Bankruptcy on the Rise

The Great Recession’s Impact on Bankruptcy Filings was originally written by Marilyn Bischoff and published in Idaho's Two Cents Newsletter.

The National Bureau of Economic Research reports that the US officially entered into the recession in December 2007, with the recession ending in June 2009. However, those in the insolvency professions would argue that we are still in a recession. How has the recession affected bankruptcy filings for various demographic groups?

Bankruptcy petitioners are not required to disclose age, ethnicity, educational attainment, marital status, or current employment status. The Institute for Financial literacy, which provides bankruptcy prefiling counseling and post-filing debtor education, does collect demographic information from individuals participating in their program. The Institute provides services in-person, by telephone, and online. At the beginning of either service, participants are asked to voluntarily complete a demographic survey. In 2009 more than 52,000 clients volunteered to answer survey questions. The findings challenge some common assumptions about bankruptcy filers. 

Age
Almost 56 percent of bankruptcy debtors are between he ages of 35-54. An emerging tend is that the 55-64 and 65+ age cohorts appear to be experiencing an increased deterioration in the financial conditions and are filing bankruptcy at greater rates than in 2008. Ages 18-24, 2% filing bankruptcy; 25-34, 17%; 35-44, 29%; 45-54, 27%; 55-64, 17%; 65+ 8%.

Educational Background
Bankruptcy rates of individuals with higher education continue to experience lower levels of bankruptcy, but during this recession their rates have increased. This change may suggest that this is a “white collar” recession, perhaps reflecting our economy changing from a manufacturing to a service/ technology base. Educational level: High school/GED degree or less, 42%; Some college or Associate degree, 38%; Bachelor’s degree, 14%; Graduate degree, 6%.

Personal Income

As expected, lower income household are more likely to file for bankruptcy. Those earnings $30,000 or less made up 59% of filers; $30,000- 40,000, 15%; $40,000-$50,000, 10%; $50,000-$60,000, 7%; $60,000+, 9%.

Causes of Financial Distress
The Institute asked clients to pick from a list of common causes of financial distress to self-describe reasons for their current situation. Clients were encouraged to choose more than one cause; therefore, the percentages equal more than 100%. Reduction of income was cited by almost 2/3 of respondents (65%). That, combined with overextended credit (74%), and unexpected expenses (55%), drove most filers over the bankruptcy precipice. Other responses reflect causes commonly cited in other studies: job loss (42%); illness/injury (31%); and changes in household composition: divorce (15%), birth/adoption (10%), death of family member (8%). Interestingly, retirement was cited by 8% of responders.

Source: Linfield, L., December/January 2011. Class of 2009: The Great Recession’s Impact on the American Debtor. American Bankruptcy Institute Journal. Retrieved 12/14/10 http://www.abiworld.org/AM/ Template.cfm?Section=Home&CONTENTID= 62554&TEMPLATE=/CM/ContentDisplay.cfm.

Patrick's note: I think the biggest thing to learn from this article is not who is going bankrupt, but possibly a key to preventing yourself from going bankrupt. Identify the most danger prone areas and then work to keep yourself out of those areas. Higher education and its corollary, personal income, is a major factor in preventing bankruptcy. However, the causes of bankruptcy demonstrate the wisdom in having a fully funded emergency fund to tide things over when life happens.

Free Credit Score - How to Get One

How to Check your Credit Score, a guest post by Luke Erickson editor of Idaho's Two Cent Tips.

Like a mighty king,this three digit number can seemingly grant our ultimate desires or dash them to tiny bits on little more than a whim or a missed payment. This number determines whether or not you can get a loan, including a credit card, a car loan, or a mortgage, and will also determine the rates that you will pay on these loans. Itis also reclusive and mysterious, rarely being seen by the common consumer. Instead it prefers to meet privately with lenders in back offices where your fate is unemotionally determined. Some zealous subjects have been known to pay tribute, by borrowing unnecessarily with the sole purpose of pleasing this number. In fact, this notorious number is not content to simply rule over its own kingdom, but also tries to extend its influence into other areas, such as insurance, rent, and even employment.

