277

Institute of Certified Financial Planners, 309

Insurance:

for cars, 268271

for college students, 85

deductibles, 165

as employee benefit, 136139

health care, 105106

on homes, 8485

life, 102107

long-term care, 107

mortgage life, 247

title, 246

Insurance companies, stability of, 85, 104

Insurance for Your Household and Personal Possessions, 85

Interest Rate Reduction Loans (IRRLs), 249

Interest rates, 204

on credit cards, 224229

International Association for Financial Planning, 285, 295, 309

International Coach Federation, 118

Invest in Yourself secrets, 45

Investments, 167

administration fees, 134135

by children, 6768

in debts, 203214

in debts versus 401(k), 212214

in knowledge, 115116

in mortgages, 235250

quality-of-life boosting, 40

risks of, 210211, 302303

socially responsible resources, 310

strategies for, 132134, 211

yields on, comparison, 209210

IRAs, 301

books on, 306

Irving, Shae, 290

Ithaca HOURS, 190

It's Never Too Late to Get Rich, 132

It's Your Money, 21

Ivy League Programs at State School Prices, 277278

J

Jaffe, Charles, 310

Job counselors, 118119

Job loss, 214

Johnson, Philip, 285

Johnston, Jo-Ann, 292

Jordan, Cora, 99

Jorgensen, James, 21, 132

Just Alan, 181

K

Kasdin, Karin, 44

Kathy Kristof's Complete Book of Dollars and Sense, 128

Kehrer, Daniel, 97

Keogh plans, 136

Kilgo, Edith Flowers, 21

Kiplinger's Personal Finance Magazine, 86, 185, 306

Kiplinger's Retirement Report, 97

Kiplinger's 12 Steps to a Worry-Free Retirement, 97

Kobliner, Beth, 292

Koop, C. Everett, 39

Kristof, Kathy, 128

L

Lank, Edith, 78

Late-payment fees, 198, 200

Lawrence, Judy, 161

Lazare, Harry, 173

Leasing cars, 266268

Lee, Dee, 285

Leider, Anna and Robert, 281, 286

Leonard, Robin, 223, 290

Levering, Frank, 71

Life goals, and work life, 113115

Life insurance, 102107

Lifestyle decisions, 4, 927, 38

Lifetime Book of Money Management, The, 304, 306

Living Cheap News, 21

Living the Simple Life, 16

Living Trust Maker Software, 101

Loans. See also Mortgages

for cars, 261265

with front-load interest, 265

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late payment fees, 198, 200

no-peek, 242

pre-paying, 206208

prequalification for, 78

from retirement savings plans, 135136

types to avoid, 226, 229

Longevity, factors of, 97

Long-term care insurance, 107108

Loose Change, 133

Lynch, Peter, 145

M

Making a Living Without a Job, 143

Making the Most of Your Money, 159

Marketing your skills, 121124

Market research, 150152

product testers and focus groups, 194

Martin, Ellen James, 78

Matthews, Joseph, 107

Mayher, Bill, 286

McCoy, Jonni, 43, 178

McLaren, Wayne, 114

Medicaid, 105106

Medical Savings Accounts (MSAs), 139

Medicare, 105106

Medicare Handbook, 106

Medigap insurance, 105

Mellan, Olivia, 193

Meltzer, Mark, 183

Middleton, Faith, 23

Millennium Institute, 18

Miller, Marc S., 137

Miller, Stephen M., 40

Millionaire Next Door, The, 176177, 253

Minimum Payment Syndrome (MPS), 216217

Miserly Moms, 43, 178

Modern Maturity, 97

Money magazine, 70, 134, 306

Money-back guarantees, 153

Money-Book Store Catalog, 66

Money Harmony, 193

Money management, 4. See also Financial planning

by children, 5659

Money-Smart Secrets for the Self-Employed, 154

Moneysworth, 21

Money Troubles: Legal Strategies to Cope with Your Debts, 223

Montana State University check register, 160161

Moonlighting, 117

Mortgages, 235250

adjustable rate, 241242

assumable, 245

biweekly payments on, 240241

closing costs, 246247

comparison worksheet, 244245

convertible, 243

graduated payment, 243244

insurance, rebate on, 249

Interest Rate Reduction Loans, 249

money sources for, 245246

pre-payments on, 77, 206208, 236240

refinancing, 247250

reverse, 9596

serial, 238239

shopping for, 242246

two-step, 243

Moving to a Small Town, 71

Moving to Small Town America, 69, 71

Mrkvicka, Edward F. Jr., 197

Multiple Listing Service (MLS), 83

Mundis, Jerrold, 224

Mutual Fund Superstars, 306

Mutual funds, 134, 210, 306308

books on, 308

Myers, Marc, 21

N

Nader's Raiders, 198

National Association for Family Child Care, 45

National Association for the Education of Young Children, 45

National Association of Insurance Commissioners, 271

National Association of Investors Corporation (NAIC), 307

National Association of Personal Financial Advisors, 309

National Association of Securities Dealers, 309310

National Association of Unclaimed Property Administrators, 181182

National Board for Certified Counselors, 119

National Center for Financial Education, 66, 171

National Committee for Quality Assurance, 138

National Consumers League, 185

National Flood Insurance Program, 84

National Foundation for Consumer Credit, 223

National Fraud Exchange (NAFEX), 310

National Fraud Information Center, 186

National Insurance Consumer Helpline, 85

National Kidney Foundation, 261

NationsBank, 297, 326

Negotiating prices, 186188

Nest eggs, 8991

Net Interest Rate, 89

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Networking, 122124

New Choices, 97

Newsletters, list of, 21

Newsweek, 20

New York Times, The, 125

No-Debt Living, 21

Nolo News, 101

Nolo's Simple Will Book, 102

Nursing homes, 106107

Nutz & Boltz, 259

O

100 Best Retirement Businesses, 97

100 Questions Every First-Time Home Buyer Should Ask, 78

101 Best Home Businesses, 145

Only Investment Guide You'll Ever Need, The, 297, 306

Oryx Guide to Distance Learning, The, 120

Overconsumption, 179180

Overdrafts, 197198

Owner-Builder Book, The, 79

P

Palermo, Michael, 99

Paying for College Without Going Broke, 286

Peanut Butter and Jelly Game, The, 6364

Penny Saved, A, 21

Penny pinching, 56, 164166, 178200

Pharmaceuticals, name-brand, 193

Places Rated Almanac, 70

Plan Your Estate, 99

Pocket Change Investor, The, 21

Point of service (POS) plan, 137

Pond, Jonathan D., 306

Pope, Loren, 277

Post-College Survival Handbook, The, 292

Preferred provider organizations (PPOs), 137

Pre-paid college tuition plans, 287

Pre-payments:

on credit cards, 208209, 218219

on leases, 267

on mortgages, 77, 206208, 236240

Price checking, 180182

Private mortgage insurance (PMI), 7374, 78

Probate, 100

Professional associations, 116, 123

Promotions, asking for, 126127

Property caretakers, 71

Property taxes, 86

Pryor, Austin, 21

Publicity, free, 154155

Public speaking, 123124

Purchases:

bargain deals, 183

hondling over, 186188

impulse, 60, 171

pricing technique, 168

scams, avoiding, 183186

Q

Quality of life:

for families, 4143

and flexible work hours, 4344

and health, 4953

and home location, 6971

improving, 3435

investing money in, 3536

scale, 3334

and time, 32

time and energy investments in, 3840

Quinn, Jane Bryant, 159, 301

R

Raises, asking for, 126127

Ramsey, Dan, 145

Razzi, Elizabeth, 86

Reader's Digest New Complete Do-It-Yourself Manual, 196

Real estate tax deductions, 7475

Reeves, Pamela, 78

Referrals, 154

Refinancing, 242250

Relationships, 2223

Renting housing, 7376

insurance for, 84

Repairs, do-it-yourself, 195196

Retirement:

age at, 9495

expenses during, 9192

lifestyle options, 9394

math for, 8895

planning for, 8893, 106107, 130132

reverse mortgages, 9596

savings for, 132136

Retirement Places Rated, 70

Reverse mortgages, 9596

Reverse Mortgages for Beginners, 96

Rich & Famous Money Book, The, 177

Richard, Paul, 171

Richest Man in Babylon, The, 296

Right Way to Hire Financial Help, The, 310

Risk(s):

in investments, 133, 302303

and side businesses, 149150

Robin, Vicki, 37

Rogak, Lisa Angowski, 97

Rollovers, of retirement savings, 136

Rosener, Diane, 21

Ross, Marcy, 117, 268

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Ross, Marilyn and Tom, 20

Roth, Larry, 21, 169

Rowland, Mary, 2324, 111

S

Safe-deposit boxes, 198

Salaries, median, 296

Savage, Terry, 203, 306

Savageau, David, 70

Save for America, 5758

Savings, 161162

amount, for retirement, 9495

buying less, 188189

for children, 6667

for credit card debt, 226

in schools, 5758

10% solution, 166167

Savings bank life insurance (SBLI), 104

Savings Incentive Match Plan for Employees (SIMPLE), 136

Scams, 183186

Scher, Les and Carol, 71

Scholarships, 281

Scholen, Ken, 96

Schroeder, Richard, 297

Seavey, William, 69, 71

Self-Help Clearinghouse, 50

SEP-IRAs, 136

7 Habits of Highly Effective People, The, 38

Shattering the Two-Income Myth, 43

Sher, Barbara, 115

Shopping, smart, 161, 167

comparison, 185

habit of, 171172

myths of, 192193

Side businesses. See Small businesses

Simple Life, The, 169

Simple living, 1618

Simple Living Journal, The, 18

Simple Living Network, 18, 71

SIMPLE plans, 136

Skills, learning, 41, 194

Small businesses, 143156

bottom line of, 152153

don'ts for, 147148

expenses, cutting, 156

running, 153154

starting, 144152

word of mouth advertising, 154155

Smart Credit Strategies for College Students, 291

Smarter Insurance Solutions, 85

Smith, Mark A. and Elaine, 79

Social Security Administration, 89

Socially responsible investing, 310

Solomon, David, 259

Sound Mind Investing, 21

Spectrum Tidbits, 97

Speed Cleaning, 36

Spending:

at holidays, 172173

mistakes, 56

smart choices, 162163

tracking, 160161

Spouses:

and estates, 101

insurance coverage of, 138

Stanley, Thomas, 176177, 253

Stargel, Sky, 188

Stern, Linda, 154

Stewart, Potter, 33

St. James, Elaine, 16

Stock(s), 141142, 209

information sources for, 133, 307

small-company, 133134

Stop Junk Mail Forever, 185

Straight Talk on Money, 295

Student Guide: Financial Aid, The, 286

Students:

and credit cards, 290292

contribution to college costs, 282283

loans to, 289290

Sullivan, Eugene, 120

Sullivan, Robert R., 278

Szabo-Cohen, Laura, 44

T

Tainted Truth, 204

Take Control of Your Student Loans, 290

Tarkenton, Fran, 156

Tax Foundation, 163

Tax(es):

on barters, 190

and car buying, 265

estate, 99

and financial planning, 304305

income, 161

and medical savings accounts, 139

and mortgages, 238

real estate/property, 7475, 86

record keeping for, 155

during retirement, 92

and retirement savings, 131, 135

shelters, 72

Tax ID numbers, 155

Telecommunications and Research and Action Center (TRAC), 165

Telephone calling plans, 164165

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Tele-Tips, 165

Television, 39, 56

Temping, 117

Term insurance, 104

Terry Savage's New Money Strategies for the '90s, 306

They Can't Hang Up, 185

365 TV-Free Activities, 54

Tice, Lena, 141

Time:

as an investment, 3233

maximizing, 3140

as a resource, 13, 15

Time Bind, The, 42

Time magazine, 20

Title insurance, 246

Toastmasters International, 124

Tobias, Andrew, 297, 306

Toy libraries, 179

Trade associations, 154

Trading, 189192

Trans Union, 231

Travel Smart, 175

Trends, tracking, 125

Trends Research Institute, 125

Trends 2000, 17, 125

Trevaskis, Jane, 118

Trusts, 100101

Truth About Money, The, 306

Tsongas, Paul, 5

U

Ultimate Credit Handbook, The, 215, 231

Uniform Gift to Minors Act (UGMA), 289

Uniform Transfer to Minors Act (UTMA), 289

Urbanska, Wanda, 71

USA Today, 125

U.S. Department of Labor Pension and Welfare Benefits Administration, 135

U.S. News & World Report, 20, 138139

Use Less Stuff Report, The, 18

V

Vacations, saving money on, 175176

Ventolo, William L., 79

Veterans, loans for, 249

Voluntary Simplicity, 17

Voluntary simplicity, 1617

Volunteering, 116117, 123, 124, 193

W

Walden, Joseph, 64

Wall Street Journal, The, 125

Warner, Ralph, 87, 97

Wealthy Barber, The, 300

Web sites:

for business ideas, 145

on car buying, 255

for career information, 116, 117

for car insurance rates, 271

for car leasing rates, 268

on college entrance exams, 277

for college scholarship information, 281

on college selection, 277278

for consumer information, 186

for credit cards, 225

for credit unions, 197

for distance learning, 120

for do-it-yourself projects, 196

for financial aid information, 286

for fraud information, 186

for health care resources, 50

for investment clubs, 307

for investment information, 304, 306

for mortgage rates, 73, 247

for real estate information, 79

on simple living, 18

for socially responsible investing, 310

for unclaimed funds, 182

for will writing, 99, 102

Weddings, financing, 167168

Weinstein, Grace, 304, 306

What Color Is Your Parachute, 116

WillMaker Software, 102

Wills, 9899, 101102

Winfrey, Oprah, 8

Winning at the Savings Game, 21

Winning Ways newsletter, 143

Winter, Barbara J., 143

Wise Giving Guide, 186

Woman's Day, 40, 165

Woman's World, 165

Women Leaving the Workplace, 43

Woodhouse, Violet, 22

Work and Family Life newsletter, 140

Working Mother, 126

Working Woman, 126

Work life, and life goals, 113115

World Wide Web, 18

Y

Yard sales, 6465

Your Bank Is Ripping You Off, 197

Your Home Inspection Guide, 79

Your Low-Tax Dream House, 86

Your Money magazine, 306

Your Money or Your Life, 37

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ABOUT THE AUTHORS

MARC EISENSON AND NANCY CASTLEMAN

Marc Eisenson, author of the best-seller The Banker's Secret, is known as the expert on how to painlessly exit from debt, and is widely regarded as one of the foremost financial thinkers of our time. With his partner Nancy Castleman, Marc has spent the last 14 years teaching Americans the secrets to saving money, managing debts, and living better on less. Through books, software, audiotapes, and an assortment of other publications, their Good Advice Press has saved hundreds of thousands of families billions of dollars.

Dubbed by the media as the bible on mortgage pre-payment, Marc and Nancy originally self-published The Banker's Secret. It was greatly expanded over the years and was subsequently published by Villard, a division of Random House. The pair continue to distribute it to this day, from the old farmhouse where they live and work in upstate New York.

Since 1990, Marc and Nancy have also published the highly respected Pocket Change Investor newsletter, which helps consumers make savvy financial choices on subjects like refinancing, taxes, and credit cards. They also help readers to tackle difficult lifestyle decisions, and they've been championing the value of a debt-free, simple life since 1984long before ''downsizing debt," "voluntary simplicity," and "tightwaddery" were politically correct.

Hundreds of reporters, producers, and editors across the nation receive, ingest, and report on their often provocative, but always well-documented, sound advice. Marc speaks to members of the media every day, and they regularly showcase his ideas on radio and television, in virtually every newspaper, as well as in every personal finance, business, and women's magazine.

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GERRI DETWEILER

Gerri Detweiler is an authority on the credit and financial services industry. For the past decade, her views have been sought in the halls of Congress, in the headquarters of financial giants such as MasterCard and NationsBank, by the media, and by organized labor. She served as the executive director of Bankcard Holders of America and policy director of the National Council of Individual Investors, both nonprofit financial education organizations.

Her first book, The Ultimate Credit Handbook, was named in Money magazine as one of the best new personal finance books of the year when it was released. A revised, updated edition explains the latest credit laws and how they can be used to get and keep an excellent credit rating. She now publishes a free e-mail newsletter, available by sending a blank e-mail message to subscribe@ultimatecredit.com.

Gerri has been featured frequently in the media, including The Today Show, Dateline NBC, CBS Evening News, numerous shows on CNN and CNBC, in The New York Times, The Washington Post, and hundreds of other outlets. She has also authored articles for publications such as Bottom Line, and Woman's Day, given numerous speeches, both in the U.S. and abroad, and co-hosted an award-winning syndicated radio program.

Gerri recently received her master's degree in Adult Education/ Psychology with a focus on financial education and problem solving. She lives and works in a townhouse in one of Washington, D.C.'s bustling suburbs.

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To get more of what you want in life and less of what you don't, start by analyzing where you spend your time and energy each day. Ask yourself as you move through each activity, "What's my return on this investment?" If your answer is "nothing" or something negative, then you're best off either finding a way to improve your return or dumping that piece from your portfolio for another investment that's more in keeping with your life goals and your values.

You may not be able to do it overnight, but you can begin to change the mix. Start small. If your schedule is already jam-packed, don't try to force yourself to do an hour of yoga, every day. You'll just feel worse when you can't reach your goal. Instead, start by investing just 15 minutes of your time and energy today in something you really want to do, whether it's a hot bath or a quick cruise on-line to research some career options. Try to give yourself at least those 15 minutes every day.

As you begin to make decisions about your future, you might choose to cut your costs, cut your waste, or cut your work, but we hope you won't cut off your family or your pleasures in life. After all, there are some things in life that are well worth an investment of our time, energy, and assets, and some that just aren't. Taking the time to clarify your priorities is a great investment.

The Quality-of-Life Scale

To paraphrase Supreme Court Justice Potter Stewart, we can't really define quality of life, but we'll know it if we live it.

Score those factors that contribute to how you feel about your quality of life. On a scale of 1 to 10, how would you rate the following:

The quality of your relationships

With your spouse

_____

With your children

_____

With your parents

_____

With your boss

_____

With colleagues

_____

With your friends

_____

With your God

_____

The quality of your work life

_____

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The quality of your health

_____

The quality of your shelter

_____

The quality of your food

_____

The quality of your leisure time

_____

The quality of your exercise program

_____

The quality of your optimism

_____

The quality of safety where you live

_____

Add as many categories to the list as you want. Then look carefully at your responses. Decide where you need to invest more time and effort. The nice thing about this kind of test is that there's no passing score. Only you know how high you'd need to score to feel truly satisfied.

