Saving for retirement is a pain. If you're 30 and you're putting that money aside, it's money you can't really touch for 35 years or so. And besides, you'll make more later when it's more affordable for you, etc.

But here is the *really* sad truth. 50% of the people over 55 have no retirement savings at all. And today, companies aren't helping you out with pension plans. In fact many companies are hiring people as independent contractors, so you can't even participate in their 401k plans.

Yeah, but how long are you going to live? 75? You can afford that. But you are probably going to live a lot longer than you expect. The odds are, a married couple that is 65 and relatively health, they have a 25% chance of one of them making it to 95! That's today. As healthcare continues to improve, those numbers will go up.

Ok you say, but you are going to work until you're 80. But two problems. First, maybe you can't. It's very common because of arthritis, alzheimer's, cancer, etc, etc, that you can't keep working. Second, it may be that companies don't want you. They don't want a person who is 75 if they can get someone who is 25. Many people plan on working after 65 and find it very difficult.

You *must* save for retirement. You just gotta. I know it's hard, believe me. But you need to start early and you need to save a bunch. I'll give you a few ideas about how to proceed in the next few tips.

The best rates on savings right now are with the online banks such as ally.com and mysavingsdirect.com

The yield on these accounts is around 1%, require no long term commitment, and are FDIC insured. 1% isn't much. However, considering that brokerage money markets yield less than 1/4%, and the best 6 month CDs are in the 1/2% range, and 1% looks pretty good.

The other thing, is that if the Federal Reserve continues with their plan, they will raise interest rates about 1% this year. So that 1% may be closer to 2% by year end. Still not great, but for super safe savings, it's the best deal going.

This website may put some cash in your pocket, or in the pockets of people you know.

http://www.unclaimed.org

This is an omnibus website for unclaimed funds left in old savings accounts, insurance rebates, IRS overpayments, etc.

You choose your state, then you can do the search in the state database for your state. Do the state search, not the 'missing money' one, it's much more complete. It's fun sometimes to go and see who you know who might be owed some money. It's a fun gift to be able to tell them they might have $100 coming from an old checking account. It's completely free! I do this maybe twice a year and have found several thousand dollars for others over the years. Give it a look.

First let me apologize for this being so late. Year end client stuff has kept me jumping.

Hopefully by going through the process of reducing costs, we've found some ways to reduce monthly expenses. I'm going to assume that we've reduced our costs by $500 a month. That may seem laughably high or laughably low to you depending on your situation. It's just for illustration purposes. Regardless, executing our plan will be exactly the same.

I'm going to suggest a few things that will go against some of the common wisdom about getting out of debt. What we want to do is pay the monthly minimum for all of our various debts. Then write an extra check for $500, paying all of it toward the debt with the smallest outstanding balance. No, we're not going to worry about interest rates, and we're not going to spread the money around to various debts by increasing our monthly payments.

This will accomplish some important things. By paying off the smallest debt first, we will see some progress. If we just pay a little extra here or there, it seems like nothing is happening. But if we can eliminate one of those debts quickly, there is a sense of accomplishment. This is also where our reward kicks in, time for another brownie! Why write an extra check? For two reasons. First, it's a representation of what we're accomplishing. We can see every month that we are making progress. That will be important months down the line when this all becomes a bit of a drag. Second, we want to establish the habit of writing that extra check. Because when all the debt is gone, we'll be writing a check to go into our savings account, or to the mutual fund company. The process of becoming wealthy starts in month one! We are writing an extra check toward our financial well being.

Paying off the smallest debt has an added benefit. We quickly eliminate a minimum monthly payment. Our $500 a month, becomes $525 (or whatever). We have even more money to pay toward the next biggest debt. By the time we get to the nasty last big one, we should have significantly more money to whittle it down.

Of course if there is a dramatic difference in interest rates, like the biggest one is 20% and all the others are under 10%, you might want to flip that around. But not if you'll get discouraged and quit. Do what works for you.

So that's it. Understand how you work, find places to reduce ongoing expenses, and pay them down one at a time, the smallest one first.

But what if that isn't enough? You went from a $100,000 a year job to a $50,000 a year job after the recession. There just isn't enough money. If that's your situation, you are going to have to make some harder choices. It will require lifestyle changes. A two car family might become a one car family for awhile. Or a one car family becomes a buses and bicycle family, with a weekend car rental once a month. It might include part time work stocking shelves during the holidays.

