Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.


2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.



3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?


  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.



4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.



5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%



6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.


7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.


8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.


9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.



Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance




Retirement Replaces Homeownership in the American Dream

© TheStreet
© TheStreet

Most people still believe they can achieve the American dream, even after slow employment growth following a harsh recession, but many now define it as having a comfortable retirement rather than owning a home.

About 96% of people responding to a Wells Fargo/Gallup poll conducted at the end of May cited a financially secure retirement as their version of the American dream. That’s an increase from 92% a year ago, and higher than the 93% of people who identified success as buying a home. The poll surveyed a mix of retired (28%) and non-retired (72%) adults with at least $10,000 in savings and investments. Forty-one percent of respondents reported an annual income of $90,000 or more.

The exact definition of the American dream has changed somewhat since the term was popularized in James Truslow Adams’ 1931 book The Epic of America. In it, he wrote: “The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Since then, social and economic mobility have generally been associated with such markers as owning a home, attaining higher education, and living as well as — if not better than — one’s parents. Specifying a comfortable retirement as part of that goal wasn’t necessary in previous years as many retirees were almost guaranteed one via their employer’s pension plans. As 401(k)s became more the more popular employer-sponsored retirement plan following the Revenue Act of 1978, workers increasingly found themselves on the hook for ensuring that they had enough money to last them through old age.

“There has been a rapid, systemic shift in risk and responsibility from the government to the individual in managing retirement,” said Andrew Eschtruth, an associate director at Boston College’s Center for Retirement Research. “Most individuals don’t yet fully grasp this change.”

In fact, data from the center pinpoints when that shift occurred. In 1983, of workers surveyed who had access to an employer-sponsored retirement plan, 62% were relying solely on a pension plan, 12% were relying on a 401(k) plan, and 26% were relying on a mix of the two. Less than ten years later, in 1992, workers were almost split in how they received their retirement benefits, with 44% citing a pension, 40% using a 401(k), and 16% relying on a mix. Today, 72% of employees rely on a 401(k), and only 17% rely on a pension.

While an encouraging 84% of respondents to Wells Fargo’s poll said they believe they can achieve the American Dream, only 69% of non-retired respondents said they have a specific plan to reach their retirement goals. And, of the respondents with a plan, only half of them have it in writing.

Of course, a plan is only good if followed, but having one in writing suggests that risks and other contingencies have at least been considered. Those who do not have a written plan say they haven’t had the time to create one (35%) or they haven’t given it much thought (26%). Even so, written plans are hardly foolproof. Only 37% of those with a written financial plan are highly confident that it will ensure they reach their goals.

“While the number of people with written plans is slowly trending higher, it’s still less than half of investors. It is critical to have a financial plan in place that spans life’s major milestones in order to reach your financial goals,” said Mary Mack, President of Wells Fargo Advisors.

Despite the seeming optimism Wells Fargo survey participants reported about achieving the American Dream, there are reasons to be less sanguine. The 401(k) generation is just starting to retire and data from the Boston College center suggests that they may not have saved enough. Of workers aged 55-64 with 401(k) accounts, the combined balance is just over $100,000, which only offers about $400 a month, according to Eschtruth. For most people, $400 a month combined with social security may still not be enough to support them through retirement.

Workers need to save more to meet the demands of increasing life expectancy and rising healthcare costs before retiring, Eschtruth said. Unfortunately, workers who are near retirement age have had to do the last years of their retirement saving in a low interest-rate environment in which yields on traditionally safer investments lagged normal inflation rates. Workers have had to save more or invest in traditionally riskier assets to make up for the shortfall.

“The problem with retirement is twofold,” Eschtruth said in an interview. “People need more and they expect less.”

Written by Carleton English of The Street

(Source: The Street)

4 Ways Saying ‘No’ Can Save Your Retirement

© AmmentorpDK/Getty Images
© AmmentorpDK/Getty Images

After years of dreaming and planning, you’ve finally said goodbye to the 9-to-5 and retired.

Adjusting to retirement and living with a fixed budget and a more flexible schedule can take months. Experts say one of the key things to do during the early days of retirement is to set limits, on the new demands you may face on both your time and your money.

It’s tempting to say “yes” to friends and family who think you now have unlimited time to babysit or run errands on their behalf. And it can be hard to deny requests, especially by grown children, for financial assistance that may have been easier for you to give while you were still bringing home a paycheck.