Before I attempt to demystify this number, let’s make sure we’re all on the same page. A credit score and a credit report are entirely different creatures. A credit report lists a detailed  financial history of every single credit account that you’ve established or messed up in the last 10 years or so. Most people have 3 similar but different reports, all of which can be viewed FOR FREE by visiting annualcreditreport. com. A credit score, on the other hand, is a proprietary number that can usually only be accessed by paying a fee. 

Now here is where it gets confusing. You actually have more than one credit score. The main score that lenders, insurers and employers will consider is the Fair Isaac Corporation (FICO) score. But there are some alternatives to FICO scores, including Vantage scores which are done by each of the three major credit bureaus, and some financial institutions may even give you a credit score along with your monthly bank statements. Keep in mind that all of these scores are calculated differently, often times on different scales, and may or may not be an indicator of what a potential lender might see. I have seen cases where a credit score can vary by over 100 points for the same person.

Where can I get my score? 
As described previously, you can get your credit score from about a billion different websites, most offering it for free if you but merely sign up for a free trial of some unnecessary monthly service. As you can imagine it is all but impossible to break free from such an agreement. If you want just any old score, with any old agreement, then any old website will do. But if you want your FICO score, without strings attached, there is only one place I would recommend:

MyFICO.com, but, surprise (to be read with sarcasm) it’s not quite that simple! Do not click the massive red button that says FREE FICO SCORE. As I will describe below, it’s not really free, again another solicitation for some unnecessary service. Find and select the “FICO Standard,” button for a one-time credit check for $19.95. Not cheap, but completely accurate. In addition to your score, FICO standard will give you a FICO score simulation tool which can tell you how your personal score might change given future changes to your accounts. At http://www.myfico.com/ FICOCreditScoreEstimator/ there is also a free FICO score estimation tool which gives you an estimated score that I found it to be fairly accurate.

Aside from your FICO score, I would also recommend the “get credit score” button at the top right of your free credit report from annualcreditreport.com. This gives you a Vantage score for $7.95, which is becoming more accepted by lenders, and can be an indication of your true FICO score. 

Will checking my score affect my credit? 
According to the folks at MyFICO.com, “Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.” Therefore, the answer is yes, checking your score will reduce your score by about 5 points, each time. Not a big deal if checking only once or twice a year. Also, don’t forget that many lenders will actually show you your score when applying for a loan.

Underwater Mortgages

This is a guest post by Luke Erickson the editor from Idaho's Two Cent Tips.

Recent estimates indicate that about one in every four Idaho homes is currently underwater. Well, it has been snowing a lot lately . . . You don’t have to boo me for that one, I’ll do it myself. The term underwater really  refers to the instance when the amount you still owe on your mortgage is more than the current market value of your home. How can I joke about this topic—especially with such a lame joke? Well the lame part just comes naturally, but I can joke a little about this very serious topic, because for most people with underwater
homes, there is still hope.
Following is an article that illustrates the possible options you might choose from if you find your house underwater.
Stay put
Don’t panic if you hear that you’re “underwater.” All that means is that you would lose money if you sold RIGHT NOW. But unless you absolutely must move right now, you may be able to recoup some or all of that lost equity. Additionally, consider renting your place out. Even if you have to rent your house out at a small loss each month, you may still be better off than any other alternative. Some lenders will work with you to renegotiate the rates and terms of your mortgage, whether you’re in a financial pinch or not. This sort of informal “in-house refinancing,” is fairly new, but some lenders (the smart ones, in my opinion) are working with their borrowers to avoid foreclosure and loss of current customers. 
Negotiate an exit plan
But, if you simply can’t stay put -- Your family no longer fits within the confines of your once spacious two bedroom house, you land a much better job in another part of the country, or your adjustable rate has become unaffordable, the next option is to attempt to negotiate an exit plan.
A short sale is an agreement between you and the bank that you will make every effort to sell your house for as high a price as possible – no big deal, this is something you would do anyway – and in return the lender will accept the sale price as partial payment of your debt and forgive any debt for which you fall short. Hence the term, “short-sale.”
A deed-in lieu is also an agreement with your lender, in which you simply hand them a deed to your residence
with the understanding that you owe them nothing, or at least a reduced amount on the remaining balance, once the lender sells that house. These are forms of proactive foreclosures, if you will. Remember, any such agreement must be in writing to be valid.
As far as your credit is concerned, a short sale, deed-inlieu, or foreclosure will all have similar effects on your
credit score, reducing it by as much as 300 points, de-pending on how your lender reports it to the credit bureaus.
Lender won’t negotiate?
If your lender won’t negotiate, and you must leave your house, there are basically two options. Bankruptcy is a step to either liquidate your assets in return for forgiveness on your loans, as in a chapter 7, or is a legal
restructuring of your debts so that you can afford the payments, as in a chapter 13. Neither option is pretty, and will destroy your credit for up to 10 years.
Bankruptcy makes the most sense when you have additional unaffordable debt besides the mortgage. Or, just walk away - though this option has received lots of media coverage, and sounds pretty simple, it can be  anything but. Walking away essentially means mailing the mortgage company your keys, and leaving your  residence never to return. You may never hear from your lender again. But, on the other hand, in some states,  your lender can still legally come after you for the difference you still may owe after they sell the house. This option will have the same effect on your credit score as a foreclosure.
Which of all these options is the right one? That’s sort of like asking whether it’s best to be punched in the gut or the face. Either way it’s going to hurt. But, I’ve always believed that those who try to do the right thing, whatever that may mean in this situations, will eventually be rewarded for it.