Much of that will seem pretty dreary. But it's about reframing and re-imagining. What if you always made $50,000? What would that lifestyle have looked like? That's where you need to be for now. Ignore what you had, that's not where you live now. Instead, focus on where you are, and again remind yourself that what is important in life is usually not about money. A day with the family at the beach is just as much fun as a day at Disneyland, but it costs $500 less.

Now as promised, links to help.

Unlimited cell phone service for as low at $20 a month at Ptel
www.ptel.com

Free checking, free bill pay, and ATM fee rebates from First Internet Bank
www.firstib.com

Mercury usually has among the lowest rates for car insurance
www.mercuryinsurance.com

Coupons for everything. Always check before you make a retail purchase
www.fatwallet.com

Find a debt counselor if you need one
www.usa.gov/topics/money/credit/debt/out-of-control.shtml

There are a number of websites and blogs with ideas about living on the cheap. Here are a few:
www.frugalhomeliving.com

www.livingonadime.com

www.livingwellspendingless.com

www.livingrichlyonabudget.com

Good Luck! (and have a brownie).

Ok, lets do the most important thing first. Figuring out how you're going to reward yourself as you proceed! That's part of the taking the grind out of it, that you have a little reward for yourself at each step. So think about something special that *doesn't* cost much money. That would defeat the whole purpose. For me, it would be a brownie. For you it might be skipping the gym for 2 days. Or binge watching 3 hours of Gilligan's Island. We're talking guilty pleasures here. I'm not worried about your diet, one self help process at a time. Pick something you would really look forward to, and really indulge as you go. It's another way to make this a little fun.

There are two ways to get out of debt. More income, or less spending. But more income has taxes and expenses associated with it. If you increase your pay by $100 a month, you'll have taxes, social security, medicare, unemployment and disability insurance deductions. So in reality it might only be $60. But the money you save, you've already been taxed on. You can think of it as 1 penny saved is 2 pennies earned. It makes a bigger difference. So we're going to go after expenses first.

What expenses are important? Answer, the ongoing ones. I mean, it's all fine and good to save $25 on your new garbage disposal, but that won't get you out of debt. But saving $25 a month on your cell phone bill? That might. That doesn't mean you shouldn't shop for major expense items. Of course you should. But it's the continuing expenses that will just kill you. They are also the ones that go from luxury to necessity almost overnight.

So here's what to do. Do a rough budget of your ongoing expenses. This is where my caution about knowing yourself comes in. If you won't do it to the penny, don't let that stop you. If all you do is estimate things off the top of your head, that's better than stopping because it's too complicated and too boring. Make a spreadsheet of all your ongoing expenses. For example:

Rent
Mortgage
Insurance
Cable bill
Phone bills
Groceries
Gasoline
Gym fees
College expenses
Lattes
Netflix
Utilities
Eating out
Storage space
Hair Salon
Magazine and Newspaper subscriptions
Parking
Dry cleaning
Dentist
Etc, etc, etc.

This is of course not an exhaustive list, just some ideas to get you started. And break out each individual item. Insurance should be broken out into car, health, homeowners and life insurance for example.

Ok, now for the challenging (but I think fun) part. Your goal is *not* to eliminate those things. Your goal is to figure out how to get each one for 15% less than you are spending now. 15% is your stretch target. Some of those things will be difficult to reduce much. Some can be dramatically reduced. It requires some creativity and legwork. We're going to go after that 15% goal very hard. Remember we're after the wealth creator, living on 85% of your money. Here are a few examples of the types of things you can do:

Your local library has a ton of DVD's to check out for free. Netflix maybe can go by the wayside for awhile.

Your local sanitation department may give you a discount for using smaller trash barrels.

Cell phones is an easy one. Look into one of the pay as you go plans, which are usually even cheaper than they look. Pay as you go has no extra taxes and fees. You know that a $80 a month Verizon plan actually costs $90 a month. But a $40 pay as you go plan costs $40.

Call your local newspaper and ask for a discount. The LA Times cuts my fee in half just for asking.

Did you know that dry cleaning isn't good for your garments? They wear out faster. Instead, get them pressed if they are not dirty. It costs less and your clothes will last longer.