“We all have different ideas of our lives and what our dream retirement looks like,” says Donna Butts, executive director of Generations United. “There are some grandparents or older adults who think that they are being taken advantage of or asked for things too often, but there are many who feel like they aren’t asked enough. The most important thing is to communicate ahead of time.”

The happiest and most successful retirees have a plan in place around both their finances and their lifestyle before they ever stop working. That may include providing time and money to loved ones, but only as it fits within a retirees’ own plans.

Still, saying “no” is one of the most important things you can do to ensure a successful retirement, both financially and emotionally. It may be difficult at first, but it gets easier with practice, and it gives you a chance to say “yes” to the things that can bring you joy. Here are 4 times it’s OK to say “no”:

1. To family financial needs
Whether it’s your own aging parents or grown kids looking for help launching their own careers, a growing number of Baby Boomers — more than 43 percent of U.S. retirees — are providing regular financial support to family members, according to a report in May from HSBC.

If you’ve got the means to provide the assistance that’s fine, but planners say that most retirees are putting their own security at risk by providing that kind of financial assistance. “Retired people who do want to continue to support their children can see what they can afford and make an annual gift to them,” says Ryder Taff, a portfolio manager with New Perspectives in Ridgeland, Missouri. “They make it clear that this is all that they will give and it makes it easier to say no when the child asks for more.”

If you can’t afford, or don’t want to continue supporting your kids, talk to them about adjusting their lifestyle so that they need less money or looking into options borrow to cover their costs. (Remember they can borrow money for college or a home, while you can’t borrow cash to pay for retirement.)

Saying no to aging parents when aging parents need medical help may be more difficult, but it’s worth checking in with your siblings to see if costs can be shared or looking into government programs that can provide assistance to low-income seniors.

2. To time-consuming favors
You’re retired, and suddenly everyone thinks you’re free to drive him to the airport or wait around for deliveries. Of course, making life easier for your loved ones is an important part of being a good friend or family member and can offer satisfaction and rewards of its own.And for some people, certain time-consuming activities—like watching grandkids—are the ideal way to spend a retirement.

For others, though, the time commitment of some favors can lead to resentment. “Eventually that resentment is going to squeak out somewhere else,” says stress relief coach Ryan West. “Resentment is not a happy place to be, and that’s one of the reasons we see so many health problems in retirement.”

If that’s the case, give yourself permission to set limits on the time you can give to others. Be honest with the person to whom you’re saying no, and don’t feel guilty. “You don’t owe anyone an explanation for anything,” West adds.

3. To your boomerang kids
So much for that empty nest. One in four adults ages 25 to 34 now lives in a multi-generational household, according to the Per Research Center, driven by young adults who have moved back to their parents’ home (or never left).

Having your adult children in your home can be costly, especially if it’s postponing your plans to downsize or if you kid is not paying his share of the bills. Have a frank discussion with your child about when he or she plans to move out, and start collecting rent. (Teaching your children how to budget for the expense will help once they’re on their own.  If you don’t need the cash, put it into a savings account on their behalf.)

4. To keeping up with the Joneses
Once you’ve said ‘no’ to everyone else, make sure you’re able to say ‘no’ to yourself once in a while as well. If your retired friends are taking lavish vacations and dining out often, it can be tempting to follow their example. After all, you worked hard for decades to get to this retirement.

“Unlike pre-retirees who are still working and may have an opportunity to bring in more income to offset overspending, retirees have a greater need to live within that budget,” says James Nichols, head of retirement income and advice strategy for retirement solutions at Voya Financial. “You need to be honest with yourself and with your peers.”

You should certainly allot some money in your budget for leisure and vacations, but only after making sure that your long-term retirement security is on track. After all, you never know what the Joneses real financial picture looks like. Maybe, they need to work on saying ‘no’ also.

Written by Beth Braverman of The Fiscal Times

(Source: The Fiscal Times)

Here’s How You Can Be ‘The Millionaire Next Door’

© Stephanie Howard/Getty Images
© Stephanie Howard/Getty Images

The word “millionaire” used to evoke a world of extravagant wealth. But, these days, it’s nothing special, as everyone needs to save at least $1 million for retirement.