You know that you have a high quality of life (QL) if you feel good about who you are and what you're doing, and you enjoy your life enough to want to jump out of bed and start the day. (That's figurative. It's okay to want to start the day by spending a little extra time in bed.) So many of us expend so much of our energy on our work and our obligations, we leave little for ourselves or our families.

The Longer You Tread Water, the Longer You'll Get Nowhere

Even if you take absolutely no intentional actions to change your life, it will change. Time refuses to stand still. And as time moves on, we age with it, and our options change and often diminish. Therefore, the best time to begin fine-tuning your life is nowand the best place to start is with something easy, where a small change can make a big difference in the quality of your existence.

Let's choose something that we all have in common: eating. While this probably doesn't apply to you, let's assume that you don't always eat three delicious, well-balanced, home-cooked meals a day. And because of that, food on your QL scale scores only a 6 out of 10.

Building it up to 10 might be nearly impossible because of your job, dislike of cooking, small kitchen, lack of time, and the expense of organic produce. But you could easily punch it up to an 8 or even an 8 1/2more than a 40% improvement.

How? Don't stop for breakfast on the way to work. In the time it takes to make a cup of coffee, you can make fresh-from-scratch oatmeal. (By the way, it tastes better than the instant varieties, costs less, and doesn't contain any guar gum, caramel flavor, or other additives.) And if you buy

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organic oats at a health food store, there'll be no pesticides and you'll save money.

Or get everyone involved in meal preparationeven if it's just one night a week. How about a regular TGIF date for some homemade pizza or tacos? Olé! Let everyone choose their own toppings. No fights. Healthy, cheap, fun. QL up.

When cooking is feeling like a chore, focus on how you can turn it into a more pleasant activity:

Find a cooking buddy. Get together for meal-making marathons. It's an easy way to stock a couple of freezers with some great dinners.

Cook up a storm and share. The neighbor down the street makes great chicken soup, and your chili is mighty fine. Both are easy to make in large quantities. Cook up a double batch and split the spoils.

Make Saturday or Sunday a cookathon where everyone in the family helps, and create a week's worth of meals in one fell swoop.

Chop up a week's worth of vegetables at one time. You know it's a good idea to use lots of cut vegetables at every meal, but all that chopping takes time and makes a mess. Do it once, and your veggies for stir-fry, pizza, salads, and sticks for dips will stay nice and fresh if you wrap them in a damp towel before you put them in your refrigerator.

Sometimes It Pays to Invest Money

Being a Super Mom, Super Dad, Super Boss, Super Volunteer, or any other kind of superhero can be a tough act to keep up for any length of time. So drop the do-it-all mentality.

Something's wrong if you work all week to make enough money to hire someone to do the landscaping you enjoy, but just don't have the time to do. By the same token, if you work all week and really want to rest on your weekends, or climb Mount Washington, or whatever, then it's perfectly reasonable to buy some quality of life by bringing someone in to clean your house, rake your yard, paint the kitchen, go to the supermarket, or do your taxes.

I'll Wash Your Back If You'll Wash Mine

See if you can work out a trade. You can sew, babysit, or change the car's oil for a neighbor who would rather bake or weed. Or you can cook while your spouse (friend, mother, whoever) cleans.

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Wouldn't it be nice if the senior citizens next door were willing to cook or make curtains or refinish a piece of furniture for youwhile you raked their leaves, shoveled their snow, or trimmed their hedges? Why not suggest it? Not asking is an automatic no!

Love cooking? Help a friend! Maybe you could cook for a crony, in exchange for one of your hated chores.

Cleaning:

Necessary Evil or Obsession?

It's in the eye of the duster. We all prefer to live in sanitary conditions, although our opinions may differ on what clean means. If you hate to do housework and your mate tunes it out, hire someone or barter it away. From our perspective, if you can afford the alternative, by all means, choose to avoid those repetitive chores that you'd really rather not do and that only cause conflict. But if you can turn a chore into a family game, you'll save money, get the job done, and probably have a few laughs along the way.

The average house can pretty well be done in about two hours with a team of two or three. Get Speed Cleaning by Jeff Campbell and read it with the family. Start holding a weekly cleaning contest to see how fast everyone can complete their part with an acceptable level of quality. Then celebrate with some inexpensive treat.

We want you to decide where you can best invest your time, energy, and money. You can spend your time doing the dreaded chore, you can spend your time making enough money to hire someone else to do it, or you can work out a trade. You decide.

But decide! There's no benefit in throwing away time and energy obsessing about something and bugging everyone else to spend their time and energy meeting your standards. Come up with a plan that works for everyone, where no one is investing more in the chores than their comfort level dictates.

Create Your Foundation

Imagine a chaotic office where nothing's organized, everything takes twice as long to accomplish as it should because no one can find anything, and the equipment's always on the blink. What in your life is like that office? Is it clutter at homestuff that takes time to clean, keep up, and insure (not to mention that you can't find when you need it)? What about all those little daily annoyances and irritations that make you wince, but that you never seem to get around to fixing?

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Whenever you notice something in your environment that has been an irritant for more than a couple of days, find a way to eliminate it. Don't just put it on the ''Honey, Do" list, and then nag until it gets done. Find a way to make it happen. Perhaps a trade will work: "Honey, if you fix the faucet this afternoon, I'll wash your car." You'll free up an unbelievable amount of energy and rest better at night.

GERRI'S TOOLBOX: LEARN TO SAY NO!

Start dropping activities that aren't benefiting your time and energy portfolio. Then don't take on any new activities unless you eliminate one that you enjoy less. Encourage other family members to do the same. If you find this tough, at least give yourself 24 hours to think over any request to participate in a new activity. That will give you the chance to step back and decide if you really want to get involved.

One trick is to block out key time slots on your calendar for yourself and your family weeks in advance. When everyone pulls out their schedules to plan the next meeting, you'll look at yours and say, "Sorry, I can't make it then." The meeting will probably be put off to a time when your calendar's empty. Put your foot down. The weekends can be family time. No exceptions.

It's often easier to say no when it comes to money than to value our precious energy or time enough to say, "Sorry, that's more than I want to spend." Remember, unlike money, time can't be accumulated to use later. Use it or lose it.

Money is something we choose to trade our life energy for. . . . Life energy is all we have. It is precious because it is limited and irretrievable and because our choices about how we use it express the meaning and purpose of our time here on earth.

JOE DOMINGUEZ AND VICKI ROBIN, Your Money or Your Life

In what direction would you like to head next? With time limited29,220 days in an 80-year life span-investing your days, nights, and weekends in jobs, relationships, homes, communities, or careers that are no longer satisfying is a terrible waste of your most precious assets. It makes much more sense to build the kind of home life and career you want.

For example, if on the highway of life, your career lane were about to end, you'd have no choice but to look behind, in front, and to your side

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for an opportunity to change to a different career lane. If you're not paying attention and your lane ends suddenly, slamming on the brakes and swerving to the right could be dangerous! Unfortunately, speed often kills in a far subtler way, depriving us of a lifetime we could have better used if it weren't for the fact that we were always in such a rush.

When You're Feeling Important

Do you ever find yourself thinking, "I can't go to Johnny's school play, because I'm the only one who can . . . ,"or "If I take a mental health day, the office will fall apart," or "The family won't be able to function," or ''Our team will lose"?

One of the wonderful things about the American system of government is that it proves, over and over again, that no one is indispensable. Presidents, mayors, senators, representatives all come and go, but the nation's business keeps getting done. (Whether you like the way it gets done is another issue.)

Business is the same. A boss retires, an employee leaves. It makes little difference.

Its True! Today Is the First Day of the Rest of Your Life

Today, do something that you'd really enjoy. Begin to chip away at the old routine. Stop making decisions by default, and start making conscious choices. Begin the process of change.

But remember that change is rarely easy. And while it's smart to start boosting your QL with easy changes, some things that will really improve your life are tough. You may decide that to be truly happier, a move to another part of the country is in order. It may be time to say good-bye to your boss. Unhappy relationships may have to be cut.

Sometimes, the work that you do to prepare yourself to take action is just as important as the actual change. Researching other locales, scouting out the job market, reading books like The 7 Habits of Highly Effective People by Stephen Covey, or going for some counseling sessions may give you the information, insight, or courage you need to make a change and create the life you want.

Symbols of Sanity

There are some time and energy investments that can symbolically, as well as practically, raise your QL.

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Turn off the tube. The average family watches about seven hours of television a day. Cut the family sitcom allowance gradually and fill the time in fun ways: Sing, play an instrument or a game, make believe, read, tell stories, bake, go to bed earlier. You'll be far more rested come morning, and with the late-night TV silenced, you'll probably find other ways to entertain yourselves.

I talk to many parents who say the toughest thing they do is come home at night and put in some good, focused time with their children. The parents who do this will see their efforts pay off tremendously. But I see how hard it must be.

C. EVERETT KOOP, FORMER U.S. SURGEON GENERAL

Cut back and go the extra mile. Find ways that don't hurt for everyone in the family to scrimp on little things. For example, take one less taxi a week and walk instead. Between you, saving a dollar or two a day will be a piece of cake. Fifty dollars a month and you'll have a nice little vacation fund started. But don't put the money in the banksend it in on your highest-interest credit card bill and earn upward of 20%.

On the subject of cutting back, are you still smoking? Even at a low cost of $2.50 a pack, one a day means more than $900 up in smoke, every yearuntil it kills you! If you manage to last another 40 years, that's $36,000 blown to the wind. You'd have to earn $50,000 before taxes to finance your habit, not including any new taxes on tobacco. Invest that $900 a year at 8%, and in 40 years, instead of risking lung cancer, you'll have put aside $261,826.

Lots of habits are expensive in more ways than one. Price them in terms of their real benefits to you and yours. Then decide whether they're worth the cost.

Get rid of the clutter!

Unfortunately, for many of us, what we do best with our clutter is to fret about it and mull it over. . . . Get the areas of clutter that bother you under control and quit beating yourself up over the rest.

JEFF CAMPBELL, Clutter Control

Clean out your closets, basement, attic, and garage. Get rid of anything you haven't used in ages and are not holding onto for sentimental reasons. Give it to someone who might benefit from it, or have a yard sale. Much of what uselessly takes up space in your home and your life could improve the lives of others. It is far better to give than to store.

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We'll supply the ladder, and we'll even hold it for you. But you have to decide to climb it, and you have to choose where you'll be going next. Life, after all, is a series of choices.

Even the wealthiest people can't have or do everything they fantasize aboutat least not all at the same time! But all of us can have most of our needs and reasonable desires met, most of the time.

Six Keys to a Happier, Richer Lifestyle

Are you ready to live the life you crave, without feeling deprived, without making drastic changes, and without always having that black cloud of debt over your head? To pull it off, you'll need to develop a take-charge attitude, which is a surprisingly easy thing to doif you embrace the six Invest in Yourself secrets that we're going to spell out. They can power up the rest of your days, leaving you happier, healthier, wiser, and richer in every sense of the word. We guarantee it!

I

Make Your Own Lifestyle Decisions

Money management is no longer just a matter of how you earn, invest, and spend your incomeit's about how you choose to live your life. There's no "correct" way to go. We'll help you weigh the pros and cons, in terms of both the financial consequences and the way you feel about your alternatives. Then you'll decide what will work best for you and your family.

For example, say you've just had a baby. Congratulations! Now you find yourself thinking how nice it would be to only work part-time or to work from home. But you're used to a certain lifestyle, and you don't really want to change that. How can you pull it off, pay the bills, and not feel deprived?

Or perhaps your kids are approaching school age, and you're thinking about moving into a better school district, even though real estate is more expensive there. How can you swing it? Will it be worth the sacrifice?

Or maybe you're wondering if you'd be happier leaving the city for the countryor leaving the suburbs for the city. Perhaps you're wondering, "What can I do, right now, to enhance and simplify my life without making major changes?"

Before you can make positive lifestyle changes, you'll need to get clear on your priorities and your realistic options. You can do it! You're not a dummy or an idiot. You're not clueless, and you're not from Mars or Venus.

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Stop all that junk mail. Who needs it? Our booklet, Stop Junk Mail Forever, tells you what to do to get offand stay offthe direct marketing lists, without stopping the catalogs you enjoy. It will also help you nix the telemarketers, and squash the spam (junk e-mail). See page 328.

Burn calories instead of money. If not the most important thing we can do for our bodies, exercise is certainly high up there on the list. It can keep weight down, lower blood pressure, help stave off some cancers and osteoporosis, strengthen hearts and souls, ease depression, and help us sleep better at night.

Whether you get your aerobic workouts by jogging, walking, bicycling, or climbing a make-believe staircase at a health club, just do it! Start with a modest commitment (three times a week or 10 minutes twice a day) and find a way to stick with it. Your QL will rev up as you do!

Don't join a gym on our account. We'd rather see you park the car 10 blocks from the office and hoof it, or climb a few flights of stairs at lunch. When the time comes to cut the grass, try pushing one of those human-powered rotaries. They start every time, cost next to nothing to maintain, never run out of fuel, and seem to last forever. As you trim the lawn, you can listen to the birds, hold a conversation, and enjoy the smell of the fresh-cut grass instead of fuel fumes. And you can mow at the crack of dawn without jolting the neighbors out of their sleep. (For lots of other great tips to keep your family fit, go to www.shapeup.org

INVESTMENTS YOU WON'T REGRET

To limit your regrets, invest time and energy in the following ways, which we culled from Stephen M. Miller's excellent overview on the subject, "The Bright Side of Regrets" (Woman's Day, June 3, 1997):

1. Learn a skill or hobby.

2. Have kids and spend time with them.

3. Worry less about work.

4. Live a more healthy lifestyle.

5. Develop a deeper spiritual life.

6. Watch less TV.

7. Spend more time with friends and relatives.

8. Manage your money well.

9. Show compassion.

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You Can Do It

Learning a new skill can be half the fun, as well as one of your best investments, saving you money while enhancing your life and self-esteem. For example, say you want to add a room to your house or finally build that deck, but you have no idea where to begin. Just because you can't tell a hammer from a saw is no reason to give up.

Hire a neighborhood jack-of-all-trades to work with you on the project. You'll learn by doingfrom pouring the foundations to framing and insulating, right on through to putting on the final coat of paint.

When Marc's daughter, Sharon, needed a new roof on half of her house, she engineered it so that her brother, sister, husband, brother-in-law, a few friendseven her height-phobic fatherwere all up there working alongside a local roofer, ripping off the old tar paper and putting on the new roof. Sure, everyone worked up quite a sweat and an appetite, but they had a good time, too. Enough so that they all came back for the return engagement when the other half had to be reshingled.

While major projects will cut into your free time, if you tackle them this way, you'll save money, learn a thing or two, get some helpful experience, spend time with people you like, and improve your living space as well as your QL. You'll also increase your home's cash value. Now that's what we call investing in yourself!

YOU CAN DO IT YOURSELF!

If you dream of home improvement projects, but don't know where to start, pick up a copy of A Consumer's Guide to Home Improvement, Renovation and Repair by The Enterprise Foundation. It features alternatives by cost and complexity so you can decide how much to invest both effortwise and dollarwise.

Pricing Your Baby's First Step

Were you at the office when your toddler took that first step? Were you putting the finishing touches on an underarm deodorant ad when Johnny graduated from nursery school? Did you postpone your honeymoon because you couldn't take time off from work? Was it really worth it?

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No, you can't leave the office any old time you please . . . or can you? That's what this book is about, it's about living the life you want, now, not after you've first made money doing something you'd rather not be doing.

You've probably heard that it takes less time to do something right the first time than to do it over. This sentiment is especially true for raising children and maintaining a satisfying relationship. From our perspective, there's nothing more important.

Are you dragging yourself to a job or two you resent? For your sake? By mistake? Or for your family's sake, wondering how you'll ever be able to pay for college? Good question. If it's a burning one for you, fast-forward to Chapter 15 for some fear-calming advice on financing those four years. Just remember, once your offspring leave for college, chances are pretty good (although not guaranteed!) they'll be gone, and you'll wish that you had spent more time together when they were right there.

If you haven't already, now is the time for you and your family to discuss, openly, honestly, and in an unhurried atmosphere, what your priorities really are. Would you rather have more time together now, or more toys to console yourselves while you're apart?

It's not just about money. According to research by Arlie Russell Hochschild, in The Time Bind, many companies are offering family-friendly benefits, only to discover that parents aren't taking full advantage of the opportunity. Why?

Home is where the stress is. For many families, home life has become frantic, whereas the workplace offers a relatively calm, supportive, adult environment.

Men especially are afraid of being laid off or losing their career climbing momentum if they're seen as more family- and less work-oriented.

Whether you're male or female, you have a perfect right to your career, community involvement, and social engagements. But if you're a parent, your children have needs, too. It's a tough balancing act, but the consequences of not investing both quality and quantity time with your offspring could be quite serious. What's a parent to do?

One big change that may raise your family's quality of life significantly is for one parent to take care of the kids full-time. This usually means Mom (sometimes Dad, sometimes part-time for each) leaving or cutting back on an outside job for one as a homemaker. This is not an easy transition for many couples who are used to bringing home two paychecks and spending more than both of them combined!

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The key to living on one income in a two-income world is to plan ahead. If, before you make the leap, you have learned how to live on less, paid off many of your debts, and started a side business for extra cash, the transition will be a lot easier.

To find out if it's feasible, practice living on one paycheck for a couple of months. Use the other check to pay off credit cards and bank some emergency cash that you do not touch during that time. If you can pull this off or come close, you'll be ahead of the game, because once you're working at home, your commuting, child care, and work-related expenses will drop. In fact, many families discover that the cost of that second job is so high that the loss in giving it up is surprisingly small. Two of our favorite books on this subject are Miserly Moms by Jonni McCoy, and Shattering the Two-Income Myth by Andy Dappen.

Planning's Value

In our survey of more than 600 working mothers who had decided to return home, almost 60 percent said they had made an impulsive, emotional decision to quit work. But nearly 92 percent said they wished they had planned the move better. Of those mothers who later had to go back to work, nearly 100 percent said it was due to the lack of planning before they quit.

LARRY BURKETT, Women Leaving the Workplace

Conscious Deceleration

Another way to boost your QL is to change the mix of time that you devote to work versus family. Marc's daughter Robin decided that as much as she enjoyed her job, it was depriving her of time with her new son, Zachary, and her husband, Danny.