For your work clothes you of course need to look nice. But for your workout outfit or the kids play clothes? Nice stuff for dirt cheap at the thrift store.

Haircuts? Shop around. Maybe you can do Supercuts every other visit instead of the expensive salon.

College expenses? Two years of community college before the university will cut that bill by 40%.

If you and your SO eat out once a week I'm about to put $300 a year (equivalent to a $500 raise) in your pocket. That ice tea with tax and tip is $3 x 2 or $6 each time x 50 weeks a year. Here is your new drink order "Water with lemon please".

In general a lot of this will be shopping. Shop your health insurance, car insurance, cheapest local gas station.

Be creative. Think outside the box. Keep that stretch target in mind.

Get family members and friends involved. In fact that is a really key thing. Let people know you are doing this. It can help remove some of the awkward problems that come when friends invite you out for drinks or to that expensive new restaurant.

Done all that? Great! Time for a brownie!

Be careful of one trap. Spending a lot of money to save some money. I know people who have sold their old car and bought a new Prius to save on gas. An old car is free. A new Prius is $25,000. If you improved your mileage from 20mpg to 45mpg by doing that, and if you drive 15,000 miles a year, your payback period is about 12 years. Factor in increased insurance, and registration costs plus financing that car, and your payback period is never. If you can"t get a payback from a new expense in say, 6 months, skip it. We're trying to reduce expenses here, not incur new ones that you'll probably have to finance. Always do the math.

I'm going to give you a bunch of links to help with some of this. But I'll do that next week, as this tip is already long enough. Next week we'll look at how to execute the plan. We'll also look at what to do if you're deeply in debt and this still isn't enough.

Getting Out of Debt - Part I, Preparing
There is a lot of stuff on SavingAdvice.com about dealing with debt. Here is my take on the process. Many people have found this to be useful.

We can't invest until we have money to invest with. And for many, possibly most people, that's a dream because they are drowning in debt. So I'm going to do a 3 part series on how to get out of debt. My intention is not to make this some dreary thing like going on a diet. What I hope I can do is make it as painless as possible, and maybe even a little fun. In fact getting out of debt is easier than a diet. On a diet, as you lose weight it gets harder. But getting out of debt, as you pay off debts you have more money. It gets easier.

To start you need to be completely honest with yourself about yourself. You cannot deal with debt if you start doing what you 'should' do, rather than what works for you. My analogy for this is as follows. You walk into the store to buy a package of light bulbs. One is $3 with a $3 rebate. The other is $2. Which one is cheaper? The 'obvious' answer is the $3 package of light bulbs. But for most people, it's the wrong answer. Why do they offer a deal like that? Because they know that most people will not send in the rebate. For most of us, the $2 package of light bulbs is cheaper. The key is to know yourself. If you will send in the rebate, buy the $3 package. If you won't, don't sweat it about what you 'should' do, and then feel guilty because you don't. You buy the $2 package and call it a day.

So the you need to know yourself and what will work for you. If you decide you are going to eat at home for the next 3 months, and you're happy doing that, fine. But if you'll chafe at it, and then decide to heck with the whole thing and quit, it's not helped you much. So with every change you make you need to ask yourself the honest question "Will I keep it up?". If the answer is no, find another way. If impulse purchases are a problem, maybe you need to take the credit cards out of your wallet, or just don't visit those stores where you will spend. Out of sight, out of mind. Figure out what will work for you. That's the key.

Ok, now I will reveal to you the great financial secret of the ages. The single rule that can take you from being in debt to being wealthy. All wealth flows from this one rule. If I was doing an infomercial I could probably get people to send me $29.95 plus shipping and handling to reveal this secret. Are you ready? It's this. Live on 85% of your income. That's it! Almost anyone, if you live on 85% of what you make, you will become debt free, and eventually have real wealth. The average NFL player blows through his millions in a few years after he retires. That's because he lives on 110% of his millions. But someone with even modest income can eliminate their debt, save and eventual be wealthy if they live on 85%.

