ptg ptg THE 1-2-3 MONEY PLAN The Three Most Important Steps to Saving and Spending Smart Gregory Karp From the Library of Wow! eBook ptg Vice President, Publisher: Tim Moore Associate Publisher and Director of Marketing: Amy Neidlinger Executive Editor: Jim Boyd Editorial Assistant: Myesha Graham, Pamela Boland Operations Manager: Gina Kanouse Digital Marketing Manager: Julie Phifer Publicity Manager: Laura Czaja Assistant Marketing Manager: Megan Colvin Cover Designer: Alan Clements Managing Editor: Kristy Hart Project Editor: Betsy Harris Copy Editor: Karen Annett Proofreader: Debbie Williams Indexer: Lisa Stumpf Senior Compositor: Gloria Schurick Manufacturing Buyer: Dan Uhrig © 2009 by Pearson Education, Inc. Publishing as FT Press Upper Saddle River, New Jersey 07458 This book is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting or other professional services or advice by publishing this book. Each individual situation is unique. Thus, if legal or financial advice or other expert assistance is required in a specific situation, the services of a competent professional should be sought to ensure that the situation has been evaluated carefully and appropriately. The author and the publisher disclaim any liability, loss, or risk resulting directly or indirectly, from the use or application of any of the contents of this book. FT Press offers excellent discounts on this book when ordered in quantity for bulk purchases or special sales. For more information, please contact U.S. Corporate and Government Sales, 1-800-382-3419, corpsales@pearsontechgroup.com. For sales outside the U.S., please contact International Sales at international@pearson.com. Company and product names mentioned herein are the trademarks or registered trademarks of their respective owners. All rights reserved. No part of this book may be reproduced, in any form or by any means, without permission in writing from the publisher. Printed in the United States of America First Printing May 2009 ISBN-10: 0-13-714173-4 ISBN-13: 978-0-13-714173-9 Pearson Education LTD. Pearson Education Australia PTY, Limited. Pearson Education Singapore, Pte. Ltd. Pearson Education North Asia, Ltd. Pearson Education Canada, Ltd. Pearson Educación de Mexico, S.A. de C.V. Pearson Education—Japan Pearson Education Malaysia, Pte. Ltd. Library of Congress Cataloging-in-Publication Data Karp, Gregory. The 1-2-3 money plan : the three most important steps to saving and spending smart / Gregory Karp. p. cm. ISBN 0-13-714173-4 (pbk. : alk. paper) 1. Home economics—Accounting. 2. Consumer education. 3. Budgets, Personal. 4. Finance, Personal. I. Title. II. Title: One two three money plan. TX326.K27 2009 332.024—dc22 2008054616 From the Library of Wow! eBook ptg For Rebecca, Jacob, and Michael From the Library of Wow! eBook ptg This page intentionally left blank From the Library of Wow! eBook ptg Contents Introduction Telling It Straight . . . . . . . . . . . . . . . . . . . . .1 Getting from Here to There . . . . . . . . . . . . . .1 Simple as an iPod . . . . . . . . . . . . . . . . . . . . . .4 Easy Is Hard . . . . . . . . . . . . . . . . . . . . . . . . . .5 When Good Enough Is Good Enough . . . . . . . . . . . . . . . . . . . . . . . .7 Is This Book Different from Living Rich by Spending Smart? . . . . . . . . . .9 How to Use This Book . . . . . . . . . . . . . . . . .10 The Power of Three . . . . . . . . . . . . . . . . . . .10 Chapter 1 Spending Smart Redux . . . . . . . . . . . . . . .13 What Is Spending Smart? . . . . . . . . . . . . . .13 When to Spend Your Money . . . . . . . . . . . .14 When to Spend Your Money, 1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . . .15 1. Spend Today . . . . . . . . . . . . . . . . . . . .15 2. Spend Yesterday . . . . . . . . . . . . . . . . .15 3. Spend Tomorrow . . . . . . . . . . . . . . . .16 Why Pay Attention to Spending? . . . . . . .17 Why Pay Attention to Spending? 1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . . .17 1. Magnitude . . . . . . . . . . . . . . . . . . . . . .18 2. Speed . . . . . . . . . . . . . . . . . . . . . . . . . .18 3. Control . . . . . . . . . . . . . . . . . . . . . . . .18 From the Library of Wow! eBook ptg What to Spend Discretionary Money On . . . . . . . . . . . . . . . . . . . . . . . . . . .19 What to Spend Discretionary Money On, 1-2-3 . . . . . . . . . . . . . . .19 1. Things You Care About . . . . . . . . . .19 2. Experiences . . . . . . . . . . . . . . . . . . . . .21 3. Things That Rise in Value . . . . . . . .21 PART I SPENDING SMART TODAY Chapter 2 First Things First . . . . . . . . . . . . . . . . . . . .27 Getting Started . . . . . . . . . . . . . . . . . . . . . . .27 Taking Stock . . . . . . . . . . . . . . . . . . . . . . . . .27 Taking Stock, 1-2-3 . . . . . . . . . . . . .28 1. Take a Snapshot . . . . . . . . . . . . . . . .29 2. Look Back . . . . . . . . . . . . . . . . . . . . .32 3. Look Ahead . . . . . . . . . . . . . . . . . . . .33 Estate Planning . . . . . . . . . . . . . . . . . . . . . . .37 