So she spoke to her supervisor at the international bank where she worked and negotiated a cut in pay for a cut in hours. By coming in a bit earlier and taking a shorter lunch break, Robin was able to do her job and still get home by 3 P.M. Because she was able to accomplish so much in the shorter time, Robin was soon back to earning what the full-time job had paidand she had far more time and energy when she got home. Robin made the most of her time, as did her boss. Everybody came out ahead. The old maxim proved true: A project fills the time allotted for it.

There's nothing sacred about working 9 to 5. In numerous cases, it's been discovered that production does not go down when hours are cutin fact, it often goes up!

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Male or female, if your job offers flextime or family-friendly policies, think carefully about what kind of investment you want to make in your family versus your career, and then make a fully conscious decision. If the opportunities aren't there, propose something to the boss, like Robin did. (Not asking is an automatic no!) Your time is limited. Choose how you spend it.

It may make sense to look for work with a family-friendly company. Each year, firms are ranked on various criteria such as pay for women, flexible work schedules, and day care facilities. For a list of companies that make the grade, check out www.womweb.com/100intro.htm. If your company isn't on the list, you may want to use these findings to advocate change where you work.

IN PRAISE OF THE ACADEMIC CALENDAR

"Summertime, and the living is easy." But not for working parents! School's out, and the kids are home. But even if that's when Mom and Dad take their vacation, most parents still have to work for most of the summer.

What to do with the kids? Where in the world can you afford to send them that would be a great, safe place for them to be for all the time that you really need them to be there? Nowhere!

Whatever arrangements parents pull together for their children's summer daytimes, it's almost always less than idealwith 6-or 7-year-olds going to basically the same day care centers as toddlers, or 11- and 12-year-olds home alone more than anyone would like.

There are over 10 million latchkey kids in the United States. No matter how old they are when you leave them alone, you'll still worry, "What if something goes wrong?" To help your 8- to 14-year-olds cope, get Disaster Blasters: A Kid's Guide to Being Home Alone by Karin Kasdin and Laura Szabo-Cohen.

And then there are all the school holidays and snow days. Working parents have an awful juggling act, even if their kids never get strep throat. What's a parent to do? Focus on the job or the family? Our vote is always for the family.

Great. Where does that leave you? Is there a family-friendly alternative? There are many. The working women of the 1950s figured one outget a job that puts you on the school calendar. Whether you teach, work in the cafeteria, or drive the bus, being on the same schedule as your children

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helps you avoid a multitude of day care problems, at least once the kids are school age.

You could take the summer off entirely or do something else during that period to earn money. Maybe you could get a job at a camp. You could work it out so your kids attend free, and you'd all have a great summer. If you have or will have children, it's really worth thinking about switching to a school-time, flexible, or home-based job.

Invest in Good Child Care

For many parents, especially single parents, financial demands or personal preferences mean that putting the kids in day care for at least part of the day is a must. Young children can benefit greatly from good day care programs, of which there are many. Unfortunately, researchers keep reporting that there's more bad day care than good.

With 70% of day care centers rated "barely adequate" by a multiuniversity study and 15% considered abysmal, working parents face a double whammy: They're often guilt-ridden about having to leave their childrenand they're panicked about how to find a nurturing, stimulating environment that's convenient, safe, and affordable. As with the college search you'll be doing (amazingly soon), the search for quality day care is one of those things in life that, in our view, deserves a serious investment of your time and energy.

Whether your preference is for a larger, more structured child care center, a family day care provider, or in-home care, you have a choice. Obviously, personal referrals from people you trust are great. Maybe the organization where you work keeps a referral list of child care providers. (If it also offers a child care center, give your boss 10 points from us.) Or you can check with your county social service agency to see if there's a community agency referral service or guide.

The Childcare Aware Hotline, at 800-424-2246, can hook you up with a local referral source to licensed day care in your area. And there are some other good resources out there:

National Association for the Education of Young Children (1509 16th Street NW, Washington, DC 20036-1426, 800-424-2460, www.naeyc.org), an accrediting organization for preschool/day care centers.

National Association for Family Child Care (206 Sixth Avenue, Des Moines, IA 50309-4018, 800-359-3817, www.nafcc.org).

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In all situations, ask forand checkseveral references. Ask those references if the provider is flexible in terms of scheduling, how children are disciplined, and whether any problems came up in the relationship. Ask for advice on how to make things work out best with the provider, and consider these seven suggestions:

1. Think through your priorities and concerns.

2. Plan aheaddon't wait until the last minute. The best centers and providers have waiting lists. Call and make appointments to visit them now.

3. Personally interview the people who would be providing the care, and look over the setting to make sure there are no unsafe conditions.

4. Don't forget to check those references!

5. Start slowlyease your child into the situation. Visit the facility together for an hour or so and see how it feels. Then send your child for a couple of hours and extend from there.

6. Drop in unexpectedly from time to time to see how things are working out.

7. Trust your gut. If something doesn't feel right, don't ignore it. There may be a plausible explanationbut don't talk yourself into accepting a situation that gives you pause, either at the get-go or over time.

We're a long way from having high-quality, affordable child care available to all, but if you're patient, know what you want, and invest the time, you're likely to find a decent alternative. Remember, finding the right caretaker to pinch-hit for you while you're at work is one of the best investments you'll ever make for you and your child.

More Ways to Improve Family Life

At No Extra Cost

Take walks together.

Have a cookout.

Give each other backrubs.

Give each other space to be alone or with individual friends.

Talk . . . and listen to each other.

Give each member of your family personal attention, one-on-one.

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Laugh . . . and shrug off the little things.

Do your weekly shopping together in the evening rather than wasting time on the weekend.

Play a game.

Read a book together.

Make time to have uninterrupted family mealstake the phone off the hook at dinnertime.

Come home from work an hour early more often.

Send the kids to grandma's for a sleep-over while you indulge in a candlelit evening at home. You'll have some quality time, grandma and the kids will have fun together, and you'll save money.

Use up all your vacation timeeven if you choose to spend it hanging out under the oak tree out back.

Become a Big Brother or a Big Sisterand expand your family.

Build a house with Habitat for Humanity, and extend your family to include someone in need. In the process, you'll learn some skills that'll help you around your house.

Low Cost

Hire a baby-sitter, whether you want to go out and aboutor up to take a nap.

Find something you can all enjoy doing together in the great outdoorsskiing, shell collecting, hiking, sailing.

Call just to say "I love you" or "hi"even if it isn't during a discount calling time.

Buy each other a little treat for no reason at all. Nothing expensive. Maybe something practicala new kitchen utensil, a cute key ring that could be used for decades, a single flower, a favorite candy bar, a CD, whatever.

Go out for pizza. There'll be no dishes, and it's cheap.

Male or female, pamper yourself! Get your hair washed and cut, have a massage, do something personal. Such luxuries force you to focus on yourself and may remind you that you are important.

Throw a party. Invite your favorite friends over for an activity (touch football, anyone?) or to chat while lounging on your porch. Throw a

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cul-de-sac social or a potluck block party, and get to know your neighbors.

Start a tiny vegetable patch and a compost pile. A few tomato plants, along with some basil, dill, mint, and arugula will convince you like nothing else can how delicious a simpler lifestyle can be.

Organize a Halloween parade or a swim meet. Prizes for everyone! Make it an annual tradition.

Take a class at a local college or grad school, or simply opt for continuing education courses. You could go for something down-to-earthauto repair, plumbing, electrical, carpentry, or cooking, for example. Or maybe you'd like to try something different, either alone or with a friend or spouselanguages, ceramics, flower arranging. It really doesn't matter.

High Cost, but Might Be Well Worth It

Take several short vacations a year together. Or if you prefer, a nice long one. Whether you choose to relax at a Club Med or to spend a weekend backpacking, getting away from your own surroundings helps to clear away those nagging thoughts about all the things that need to be done.

Build an extra bedroom or playroom. Modernize the kitchen. Add a deck.

Hire a helper (au pair, lawn mower, cleaning personwhatever you need).

Join a gym. If doling out the cash is the only way you'll engage in some physical activity, then try it out with a trial membership. Now all you have to do is go!

Buy a washer/dryer, dishwasher, microwave, or bread maker if it'll help you make more time for yourself.

Take a leave of absence if you can, and spend it on your self-improvement goals.

Move to a better school district, even if it means a pay cut or a bigger mortgage. The sacrifices might be worth the gain. But only you can decide.

Send your children to private school . . . or home-school them.

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Invest in Your Life

The United States was knee-deep in the war in Vietnam when President Nixon declared a second warthis time against an enemy that was killing hundreds of thousands of our young and old alike.

The war on cancer was neither funded nor pursued with the vigor or finances being aimed at what was then North Vietnam, but over the years, billions of dollars have been spent and some progress made.

We can't guarantee ourselves good health, no matter how much gold we've got stashed. But we can take control of our health to a much greater degree by taking some surprisingly easy and obvious steps: Exercise, reduce stress, eat healthier meals. These are investments that pay infinite returns in the QL department!

Investing in your health is no guarantee against illness, but it can help, and it can aid recovery if and when misfortune strikes. When Nancy, who has a family history of breast cancer, was diagnosed with it back in January of 1990, she and Marc took control of her treatment by investing the time and effort to research the latest findings, treatments, and trials. Then, working with her doctors, they fashioned a state-of-the-art treatment program that was years ahead of the medical mainstream. She remains cancer-free, able to do everything she wants to do.

You won't like it, but someday you or someone you love will get a diagnosis like Nancy's that will make your heart drop to your toes. Maybe you'll have a clear next step, coupled with top-notch medical care right from the start, but, to be sure, invest the time necessary to become a truly knowledgeable patient or advocate. It's not hard to do. It beats sitting home and waitingfeeling panicked, powerless, and overwhelmed. Studies show that people who are actively involved in their treatment live betterand longer.

How you go about it, of course, depends on the ailment. Although you might be plagued by a truly rare situation, chances are you'll have to deal with one or more of the biggiescancer, heart disease, stroke. And although you may have a problem that needs immediate attention, there's usually plenty of time to do it right. When Nancy's cancer was first diagnosed, she wasn't sure whether she wanted a lumpectomy or a mastectomy, or who she wanted to perform the surgery. The first surgeon she saw wanted her to go for a mastectomy within the week. Nancy and Marc weren't sure and decided to spend that week doing research.

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II

Put Your Family First

Back in 1984, when the late senator from Massachusetts, Paul Tsongas, was diagnosed with lymph cancer, he chose to give up his prestigious job in order to spend more time with his family. As a friend wisely told him, "Nobody, on his deathbed ever said,'I wish I had spent more time at the office.' "

Sometimes we're so focused on what we should do to get ahead that we get our priorities screwed up, forgetting to put our time and energy into those people and things that matter most to us. You can earn all you need, meet all your financial obligationseven prosperand still break free of workaholic addictions that keep you too busy to go to the little league games, to mend a fence or two, or to stop and smell the roses. (Be careful around those thorns!)

In short, the family that plays together, stays together and prospers, whether it's a family in the Ozzie and Harriet tradition or one of the many variations that now coexist.

III

Wherever You Work, Be in Business for Yourself

To succeed today, you need to nurture an entrepreneurial attitude, to be multiskilled, flexible, good at selling yourself, savvy about personal finance, clear on your priorities, and always prepared for the ax to fall or the bottom to drop out. Today's worker needs to be prepared to job-hop, on average, every four to seven years.

One way to protect your future is with a home business. Over 25 million people work from their homes and more are joining the movement every day.

Starting a very small business or twobefore you need itis a good, inexpensive way to get up, running, and experienced. We think of it as an "Ace in the Hole." You may like your Ace enough to leave the rat track, or you might work for a corporation until you retire. But either way, being prepared and willing to make the transition into a different company, a new line of work, or a business of your own will provide you with much more than a strong safety net.

IV

Make the Most of the Money You Bring Home

Believe it or not, it's worth the time and effort to pinch pennies. Small though they are, they quickly add up. Need dramatic proof? Put a penny in a big jar. Every day, add twice as many coins (the second day, two; the third day, four; the fourth day, eight; and so on). Soon you'll need a very big jar, because by the end of the month, you'll have more than $5 mil-

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HELP IS THERE

National Cancer Institute: www.nci.nih.gov (800-4-CANCER)

American Cancer Society: www.cancer.org/frames.html (800-ACS-2345)

American Heart Association: www.amhrt.org (800-AHA-USA1, for heart disease and strokes)

American Lung Association: www.lungusa.org (800-LUNG-USA)

American Diabetes Association: www.diabetes.org (800-DIABETES)

AIDS Education Global Information System: www.aegis.com

HIV/AIDS Treatment Information Service: www.hivatis.org (800-HIV-0440)

Arthritis Foundation: www.arthritis.org (800-283-7800)

National Institute of Mental Health: www.nimh.nih.gov (800-421-4211)

National Institute of Neurological Disorders and Stroke: www.ninds.nih.gov (301-496-5751)

Alzheimer's Disease Education and Referral: www.alzheimers.org/adear (800-438-4380)

Alzheimer's Association: www.alz.org (800-272-3900)

National Institutes of Health/Office of Alternative Medicine: altmed.od.nih.gov (888-644-6226)

Alternative Medicine Homepage: www.pitt.edu/~cbw/altm.html

Notes: For diseases or conditions not listed, go to www.healthfinder.gov for leads to both government and nonprofit agencies that can help.

To check out any doctor's background, go to the ''Doctor Finder" at www.ama-assn.org.

When It Happens to You or Someone You Love

Make the calls, visit the Web sites, go to the library and skim a few books, and keep track of all your questions. Become familiar with how the disease works, what the standard treatments are, and what the current thinking seems to be on the subject.

Talk to some people who have already been through it. There are excellent support groups for pretty much every ailment, and they're easy to find through the organizations just mentioned or through the Self-Help Clearinghouse (973-625-3037 or www.cmhc.com/selfhelp).

Nancy learned that her greatest threat was not from the disease in her

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breast but its systemic nature. She decided on the most minor surgery (a lumpectomy) and the most aggressive chemotherapy. She also chose a surgeon closer to home who was known for performing lumpectomies with excellent results.

When you see the doctor in this kind of circumstance, don't go alone. Bring your list and someone who can help you decide what to doyour spouse, a grown child, or a sensible friend. Don't let the doctor or the office staff intimidate or rush you. Stay in your chair until your questions are answered. Yes, the doctor is busy, but when you're dealing with a serious decision about a serious disease, put yourself and your needs first.

Curing or treating a serious illness takes time and care. If one doctor doesn't have time for your reasonable questions, find another who does. If you'd be more comfortable learning more from just plain folk, ask your doctor to refer you to another patient or two who might help. (Nancy's surgeon and oncologist know they can give out her phone number.)

FEED YOUR SOUL: MARC'S REFLECTIONS FROM THE GARDEN

Our garden feeds us, body and soul. It provides great food and exercise, gives us a quiet reprieve from the stress of the workday, and offers a reminder of our place in nature's eternal cycles of birth, growth, death, and rebirth. When it comes to weight-lifting exercises, we prefer baskets of tomatoes, onions, and sugar snap peas to barbells. They're just as heavy, but they sure taste better. And gardening burns as many calories as brisk walking.

In nature, nothing goes to waste. Seeds sprout, grow, flower, reproduce, and diegiving back to the earth everything they previously borrowed. Nancy and I try to emulate nature's recycling program, and we hope you do likewise.

Plants take nothing personally. Although well equipped to deal with adversity, they never seek vengeance. They never whine, or feel sorry for themselves. Trim some lettuce plants to the ground, and they won't complain. They'll simply grow new leaves.

Nature is in no hurry for progress. Birds fly using pretty much the same equipment, and at the same speeds, as their forebears. Earthworms plow the soil as they have for eons. Peepers contentedly sing their same old songs. And the last thing raccoons want are faster cars on better roads.

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Mother Nature's desire seems to be for balance, for the maintenance of life pretty much as it's always been.

They are neither friends nor enemies. Whatever apparent good or harm plants, insects, animals, and birds may do is inadvertent, natural, and necessary for their survival.

Except for our overfed cats, who occasionally kill a mouse only to abandon it, most of our garden's visitors and residents never harvest more than they can eat, nor do they crave possessions. Wouldn't it be great if we humans gave all we could and just took what we needed?

There are no guarantees. What worked so perfectly in one year's garden, can't be depended on to work again the next. But it mightwhich leads some gardeners to cling to ritualized behaviors, like planting certain crops by the full moon, others at the new moon, and peas on St. Patrick's Day. Truth be told, some years are better for some crops than for others, and half the fun of gardening (as well as living) is seeing how it'll all turn out this time.

There's no right way to garden. Pretty much every way works. Long rows, wide beds, raised beds, organic or inorganic fertilizers, heavy or light mulchingwhatever we do, more often than not our plants grow.

How you or I choose to cultivate our own gardens is personal. Fortunately, there aren't a lot of laws decreeing the right way to grow tomatoesbecause there isn't a right way. I don't mean to offend anyone, but I wish we could all let go of the feeling that we know exactly what's morally right or wrong for others to do, feel, or believe.

Ghettos are no good. Large tracts of a single crop, grown in the same place, year after year, begin to weaken and die. That's because ghetto-grown crops tend to deplete their own environment of the very nutrients they need to survive, and their predators can find them easily.

Mixed colonies, on the other hand, tend to thrive. It doesn't bother Nancy's purple basil one iota to live amidst green basil, next door to variously colored lettuces, or in the same neighborhood as cauliflower. Indeed, some gardeners swear that basil thrives at the feet of tomatoes. (I can surely testify to how well they get along in my mouth.)

Bugs get a bad rap. I know spiders and insects are strange-looking, but they don't deserve to be treated as if they were dangerous invaders from outer space. They've actually been keeping the earth habitable since time immemorial, taking care of a million chores around the garden, from pollinating crops to aerating the soil to feeding birds, each other . . . and maybe me.

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There is a free lunch. Even in our well-maintained garden, a bountiful harvest of tasty, nutritious weeds, such as lamb's quarter, amaranth, and purslane, are usually ripe for the picking (even if Nancy never includes them when she's the one making salad).

My real favorites are the edible wild foodsdaylily flowers, mulberries, cattails, blueberries, horseradish, asparagus, mint, watercress, mushrooms, and hickory nutsthat grow free and strong in our meadows, forests, and swamps.

They were thriving that warm summer morning 17 years ago when Nancy and I first met on a mountaintop. I took her on a wild-food walk, and she claims to have fallen in love with me during the first 10 minutes.

I've often wondered, was it my considerable charm and witor the wood sorrel I enticed her to eat along the way?