Of course, that's the trick isn't it? It's *hard* to live on 85% of your income when the roof leaks, you need a new cell phone, and you are paying for the kids college. So what we're going to do is this. We're going to try to figure out how to reduce your existing expenses so that you're living on 85% of your income, giving up as little as possible. This is not going to be about eating macaroni and cheese every night be candlelight and playing cards for entertainment. This is going to be about figuring out how to have most (or even all) of what you have now, but just doing it for less money. I think of it as a game, and I think it can be pretty fun.

Now that said, there may be some areas where your expenses are just too high and there are things you need to cut back. And that's always so hard. Luxuries become necessities in a big hurry. But I want to you keep this in the back of your mind "What makes me really happy?". What things in your life have really made you feel good. Your first date? Your time with your best friends? Finally running a mile in under 6 minutes? Now think, how many of those things were about money? Probably not very many. I think money is about security and freedom. And for that security and freedom, we need to get the debt monkey off our backs. And man, you want to talk about making you feel good? Getting rid of the grinding worry about debt is way up on the list.

Next time we'll talk about the process of getting to 85%.

This is from my email newsletter, "Don Steinmann's Investment Tip of the Week". I thought it was important enough to post it here as well.

In the budget deal that Boehner negotiated at the last minute, there is a change to Social Security. In the past, a couple who were both retirement age had a way to work the system. One could ‘file and suspend’ and the other could then collect half of that spouses Social Security until age 70. Then they could switch to their own, higher payout. This is one of the few ways you could ‘game’ the system and get some extra payouts over your lifetimes.

But this is quickly going away. For the next six months, anyone who uses this strategy will be able to stay on it for their lives. But after that, it’s gone. Under the new rules, when the second spouse files, they will get whatever the higher payout is, with no chance to switch later.

So here is the deal. If you and your spouse are turning 66 in the next six months, and haven’t filed for Social Security, get moving. The difference using this strategy can be $50,000 or more over your lifetime.

One of the really important concepts when dealing with professionals and your money is that of a fiduciary. A fiduciary has both a legal and ethical requirement to put your needs before their own. They *cannot* profit at your expense. Here is the tricky part. The list of people who actually are fiduciaries is pretty short. Attorneys, CPAs, Enrolled Agents (not an insurance agent, and Enrolled Agent is someone who can represent you when the IRS is involved) and Registered Investment Advisors (RIAs). That's the list. *Anyone* else, is legally allowed to put their needs first. That means that CFPs, Registered Reps, Financial Advisors, CLUs, Investment Managers, etc, etc. are not held to the fiduciary standard.

Here is a scenario. A Registered Rep (stock broker) has determined that a utility mutual fund would be suitable for you. A registered rep has a lesser standard of 'suitability'. He has narrowed it down to 2 mutual funds. One will pay him a $500 commission, the other will pay him a $1,000 commission. There is no problem with him recommending the one with the higher commission (which of course comes out of your pocket). It's suitable, so it's fine. A fiduciary can not do this. He/she must recommend the one that's in your best interest, the one that costs you less.

Now that does not mean that those other professionals are working against you. But the point is they are not legally required to always put you first.

So what I recommend is, if you're not dealing with a fiduciary, get one involved to check out who you are working with. Paying a CPA or an RIA for an hour of their time to look at what your guy/gal is doing might be a really good investment.

You're worried about your income taxes and the nice insurance guy tells you about a product that is like an IRA, but that you can put in essentially an unlimited amount, and defer the tax hit. Best of all, it's invested in mutual funds that you get to choose. Sounds like a pretty good deal.

Truth to tell, there are a few people for whom variable annuities make sense, but only a few. A variable annuity is an insurance product, that has 'sub accounts' that allow you to choose mutual funds to invest the money. So far so good. But the problem with VAs are the fees.

First, that nice insurance agent who talked to you is collecting a commission of anywhere from 6 to 10%. So if you invest $100,000 he is taking up to $10,000 off the top. To find out how much it is, ask about the surrender charge. Then there is what is called the M&E (mortality and expense). That runs on average 1.5% per year. Then the mutual funds you choose will also have an annual fee of maybe 1% a year.

So you pay maybe $10,000 upfront, and pay 2.5% a year in fees. But you're saving on taxes right? Well maybe not. If you bought a low volatility ETF or an individual stock, you'll pay taxes at a low rate when you sell it if you hold it more than one year. But the gains on your variable annuity? They are taxed as ordinary income, like a savings account.