You Cannot Multiply Wealth by Dividing it.

“You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else.  When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation. You cannot multiply wealth by dividing it."*

*  Adrian Rogers, 1931*

I Will Teach You To Be Rich Book Review

I recently picked up I Will Teach You To Be Rich by Ramit Sethi. Ramit has a great website and his book on personal finance is one of the funner ones to read. This is the book to read if personal finance is still a new word for you - then this is the book for you. Ramit has a targeted audience of younger twenty somethings.  As with all knowledge - if you aren't too put off by simple examples that don't exactly mimic your situation and instead apply the principle being taught - you will definitely learn something and most likely benefit, too. 

Ramit has boasted that his $10 book has helped people save thousands, maybe even tens of thousands of dollars. Boast might not be the right word, because some people have reported these savings on one of his videocasts. In fact, armed with the scripts in the book and a bit of extra confidence, I tackled the seemingly impossible task of negotiating the removal of some rather nefarious fees from one of my credit cards.

The real beauty of reading I Will Teach You To Be Rich is that Ramit remembers that there is a large psychological piece of the money puzzle that other personal finance authors and mathematics simply ignore. Ramit realizes that people are  lazy and want the easy way out. This is not to say that Ramit has uncovered the magic silver bullet. Quite the contrary, he is not fearful in telling people that they need to buck up and do the hard thing to get their finances initially under control. Yes, that might mean some work, but then he introduces what he terms your "Conscious Spending Plan". Ramit finds it ludicrous to cut out your daily latte - IF, that latte brings you significant happiness and pleasure to your day. Instead, cut mercilessly in areas that you do not care about so that you can splurge on the things that matter most to you. There is a HUGE difference between being cheap and being frugal.

Ramit dutifully covers the basics of checking accounts and savings accounts and preparing to invest for your future. One of the key messages of the book is the 85 percent solution. Don't worry about getting it 100 percent done, or even perfect. If you only get an 85 percent solution, that is still leaps and bounds ahead of doing nothing like the rest of the population. At least you'll have something to show for it.

Sprinkled throughout the book you will also find a short piece written by some of the most admired personal finance bloggers. Entries from Get Rich Slowly and The Five Cent Nickel and The Simple Dollar among others all contributed. I appreciated the additions from these bloggers because I was familiar with them and I thought it was a rather unique way to collaborate with them in this manner.

In summary, if I was just starting out with personal finance and didn't want to fall asleep reading about asset allocation in my 401(k) or get lectured about cutting up my credit card - I'd think this was the best book out there. Understanding my current situation, having applied most of the principles, it was a good reminder of why I was doing things and in some instances, a call to further simplify them.  If you are at this stage of your own personal finance, then I'd suggest you visit Ramit's website I Will Teach You To Be Rich to learn how to advance you to the next stage of personal finance: Earning More Money. There is a definite focus on his blog and his products to help you earn more money. Inspiring as that all may be - it means nothing if you never take action. Decide today to take action!