MARC

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Chapter 3

The Great Sneaker Debate

How to raise your kids well without spending a fortune

What you can do to help your kids become savvy shoppers instead of mindless mall walkers

Turn your little spenders into smart savers and investors

Allowance strategies for kids of all ages

It is possible to triumph over the tube. . . .

STEVE AND RUTH BENNETT, 365 TV-Free Activities You Can Do With Your Child

While it's true that multimillionaire basketball stars wear special high-tech sneakers, it is not true that special, high-tech sneakers will turn your child into a multimillionaire basketball star. What is true is that children:

Are impressionable.

Watch TV.

See about 3,000 commercials a month.

Are seduced by innumerable shows glamorizing possessions.

Have friends with high-tech sneakers.

Are easily swayed by peer pressure.

Want to be liked.

Represent a $500 billion market for retailers.

Know how to make you feel guilty for "depriving them."

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And deprive them you door at least you think you do. You work long hours, you don't and can't spend quantity time with them, so you try to substitute quality time. And even though you know you can't afford to buy them every single piece of trendy trash or designer clothing that they absolutely "must" have, you feel tempted to make up for the personal attention gap by buying them whatever they want. That's a bad move, and you know it.

Ah, to Be a Child Again!

We've taken an informal survey and have discovered that few adults would choose to be children again. (Younger, yes. Back in school? A teenager? Thanks, no!) Rules, regulations, lack of a car and sleep, curfews, limited money to fund maximum desires, acne, overloaded backpacks, and homework, homework, homework are a modern teen's lot in life.

But kids do come and grow, with each milestone in age adding its own costs. Baby formula alone can run $1,000 that first yearunless your baby is "best fed by being breast fed." And diapers can deplete assets at the same rate as formula. In one end and out the other, all of the time draining your savings, to say nothing of the environment.

As they age, children continue to cost big-time. Whether it's day care or health care, supercolossal toys or boom boxes generating noise, nannies replacing moms or high school proms . . . the money goes as the child grows.

Where to draw the line? You have to decide. But given the high cost of raising a modern child, one of the very best financial investments you can make is to bring up your kids to have reasonable desires. Fad followers can drive you crazy and into the poorhouse, as they spend like crazy. Your challenge is to focus on your child's present and future financial welfarewithout letting them spend the family onto public welfare.

After all, many children developed into fully functioning, loving, caring, and happy adults before: TV, Toys "R" Us * , the Gap, electronic games, tai chi classes, and $100,000 educations.

While music lessons, gymnastics, ballet, martial arts classes, college prep courses, state-of-the-art computers, specialized summer camps, journeys to far-off amusement parks, designer clothes, pierced body parts, and backyards filled with plastic pleasures all entertain, and can sometimes even educate our young, none were mentioned as inalienable rights in the Declaration of Independence.

Do you remember when children went outside to play, and running to

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catch falling leaves occupied entire afternoons? Leaves still fall and the outside is still there. Your challenge is to find the time and the ways to turn your kids on to such simple pleasures, and to nurture their enjoyment of those things money just can't buy. Everyone will benefit. So will your pocketbook.

Never Underestimate the Power of the Boob Tube

You're in direct competition with the television industry, so it's in your interest to make it a point to watch TV with your children. Especially tune in to some of the thousands of commercials they see every year. Help them understand that products are heavily hyped and what they see is not what they'll get.

Here's a particularly effective technique: Compare something your child "had to have"and gotwith the commercial that was so bedazzling, be it a toy, snack food, cereal, makeup, sports gear, clothes, games, or computer equipment. Point out how the product fell way short of your kid's expectations. But try not to say, "I told you so!"

It's important that children learn from their spending mistakes, but as you know, they don't respond well when the message is pounded in. Tell them about a time or two when you made a dumb decision of your own. (Haven't we all?) They'll remember the lousy purchases, theirs and yours, and hopefully make better choices in the future.

While we wouldn't dictate what children can or can't purchase with their own money, you can easily pass along your ideas on what's worth buying. For example, let your kids know that you're happy to buy them a perfectly fine pair of sneakers for $20, but if they decide to upgrade to the $100 designer pair, it'll be with their own funds. Also, feel free to point out that they'd then have $80 less to spend on other things they'd really enjoynow or in the future.

Will they feel deprived if they don't get every single thing they want? Here and there, for a little while. Eventually, kids need to learn that no one, no matter how wealthy, can do it all or have it all. Better they learn their spending priorities from you, than from the boob tube.

Allow Your Kids to Become Great Money Managers

When was the last time you went shopping, picked something up on impulse, then as you waited at a cash register, money in hand, asked your-

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self, "Do I really need this?" Can't remember? Well, when was the last time you told a pleading child, "You don't need that," or ''You just had a treat," or "That's a waste of money"?

Kids watch how we spend money on ourselves and compare that to how we allocate it to them. They recognize the arbitrariness of grown-ups' rules, and you can bet they resent the typical parental response, "It's my money.

Double standards are unfair and counterproductive. As part of the family, we think children are entitled to a fair portion of the family piein other words, an allowance. And within some limits (for example, no cigarettes), kids should be allowed to spend at least a portion of that money on what they want. That's why it's called an allowance.

Done right, giving your children an allowance is one of the best investments you can make. It's among the most valuable tools in your arsenal to teach them smart money management techniques. They get to learn what things actually cost, how to make choices about spending their money, and when it pays to save for something they really want. No doubt along the way, they'll also have to endure more than a few painful but important lessons about the pros and cons of wasting money. Better it be on your nickel when they're young than when they're in college and $17,000 in debt on credit cards they couldn't manage. (We'll give you our pearls of wisdom on credit cards and college students in Chapter 15.)

While we don't think an allowance should be tied to a long list of responsibilities or paid out as a series of fees for each service your child performs, that doesn't mean that kids, like all household members, shouldn't have regular choresor that you can't offer them ways to make extra cash by doing extra jobs. If your personal philosophy differs from ours, develop a clear, written set of tasks (with dollar amounts attached) that the kids are expected to do in exchange for their allowance.

Before you set an allowance, talk to your kids about what they need money for, and how much they need. Help them create a budget that will cover those things you think ought to be included, perhaps school lunches or some clothing.

Be clear on your expectations. Is it important to you that a portion be earmarked for savings or charitable giving? If so, say so up front. Will you provide matching funds up to a set amount if they bring in a deposit for the banking program at school?

If there isn't a savings program in your child's school, contact Save for America (4095 173rd Place SE, Bellevue, WA 98008, 425-746-0331, www.schoolsavings.com). This nonprofit organization has helped 6,000

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elementary schools set up saving programs in conjunction with local banks. Colorful stickers, contests, and other incentives encourage and reward students for participating.

Or you could simply open a savings account in your child's name at the local bank and make a big deal out of going to the bank together every week and contributing to their account. In any event, a great time to help your children develop a savings plan is when there's something they "must" have that you won't buy, and they don't have enough to pay for it themselves. Explain how they can put aside a set amount of money every week, until there's enough in the till to buy what they want.

You want your youngsters to have an early victorypreferably within a few weeksto see the great benefit to saving for something they want. That will up the odds that they'll be motivated to save again. Perhaps next time it will be for something that will take a little longer to finance, and may be a little more meaningful.

GIFT GIVING MADE CHEAPER

When Peter and Lucy Banks started tracking their own spending and creating a budget, they discovered that they were blowing a lot on gifts for their children's friends. It seemed like every time they turned around, there was another birthday party, and that meant another $15 or so for a gift.

They decided to do two things. The first was to put both their children, David and Alison, then ages 5 and 9, on a weekly allowance, which they believe was one of the best things they could have done. Then they set guidelines as to what that allowance would cover, and explained that each child could expect $5 per gift from their parents. If they wanted to give their friends gifts that were more expensive than that, they'd have to make up the difference.

"It's amazing," says Peter, "how the average price per gift dropped! Although it's hard to let your kids make dumb purchases, it's good to let them find out for themselves whether what they bought was worth the price." Peter explains, ''I'd rather they learn now that a lot of what's for sale isn't a good value."

Once you've decided whatif anythingthe allowance should cover, be sure that you've left enough to allow your kids to spend at least some of it however they wish. Pick an amount that won't leave your kids feeling

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as though they're struggling to make ends meet. It's bad enough if you have trouble getting from payday to payday. Don't let your offspring start off that way.

While the general rule of thumb is $1 for every year (e.g., $5 a week for a 5-year-old), that seems kind of steep to us, especially for the little ones. We know of one 13-year-old who gets $30 a week! Times have really changed.

Base the amount you give on the custom in your community. You can ask other parents, at school, and at church.

Be consistent and don't be late! You don't want your kids to get the idea that it's okay to pay bills late. Give them their allowance at the same time every weekpreferably not right before the weekend, when the temptation to blow it all may be too great. Sunday night is often best, since it's just before kids begin the school week.

Know your child. Some experts suggest starting an allowance at age 3. Sounds a wee bit young to us. Feel free to wait until first grade if your tyke just isn't ready for the responsibility before then.

Short-circuit any money-handling problems you think your child is likely to have before they happen. Does your child need a wallet to carry to school and a secure spot (say a piggybank) for the reserve cash at home? We know one set of parents who waited months to start an allowance because they feared that their daughter didn't have a good spot to hold the money. When Nancy heard this, she offered a cute little basket with a tightly fitting cover that now holds that child's wealth securely. Problem solved, allowance initiated, money a lot less likely to get lost.

But whether given as a right, as payment for services rendered, or as a combination of both, whether a lot or a little, started early or late . . . these days especially, parents have to do a lot more than dole out the dough. Invest as much of your time and energy as is required to make your children's early money experiences positive. You want to do everything you can to help them succeed as they learn the basics.

Mommy, Pleeeease!

With the average child seeing 30,000 to 40,000 commercials a year, it's more important than ever to help kids learn how to distinguish needs from wants. But before you can help to do that, you must:

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lionhalf a billion pennies. Now imagine what you could accomplish by pinching a few dollars here or there.

V

Turn Your Debts into Golden Investment Opportunities

Working as hard as they can to convince us that there are things we didn't have or need yesterday, but must have today, is a $186 billion a year advertising industry. Assisted by a multitrillion dollar banking system, they promise to put us in the driver's seat, on a fabulous vacation, or on a mall shopping spree, whether we can afford it or not, with one play now, pay later loan after another.

While few can buy a house without borrowing, by the time a typical $100,000, 30-year loan has been repaid, the homeowners will have mailed in 360 payments totaling a quarter of a million dollars or more!

There's a big difference between what bankers pay savers (some 3% to 5%) versus what lenders charge borrowers (up to 20%, sometimes more). Yet lots of folks (perhaps you?) keep thousands of dollars in various savings accounts while paying very high interest on their card balances. If you have a typical $3,500 credit card balance, and only send in the minimum payments, you'll end up repaying $11,162. (That's not a typo.) Investing just two bits, one little quarter a day, will save you up to $3,300 in interest. (Also not a typo.)

Every little bit extra you send in with each credit card, mortgage, car loan, or student loan payment will save you moneytax-free, risk-free, and absolutely guaranteed. For someone in the 28% tax bracket, who is carrying a balance on a typical credit card with a 17% interest rate, pre-paying is the same as earning 23.5% before taxes on a more conventional investment.

VI

Map out Your Own Financial Future

Assuming your family always earns just the median income, you're still going to bring in over $2 million during the course of your working life. That's a lot of money to manage! This part of the book will help you take a fresh look at your investment alternatives, and make it easy for you to decide on the mix that makes sense for you.

And because more people would rather get a root canal than create a financial plan, we won't be assigning tedious homework, detailed budgets, or dogmatic lists of shoulds and should nots. Similarly, since few people are likely to stick to a path that leaves them feeling deprived or guilty, you won't be asked to give up the financial equivalent of the dieter's chocolate cake.

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Be able to distinguish your own wants from your genuine needs.

Understand what a child your child's age can understand.

Remember that satisfying some wants is important. Children cannot live on needs alone!

Unfortunately, far too many adults are themselves confused about needs and wants, and they set a bad money management example as a result. Youngsters who see their parents' impulse buying will have a hard time understanding why their wants can't also be immediately satisfied. And youngsters who often hear their parents fighting about money may end up with money problems later on.

I Want It, I Need It, I Must Have It!

When you go to the store, are you a smart shopper who uses a list, but also keeps a lookout for items on sale that your family regularly uses? Remember that long before they can communicate, your children are watching and learning. Just as little ones watch you in the kitchen and then want to cook, too, they watch how you shop and want to play "grown-up" and be just like you. If you simply "must have" everything you want right then and there, you'll have a tough time convincing your kids that designer clothes and sugarcoated cereal in the shape of cartoon characters don't qualify as "needs.''

Money lessons, like all the rest of learning, depend on the age and development of the child. As your children grow older and begin to understand more, help them learn how to make more and more difficult distinctions. As every parent learns, flexibility is the key.

Babying Your Baby

From birth to about 18 months, most of a child's wants are needs. They need food, comfort (emotional and physical), and attention. Kids in this age range can watch a commercial dozens of times or see something at the supermarket and never ask for the itemunless they've been previously introduced to it. So if you don't want your young children to have or want chocolate éclairs, for example, don't give them any in the first place. After all, they'll learn about junk food and start badgering you to spring for it soon enough. Why start them early and set yourself up for a fight? There'll be plenty of time for those later!

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THIS . . . OR THAT

A typical mistake made by parents of young children is what we call the "free-association breakfast," although it can occur at any time of the day, and often does, around money issues. A free-association breakfast works something like this:

PARENT: What would you like for breakfast, darling?

CHILD: A chocolate doughnut.

PARENT: No!

CHILD: That's what I want. You asked me what I wanted!

You get the picture. Here's how to take a bit more control:

PARENT: Darling, do you want oatmeal or Cream of Wheat for breakfast?

CHILD: Oatmeal, with apples and cinnamon, please.

Much better. Open-ended questions allow for unexpected and unwelcome answers. Multiple choice is more likely to limit the responses to acceptable alternatives.

That First Word Won't Be the Last

With speaking comes wantingeverything, immediately. And no one knows how to break down your resistance better than your children. They employ whining, crying, begging, and perhaps the worst, just being doggone cute! It's hard to say "No!" to a three-year-old who knows just how to say, "Pleeeease!"

From about 18 months to 7 years, your best line of defense will be an ability to distract, along with as much creativity as you can muster. Distraction is an underappreciated art form that works best when handled subtly.

This is the stage when kids are learning to want what others have, especially in the food and toy departments. Although you may never have bought chocolate-covered pretzels, it's likely that between TV, classmates, and the bus, your child has already seen and tasted them.

When you get to the store, the battle begins: "Pleeeease can I have chocolate-covered pretzels? Kia's mom buys them for her!!" Your child begins to throw what looks like the queen of all temper tantrums. What's a parent to do? You could try to reason, and explain that while

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Kia's mom chooses to buy them for her, you don't think they're healthy, and anyway, they cost too much. But too often, that will be a wasted investment of your time and energy.

Sometimes, you really are better off compromising quickly. Maybe you could allow your daughter to choose her own snack from three or four items you preselect. Or let her buy the pretzels on her own, out of her allowance. Once you make that offer, she may decide she doesn't want them after all.

When reason alone just sets off more fireworks, speculating in "futures" often succeeds. Not the kind of futures you can buy through a commodities trader, but what you can offer for some day down the road. For example volunteer to get those chocolate-covered pretzels for your child's next birthday party or at some other distant time. Perhaps by then, they'll hold no more interest or have been forgotten. But if your child does remember, don't be surprised or renege. You want to be true to your word about money matters, so your child will be, too.

Distraction is often harder with toys. You can't easily replace lust for a Destructo car with an offer of lima beans for dinner! If your five-year-old wants a Destructo car, she wants a Destructo car! Don't berate yourself for saying no. It's okay. It doesn't mean you're a bad parent, no matter what your child says.

If "No!" doesn't work, if "Honey, we just can't afford it" doesn't work, offer to go garage or rummage sale hunting for Destructo. The next Saturday morning, go out with a certain dollar amount (say $2) in your child's pocket with the hope of finding a Destructo car. One of three things will happen. You'll find it and your child will scoop it up. Your child will see something else that she "must have" and spend her money on that instead. Or your child may decide that $2 in her pocket is way cooler than a Destructo car and hang onto the cash.

This is the age when children can understand the concept of wants versus needs and make it part of their daily life. You don't always have to say, "You don't need that. I know you want it, but we can't always get what we want, now can we?" But do often tactfully remind your children of the difference between wants and needs. That understanding can save your child and you a fortune, now and forever.

Unless you deny yourself life's every pleasure, it's okay to cave to your child's wants sometimes. It's not reasonable to always expect your child to be reasonable about money matters (or anything else). Just be sure you're choosing to do the caving and are not being coerced into it. A child doesn't have dictatorial powers unless you cede them.

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A SIMPLE WAY TO SOOTHE YOUR IMPULSIVE BEASTS

Marc and his three children developed a wish list, an often discussed (but never written) record of what they most wanted to have or do. They called it their "eventually list," and it helped them all to prioritize. Sooner or later, most everything on the list got covered . . . or lost its appeal.

Knowing that it would indeed happen "eventually," seemed to calm the need for instant gratificationmost of the time. So next time your kids "must" have something, add it to their "eventually list" and help them save for it, a little at a timejust like you do, right? If they don't lose interest along the way, they'll really value the "prize,'' once they've saved enough to make it theirs.

Money Doesn't Grow on Trees

Talk to your kids about how you earn, spend, and save your money. Even the little ones ought to know that the cash coming out of the ATM isn't magic money, that you work hard to earn every penny, nickel, and dime.

Ditto for checks. Double ditto for credit cards. We're particularly incensed by a preschooler "play store" that boasts "real shopping sounds" and drones out "credit approved," reinforcing the use of those plastic monsters at a way too tender age. Are they trying to create the financial equivalent of the late Joe Camel?

All those empty billboards remind us that it's time for a commercial break of our own: While you may not see him under the lights any time soon, Harry the Gorilla is going to help today's youngsters (in grades K3) learn how to make smart choices about money. Remember, you met him here first.

The brainchild of Marc's son, Adam, an elementary school teacher, Harry's the lead character in The Peanut Butter and Jelly Game (which Marc and Nancy's Good Advice Press published). He's the perfect foil to help parents battle the "gimmes"that affliction kids seem to develop immediately upon entering a store. You can buy the book (see page 328) and read it to them or simply tell them the story. To wit, Harry impulsively blows a week's grocery money on a bright, shiny new baseball mitt that he absolutely must have, never thinking twice about the consequences. It comes as a great surprise to Harrybut not to his levelheaded best friend, Bradley the Porcupinewhen the hungry gorilla discovers that he's run out of food.