Estate Planning, 1-2-3 . . . . . . . . . . .37 1. Will . . . . . . . . . . . . . . . . . . . . . . . . . . .39 2. Durable Power of Attorney for Finances and for Health Care . . . . .40 3. Living Will . . . . . . . . . . . . . . . . . . . . .40 Do You Need a Living Trust? . . . . .40 Identity Theft . . . . . . . . . . . . . . . . . . . . . . . .41 Identity Theft, 1-2-3 . . . . . . . . . . . . .42 1. Be Guarded . . . . . . . . . . . . . . . . . . . .42 vi The 1-2-3 Money Plan From the Library of Wow! eBook ptg 2. Buy a Crosscut Shredder . . . . . . . . .43 3. Opt Out . . . . . . . . . . . . . . . . . . . . . . .43 What about Fraud Alerts and Credit Freezes? . . . . . . . . . . . . . . . . .44 Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Get the Bank Accounts You Need, 1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . . .48 1. Get a No-Fee Checking Account . . .49 Rewards Checking . . . . . . . . . . . . . .50 2. Set Up at Least One High-Interest Online Bank Account . . . . . . . . . . . . . .52 FDIC Rules: Is My Money Safe? . .53 3. Join a Credit Union . . . . . . . . . . . . . .54 Bill Paying . . . . . . . . . . . . . . . . . . . . . . . . . . .55 Bill Paying, 1-2-3 . . . . . . . . . . . . . . .56 1. Use Direct Deposit . . . . . . . . . . . . . .56 2. Automate Bill Paying . . . . . . . . . . . .57 Automation Drawbacks . . . . . . . . . .58 3. Prioritize in a Crisis . . . . . . . . . . . . .60 Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61 Chapter 3 Get Fit (Food, Insurance, Telecommunications) . . . . . . . . . . . . . . . .63 Food at Home . . . . . . . . . . . . . . . . . . . . . . . .64 Food at Home, 1-2-3 . . . . . . . . . . . .64 1. Maintain a Price List . . . . . . . . . . . .64 Is Organic Food Worth the Price? . . . . . . . . . . . . . . . . . . . . . .65 vii Contents From the Library of Wow! eBook ptg 2. Stockpile Sale Items . . . . . . . . . . . . . .68 Freezing Times . . . . . . . . . . . . . . . . . .71 Cherry-Picking Pays . . . . . . . . . . . . .72 3. Match Coupons to Sales . . . . . . . . .73 Fun Tangent: Razor Blades . . . . . . .75 Food Away from Home . . . . . . . . . . . . . . . .76 Food Away from Home, 1-2-3 . . . .76 1. Make Freezer Meals . . . . . . . . . . . . .77 2. Use Coupons and Discounts . . . . . .77 3. Skimp on What You Don’t Care About . . . . . . . . . . . . . . . . . . . . . . . . . . . .78 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .79 Insurance, 1-2-3 . . . . . . . . . . . . . . . .79 1. Say No to Extended Warranties and Other Junk Insurance . . . . . . . .79 2. Refinance Your Term Life Insurance . . . . . . . . . . . . . . . . . . . . . . .80 3. Raise Deductibles on Home and Auto Insurance . . . . . . . . . . . . . . . . . .84 Telecommunications . . . . . . . . . . . . . . . . . . .85 Telecommunications, 1-2-3 . . . . . . .85 1. Cancel Your Traditional Landline Phone Service . . . . . . . . . . . . . . . . . . .85 The MagicJack Phone Solution . . . .87 2. Rightsize Your Wireless Phone Plan . . . . . . . . . . . . . . . . . . . . .89 My Prepaid Phone Story . . . . . . . . .92 viii The 1-2-3 Money Plan From the Library of Wow! eBook ptg 3. Regularly Review TV and Internet Service . . . . . . . . . . . . . . . . .96 Fun Tangent: Don’t Overpay for Audio-Video Cables . . . . . . . . . . . .102 Chapter 4 How to Buy Stuff . . . . . . . . . . . . . . . . . .105 How to Buy Products . . . . . . . . . . . . . . . . .107 How to Buy Products, 1-2-3 . . . . .107 1. Read Reviews . . . . . . . . . . . . . . . . .108 2. Research Prices . . . . . . . . . . . . . . . .111 3. Reevaluate . . . . . . . . . . . . . . . . . . . .113 Price Protection . . . . . . . . . . . . . . .115 How to Buy Services . . . . . . . . . . . . . . . . .117 How to Buy Services, 1-2-3 . . . . .117 1. Seek Reviews and References . . . .118 2. Research Prices . . . . . . . . . . . . . . . .121 Be Afraid of Commitment . . . . . . .122 3. Reevaluate and Review Contracts Carefully . . . . . . . . . . . . .124 How to Buy Online . . . . . . . . . . . . . . . . . .124 How to Buy Online, 1-2-3 . . . . . .125 1. Prefer Commodities . . . . . . . . . . . .126 2. Consider Shipping Cost Versus Sales Tax . . . . . . . . . . . . . . . . . . . . .127 3. Use a Credit Card . . . . . . . . . . . . . .128 Coupon Codes and Rebate Portals . . . . . . . . . . . . . . . . .130 Fun Tangent: Eyeglasses Online . .133 ix Contents From the Library of Wow! eBook . . . . .11 7 How to Buy Services, 1- 2-3 . . . . .11 7 1. Seek Reviews and References . . . .11 8 2. Research Prices . . . . . . . . . . . . . . . .12 1 Be Afraid of Commitment . . . . . . .12 2 3 .15 1 1. Make a Thermostat Plan . . . . . . . .15 1 2. Seal Leaks . . . . . . . . . . . . . . . . . . . .15 2 3. Avoid Big-Ticket Fixes . . . . . . . . . .15 4 x The 1- 2-3 Money Plan From the Library. .40 Identity Theft . . . . . . . . . . . . . . . . . . . . . . . . 41 Identity Theft, 1- 2-3 . . . . . . . . . . . . .42 1. Be Guarded . . . . . . . . . . . . . . . . . . . .42 vi The 1- 2-3 Money Plan