And that money shouldn’t be spent in retirement, but instead lived on through income-producing investments such as dividend stocks, bonds and real estate. What’s important is how much income you can generate with that nest egg to keep you (and your spouse or partner) living comfortably for an indefinite period.

As a result, you’ll need to begin planning early and have a realistic understanding of what it means to be financially secure.

Among several thoughtful Father’s Day presents from beloved family members was the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. The book, which I just finished, was first published in 1996, but Stanley wrote a long preface for the 2010 edition. Even though the book was written before the credit crisis, its ideas are current.

The main idea

The book defines the “millionaire next door” as someone who doesn’t look the part. He or she makes no ostentatious display of wealth. There’s no fancy car, no $5,000 watch, no McMansion. This wealthy person lives in a regular middle-class or lower-middle-class neighborhood.

According to statistics backing the book, “more than 80% [of U.S. millionaires] are ordinary people who have accumulated their wealth in one generation.”

And the most important factor in building that wealth has been what’s called underconsumption.

Are you living in the most expensive home you can afford? Are you driving the nicest car you can afford? If so, even if you’re earning a lot of money, there’s a good chance you are what the authors call a UAW, or “under accumulator of wealth.” Homes and cars are two of the main items that can keep you from accumulating wealth, but there are many others, of course.

Case studies

The book cites several examples of people who were interviewed by the authors, so more insight could be gained into successful wealth-building strategies, as well as less successful strategies and non-strategies.

It’s fascinating that people at all income levels live “paycheck to paycheck.” In one case study, the authors cited cultural factors as a major reason why a successful salesman was so focused on “being a lot better off than his parents.” The man came from a lower-middle-class family and had gone to a high school with students from families with different social and economic backgrounds.

He was amazed at the fancy cars being driven by some of the students, while he had no car and his parents had an old vehicle.

So, to him, being “a lot better off” meant achieving enough career success to enable him to own “a nice home in an upscale neighborhood, fine clothes for everyone in the family, classy cars, club memberships and items purchased in the best stores.”

That’s all well and good, but those material items won’t build financial security. This man and his wife are likely to be carrying so much debt that they cannot save enough money to withstand an emergency, such as the loss of a job. A high debt load, relative to income, means they will always be living in a house of cards. They will suffer from stress, owing to insecurity. That can lead to poor health, a shaky retirement, and even the humiliating possibility that the couple will be forced to rely on their children for financial assistance when they retire.

The authors go into great detail through several positive and negative case studies, identifying many areas of risk and opportunity for people who wish to build wealth.

Taxes and deferred taxes

In one of the case studies, the authors described a woman with a high salary and a combined marginal income tax rate of 59.5%. That isn’t a very good circumstance for wealth building, so the authors discuss tax-avoidance strategies of the wealthy.

But no matter your salary level, it’s possible that you are “leaving money on the table,” while paying too much to the tax man during your working years. If you work for a company or organization with a 401(k) or similar tax-deferred retirement plan, chances are your employer makes matching contributions. For example, if the employer matches up to 5%, it means that if you contribute 5% of your pretax salary to your retirement account, the employer will also put in 5%. Boom — you just realized a 100% gain on your investment during the first year, and set aside the equivalent of 10% of your salary.

It’s not enough — 20% total savings per year is more like it — but it’s a start, and if you don’t make a contribution of at least the maximum match, you’re simply losing a lot of money. Over time, you should also work to maximize the annual 401(k) contribution. The basic limit for your own contributions is $18,000 a year (for 2015), with an additional $5,500 allowed when you reach the age of 50.

Those amounts may seem outrageously high, but if you start early and build up your contributions slowly, you can get there. Yes, it will hurt, but if it doesn’t hurt, you can be pretty sure you’ll be left high and dry some day.

Getting back to cars and houses

People let their emotions affect which cars they buy. Have you ever heard someone say they simply “just want a new car”?

I myself own a nine-year-old car with nearly 180,000 miles on it. The car has had no repairs, except for two airbag recalls. Just maintenance, including tires, front brakes and spark plugs. A salesperson from the dealer called me this week to ask if I would be interested in “updating to a new model.” I said: “You’re a victim of the manufacturer’s success in making such a good product.” So that’s it. A new car might be a better status symbol, but it would be so much more expensive than driving the old car, which is in fine condition.