How to Get Paid to Bank

You've got a job and you've got your bills. And therein lies the problem. The amount leftover after the bills isn't enough to satisfy you wants. Savvy personal finance says you have two options. Increase your earnings or spend less than you earn. I am always on the lookout for different ways to increase my earnings. The first place to increase your earnings significantly comes from your current income source -  your job. Brush up that resume, or ask for a raise. In the meantime, there are other methods that are great for boosting income. Sell you stuff! Then go online and open a few bank accounts. 

Yes, believe it or not, banks are increasingly using the tactic of offering up cash incentives and rewards to lure in new customers. Make sure you do your homework first if you are currently looking to open a new checking or savings or brokerage account. There are lots of lucrative first time customer rewards. In fact, to help you get started I have started to list the current bank deals that I am aware of on my Free Money Bank Deals page.

GetRichSlowly recently asked the readers, "Ask the Readers: How Do You Choose a Savings Account?" For me, it was moving to a new area that opened up my eyes to different service providers and a few hundred dollars. Bank of America offered me $100 to open a new checking account online with no fees. SunTrust offered me $150 to bank with them and use their billpay service. And BB&T is still offering $100 to new customers who open a banking account. ING Direct is also offering a free $50 for new customers. There are plenty more including brokerages like TradeKing's free $50.

How do you find the banking bonus deals?
I find out about these primarily by visiting the actual bank either online or through their physical brick and mortar branches. From there it is advertisements, SlickDeals, FatWallet, and personal finance blogs like MyMoneyBlog. There appears to be an exhaustive list on iBankBonus.

Is it worth it?
In the last year, I was given nearly $1,000 to open up a new account and do business with various banks and brokerages. All that income is reported to the IRS via a 1099-INT and subject to taxes. But aside from the monetary gain, the greatest benefit came from the ability to pick the bank that worked best for me. It was like they were offering me cash to come take a test drive of their services and see how they stacked up against the competition. How well was their billpay setup? How easily could I transfer in funds? 

Does it affect your credit score? 
Sometimes. Not every bank will do a hard pull of your credit score. If your checking account comes with an overdraft line of credit then they will likely do a hard pull. Each inquiry to your credit will ding your score. This will not be helpful if you plan on going in and getting a new loan for a car or house in the near term. You can read more about what affects your credit score.

Are you at increased risk of identity theft?
It is generally believed that the more you expose yourself the more chance you have of becoming a victim of identity theft. This might be true. Banks and other financial institutions are charged with safekeeping your information private but thieves do exist. That is one reason you should check your credit report at least once a year even if you haven't been opening new accounts for a few extra Benjamin Franklin's in your wallet.

What is the catch?
There is definitely a catch. They aren't likely to just hand over a free $100 for nothing. They want your business and your money. To qualify for your bank bonus you will likely have to complete a few small tasks. Banks usually require one of three things or a combination of them and include using their billpay service, establishing direct deposit, and/or using a debit card a set number of times per month. There may also be various time limits associated with each of these. SunTrust asked for 3 bill pays each month for 3 months. Brokerages similarly ask for a minimum deposit and sometimes executing a trade.

Do the rewards always come through?
Yes, as long as you meet all of the requirements. If you are going to sign up for a promotion be sure to print off or save the promotion page with all of the fine print. Then create a little to do list and keep to it.

What are the best deals?/What are the easiest way to make free money?
The best deals are those that just have a minimum deposit for a required time frame. For example, open an account and leave the money there for six months to a year. These offers can be thought of as lucrative one year CD's because you have to wait to get your principal back. Some banks will count direct deposits that come in the form of an ACH push from another bank.

Can I do more than one at time?
You are not limited to the number of offers you want to apply for. You will likely be limited in the number of direct deposits that you can do in a month. If you employer allows your paycheck to be split up and direct deposited into several accounts it will be easier to do two offers with direct deposit requirements. If you want to fulfill billpay requirements on more than offer - just split up payment and pay it multiple times or from multiple sources.

Any other tips?
Make sure you are aware of your limits. Some credit cards only allow a set number of payments during each billing cycle. Don't allow yourself to get so caught up in making an extra $100 that you miss a payment because you didn't understand the new banking system and get charged late fees. Don't make signature based purchases on your debit card on the last day of the month and expect them to show up as transactions for that month - they often take a day or two to clear and finally post to your account. 