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Harry then tries to bum the ingredients for his favorite meal, a peanut butter and jelly sandwich, from his friends, who include Matilda, the hard-of-hearing hippo, and Gertrude, the absentminded scientist skunk. After numerous humorous encounters, Harry learns that with a little advance planning he can have the food he needs as well as the glove he wants.

As Harry copes with the consequences of his impulsive spending, kids learn valuable lessons about saving, sharing, and helping friends. And the colorful, very detailed, and amusing illustrations by Joe Walden, also a teacher, appeal to all ages.

Older, but Not Necessarily Wiser

By about age 8, children hit the milestone where popularity in school really matters, and name brands hold more and more clout. If you've shown that you don't succumb to labels and fads, you're likely to have less of a battle. But you'll have some friction over money, no doubt about it.

For example, even ifor maybe becauseyou delight in getting all your clothes at yard sales, your kids will want pricey brand-new duds from designer stores. A compromise here could certainly be in order! Sometimes, it makes sense to give in, before the tears and wars begin, and before you're labeled the meanest person in the whole wide world.

How's this for a plan? If you're going to do your back-to-school shopping late in August, announce your budget in early July. Then remove everything that no longer fits from your children's closets and drawers, and together make two listsone for necessary clothing and another for luxuries. Go to the stores you can agree on and get an idea of how much those necessities are going to cost you. Any excess can go into the luxury fund. Then help your children earn money for any purchases over your budget. They'll have plenty of time over the summer to do it.

The Young Entrepreneur

Yard sales are great income producers for youngsters and provide invaluable financial educations. Your children can sell old toys, clothing that no longer fits, your castoffs, and maybe even some of their own baked goods. They'll not only earn money, but they'll get an understanding of depreciation, earnings, making change, advertising, customer satisfaction, and the need to invest time in order to earn money. Having a multifamily sale

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can make it "way cooler," and selling stuff at yard sales may just make your brood more willing to shop at them.

If a yard sale won't work, offer special jobs around the house. Maybe they can weed or water the garden, mow the lawn, wash the dishes or clothes, clean out the fridge, whatever. Or maybe your children can do chores at your officefiling, for example.

Young Capitalists

Enterprising youth will want to move on at some point to a part-time job or even to a business of their own. Here's a list of reasonable possibilities:

Setting up the good old-fashioned lemonade stand

Pet-walking, pet-sitting, pet-grooming

Plant-sitting

Painting (house, fence, railings, etc.)

Shopping for neighbors

Selling flowers or plants

Child care (mother's helper when young, baby-sitter when older)

Car washing

Putting on entertainment for kids' parties

Tutoring younger children

Giving lessons (music, computer, drawing, etc.)

Washing windows

Cleaning out garages and basements

Delivering newspapers

Making handicrafts

Stacking wood

Doing household chores for homebound seniors (emptying garbage, bringing in the mail)

Setting up a booth at a flea market (to sell baseball cards, Barbie dolls, or an eclectic collection of miscellaneous treasures)

Before you let your child undertake any of these jobs, explain what every entrepreneur must do: Assess the need for the product or service, decide how much to charge, and figure out how and where to market it.

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If you need some ideas on how to get started, see Chapter 8, then head to the library together to do some research.

Start with a copy of Better Than a Lemonade Stand: Small Business Ideas for Kids by Daryl Bernstein. Or turn on the computer and go to www.littlejason.com/lemonade, an on-line version of a game where kids set up a stand and figure out costs and profit margins.

Investing the time before they get going will be well worth it. After all, you want them to succeed in their moneymaking ventures.

Who gets to decide what they do with their money? We say, when they've earned their own money, and it's an item that you're not morally opposed to, let them buy it. You've instilled your values by now, so let them make their own beds. (You wish!) But there's nothing wrong with again making your thoughts clear. Helping them make wise spending choices without hindering their learning from bad choices is your best shot.

For an excellent collection of books, videos, and board games available to help you teach your kids about money, get the Money-Book Store Catalog from the National Center for Financial Education. It's on-line at www.ncfe.org, or send $2 to NCFE Catalog, P.O. Box 34070, San Diego, CA 92163-4070.

Especially for the Child Who Has Great DesiresBut No Interest in Work

There'll be plenty of years when they have to work. So if your kids aren't interested in getting a head start on making money, focus on steering them in another important direction that will help them develop key valuesspending less.

It's often overlooked, but children can easily come up with money without very much effort by saving some of yours. Let's say your kid saves $25 of your fall clothes budget by wearing hand-me-downs or yard sale finds. Let the money they save go into their luxury column. It'll cost you the same, and they'll have learned another valuable lesson about money: that if they cut back on spending in one area, they can get more of what they really want without having to make the sacrifices to earn more.

Start Them Socking It Away Early

Should you force you kids to save for college? If so, at what age? Compare the strategies of these parents: The first one tried to encourage his 13-year-

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old son to save for college, first by offering to match each dollar he contributed to a mutual fund. "The allure of instant gratification was too strong," says his father. "I then increased the offer to double it, then triple it, then five times. Finally, I offered to put in ten times the money he did."

Alas, this boy would rather have money for Nintendo, movies, and fancy sneakers. Dad is thinking about forcing him to save, but he'd rather get his son to save voluntarily. "He might be persuaded if I let him use the money for a car, but college is just too far away for him to consider."

Parent number 2 wasn't interested in incentives. He simply insisted that his 14-year-old make regular contributions to a mutual fund account. Since they opened the account right around the beginning of the rising stock market, this youngster has profited handsomely. Now in his twenties, he's already an experienced, eager investor.

As we pondered these two stories, we wondered what our lives would have been like if we had been forced to save. We'd have had yet more fights at home, but also a lot more money in the bank. After all, even young kids can become enthusiastic investors. What do you think?

Turning Your Spender into an Investor

When it comes to stocks, don't sell short your kids' ability to process all this informationor at least enough of it to understand what it means to own a piece of the company whose products they're using, eating, wearing, listening to or playing with.

JANET BODNAR, Dr. Tightwad's Money-Smart Kids

Among the money lessons you share with your kids, help them learn how Wall Street works for long-term investors. Start by having them make a list of the companies whose products they and their friends enjoy, be it McDonald's or Nike. Explain that the stock market is risky and that investors need to do homework. Help them do some research over the Internet, starting with Edustock at tqd.advanced.org/3088 (note: no www. here). Or visit your local library, where Value Line Investment Survey will be a helpful resource. Then let them make their best educated guesses about which companies will grow the most.

When they've narrowed down the list to one or two choices, buy them a few shares. Some on-line brokerages charge nominal fees (for example, www.suretrade.com), or go to www.dripinvestor.comto see if you can purchase the stock directly from the company.

Or you can pretend, with a make-believe $1,000or $10,000 if you'd like. Or you could do what Marc did, when his son Adam was playing

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stock market "pretend" for a high school class project, wishing he was Donald Trump. Adam liked the game a lot, and talked about how much money he could make if only he were "allowed" to really invest. And he talked about it, and he talked about it, and he talked about it.

Thinking it would be a great experience for Adam, Marc sent off a check for $1,000 to Adam, who lived with his mother at the time. It was no special occasion, just a good time to give his son an opportunity and to send him a note, which went something like this:

Dear Adam,

Here's $1,000. Happy Unbirthday! It's yours, no strings attached. You can use it to buy stocks, deposit it in the bank, put it under your mattress, invest it in baseball cards, do some of eachin other words, use it however you want.

Although I admit I'll be curious, you don't have to tell me what you use it foror if you decide to invest it, how much you make or lose. And I'll try never to ask! Good luck!

Luv ya!

Dad

Eventually, Adam did tell Marc what he had done with the grand old grand. Here's Adam's perspective, some 15 years later.

"I spoke to a stock broker," Adam recalls, "the one Mom uses, and I invested the entire $1,000 in a 'hot' penny stock.

"It went up and up and up. My instinct was to sellbut the broker said to wait. I listened to him and kept those shares. Then the company went belly-up, and the commission on selling the stock would have cost more than it was worth."

Did Adam learn anything?

"I learned that nothing's a sure thing. And it doesn't matter what you're worth on paperthe profit isn't real until it's in your pocket. My instinct was to sell, and I should have gone with my instinct."

Adam still dabbles in the stock market, where his investments have by and large done quite well. He doesn't want to be "The Donald" anymorewhich is fortunate, because as a grade school teacher, limos aren't likely in his future, no matter how his portfolio does!

However you go about it, helping your kids become savvy about money is one of the best investments you can make in their futuresand in yours.

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Chapter 4

Paradise Found

Making sense of the buy versus rent debate

Smart ways to cut home-buying costs dramatically

How to search for greener pastures

Homeowner's tax myths demystified

The rich and famous may be able to travel to and live just about anywhere they want. But for the rest of us, choosing an ideal location will be based on very mundane factors. . . .

WILLIAM SEAVEY, Moving to Small Town America

One of the best ways to dramatically improve your quality of life is to live someplace that you love. Investing the time to consciously choose where you want to put down roots, then, is smart. After all, it's one of the most important decisions you get to make in lifeagain and again.

And one of the most expensive. Each move and mortgage means thousands of dollars in fees and bank interest, to say nothing of family upheaval and a big change in the quality of our livesnot always for the better.

Home Sweet Home

Why do you live where you live now? Is it someplace you carefully chose, or did you just end up there? If it "just sorta happened," given your current circumstances and preferences, where do you really want to be living now?

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No Rules!

Invest in Yourself is not intended to be a rule book. While we three authors share a take-charge philosophy, we don't agree on every detail, and we prefer different lifestyles.

For example, Marc and Nancy left the fast track years agoMarc as a licensed Professional Engineer and Nancy as a grant maker and loan officer for a foundation in New York City. They've been championing the value of a debt-free, simple lifestyle off the proverbial dining room table since 1984long before "downsizing debt," "voluntary simplicity," and "tightwaddery" were in vogue. They live simply in an old farmhouse, with cows as their nearest neighbors. If they never went to another meeting or into a city again, that'd be just fine by them. They'd rather be in their 10,000-square-foot organic garden.

Gerri, former executive director of Bankcard Holders of America and policy director at the National Council of Individual Investors, is an authority on the burgeoning credit industry. Her views are sought in the halls of Congress, in the headquarters of financial giants such as MasterCard and NationsBank, and by organized labor. She lives in a townhouse in a bustling suburb of Washington, D.C. Gerri also recently received a master's degree in Adult Education/Psychology with a focus on financial education and problem solving.

Gerri believes in the benefits of exercises, like keeping track of your expenses in a little notebook for a month or two. "It gives a clear picture of where the cash is leaking out of your wallet," she says.

Marc wouldn't dream of reading (much less writing) a book that required a reader to have a pen in hand. "Too much like being back in school," he says.

Nancy, as she often does, suggested a compromise. "Let's write an easy-to-follow, life-changing book," she said, "but offer voluntary exercises in sidebars for those people who would benefit from doing them."

Hence, the occasional "Gerri's Toolbox."

GERRI'S TOOLBOX: ONE A WEEK

As you read this book, you'll discover many high-leverage, low-pain, nitty-gritty suggestions for changing the ways you spend your money and your time. And our ideas and questions will spur plenty of your own.

While we can't tell you where you want to go, we can help you map the route. So keep a blank calendar beside you, and look for 52 things that you

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This is a difficult question, one that takes a lot of careful soul-searching and planning. Even if your job is keeping you tied to one location, you probably still have choices. You might be able to choose between a house in the country with a long commute, a shorter commute from the suburbs, but with a lot less land for your dollar, or even a condo in the city within walking distance of the office.

If you're debt-free and have few ties to your present community, you may be able to move across the country, wherever your heart takes you. How do you make that decision? The first step is to really think about what's important to you:

Cost of living

Taxes

Climate

Schools

Population

Crime

Recreation

Work opportunities

Where your friends and family live

You probably can't have it allno place is perfect, but resources such as the Places Rated Almanac and Retirement Places Rated, both by David Savageau, can put a practical spin on your fantasies. Money magazine also rates places to live each year. Look at several issues for suggestions. Then, for those that pass your initial screening, ask the chambers of commerce to send you information. You won't get the skinny from them, but you will get lots of information about why you should move there. Go to www.virtualrelocation.com for dozens of links to helpful sites on pretty much any area you're considering.

Put the word out to everyone you can about locales that interest you. You'll be amazed at how many people will know someone living in that area who you can call. Subscribe to the local newspaper for awhile, or see if it has a web site. While you're on-line, chat with people who live there.

If you belong to a professional association, see if there is a local chapter or members nearby, then call, write, or e-mail. Tell them you're going to be visiting to check out the area, and ask for suggestions. They may even offer to take you on a guided tour! Visiting a church or synagogue in the area is another way to meet the natives.

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Then plan your trip, or better yet, your trips. Make them as long as you can. A short visit may fool you with unusually nice weather and not enough reality. When you do visit, remember that you're on vacation. The new place will almost certainly seem more appealing than home. After all, you're not fighting traffic or running the kids to and from activities! So make it a little more realistic. Drive in rush-hour traffic (if there is any). Visit schools. Try local recreation facilities you'd be likely to use.

If you're in a position to take a leave of absence from your job while you try to find the next right spot to live, do it! Once you do figure out where you want to be, rent for a while until you're ready to make a commitment to a home and neighborhood.

Another option (a thrifty one at that) is to become a property caretaker in the area you're considering. You'll live rent free and sometimes earn a nice living, as well. For more info, go to www.angelfire.com/wa/caretaker or send an SASE for the "Report on Caretaking," to The Caretaker Gazette, P.O. Box 5887, Carefree, AZ 85377-5887.

If you're yearning for a move from the city or burbs to the country or a small town, check out Moving to a Small Town by Wanda Urbanska and Frank Levering, How to Find Your Ideal Country Home: Ruralize Your Dreams by Gene GeRue, Finding & Buying Your Place in the Country by Les and Carol Scher, Country Bound! Trade Your Business Suit Blues for Blue Jean Dreams by Marilyn and Tom Ross, and Moving to Small Town America by William Seavey. The Simple Living Network at www.slnet.com offers additional resources.

Should You Buy?

Conventional wisdom says that owning a home is:

A great investment.

A fabulous tax shelter.

The American Dream.

Owning a home may be the American Dream, but it can also turn out to be a nightmare. It's a great goal to strive forwhen you can achieve it. But if you buy more house than you really can afford, and then lose your job or get divorced, your dream could easily evaporate, as it does for the estimated 500,000 families who lose their homes to bank foreclosure every year.

Even if the next house you pick is one you can afford to buy, whether it'll be a great investment will depend more on the state of the local econ-

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omy when you sell than on anything else. You may or may not have a choice about when you sell, and you certainly won't have much control over the economy. If your next move has to occur during a buyer's market, will you be able and willing to hold out for a good priceor will you be forced to dump the house?

"Is a house a good investment?" The knee-jerk way of answering goes something like this: "I bought the house for $100,000 and sold it for $150,000, so I made a 50% profit." Unfortunately, that leaves out a lot of the crucial, often ignored costs of home ownershipfor example, closing costs, private mortgage insurance, broker's and lawyer's fees when you buy and sell, real estate taxes, home insurance, maintenance, landscaping, and mortgage interest. The interest alone on your home could end up costing you twice as much as you paid for the place.

The tax shelter question is also muddy. Before you sign the papers, do a sample tax return and see what owning would save you, if anything. You may be surprised by how little tax benefit you'll get.

Even if you have substantial deductions to itemize, the tax benefits will not outweigh the costs. While you'll be able to deduct a percentage of what you pay in real estate taxes and mortgage interest, a 28% deduction on your federal income taxes would mean you'd still be out 72 cents on every dollar you fork over.

And because of the standard deduction we're all entitled to, the first $7,000 or so you shell out won't buy you and your spouse a nickel's worth of tax benefit. Since the standard deduction goes up every year, while mortgage interest goes down, itemizing will be of less and less value to you as time goes on. (While your real estate taxes will no doubt keep going up and up, we know you don't see that as a benefit of home ownership!)

But there are other costs you have to weigh as well. Your next home can be a great place to liveor a big mistake, not only financially, but personally. We know one family that moved into a development with their exuberant terrier, only to learn that the next-door neighbor absolutely refused to tolerate the pooch putting one paw over the property line. It made for a strained relationship, to say the least.

If they had taken the time to ring the bell of this potential neighbor, they surely would have looked elsewhere. So investing the time to make sure a particular house in a particular neighborhood is really the right next home for you and yours is well worth it. Along the way, you may find some welcome alternatives that would serve you better and be less expensive.

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For example, if your current house is too small, it might cost less and be easier to renovate than to move. Get some construction estimates for that new bedroom, bathroom, or other space that you need.

Either a Borrower or a Renter Be

Especially if you're moving to a new city or town, being a tenant for a year or more can help you avoid serious mistakes by giving you a chance to carefully check out the various neighborhoods and school districts.

While it's absolutely true that rent money, once spent, is gone forever, when you look carefully at the numbers, you may discover that renting ''buys" you a house you could never afford to own and leaves you with more assets than if you bought.

Meet John and Mary Homeseeker. After scanning ads and touring with local brokers, they're considering buying a $125,000 house in a nearby development. They're also intrigued by a secluded mountaintop home, with scenic vistas, that they saw advertised for $950 a month.

Putting aside the lifestyle questions these two options raisethat only John and Mary can answerwhich alternative makes the most financial sense? To find out, we crunched the numbers.

But first, we made some assumptions about the Homeseekers. By using appropriately selected assumptions, we could, of course, produce any result we want. (Anyone canpoliticians and advertisers have been doing it for centuries!)

So don't conclude that our numbers for the Homeseekers prove that you should either buy or rent. Decide based on your own assumptions, feelings, dreams, plans for the future, willingness to take risksand the financial calculations.

We assumed John and Mary could negotiate the $125,000 asking price down to $112,500 and that they have enough cash on hand to put down 10% ($11,250) and to cover an expected 5% worth of closing costs ($5,063 based on the $101,250 home loan they'd need). The Homeseekers will have to come up with a total of $16,313 at the closing. (That up-front cash is currently in a 90-day CD that earns 5%, or $68 a month.) (See Table 4.1.)