Variable annuities *do* make sense for two groups of people. If you are in a profession where you are likely to be sued (i.e. a plastic surgeon), the money you put in a VA is almost untouchable in a lawsuit. The other group are people who like to do frequent mutual fund switching. You'd be pay taxes frequently outside a VA, but inside the taxes will all be deferred.

If you really want a VA, get a 'no-load' VA from Vanguard at:

https://investor.vanguard.com/annuity/

or from Jefferson National at:

https://www.jeffnat.com/home/products/monumentadvisor.cfm

There is no commission, and the fees are much less from these VAs.

Backtesting
The universe of ETFs (exchange traded funds) has exploded over the last several years. In 2007 there were just 500 of them. Now that number is over 1,500 with $1.5 trillion in assets. The question is, how do those 1,000 new funds attract new investors, since they do not have a track record? The answer is backtesting.

Almost all ETFs track an index of some kind. Some of them are pretty common, like the S&P 500. And some are much more obscure, tracking things like the BRXX Brazil Infrastructure Index. That opens the door for companies to make deceptive claims about performance. When they advertise their new fund, they may show a chart of how wonderful the index has done in the past. But there are two problems with that. First, of course is the famous “past performance is not indicative of future results”, which is very true. But it’s worse with these funds. The fund probably did not exist over the period indicated. So they are not even showing a fund history. They are showing a hypothetical fund history. It’s kind of like artificial margarine is two steps away from real butter. This is two steps away from actually telling you what might happen with your investments. They use backtesting of historical data to show what *may* have happened and imply that it may continue in the future.

I do not much care for this practice. It’s another example of Wall Street using deceptive practices to sell a product. Don’t get me wrong, I think ETFs are a great invention for passive investing. But using backtesting to imply a particular outcome is just wrong. If you’re looking at buying an ETF, make sure that you’re getting the straight story about what the fund has done, and not what they wish they had done, with their backtested data.

Yesterday I received an offer in the mail for a credit card. In big letters on the front it says "0% interest on balance transfers for first 9 months". But read the fine print and it says "5% balance transfer fee or $10, whichever is higher". Well it turns out much to my surprise 5% is not 0%. And in fact that interest rate is even higher than 5%, as you're paying that all upfront on the original balance.

One of the things I truly hate about the industry I work in, is that they feel it's their obligation to trick the general public. Fees only disclosed in the fine print, special offers that are almost impossible to achieve, huge penalties if you make even a small mistake.

Here is the problem. Reading and understand that stuff is a) is boring as hell, and b) makes you feel like an idiot because you can't figure out what they are saying. But you have to do it. So here are a few things I suggest you do whenever you're dealing with any contract related to the financial services industry.

1. Ask them to tell you what the downsides are. Ask them what the fees are, what happens if you make a late payment. Getting it in email is best, it may give you ammunition down the road if they don't disclose something.

2. Get someone else to go over it with you. It really will be 1/2 as much pain if a spouse, partner or friend helps you go over it.

3. Ask in the financial forums like Savingsadvice about what to look out for.

Don't let them make you feel like a victim. You work hard for your money. Don't let the financial services firm trick you out of some of it with their confusing fine print.

There is a 'secret' way you can become wealthy, and it doesn't matter much how much money you make. The boxer Mike Tyson spent all of the over $100 million he made. On the other hand, I have a couple who are clients. She works as a clerk, he works as a carpenter when he can find work. They are worth well over $1 million. There is a 'secret' (well it's not very secret) to their success, and to Mike Tyson's failure.

The trick? Live on 85% of your income and invest the rest. If you save 15% of your income (generally considered to be the magic number), it almost doesn't matter how much you make, you will eventually accumulate significant wealth. And if you live on 105% of your income, you will eventually be bankrupt no matter how many millions you made. Easy? No. Though unlike a diet, it does get easier as you go. The more money you accumulate, the more you can accumulate.

This website is a great place to find ideas about how to get to that 15% number. There is *nothing* like the easy sleep you'll have when you have enough savings to weather any storm.