Remember, while you might be upset the banks were all bailed out and are evil - they are only offering the money as a marketing ploy to gain you as another customer.

Have you switched banks recently? Tell us about your experience with new account offers.

Switching Banks

Adam Baker recently explored What Does It Take to Make You Switch Banks? over at GetRichSlowly. It is a good question and one that I think is worth the time it might take to investigate what you might be missing by not banking elsewhere. Adam talked about his own experience with the same bank for years and years even though he didn't really like the bank. Why? It was what his parents used and where he first started out.

To some degree I can relate with Adam. My parents set up my first savings account where they banked. Naturally, as I grew older and needed more services like a checking account and later a credit card - they all came from that bank.

I believe some people do not change simply because we naturally avoid change. Change is hard. Additionally, there is some amount of loyalty that is generated after being a customer for so long. Adam lists five things that might cause someone to finally have the motivation to change. Higher Rates, Customer Service, Length of History, Principle, Accessibility.

There is one thing which caused me to not to shed any tears when I closed my first account. I had seen my parents do it before. Seeing my parents go through the process taught me that I could do it, too. However, to be honest, my biggest motivator to switch banks was accessibility because I moved away from home.

Moving opens up a whole new field of opportunities. It forces you to re-evaluate all of your relationships with health care,  finances, and social circles. Sometimes, this chance to rebuild is just what people need to discover what else is available and the freedom to adjust their priorities.

Not moving anytime soon? That is okay. You can still start fresh from where you are. Look at the connections you have and imagine you are searching for those services for the first time. Becoming aware of your current situation is the first step to making any progress towards change.

Coming up soon, I hope to profile my search for financial services that served me best. I have already started with my post on why I moved my IRA to Fidelity. Simply, the pain of the same was larger than the pain of the change. Additionally, I want to reveal how profitable starting fresh can be.

Compound Interest Video Contest GetRichSlowly

I recently entered the Get Rich Slowly 2010 Video contest. From the website...

Get Rich Slowly has always been devoted to sensible personal finance. Since April 2006, JD Roth and other writers have shared stories about debt elimination, frugality, saving money, and practical investing with millions of readers. Now it's our readers' turn to tell their stories.

We are calling on real people like you to enter the contest by submitting a 2 minute-or-less video in one of two categories: 1) Personal Finance Tips and 2) Success Stories.

I was really excited to enter this contest for a few reasons.
Number one was the nice cash prize motivation. Although, it may have made my ability to be creative a little bit harder because I knew that my work was going to be in a competition. And the competition is really good!  You can check out the latest videos that have been submitted in the contest and learn a lot of cool tips or be inspired by some really great success stories.

This is my entry into the contest and just so happens to be the first official video that I have posted to YouTube. It's not my first foray into making movies on my computer. I am definitely still an amateur, but I have had the opportunity to put together and author a few movies that involved splicing clips of music, voice, pictures and video. I didn't do any acting in this little short piece. There just was not enough time!



I chose the topic of compound interest because it is one of the fundamental principles to finance. Interest can make or break you. If you are in debt you need to know how easily you can be a slave for the rest of your life. If you are saving money you need to understand why it is so important to start saving right now!


One of the first rules of successful personal finance is to pay yourself first. What does it mean to pay yourself first? It means your most important and your first step after getting paid should be to put money away for your future self. Save money for your future. Save for your retirement. Save for the days that you will not be working. Establishing the habit early in life will ensure you a comfortable lifestyle later in life.

Hope you liked it! Let me know if you have ideas or suggestions on the video. Or please, if you have a personal experience with compound interest that you would like to share - feel free to do so, in the comments below.

What Affects My FICO Score

 My local Credit Union always sends out a monthly newsletter with our account statements. Inside they had a breakdown of what you might do to improve your FICO credit score. 

Payment History - 35%

• Pay your bills on time.

Amounts Owed to Creditors - 30%

• Don't owe a lot of money to a lot of people. Another way of saying this is to only use a small percentage of your available credit.

Length of Credit History - 15%

• Keep fewer cards for a longer period of time.

New Credit - 10%

• Don't increase debt obligations right before applying for a mortgage.