John and Mary checked at www.hsh.com for current mortgage rates, and discovered that they could borrow $101,250, at 8.5% for 30 years, which means their monthly mortgage payment would be $779. They'd have to pay property and school taxes, and their maintenance costs would be higher than if they rented. And because their down payment is only 10%, the bank will require private mortgage insurance (PMI). While there are a bunch of

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TABLE 4.1

Buy or Rent: The Facts

PURCHASE

RENTAL

Negotiated price

$ 112,500

$ 950

Down payment/security

11,250

1,900

Mortgage

101,250

None

Closing costs and points

5,063

None

PMI programs that protect lenders when borrowers can't come up with at least a 20% down payment, to keep our example as simple as possible, we're going to assume that the Homeseekers have to come up with a $45 premium every month until their equity in the house finally reaches 20%.

The Homeseekers have no other tax deductions, which means that if they buy, their tax breaks would be $98 a monthmuch less than they expected. How could that be?

Real Estate Tax Deductions Demystified

Mortgage interest and real estate taxes are worth far less on your 1040 tax form than you may realize. Whether you rent or buy, the IRS gives you a standard deduction. It's $7,100 in 1998 for married couples. (Two singles living together get a higher deduction, $4,250 each in 1998, or $8,500. The $1,400 difference is often referred to as "the marriage penalty.")

So for John and Mary Homeseeker, the first $7,100 they paid in mortgage interest and real estate taxes would bring them absolutely no tax benefit. Say they moved in on January 1 and didn't pre-pay on their mortgage. By year's end they'd pay $8,577 in interest and we'll assume $2,500 in property taxes, totaling $11,077.

Our tax system is so confusing, the Homeseekers may believe they'll save the full $11,077 in taxes. Or maybe they think that since they're in the 28% tax bracket, they could write off only 72%, $7,975or only 28%, $3,102.

Actually, their tax benefit will be 28% of $3,977 ($11,077 minus the $7,100 standard deduction they'd get any way). They'll save $1,114 (28% of $3,977)or $93 a month. That's barely 10 cents back for every $1.00 the Homeseekers will spend on interest and real estate taxes. What a deal. (See Table 4.2.)

John and Mary's monthly housing costs would be $187 less if they rented, than if they bought ($1,172 $985). If John and Mary were to rent, and systematically invest the $187 a month difference it would grow to $18,761 (even at 5%), by the time they get the 7-year itch to move. This

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TABLE 4.2

Buy or Rent: Monthly Costs

MONTHLY PAYMENT

BUY: $779

RENT: $950

Private mortgage insurance

+ 45

None

Taxes

+208

None

Maintenance

+100

+ 25

Insurance

+ 65

+ 10

Subtotal

1,197

985

Lost Investment Income

+ 68

None

Less Tax Savings

93

None

Monthly cost

$1,172

$985

doesn't include any earnings that would accrue on their $1,900 security deposit.

If, instead of going for the 5% return, the Homeseekers used that $187 a month to keep out of consumer debt or went for a higher-yielding investment, they'd fare even better.

But they expected the early rental advantage to be wiped out by equity gains and tax benefits over the seven years they anticipated living in the house.

Do we have a surprise for the Homeseekers! (See Table 4.3.)

As buyers, they'd spend $32,021 more over the seven years than they would as tenants ($114,761 $82,740).

TABLE 4.3

Rent versus Buy Comparison at Seven Years

PURCHASE

RENTAL

Total monthly costs

$ 98,448

$82,740

Plus cash up front

+16,313

+ 1,900

Amount invested

114,761

84,640

Less security refund

0

1,900

Cash spent

$114,761

$82,740

Prophet, Prophet, Where's the Profit?

But how about all the money John and Mary would make as homeowners when they sell in seven years? Absent that crystal ball, Table 4.4 shows a few scenarios.

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TABLE 4.4

Apparent Homeowner's Profit at Seven Years

SELLING PRICE

$100,000

$125,000

$150,000

6% commission

$ 6,000

$ 7,500

$ 9,000

Received at closing

94,000

117,500

141,000

Mortgage balance

94,242

94,242

94,242

Cash after sale

($242)

$23,258

$46,758

If home values drop, the Homeseekers clearly would come out ahead as tenants. That's no surprise. But maybe home prices will go up over the next seven years. If they do, we're looking at some real profits for John and Mary, right? Not so fast! Take a look at Table 4.5.

TABLE 4.5

Actual Homeowner's Profit at Seven Years

SELLING PRICE

$100,000

$125,000

$150,000

7-year home cost

$114,761

$114,761

$114,761

Less cash from sale

(242)

23,258

46,758

Homeowner's cost

115,003

91,503

68,003

Renter's 7-year cost

82,740

82,740

82,740

Apparent profit (loss)

(32,263)

(8,763)

14,737

Renter's earnings

18,761

18,761

18,761

Real profit/loss

($51,024)

($27,524)

($4,024)

Bottom Line

Even if they could get $150,000 for the house, when you factor in the amount the Homeseekers could put aside as tenants, they'd still be out $4,024. But maybe they could get even more for the house. At $154,024 they'd break even, and anything above that would be a profit. Is it worth the risk? The effort? The paperwork?

Renters can end up wealthier than homeowners. And when home sales are slow, they can often find fabulous houses to rentones they could never afford to buy.

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Investing in the Dream

There's no law that says you must always do what's financially smart. Even if it might cost less to rent, you have the right to go for the Dream. There are lots of good reasons to own your house. Renters don't always come out ahead, and the right house can be a good investment. Owning a home gives you a place where you can pretty much do as you please, and one of the best benefits is the emotional comfort you might derive from a home that is yours.

If you do decide to buy your next home, you can make it a better financial investment by following these four simple rules.

1. Buy locationwhere lots of people want to be. But avoid the neighborhood's most expensive home, because improvements to it aren't likely to increase its market value.

2. Live in the house for a year before making major renovations. By then, you'll be so used to the little quirks that the changes you originally considered may seem less important and you'll be able to pocket the savings.

3. Don't go for the most expensive house the lender says you can afford. Why chain yourself to high monthly payments? If anything happens to your income stream, or if you have unexpectedly high expenses, your house will soon become your prison.

4. Pre-pay on your mortgage. After seven years of monthly payments, the Homeseekers would have paid the bank over $65,000 on their home loan, yet reduced the balance by only $7,000. (See Chapter 13.)

When You Think You're Ready to Find a House to Buy

Brace yourself. A laundry list of miscellaneous fees known as closing costs could immediately add 5% or more to your home's purchase price. What's worse, they won't buy you a nickel's worth of anything you'll ever get to enjoy. Ouch!

You'll pay for lawyers (yours and the bank's), engineering inspections as well as those for termites, water quality, and radon, a few months of up-front escrow payments to cover property taxes and homeowner's insurance premiums, application fees, appraisals, credit checks, title insurance, surveys, recording fees, and points.

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Don't forget, if your down payment is less than 20%, you'll also shell out thousands of dollars over time to pay for private mortgage insurance (PMI), which protects the lendernot you!in case you default.

With all these extra expenses, it's smart not to even look at homes that are out of your price range. Why fall in love with a dream that can only turn into a nightmare?

Instead, do something practical, like getting prequalified for a loan. It's helpful to know your borrowing capability before you fall in love with a house and feel pressured to make an offer. Before you seriously start shopping for a house, read "Buying the Right MortgageNew or Refinanced" and "Seven Smart Steps to Cutting Closing Costs" in Chapter 13, to save thousands.

Speaking of "before," interview, negotiate fees with, and hire an attorney before you sign a binder. It's best to get advice before you make the mistakes.

You can't count on getting good advice from real estate salespeople and brokers. They generally work for the sellers (although some are now "buyer's" brokers). Seller's brokers are required to share anything useful you tell them with the sellers. In other words, when a seller's broker is showing you a house, don't think out loud such thoughts as, "I love this house and would be willing to go as high as $150,000, but let's start with an offer of $125,000."

Take the time to know the house and the neighborhood before you make an offer. Is there a nightclub on the next block? During the rainy season, will your living room be the perfect setting for the movie, A River Runs Through It, Part 2? Is there a homeowner's association that will be watching your every move?

Check the asking prices as well as the actual selling prices on similar homes in the neighborhoodbefore you begin negotiating the price. Many brokers will have a "comp" book that lists recent sales, giving both the asking and the final sale price. Table 4.6 shows you how to compare the two. Add up the columns, and then divide by the number of homes. If you find a 10% spread, for example, then offer even less. That way, you won't bear more than your fair share of the usual give and take.

For more good advice on home buying, we recommend 100 Questions Every First-Time Home Buyer Should Ask by Ilyce R. Glink, The Homebuyer's Survival Guide by Kenneth W. Edwards, and The Homebuyer's Kit by Edith Lank. Keep your eyes out for current stories by these authors, as well as those by syndicated columnists Ellen James Martin, Pamela Reeves, and others.

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TABLE 4.6

How Much Is that House Really Worth?

HOUSE NO.

ASKING PRICE

SELLING PRICE

% DISCOUNT

1

$100,000

$ 95,000

5%

2

97,500

92,000

6%

3

112,500

105,500

6%

4

109,900

97,500

11%

5

130,000

115,000

12%

6

126,500

110,000

13%

7

105,000

90,000

14%

Total/Average

$781,400

$705,000

10%

Cyberspace addresses that can help are www.realtor.com, www.ired.com and www.inman.com.

Buyer Be Vigilant

Laura had lousy luck with her new house. A few years after moving in, a trench began to form along a back wall. Digging showed rotting wood where concrete blocks had been specified. Although the builder assured Laura that appropriate construction inspections had been made, the entire foundation had to be replaced. Then it turned out that the electrical system didn't meet code requirements, either, and it had to be upgraded. Final resolution is now in the courts.

To limit the likelihood that Laura's luck will be yours, watch what's going on during construction if you're buying a new house. Read the specifications, and insist on seeing building permits as well as certificates of compliance. When possible, be on-site during inspections and ask a lot of questions. And be sure to read The Owner-Builder Book by Mark and Elaine Smith. It'll save you a lot of money.

Before you buy any house, do some inspecting on your own. Using the photos, drawings, and checklists in Your Home Inspection Guide, by William L. Ventolo, you'll be able to find both obvious and hidden defects on your own.

And defects there will be, hidden by walls, floors, earth, shrubs, furniture, appliances, and snowelements of a home's construction that can fail and may already have done so. Since you're not an experienced contractor, you'd never notice any of those problems. So before you agree to buy the castle, you decide to call in an inspector. Good move!

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can do this year to invest in yourself. For example, you may decide to spend one evening this week at the library investigating career options. Who knows? That one evening may lead you to someplace where you'd be happier 9 to 5. (Or will it be 8:30 to 2?)

Or you may decide to try to cut back on your spending a bit, here or there, in some of the ways we recommend. Just one small change a week will dramatically change your life. Don't believe us? Try it for a year and prove us wrong.

We encourage you to set the bar high, no matter what you're aiming for in life. It may seem at times that we're advocating simple or frugal living, but we're not. We're advocating a self-designed life, where you invest your time and energy getting what you want and doing what you believe innot wasting them on things you don't really want, but think you should have.

For some, that may mean a simple life. For others, it may mean a luxurious home in the Caribbean. Whatever. It's your choice. But to get where you want to go, you have to be clear about what you really want. To pull it off, you have to make honest choices based on the facts: both the financial facts and the way you feel.

Meet Oprah, or Make Your Dreams Come True

In her commencement speech to the 1997 graduating class of Wellesley College, Oprah Winfrey told the story of her "Wildest Dreams" show, where she asked women to share their wildest dreams so she could fulfill some of them. One woman got to ride a camel in Egypt. Another asked for and got a house. A third dreamer had her college debt paid off. Many other women had a simpler dream. They just wanted to meet Oprah.

Those women also got their wish, but were upset when they found out what Oprah had done for the others. As she said in her speech, ". . . some of them afterwards were crying to me, saying that 'we didn't know, we didn't know, and this is unfair!' and I said, 'That is the lesson: You needed to dream a bigger dream for yourself.' That is the lesson. Hold the biggest vision possible for your life and it can come true."

Come on. Let's get started.

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But you're new to town, so you ask the broker for a recommendation. Bad move! The last person you want to get advice from, when it comes to protecting your interests, is the seller's broker. Even if the broker's heart is in the right place, self-interest and the seller's best interest might mean you'd end up with the town's laziest inspector rather than the most thorough.

Get recommendations from your attorney, neighbors, disinterested brokers, contractors, or the local building inspector. Call a few inspectors and interview thempreferably in their office. What is their background, how long have they been doing inspections, how many have they done, could they give you the names of a few clients they inspected for a year ago? (That's long enough for most missed problems to have surfaced.) Call them up and get their feedback.

When the day comes, follow the inspector around and ask questions. Do your own thorough inspection both beforehand and at the same time. But be advised, the same potential defects that are hidden from your view will be just as hidden from the inspector's. And even inspectors who are members of the American Society of Home Inspectors (ASHI) will make only visual inspections, which are "not intended to be technically exhaustive." (Go to www.ashi.com or call 800-743-2744 for brochures on home inspections and referrals to members in your area.)

Our advice? Invest in your knowledge, as usual. While a pro can pick up things you might miss, if you're going to shell out the bucks to live in the house, you might as well understand how its various systems function. The more you know, the less you'll spend.

Down to Basics

The inspector will not check to make sure the building meets code or zoning requirements, will not look for ants, termites, or Mickey and his family. You won't find out from the inspector if the septic system is functioning properly, if the appliances work, if the hidden plumbing or electrical systems are in trouble, if the wall insulation is adequate, if hidden foundations are about to crumble. Unless you pay extra, you won't learn about radon or discover that the previous owner spilled a 55-gallon drum of poison in the cellar.

Although every other player in the home-buying game is licensed, few states license building inspectors. The only thing that may be keeping you from being an inspector yourself is business cards. While there are excellent people in the field, it's up to you to find one.

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If you want to be extra prudentand why shouldn't you be, you've got a lot at stake hereit's smart to call in plumbing, electrical, roofing, and general contractors. Most will look over the house for free, in the hope that you'll hire them to fix those things they'll carefully search to find, including code violations.

Specifically, ask for written disclosures from the broker and the seller. They're required to tell you of any problems that they know of with the house. If they don't, and you find out that they did know, you'll have some recourse.

Are we trying to scare you? You bet! Plug something into every outlet (the inspector will check a "representative number"), check every switch, light, faucet, drain, door, and room air conditioner. The inspector will tell you whether the heating system is working as of this minute, but not if it will adequately warm the living room. You better find out for yourself.

No matter who you hire to help you with the purchase of your home, you and your family are the ones who'll suffer if a mistake is made. It's well worth the investment of a chunk of your time to make sure your next home isn't a nightmare on Elm Street.

Is There a Broker inside You?

The opposite of buying is selling, and if you've done the first, you'll eventually do the second. Often, selling and buying happen at the same time, when you leave the home you now own for one you just bought. Like a buyer, a home seller needs to research the asking and selling prices of comparable homes before setting a price. You can certainly ask brokers for their opinions, but, as Marc's dad used to say, "Free advice is generally worth what you pay for it."

A professional appraisal will cost a few hundred dollars, but may help you sell faster and at a higher price. Of course, sitting in a broker's office and looking through comp books is a no-cost way to be your own appraiser. Your home will not sell for substantially more or less than others that are very similar.

A three-bedroom home may be worth less than a four-bedroom home, and a large lot may be worth more than a small one. In comparing, take these variations into account. But try to be objective and to find houses that are really comparable. Neither the lovely chartreuse you've painted the living room nor the walk-in closet you're so proud of having built will raise your home's value. But an additional bathroom might.

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Having answered the big question about your home's market value, it's time for the next question, "Do I sell it myself or do I list it with a broker?"

There are two main advantages to selling it yourself:

The commission you may save.

The fact that brokers have hundreds of homes to sell and you have only one, which means you may put a lot more effort into making the sale.

The main disadvantage to selling on your own is that you'll have taken on a very intensive project. However, since this book is entitled Invest in Yourself, learning how to sell your home and then doing it could save you a substantial commission on this house and the next and the next.

While brokers will happily tell you what the standard commission is in the area, like most other home buying and selling costs, commissions are negotiable. Assuming you were to pay a 6% commission on a house that sold for $150,000, that would be $9,000. (Note: You probably won't save the full commission, because informed buyers will want to at least split the savings with you. If they can't also benefit, they'll figure that they might as well buy the house down the street and get whatever assistance they can from the broker.)

Even if you just save half the commission, $4,500, how much of your effort is that worth? And how many times will you move during your life? At $4,500 a pop, those savings can really add up. You can plow them into the next house you buyand get a bigger house, more land, or a smaller mortgage. You could always use that money to pay off some more expensive debts, or you could sock it away in your college or retirement fund. Your choice. Any way, you win!

A SALES TECHNIQUE WE WISH WE HAD THOUGHT UP

The premise to How to Sell Your Home in 5 Days by Bill Effros is really quite simple. Rather than set a high price on your home and then wait (and wait and wait) while potential buyers wait (and wait and wait) for you to drop your price, you advertise a low price. A very low price.

Then you schedule an open house for a weekend and wait for the crowds to arrive. They will. After all, everyone loves a bargain. On Sunday night, you hold a phone auction. The high bidder gets to buy the house, and as the law of supply and demand says, and Bill has proven again and again, the final price will be the fair market valuewell above your offer-

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ing price, which will appear with the following three words in your classified ad: ''or best offer."

Bill's method brings out everyone who's looking for your type of home. Unlike conventional sales methods, it brings them all out at the same time. Everybody wants what so many others want, and the magic takes place. There are steps you need to take before you place the ads (carefully explained in Bill's book), but your up-front effort should result in a fair price and quick sale.

Going to List with a Broker?

Be wary of brokers who assure you that your home is worth far more than what the comp book shows or than the quotes you got from the other brokers you interviewed. (You did interview more than one, didn't you?) In the end, the home won't sell for more than its fair market value. Putting too high a price on it will only slow down the saleand perhaps cause you to become desperate enough to dramatically cut your price.

If you sign any agreement, make it for a short term, preferably for no more than 90 days. If it turns out your broker is more interested in getting listings than in selling or is asleep at the wheel, you want to be able to change horses. And if possible, sign an "Exclusive Agency" contract with the broker.

That gives you the right to sell the house on your own without paying a commission. An "Exclusive Right to Sell" contract means you pay a full commission even if your twin brother ultimately buys the house due solely to your brilliant sales pitch. (Won't he ever learn?)