In almost every field, there is constant progress. Very few psychologists today use a strict Freudian approach to psychotherapy for example. But there is one field where the guy who really invented it hasn't been improved on very much. That field is investing. In 1934 Benjamin Graham wrote his seminal book on investing called "Securities Analysis". But it's pretty unapproachable for the average person. So in 1949, he wrote a book for non-professionals called "The Intelligent Investor". The book has been updated and revised many times to reflect the current environment. But the principles are exactly the same. Who was Ben Graham? He was the mentor of one of the richest men in the world, Warren Buffett. Buffett to this day still uses the principles taught him by Graham to choose his investments. Buffett calls "The Intelligent Investor" the best book on investing ever written. If you want to do your own investing, or just have a handle on the most practical investment philosophy, I'd start with "The Intelligent Investor".

Five Dumb Ways to Lose Your Money

Feeling overly rich? Thought so. So here are five ways you can quickly change that.

1. Switching loaded annuities.
If you buy a loaded annuity from a commissioned sales person they often have big upfront commissions. The best way to really lose money is to get someone to switch you into a different loaded annuity from a different company. You’ll pay that big fee all over again. It’s possible to have that cost you 12% of your investment each time you switch.

2. Frequent trading with a full price broker.
Frequent trading can really eat into your profits. But if you really want to shrink your pile fast, do this through a full price broker. If he does it for you, it’s called ‘churning’ and he can get into trouble. But if you do it, it’s called being broke.

3. Refinance mortgages with a pre-payment fee.
If you’re going to refinance your mortgage, there are a lot of fees involved. So it makes sense to only do it with a significant drop in rates. But the best way to guarantee you won’t take advantage of those rate changes is to do frequent re-fis into mortgages with a pre-payment penalty. It can soak up all the money you’ll save on the re-fi and then some, as each time you refinance you’ll be paying a pre-payment penalty.

4. Speculate in penny mining stocks.
Penny stocks (and by this I mean stocks literally trading for a few pennies) are a great way to shrink that estate. But to amplify it a bit, choose penny mining stocks. Only 1 in a 1000 has a remote chance to succeed, whatever the press releases might say.

5. Start a small business with just a few months of capital.
When you start or invest in a small business, you want to make sure you limit your chances to succeed. So start with less than six months of capital to support the business, instead of the two years (or more) worth that you really need. And if that business doesn’t do well at first, throw lots of money at it without a coherent plan. No reason to stretch out the agony.

There. If you have any money left at all, it’s not my fault.

ETF (exchange traded mutual funds) have been a great boon to the average investor. Generally they are low cost, and allow you to buy a fund during the day without waiting for the close. You also don't have to worry about hidden fees.

But there is a downside to ETFs and we saw it last Monday. A number of ETFs gapped down at the open. The market as a whole was down 5%, but some of the ETFs dropped 30%!!!

Why? Because the investors selling them did not understand the difference between a market and a limit order. For standard mutual funds, that's completely unimportant. You acquire the fund at the closing price at the end of the day. But ETFs trade like stocks, and so it's important for investors to understand about the difference between limit and market orders.

A market order says "Sell now at the going price". Which is usually fine. Except when you have a huge drop in the market like last week. In those instances, you want to use a limit order. A limit order says "Sell now, but at a price no lower than X".

Example: You want to sell the XYZ etf, which last traded at $20 a share. Instead of placing a limit order (sell at the going price) place a limit order, at say $19. That means "Sell at the best price possible, but no lower than $19". This will give you some insurance against a crazy day like last Monday.

I think the very best deal out there for banks in at First Internet Bank (www.firstib.com).

First IB is a full service bank that provides checking, savings, car loans, mortgages, IRAs, CDs, etc. But they only have a single branch, their primary business is on the web. That keeps their costs way down. Some of the cool stuff:

1. 0.55% interest on checking
2. 0.80% interest on money market savings
3. $10 per month rebates on ATM charges at any ATM
4. Some of the highest rates in the country on CDs
5. Free Financeworks software (Essentially Quicken)
6. Postage paid envelopes for deposits

Altogether that should save you a good $200 a year versus some of the majors like Wells Fargo.

But I think maybe one of the best things is that since they actually do run a physical branch, you are not dealing with some call center based in India when you have a question. You talk to one of the bankers at their branch in Indiana. They answer the phone quickly and they know their stuff.

The downside? Cash deposits can be a bit of a pain, as with any web based bank.

Considering the combination of high rates, full service banking and free services, I think it's the best banking deal out there, maybe the best ever.