Types of Credit Currently in Use - 10%

• Maintain a mix of credit - mortgage, credit card, car loan, for example.

The big takeaway here is that Payment History and Amounts Owed are the two biggest factors in your credit score. Together they comprise 65% of your FICO score. Getting a new card might hurt a little, but not too much. Missing a payment will set you way back.

If your Amounts Owed category is too high, but you are making all your payments, you might consider raising your available credit as a means to improving your score. Ask your current credit cards for a raise before you run out and open another account because your older cards will weigh in more favorably on your score. Please, only raise your limits if you are not going to run out and max out your card again! 

Remember, the purpose of the FICO score is to evaluate you as a borrower. It is a way to calculate risk. Will you default or will you pay back your debt?

Where Do Your Taxes Go

Tax time. Are you getting a refund because you had too much withholding? Or do you still owe taxes this year? I am getting a fat refund check, well, direct deposit. I might have to adjust my withholding so that I am not giving the government a free loan on my money all year, but it is nice to view at as forced savings, too. 

Regardless, where does all your tax money go? What are we paying for? Bailouts? I am sure that will definitely be a huge part of future budgets. Did you know that National Defense with its billion dollar programs is only 19%? The part that scares me is the whopping 38% devoted to Medicare and Social Security and yet it is very doubtful that there will be any money left by the time I retire. Factor in the passage of the Health Care Overhaul bill and our future is looking very uncertain. Higher taxes anyone?

Officially, these percentages are from the 2008 data, but the 2009 data was nearly the same. Keep an eye out for the next few years as these percentages will change dramatically with the addition of all the debt issued in the vain attempts to pull us out of the recession and the cost impacts from the Health Care overhaul bill.

Free Experian Credit Report and Plus Score

It is always a good idea to monitor your credit report and make sure things are correct. It is doubly nice when you actually get the chance to see what your score is looking like. American Express is offering their credit card customers this opportunity.
From their website -

Why should you request your complimentary 30-day Credit Score & Report?

•  It allows you to detect possible inaccuracies on your Credit Report
• It provides you immediate access to your valuable Credit Score for 30 days
• It enables you to see who has viewed your Credit Report
• It helps you determine if your accounts are in good standing

My personal PLUS(not FICO) score, based on my Experian report is 762.

About your PLUS Score:
Your PLUS Score is formulated using the information in your credit file. Your PLUS Score can range between 330 and 830, with a higher score indicating a lower risk. There are many scoring models used in the marketplace. The type of score used, and its associated risk levels, may vary from lender to lender. But regardless of what scoring model is used, they all have one purpose: to summarize your creditworthiness. Keep in mind that your score is just one factor used in the application process. Other factors, such as your annual salary and length of employment, may also be considered by lenders when you apply for a loan.

What your PLUS Score means:
Factors in your credit file indicate you have excellent credit. Lenders will likely offer you the best rates and terms.

What this means to you:
Credit scoring can help you understand your overall credit rating and help companies better understand how to serve you. Overall benefits of credit scoring have included faster credit approvals, reduction in human error and bias, consistency, and better terms and rates for American consumers through reduced costs and losses for lenders. While lenders may use different scoring models to determine how you score, and each major credit bureau has its own method for calculating credit scores, the scoring models have been fairly well standardized so that a score at one bureau is roughly equivalent to the same score at another.

What factors raise your PLUS Score:
You have paid your bills on time and currently do not have any overdue accounts or derogatory information, such as a collection, charge-off, or bankruptcy, on your report.

You have a good cushion of available credit between your current balance and your credit limits on all open trades. This has a positive affect on your credit score. This cushion shows lenders that you are unlikely to overextend yourself financially.

The total balance on all your credit cards is relatively low compared to your total available credit limit. This has a positive impact on your credit score.

You have at least 2 or more open major credit cards, such as Discover, American Express, VISA, or MasterCard, on your credit report. This often tells lenders that you are a responsible borrower and they may be more likely to see you as a good credit risk and extend you credit.

What factors lower your PLUS Score:
Each time a potential lender or landlord pulls your credit report for review, an inquiry is placed on your file. Inquiries stay on your credit report for up to 2 years. Having several inquiries on your credit report is negatively affecting your score. They are not necessarily negative information, but too many inquiries may indicate to lenders that you are trying to take on more new debt or possibly overextending yourself.