One final condition: Insist that your home be immediately listed with the local Multiple Listing Service (MLS). The more brokers who know it's for sale, the better your chances of selling. The listing broker will have to split the commission should a different broker bring the buyer. That makes some brokers slow to add properties to the MLS, because they'd like to try for the whole commission. You can't blame them for tryingbut you can stop them from delaying.

And you can help sell the house. First of all, clean it up! Buyers have an imagination and can see through some problems, but chipped paint, clutter, 2-foot-high grass, ripped carpeting, fist-sized holes in closet doors, dirty bathrooms, and smelly kitchens all point to haphazard careand don't instill confidence.

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If the roof leaks, either fix it or be honest about it from the beginning. Otherwise, you'll lose the sale before the closing and may have to start all over. You may even be sued later. It pays to be honest.

Insuring Your Home

Fire, flood, earthquakes, hurricanes, falling trees, and broken water pipes are just a few of the villains that might damage or destroy your home and its contents. Then there are the thieves waiting for an opportunity to steal your valuables.

Whether you're an owner or a renter, you really need to take a deep breath and create a detailed, personal inventory of your possessions. It will help you figure out how much coverage you need. Then down the road, should you ever file a claim, you'll have the documentation at hand.

RENTER ALERT!

Your landlord's policy won't protect your possessions against loss or damage. And it won't protect you against personal liability if, say, your babysitter trips on the rug and sues you. The money-saving tips we offer here will also help you find the best deal on a renter's policy.

Comparison shop! The money you save will be your own. Policies are not identical. Costs, coverage, and conditions can vary, as can the financial stability of the insurer.

Basic policies don't cover earthquakes, floods, or nuclear attacks. If you live in a floodplain, call the National Flood Insurance Program (800-638-6620). It could happen to you! And if you live in California, you're going to need earthquake coverage. It's going to cost you a pretty penny, and the deductible will be high.

Knowledge is money in the bank, so don't wait until you're in a panic the day before a closing to call an insurance broker. Not only may you pay too much, you may find that you're not adequately covered when you do put in a claim.

Get quotes for the replacement value of your home and its contents, with both a $500 and a $1,000 deductible, as well as the more typical $250. The higher deductibles could shave 10% to 25% off your premium, year after year.

Check with the agent who wrote your car insurance. Are you eligible for

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a price reduction because you're a long-time customer bringing in more business? Similarly, ask other agents if you'd be eligible for a multiple-policy discount, if you let them write both your home and car insurance. You could save about 10%.

Put smoke alarms on every floor, and make sure the agent knows about them. In addition to maybe saving a life, they'll pay for themselves in a year or two with the 2% or so that they'll save you on premiums.

Ask if there are other safety features that could save you money on the policyfor example, burglar alarms. Was your home built with fire-resistant materials? Is yours a nonsmoking household? In other words, ask for all possible discounts . . . and then a few more. Another example: Insurance on a new house built with state-of-the-art construction should cost less. And some companies offer discounts to retirees.

You may want to pay more for extra "floater" coverage on valuables such as jewelryif they're worth more than the standard policy limits. But if you normally keep some of your gems in a safe-deposit box, be sure to ask for a break on the cost of the floater.

The biggest favor you can do for yourself is to read Smarter Insurance Solutions by Janet Bamford before you take out a new policy or renew an existing one. Then, before you sign on the dotted line, take the policy home and compare what it says to what you thought you were getting . . . with Bamford's book by your side. By the way, her book also gives detailed advice for auto, life, health, disability, and long-term health care.

Second best: For a free copy of Insurance for Your Household and Personal Possessions: Deciding How Much You Need, call the National Insurance Consumer Helpline (800-942-4242).

DO YOU NEED INSURANCE FOR YOUR KID'S STUFF AT COLLEGE?

Your policy will probably cover your children and their possessions while they're living in a dorm, and some policies will also cover a student who lives off campus during the school year but at home during the summer. It's a good idea to double-check. If your student has anything of value, once he or she has an apartment, it's time to get a renter's policy.

Check the health of your insurance company. A trip to the library will get you the latest ratings. See Best's Insurance Reports, Weiss Ratings Insurance Safety Directory, or go to www.inswebpro.com/carriers/stdpoor.

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Cutting Your Property Taxes

You wouldn't dream of letting the IRS figure how much income tax you owe . . . So why assume that your property tax bill is correct without giving it a once-over?

ELIZABETH RAZZI, Kiplinger's Personal Finance Magazine

Tax assessors, being human and hassled, make mistakes. Doesn't everyone? But their mistakes can cost you money, year after year, for as long as you own your house. Therefore, making sure they are correct is an investment of your time that may cut your homeowning costs for years to come.

1. Visit the tax assessor's office and request a copy of your assessment.

2. Go over it in detail. Note any discrepanciesespecially major ones: For example, it says you have three bathrooms, not two, or your house is listed as 3,500 square feet but it's closer to 2,500.

3. If you find mistakes, speak to the assessor and request that they be corrected. If there's a local grievance process to go through, ask for the procedure.

4. If there are no mistakes, or they are in your favor, you still want to make sure your assessment is no higher than those of comparable homes. Find a few through the comp book at a broker's office. You can double-check the assessment books and/or tax records to verify what they pay. If it's less than you do, you have a reason to appeal for a lower assessment. (It may pay to hire a professional appraiser.)

You Can Fight City Hall

"Nationwide, fewer than 2% of all property assessments are challenged. In the vast majority of cases, those who do appeal get their taxes cut. So it's well worth the effort," advises Steve Carlson,* author of Your LowTax Dream House, which includes descriptions of the property tax systems in every state, an excellent review of the assessment process, and ways to cut your real estate taxes.

Good luck!

* In addition to being an expert on property taxes, Steve puts out a wonderful catalog of books published by small presses on subjects ranging from abuse and recovery to spirituality and social issues. Visit www2.upperaccess.com or call 800-356-9315.

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Chapter 5

How Much Is Enough?

Why you don't have to be a millionaire to retire well

Overlooked investments that can make a stellar retirement portfolio

How to know when enough is enough

Wills, estate plans, insurance, and other dreaded details

. . . money can't buy the things that count most: good health, a close family, warm friendships and authentic interests. And all the fancy toys it can buy and exotic areas it can take you to are not likely to be an adequate substitute.

RALPH WARNER, Get a Life: You Don't Need a Million to Retire Well

There came a time when Marc's parents took a well-deserved fantasy vacation in the Philippines. They stayed with extremely wealthy friends, who threw gala banquets, chartered boat trips, assigned them personal maidshis mother even had a seamstress at her beck and call. "They treated me like a queen," Mom often recalled.

Like most vacations, that one drew too quickly to a close. It was not a happy departing. They were high over the Pacific, having left paradise for a return to their high-pressure business, when Dad turned to Mom and wondered, "How much do we need? When is enough enough?!"

It took a few months, but they found a buyer for the business, sold out, and retired. Enough was enough.

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Marc was a bit younger, about 30, when he and his brother Sam followed their parent's lead and sold their construction business. While they had achieved a level of success they could be proud of, all the future held was making more money, building more shopping centers, and experiencing more stress. The brothers knew when enough was enough, and changed course. Sam retired to North Carolina a few years later, and Marc semiretired to a simpler and far more satisfying life as a consumer advocateor as he likes to put it, "a non-consuming advocate."

QUESTION: How will you know when you've had enoughand have enough?

ANSWER: When you no longer enjoy your work, and you've reached the point where, having taken control of your finances and your life, you're living on less than you earn. Your time will truly be your ownif you plan it right.

You Don't Need to Be Old or a Millionaire to Retire

Between the stories you read, the experts you hear on radio or see on TV, and all of the ads from investment advisors, it's not surprising that retirement for many is feared rather than happily anticipated.

Relax. Get a grip. You're not going to spend the last 40 years or more of your life eating cat food. Chances are, you're already doing a lot more to save for retirement than you realize, and by the time you've finished Invest in Yourself, you'll be saving tens of thousands of dollars that most Americans waste on bank interest. You'll also be cutting your expenses, cultivating a simple lifestyle, and creating new sources of income.

Not to Worry

When people think about retiring, they usually start with the question, "Can we afford it?" By itself, money in the bank won't make for a wonderful retirement, but it can make things a lot easier. If you come away from this book with nothing else, we hope it'll be the realization that you can accumulate a lot more cash for your golden years than you ever thought possibleand that you'll need less than you expected.

For starters, even though you've almost certainly been paying into Social Security for years, your confidence in its future probably depends a lot on your age. Although you may not be able to collect benefits as soon as you'd like, chances are it will provide a base for your retirement. If

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you've built up your nest egg and learned to live on less, then even a modest Social Security check will be quite helpful.

Contact the Social Security Administration (800-772-1213 or www.ssa.gov) to request your "Personal Earnings and Benefit Estimate Statement." Fill it out, return it, and in a month or so, you'll get an estimate of your future benefits.

So, How Much Is Enough?

The short answer is, "No one knows for sure." But we've come up with an easy way for you to get a handle on how far beyond Social Security your other assets might take you. Allow us to introduce you to Table 5.1, our supersimple approach to retirement math. Imagine for the moment that you're about to retire a millionaire (hey, you never know), whose investments will be earning 9%, while inflation chugs along at 3%.

To make your calculations a lot easier, we're going to factor out inflation, by using what we call the "Net Interest Rate"which is the difference between what your money earns and inflation. You'll be able to look at the future purchasing power of possible nest eggs in different scenarios, as if every buck will buy as much bread tomorrow or decades into the future as it does the day you retire. In our example, the Net Interest Rate equals 6%your 9% earnings minus the 3% rate that inflation has been averaging over the last 70 years.

Since we wish you only the best, let's assume you'll have 40 wonderful years, rocking on your porch. Now look down the nest egg column in Table 5.1 to $1 million. Find 40 years, and follow it over to the 6% column. You'll discover that your monthly "allowance" will be $5,502. Because of how we designed the chart, assuming the Net Interest Rate averages out to be 6%, that $5,502 will have the same purchasing power in your fortieth year of retirement as it does in your first.

Keep in mind that once you get that last check (which may be a bit smaller than the others), your pot will be empty. Of course, that will be after 40 years of living quite well, and along the way, you'll probably have created new income streams.

Focus Your Crystal Ball

Now it's time to ask yourself five key questions:

1. How much will you need? Most experts say you'll need about 70% of whatever you're earning right before you retire. We hope you'll get by on less. But there'll be unexpected expenses and higher taxes. So think about

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SECRET I

MAKE YOUR OWN LIFESTYLE DECISIONS

Somewhere along the way, you got locked into living and financing a particular lifestyle. Maybe you thought it was because you wanted to create a stable, enriched home life for your family. Or maybe you thought it was because that's all you could afford. Or maybe you didn't think through your alternatives at all.

The number one, most important part of your Invest in Yourself portfolio is the knowledge that you have a right to make conscious choices about how you live the remainder of your life. You have alternatives about how you invest your time and energy, as well as where and how you bring up your children.

Your path in life shouldn't be set in stone. Nor should it be decided by whomever you call "boss," by Madison Avenue, by your spouse, your mother, or your father. You're a grown-up now. You get to call the shots.

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TABLE 5.1 How Far Will It Go?

(Monthly Withdrawals from Various Nest Eggs)

NET INTEREST RATE

NEST EGG

YEARS

2%

3%

4%

5%

6%

7%

$ 25,000

10

230

241

253

265

278

290

20

126

139

152

165

179

194

30

92

105

119

134

150

166

40

76

90

104

121

138

155

$ 50,000

10

460

483

506

530

555

581

20

253

277

303

330

358

388

30

185

211

239

268

300

333

40

151

179

209

241

275

311

$ 100,000

10

920

966

1,012

1,061

1,110

1,161

20

506

555

606

660

716

775

30

370

422

477

537

600

665

40

303

358

418

482

550

621

$ 150,000

10

1,380

1,448

1,519

1,591

1,665

1,742

20

759

832

909

990

1,075

1,163

30

554

632

716

805

899

998

40

454

537

627

723

825

932

$ 200,000

10

1,840

1,931

2,025

2,121

2,220

2,322

20

1,012

1,109

1,212

1,320

1,433

1,551

30

739

843

955

1,074

1,199

1,331

40

606

716

836

964

1,100

1,243

$ 250,000

10

2,300

2,414

2,531

2,652

2,776

2,903

20

1,265

1,387

1,515

1,650

1,791

1,938

30

924

1,054

1,194

1,342

1,499

1,663

40

757

895

1,045

1,206

1,376

1,554

$ 300,000

10

2,760

2,897

3,037

3,182

3,331

3,483

20

1,518

1,664

1,818

1,980

2,149

2,326

30

1,109

1,265

1,432

1,610

1,799

1,996

40

908

1,074

1,254

1,447

1,651

1,864

(table continued on next page)

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(table continued from previous page)

TABLE 5.1 (Continued)

NET INTEREST RATE

NEST EGG

YEARS

2%

3%

4%

5%

6%

7%

$ 350,000

10

3,220

3,380

3,544

3,712

3,886

4,064

20

1,771

1,941

2,121

2,310

2,508

2,714

30

1,294

1,476

1,671

1,879

2,098

2,329

40

1,060

1,253

1,463

1,688

1,926

2,175

$ 400,000

10

3,681

3,862

4,050

4,243

4,441

4,644

20

2,024

2,218

2,424

2,640

2,866

3,101

30

1,478

1,686

1,910

2,147

2,398

2,661

40

1,211

1,432

1,672

1,929

2,201

2,486

$ 450,000

10

4,141

4,345

4,556

4,773

4,996

5,225

20

2,276

2,496

2,727

2,970

3,224

3,489

30

1,663

1,897

2,148

2,416

2,698

2,994

40

1,363

1,611

1,881

2,170

2,476

2,796

$ 500,000

10

4,601

4,828

5,062

5,303

5,551

5,805

20

2,529

2,773

3,030

3,300

3,582

3,877

30

1,848

2,108

2,387

2,684

2,998

3,327

40

1,514

1,790

2,090

2,411

2,751

3,107

$ 750,000

10

6,901

7,242

7,593

7,955

8,327

8,708

20

3,794

4,159

4,545

4,950

5,373

5,815

30

2,772

3,162

3,581

4,026

4,497

4,990

40

2,271

2,685

3,135

3,616

4,127

4,661

$1,000,000

10

9,201

9,656

10,125

10,607

11,102

11,611

20

5,059

5,546

6,060

6,600

7,164

7,753

30

3,696

4,216

4,774

5,368

5,996

6,653

40

3,028

3,580

4,179

4,822

5,502

6,214

* Note: These numbers were calculated with The Banker's Secret Software (see page 327)

how much you need to live on now. (Omit major bills you'll have paid by the time you've retired, such as college tuition and mortgage payments.)

For example, let's consider the Goodlives, whose living expenses are modest. They expect to have a home business for many years to come (to supplement their income while it keeps their taxes low). They'd like to

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budget the equivalent of today's $3,500 a month for their retirement, or $42,000 a year, and expect that amount to cover taxes as well as living expenses.

The more you withdraw from your nest egg, the bigger your tax bite will be. Therefore, you may want to pad your living expenses by 25% or more to cover those pesky taxes, as you consider the next question.

2. How long will you live? Be sure to be optimistic in answering this one! It's much better to run out of breath with something still in the till than it is to run out of money while the old heart's still pumping. The Goodlives' goal is to fund a 30-year retirement. Et tu?

3. How much interest will your money earn? Since there's no sure way to predict the nation's future economic condition, be conservative. Let's assume the Goodlives' investments will earn 8%.

4. How will inflation eat away at your purchasing power? Inflation will weaken every dollar that you squirrel away, and then every dollar you withdraw. Assuming inflation will average 3%that means the Goodlives' net interest rate is 5% (8% interest minus 3% inflation).

5. How much will you be collecting from Social Security, and at what age will you begin? Between them, the Goodlives expect to see about $2,000 a month, starting at age 65. That means they'll have to come up with about another $1,500 a month.

Now back to Table 5.1. Look down the 5% column until you find $1,500 (or more) opposite 30 years. You'll see that with a $300,000 nest egg, the Goodlives will be able to withdraw the future equivalent of today's $1,610 every month until they're 95 years old.

What if the Goodlives assets total only $125,000 by the time they retire? How much income would that give them a month, assuming a Net Interest Rate of 5% and 30 years of retired living? You won't find $125,000 on the chart. What can you do?

Since $25,000 plus $100,000 equals $125,000, look at the 5% columnagain for 30 years. Add the $134 from the $25,000 nest egg to the $537 from the $100,000 one. They'd be able to withdraw $671 a month ($134 + $537). Because that amount of money won't cover their anticipated expenses, "Plan B" would have to go into effect.

The Goodlives could voluntarily live on even less, and/or gear up to earn more during their retirement years. Or they could put off retirement for awhileto sock away some more and to increase their take from Social Security.

Now assume their Net Interest Rate turns out to be 6% and they anticipate needing their $125,000 to carry them for only 20 years. By then, a

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rich elderly aunt will have certainly met her maker, and they're her only living kin. After all, a whopping $8 trillion will be inherited from today's seniors. That $125,000 would yield $895 a month ($179 + $716) for the 20 years.

You Be the Banker

Now it's time for you to look at some alternative scenarios. For example, say you accumulate $200,000 and want it to last 30 years. How much would that yield if your Net Interest Rate is 4%? The answer is $955 a month.

Take another gander at the numbers we've been talking about: $955 a month for 30 years at 4%. Don't they sound just like mortgage numbers? That's exactly what they are! (And don't you wish you could get one at 4%?!)

Retirement math works just like a mortgageexcept you get to be the bank. You collect the compound interest. For example, assume the Goodlives stash $300,000 and withdraw $1,610, twelve times a year for 30 years. That adds up to $579,600, or $279,600 more than they'd socked away. Ah, the power of compound interest. How nice to be the lucky beneficiary for a change!

To ponder nest eggs that don't appear on the chart, The Banker's Secret Loan Software will make it easy for you to ask as many what-if questions as you want about your future finances. (See page 327.)

Filling in the Gap

If your nest egg, combined with your Social Security or pension checks, isn't going to fund the kind of lifestyle you'd like in retirement, you have choices. One is to create a small, part-time business that will help you fill in the gap. Chapter 8 explains how to turn a hobby, passion, skill, or just an interest into cash.

Another option is to downsize your lifestyle. Learning to live comfortably on less can be rewarding in more ways than one. If you treat it as a challenge, you may tap some creative skills you didn't even know you had. And you'll feel a great deal more freedom as you discover that you do have options. Turn to Secret IV for lots of penny-pinching tips.