I recently read an article written by Earl Stuart, who runs a Toyota dealership in Lake Park, Fla., discussing how salespeople ”flip” potential buyers into taking out a lease. According to Stuart, if you get a good price for a car and buy it, the dealer typically makes a profit of $1,000, while the salesperson makes a $200 commission. But if you go for the lease, the dealer eventually may realize a $15,000 profit, and the salesperson could earn a commission as high as $3,000.

Potential buyers scared away by high monthly loan payments may find leases attractive, because they’ll be shelling out less each month. But the problem with the lease is that at the end of the term, you give the car back to the dealer and are left with nothing. You’re starting all over again, whereas if you had suffered through a car loan, you might then drive the car for another five years, or longer, with no monthly loan payments.

Charles Passy spent two days working as a car salesman for Stuart last year and wrote about how it made him a smarter car buyer, and later followed up with 10 things car dealers won’t tell you.

With cars out of the way, what about homes? Memories can be short, but a homeowner who lived through the credit crisis of 2008 knows you can’t rely on home values to increase every year. You also can’t plan “just to live here for five years and then sell,” because it won’t be so easy if values decline.

But your choice of home could make a huge difference in your long-term financial health. If you resist the temptation of buying a “status symbol,” and go for something less expensive that you can easily afford, you will then have the option of going with a 15-year fixed-rate mortgage loan rather than a 30-year loan. Not only will pay off the loan 15 years earlier, you will save oodles of money.

The authors of “The Millionaire Next Door” didn’t focus on the ins and outs of mortgage financing, although they did dig deeply into what motivates people to overspend on homes. But comparing the costs between a 15-year and a 30-year mortgage can illustrate just how much money you might be throwing away if you either buy “too much house” or assume that you must spend 30 years paying off a home loan.

Here’s an easy example for a person who buys a $350,000 house with a 20% down payment. The borrower puts down 20%, or $70,000, and borrows $280,000. Based on on Thursday, the average rate for a 30-year fixed mortgage loan is 4.03% and the rate for a 15-year loan is 3.13%.

The monthly principal and interest payment for the 30-year loan is $1,342. The total interest paid over the life of the loan will be $202,978.

For the 15-year loan, the monthly principal and interest payment is a much higher $1,951. But the total interest paid over the life of the loan will be just $71,213, for a savings of $131,765, not to mention having the monkey off your back 15 years earlier. That’s a lot of money, and when you consider the time value of money, when it is invested, your benefit from “buying less house,” tightening your belt and going with a 15-year loan will probably be much higher.

These loan-payment examples exclude two very important items: Taxes and insurance. Depending on where you live, homeowners insurance can be very expensive, if you face special certain hazards, such as hurricanes. If the home is in a FEMA-determined special flood hazard area, the bank will also require you to carry flood insurance. In some states, if property values are rising, your property taxes may come in much higher than you expect, and higher than your real estate agent and even your lender told you to expect.

These items are usually escrowed, that is, added to the monthly loan payment, and they can make your new home unaffordable. You need to check with local insurance agents on prices before you buy, and also personally visit the county tax collector’s office to obtain a proper estimate of how high your property taxes will be. Then add all these items up and divide by 12, to see how much more you’ll be paying each month.

The purpose of the example above is to make you consider “going smaller” to save tremendously over the long term, and possibly delay your first heart attack.

Other topics covered by Stanley and Danko

The authors shared the results of numerous studies, which involved surveying participants. All sorts of psychological aspects of spending and saving are covered, as well as most aspects of personal finance, including estate planning, and various forms of employment, even factoring in gender.

Here’s a telling quote: “Are you surprised to learn that some millionaires shop at Penney’s? Perhaps even more surprising, 30.4% of the respondents who are millionaires hold J.C. Penney  credit cards.

Stanley and Danko also discussed which professions or businesses were most likely to help people become financially secure, and the philosophy of investing, rather than simply spending, or helping someone by “giving.” They also pointed out the fascinating tendency for millionaires to focus on investing in income-producing properties, while de-emphasizing stock investments.

If you have already achieved financial security, congratulations. But you certainly know someone who could benefit from the book. Give it to them as a present.

Written by Philip van Doorn of MarketWatch

(Source: MarketWatch)