What can Disney's Pixar UP! teach us about Personal Finance?

Last summer we went to see the latest Disney Pixar movie: Up!  Wonderful show. I was excited to see that Carl and Ellie had a goal to travel and fulfill their dreams. It was not just a wish – it was a goal. They had a jar and worked and slowly their savings grew. Ultimately, as many of us know all too well, that jar had to be broken for a rainy day over and over again throughout their lives. Sadly, their goal became a wish and drifted out of reach.

Drifting was what my savings did for years. I was lucky one year and with the help of a good friend I opened up my Roth IRA for the first time. Another year, I allowed a fast talking salesman to part with my money. Other years I played the stock market, paid down student loans, or traveled.
I resolved to be a better saver after years of ‘saving’ with nothing to show for it. With the help of some good books, blogs, and friends, I have learned what it means to be a successful saver – someone that knows how, why, and where to save.

1)    Save Regularly
I accomplished this step by “paying myself first” or automatically deducting or transferring a portion of every paycheck into my savings account before anything else.
After establishing the saving habit, many of you will be inspired to create a debt snowball. That is great. But you can also create a savings snowball, too. Saving regularly is how you save successfully.

2)    Create Savings Goals
Goals, as in plural. Originally, when I only had one savings jar, like Carl and Ellie, it became the solution whenever any problem or opportunity arose. I learned that multiple goals are needed to address multiple events in life. Now, when I come home from Europe with an empty travel jar, there is tremendous peace of mind in having a full “Rainy Days” jar that can repair my broken and leaking water heater. Saving regularly, and with purpose is why you save.

3)    The Right Place at the Right Time
Where does all my money go? An IRA, money market, CD, high yield savings, rewards checking account.  Pretty much anywhere but my mattress. I have learned that in an emergency you need to get your money flowing faster than water out of broken pipes - so I put mine in a high yield savings account. Hopefully, your retirement is years away because you started saving young, right? So lock it up in an IRA or 401(k). Successful savers know where to put their money.
Learning the importance of saving money is an essential first step in declaring your financial independence. Along the way to achieving that independence it is equally important to know how to save, why to save, and where to save. Because saving regularly, with purpose, in the right places will make you a successful and happy saver.

What makes you a happy saver?

Cash Is King

When you don't have cash and you want something, how do you get it? Credit. When the credit goes away you cannot get what you want. But can you have too much cash? I was interested to read a recent article from Yahoo! Finance about how firms that hunkered down during this recession and cut costs, possibly even laid off portions of their workforce, have been hoarding their cash and saving up. Sounds about like the rest of us. We stop going out as often, we are actually saving up instead of putting everything on plastic. As the wants have diminished the economy has shrunk to match it.

Were we too afraid? The Oracle of Omaha, Warren Buffett, would probably think so. Instead of hunkering down and waiting for the storm to pass, he stepped right out in the middle of it. When we started saving like mad in our 1% or less savings accounts, he started shoveling the money out the front door. Has he gone crazy? Nope. He is sticking to his guns. Be fearful when others are greedy and be greedy when others are fearful.

During the economic meltdown, Buffet went out and spent money like mad buying up Burlington Northern Santa Fe, Goldman Sachs, and GE. Meanwhile, financial advisers everywhere where telling people that 'Cash Is King'. Unfortunately, while it is true that 'Cash Is King', most people were learning too late.

Anyone who took Mr. Buffett's advice and invested in the stock market in October 2008, (think ultra-scary times) even through a simple index fund, is up about 25%.  The key to getting ahead like Buffett is to already have that cash on hand. The good principles were already in place so that when savings rates tumbled to 1% Buffett didn't jump up and finally open a high rate savings account. He instead took it out of the account and spent it and spent it well.

Read more tips from the Oracle of Omaha here.

Last year I personally was low on cash and inwardly I wanted to follow Buffett. While I did fund my Roth IRA for the year and am amazed by its one year returns, I often felt like I wanted to do more. However, my wife and I had set a personal goal to tackle the student loans. I am still glad we did because now we can afford our new rent payment while we wait for our house to sell. 

Tell us about your story with cash in the comments below.