And of course, you can fill in that gap by tapping into your largest asset: your house. Hopefully, you'll have burned your mortgage long before you run for the 8:04 that last time, as we'll suggest in Chapter 13. It's one of the best moves you can make in planning for your retirement. Just think of all those years after you retire when you won't have to come

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up with the money to meet mortgage payments. At $734 a month on a typical $100,000, 30-year home loanover $8,800 a yearit's a foolproof way to cut your costs considerably.

The Younger You Are, the More You'll Need

Okay. So now you know how far you could get on your nest egg . . . if you were to retire today, or if you already have that nest egg invested to earn at least enough to cover inflation. But what if you're 10, 20, or even 50 years away from the mythical gold watch, and your money tree hasn't yet borne fruit? You'll need to put aside more than Table 5.1 shows. How much more? See Table 5.2.

Let's say that after you take into account Social Security, your 401(k), and the equity in your home, you'll still be $100,000 shy (in today's buying power) of what you want in your nest egg when you retire in 25 years. According to Table 5.2, you'll need to put aside another $209,378.

Table 5.3 will show you how much to squirrel away each month to meet your goal. Say you expect an annual return of 7.5% on your invest-

TABLE 5.2 The Future Value of Money

Based on 3% Annual Inflation

YOU'LL NEED THIS MUCH IF YOU'RE RETIRING IN:

TODAY'S VALUE

1 YEAR

3 YEARS

5 YEARS

10 YEARS

20 YEARS

25 YEARS

50 YEARS

$ 25,000

25,750

27,318

28,982

33,598

45,153

52,344

109,598

50,000

51,500

54,636

57,964

67,196

90,306

104,689

219,195

100,000

103,000

109,273

115,927

134,392

180,611

209,378

438,391

150,000

154,500

163,909

173,891

201,587

270,917

314,067

657,586

200,000

206,000

218,545

231,855

268,783

361,222

418,756

876,781

250,000

257,500

273,182

289,819

335,979

451,528

523,444

1,095,977

300,000

309,000

327,818

347,782

403,175

541,833

628,133

1,315,172

350,000

360,500

382,454

405,746

470,371

632,139

732,822

1,534,367

400,000

412,000

437,091

463,710

537,567

722,444

837,511

1,753,562

450,000

463,500

491,727

521,673

604,762

812,750

942,200

1,972,758

500,000

515,000

546,364

579,637

671,958

903,056

1,046,889

2,191,953

750,000

772,500

819,545

869,456

1,007,937

1,354,583

1,570,333

3,287,930

1,000,000

1,030,000

1,092,727

1,159,274

1,343,916

1,806,111

2,093,778

4,383,906

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TABLE 5.3 Monthly Deposit Needed to Create a $100,000 Nest Egg

INTEREST RATE

YEARS TO RETIREMENT

5%

7.5%

10%

12.5%

1

$8,144

$8,051

$7,958

$7,867

3

2,580

2,486

2,393

2,304

5

1,470

1,379

1,291

1,208

10

644

562

488

422

20

243

181

132

94

25

168

114

75

49

50

37

15

6

2

ments, you'll need to put aside 2 × $114 every month for the next 25 years. You can do it!

Reverse Mortgages:

How to Sell Your House and Keep It

If you're a homeowner who actually owns your home, you also have a nice piece of retirement income stashed in the roof over your head. You can sell, move into a less expensive house, and pocket the difference. Or once you and any co-borrowers have both turned 62, you can take out a reverse mortgage and stay right where you are.

Imagine going to a closing and instead of handing over checks, you get them. Talk about being the banker! And you don't have to sell your house to do it. Sort of. Here are the basic facts.

A reverse mortgage allows an older homeowner who owns a house free and clear (or close to it) to borrow against its equity. Just like a regular, old-fashioned mortgage, the loan gives the bank a lien on your home in exchange for money. You can get a lump sum up front, receive monthly payments for a fixed term or for as long as you live in your home, or take a line of credit to draw on when needed. You can also go for a combo package. Example: An 80-year-old homeowner who qualifies for a $125,000 loan could get a $10,000 line of credit and monthly payments of $489. For other scenarios, go to www.reverse.org.

The house doesn't have to be sold, and the loan proceeds don't have to be repaiduntil the borrower no longer occupies the houseeither because of a permanent move on this earthly plane, or on to another. If

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at that time the loan is for more than the sale price, the lender eats the loss. Anything left over, on the other hand, would go to the borrower's heirs.

There are so many conditions, costs, and what-ifs attached to these relatively recent creations that the Feds require lenders to send potential borrowers to a counseling session given by a government or nonprofit organization. You should be able to get a list of approved counseling agencies in your area from a lender, your local office for the aging, or the HUD Housing Counselor referral line at 800-569-4287.

If you're considering a reverse mortgage, you'd be very wise to have someone accompany you to the session (or for you to accompany your parent) where reverse mortgages will be explained and other alternatives explored. For example, some local governments offer low-cost, deferred-payment loans to help make home repairs and improvements for seniors. Property tax abatements may also be available. Perhaps the home can be sold to a child, niece, or on the open market with an option for a life tenancy.

While the counseling session can give a good basic understanding, the details and options are so complicated that most people will require far more information and perhaps expert help (say, from an accountant) to assess the alternatives. Before signing up for a reverse mortgage, it would be prudent to research other options.

It also pays to talk over the matter with the likely heirs. One set of siblings we know decided to each kick in a set amount (about $100 a month) to help Mom out. They concluded that would be easierand cheaperthan going the reverse mortgage route.

Warning: Reverse mortgages carry very high up-front fees. If the loan is held for only a few years, its cost can be extremely high. And because the interest compounds in the bank's favor, the younger you are, the less you'll get. For example, HUD estimates that a 65-year-old can borrow up to 26% of a home's value, and a 75-year-old can borrow up to 39%, while an 85-year-old can get up to 56%.

But reverse mortgages may turn out to be a blessing for those whose home is their biggest, and perhaps only, significant asset, who need additional cash for living expenses, and who don't need to leave the home to heirs. For more information, go to www.aarp.org/hecc/home.html or write to AARP Home Equity Information Center, 601 E. Street, NW, Washington, DC 20049, and request a free copy of its Home Equity Conversion Kit. Reverse Mortgages for Beginners by Ken Scholen is also helpful.

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It's Not Just about Money

Your retirement is going to be most enjoyable if you're in good health, stretching your mind and your horizons, spending time with people you care about, and doing things you enjoy.

If you're working long hours now trying to accumulate more ''stuff" or more money at the expense of family, friendships, and your health, it's unlikely you'll be able to buy them back later on. So stop looking at preparing for a secure retirement as just stashing away as much money as possible. Diversify your retirement portfolio by building your investments now in people, your health, and all the other things that truly make up the good life.

Research has shown that both exercise and social contact contribute to longevity and can significantly improve your quality of life. And as with all investments, the sooner you begin, the more you'll be worth. So take a walk, or better yet, organize a walking club. Volunteer for causes for which you have a passion. Start a small business. Challenge yourself by learning something you've always been curious about, whether it's origami or flying down the slopes on a snowboard with the grandkids. Disconnect the tube and reconnect with those you've been too busy to spend time with.

Curl up with a copy of Get a Life: You Don't Need a Million to Retire Well by Ralph Warner, Kiplinger's 12 Steps to a Worry-Free Retirement by Daniel Kehrer, and 100 Best Retirement Businesses by Lisa Angowski Rogak. Browse through some magazines geared to the over-50 crowd, like Modern Maturity and New Choices. And send self-addressed stamped envelopes for sample copies of these two newsletters: Kiplinger's Retirement Report, 1729 H Street, NW, Washington, DC 20006-3938; and Spectrum Tidbits, 43430 East Florida Avenue, Suite F-295, Hemet, CA 92544.

Beat the Deadline

Living is a rather unpredictable experience. We can work hard, raise a family, put aside some money, plan for the futureand still have the rug pulled out from under us.

Take Peg and John Willess, childhood sweethearts, who have been married for 14 years. At 35, Peg's a reporter for a great metropolitan daily, and at 37, John's a high school science teacher. They have two wonderful children, a springer spaniel, and the requisite middle-class mortgage, credit card bills, and a couple of aging cars.

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Peg and John kept meaning to get together with a lawyer friend to sign wills. The subject came up just last night over dinner, during their monthly night out for a meal and a movie. Unfortunately, a drunk driver made it their last supper. John was killed instantly. Peg made it to the hospital, but never had a chance. No one could believe it, especially the kids.

It took two years to untangle the Willess's estate. There was far more grief than anyone needed or deserved. The kids ended up being separated for most of the next two years. Relatives who were once close are now bitter enemies. It was crazybut crazy things happen under these circumstances.

Lawyers, court-appointed guardians, accountants, a judgeeveryone got into the act, eating up much of what Peg and John had accumulated. The springer spaniel was taken in by a neighbor, but everyone else would have been much better off if Peg and John had just taken a few hours to plan their estate and put those plans into legalese.

The Willesses, as you've no doubt guessed, are fictitious. While they've never existed, their sad story is repeated every day. Our goal is to help you have many, satisfying "next" lives in this world, before you're recruited for the next. Knowing that you've planned for the end can ease your burden in the present. Hence the following suggestions for planning a fine finaleone in which all of your last wishes are honored. Taking control of your finances shouldn't end when you do. Here's what to do:

First, cover the basics. Make sure your family will have enough ready cash available for at least a few months of living expenses.

Get your papers in order. Sooner or later, somebody will have to do it. Make it easy on your family by taking care of it now. Search out all your important records. Put together a chart showing what you have and where everything can be found. (Yeah, it's boring. Do it anyway! It'd be so much harder for anyone else.)

Make sure that your will, insurance policies, funeral preferences, and living will (if you want no heroics) can be easily located when needed. (They should not be in a safe-deposit box!)

Then add up your assets and liabilities. Twice. Once for everything you currently own and owe. Then a second time to include any pension money or insurance proceeds that your family would receive upon your demise.

Important: We know that this is not a light and lively subject, but dying may be the most expensive thing you ever do! It's well worth the time and money to make sure you make the most of what you've

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earned and own. While, like any good citizen, you and your heirs ought to pay your fair share, you surely don't want your family to pay a penny more in state or federal estate taxes than is required. Right?

So do your homework. The more estate law basics you know, the more your heirs will receive. No, you don't have to enroll in Harvard Law School. But you do want to learn the current state of the estate statutes in your state. It's a task that can be done simplyif you're willing to invest the time.

Go to the library and look over the assortment of plan-your-estate-type books you find there. You want something that's current and that you'll actually read. We're partial to Plan Your Estate by Denis Clifford and Cora Jordan and The Five-Minute Lawyer's Guide to Estate Planning by Michael Allan Cane.

For a very complete treatment of probate, trusts, wills, insurance as an estate planning vehicle, and long-term-care insurance, go to CPA Michael Palermo's "Crash Course in Wills & Trusts" on the Net at www.mtpalermo.com.

Another easy way to learn about estate planning is to attend one or more of the free introductory seminars that lawyers offer quite regularly these days. Look for ads about them in the newspaper. While we don't recommend that you commit to working with that lawyer (at least until you've asked around and interviewed a few others), it's a cheap way to learn.

While every state makesand changesits own rules, there are some key questions that you'll want answered, wherever you live: Is yours a community property state? What will state taxes cost your estate, if anything? How much of your money are your spouse and children automatically entitled to inherit?

You also want to think about what will happen if you die first. Second? What if you go together? Do you need more insurance to pay off the house, cover college, pay for a funeral? You need to decide if your assets should be owned individually, jointly, or in trust. How large can an estate be in your state without going through probate (costly court rituals)?

Watch out! If your individual estate is likely to be over $625,000 (in 1998), there could be estate taxes of 37% to 55% due on the excess. (These limits will be bumped up to $650,000 in 1999, $675,000 in 2000, $700,000 in 2002, $850,000 in 2004, $950,000 in 2005, and $1 million in 2006.) If your estate is likely to exceed these limits, learn the rules about how you can cut taxes by:

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More Advance Praise for Invest in Yourself:

"Marc Eisenson can find more ways to 'beat the bank' out of interest on your mortgage, credit card, or bank loan than anyone I know. Saving money can often build your wealth faster and safer than investing can. This book is essential reading."

William E. Donoghue, publisher, Donoghue's WealthLetter and author of The Millennium Advantage: 100% Income Tax-Free Wealthbuilding

"At last a book that really helps you take control of your future. I know you will refer to this book over and over again and probably buy extra copies to share with your family and friends."

Jim Jorgensen, author of Money Lessons for a Lifetime and syndicated radio host

"Over the years I have come to respect the authors for their sensible approach to finances. They speak my language and make learning this stuff really fun. . . . Invest in Yourself takes the otherwise fairly boring subject of personal finance and makes it exhilarating."

Mary Hunt, editor and publisher, Cheapskate Monthly newsletter

"Invest in Yourself won't tell you how to make a lot of money, but it will explain how you can live better on less than you think while saving money. The payoff is substantial: reduced stress, more security, a happier family, and a richer enjoyment of life. When the authors tell you to Invest in Yourself, they want you to recognize that you can use your knowledge and abilities to make a better lifeand do it on your own terms.

Paul S. Havemann, vice president, HSH Associates

"This is the ultimate how to get a life book, it should be on every family bookshelf. It is an easy read to help you reshape your priorities and give you a new perspective on life."

Linda Golodner, president of the National Consumer's League

"If you truly want to enjoy life's richesfinancial security, family, peace of mind, and a job you lovefollow the six secrets that Marc Eisenson, Gerri Detweiler, and Nancy Castleman share in Invest in Yourself. They make it easy."

Dr. Susan Ginsberg, publisher and editor, Work and Family Life newsletter

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Invest in Yourself

Six Secrets to a Rich Life

Marc Eisenson

Gerri Detweiler

Nancy Castleman

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GD: To my familyKevin, Mom, Dad, Gail, Tony, and Gary

NC: For Len, Anita, Janet, Ben, and Rachel

ME: For Robin, Sharon, Adam, Sam, Alan and their familiestoo

numerous to mention, too much loved to forget. With a special thank you

to Nancy. In the beginning and in the end, this, too, is Nancy's book.

Copyright © 1998 by Marc Eisenson, Gerri Detweiler, and Nancy Castleman.

All rights reserved.

Published by John Wiley & Sons, Inc.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ @ WILEY.COM.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the publisher nor the authors are engaged in rendering professional services. If professional advice or other expert assistance is required, the services of a competent professional person should be sought.

This book is also available in print as ISBN 0-471-24888-6 (hardcover) and ISBN 0-471-39997-3 (paper)

For more information about Wiley products, visit our web site at www.Wiley.com

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CONTENTS

Acknowledgments

vii

Introduction

1

Secret I

Make Your Own Lifestyle Decisions

9

Chapter 1: Charting a Course to the Way of Life You Want

11

Secret II

Put Your Family First

29

Chapter 2: Making the Most of Your Time

31

Chapter 3: The Great Sneaker Debate

54

Chapter 4: Paradise Found

69

Chapter 5: How Much Is Enough?

87

Secret III

Wherever You Work, Be in Business for Yourself

109

Chapter 6: Freeing the Entrepreneur inside You

111

Chapter 7: Work Is Where the Perks Are

128

Chapter 8: Deal Yourself an Ace in the Hole

143

Secret IV

Make the Most of the Money You Bring Home

157

Chapter 9: Small Change Makes a Big Difference

159

Chapter 10: Penny-Pinching for Fun and Profit

178

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Secret V

Turn Your Debts into Golden Investment Opportunities

201

Chapter 11: Invest in Your Debts

203

Chapter 1 2: Your Future Is Not in Plastics

215

Chapter 1 3: Your Mortgage Is a Great Investment

235

Chapter 14: Driving a Winner

251

Chapter 15: Controlling College Costs: No Problem

273

Secret VI

Map Out Your Own Financial Future

293

Chapter 16: Financial Planning Made Easy

295

Bibliography

312

Index

316

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ACKNOWLEDGMENTS

Our goal for Invest in Yourself is to motivate you to take charge of your life and make the most of your time, energy, and money.

While we can't promise you a fairy-tale future, we will offer lots of suggestions for how you can live the way you want, even if you have a pile of credit card bills, hefty mortgage payments, loans out on a clunker or two, a job you don't love, and a bad case of the "I'm tired of living payday to payday" blues. Whether we succeed or not is a judgment only you can make.

The success we have had up until now is thanks in large part to the hundreds of members of the Fourth Estate who have helped share our ideas with their readers, listeners, and viewers. So our first thank you is to each and every reporter, producer, editor, and on-air personality who has taken the time to understand our ideas, to ask us tough questions, and to help us get our message out.

One of those journalists, a well-respected personal finance writer and author, is Debra Wishik Englander. Now an editor at John Wiley & Sons, Inc., Debby is the reason a copy of Invest in Yourself is in your hands. She "saw" the book when it was just an idea, and helped us take it to what it is today.

Our wonderful agent, Alan Kellock, carefully and creatively wended his way between the rocks and hard places of three independent-thinking, skittish authors and the long established traditions of the publishing industry. He made it possible for us to sign on the dotted line. While Debby and Alan created the opportunity for this book to happen, Linda Spiciarich and Marcy Ross were the ones who helped us bring it to life. We can't thank them enough for their dedication to our cause

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and for their hard work. To say their effort was way beyond the call of duty is truly an understatement.

We're delighted to have our book published by John Wiley & Sons, Inc., the nation's oldest independent and still family owned publishing company. We've found the Wiley team approach to publishing both unusual and refreshing, and want to say "Many thanks!" to the committed team of often unacknowledged graphic and cover designers, marketing people, publicists, sales staff, and wordsmiths who have worked with us on Invest in Yourself: Ruth Acosta, Amelia Blanquera, Doug Chilcott, Michael Detweiler, Lauren Fransen, Dean Karrel and his sales department, Peter Knapp, Ann McCarthy, Olga Moya, Joan O'Neil, Andrea Price, Ellen Silberman, Laurie Thompson, and Myles C. Thompson.

Special thanks also go to Christine H. Furry, Lisa Kochel, Beth Oberholtzer, and their teammates at North Market Street Graphics; Sherry Christie, Sharon and Alan De Michele, the reference librarians at the Brooklyn Public Library; and Bobbie Armstrong and Cherie Beam at the Red Hook Recycling Center.

MARC EISENSON, GERRI DETWEILER, AND NANCY CASTLEMAN

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Table of Contents

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