Table of Contents Title Page Copyright Page Dedication Acknowledgements Introduction 1ST COMMANDMENT - Create a Budget That Works in the Real World 2ND COMMANDMENT - Create a Survival Plan with Cash and Credit 3RD COMMANDMENT - Pay Off Debt the Smart Way 4TH COMMANDMENT - Don’t Avoid Risk Embrace It—but Sensibly 5TH COMMANDMENT - Your Home Is Not a Piggy Bank—Preserve Its Equity 6TH COMMANDMENT - Saving for Retirement Must Come First 7TH COMMANDMENT - Get a College Education You Can Afford 8TH COMMANDMENT - Reserve Insurance for the Big Losses 9TH COMMANDMENT - Treat Your Marriage Like a Business 10TH COMMANDMENT - Defend Yourself in the War on Consumers CONCLUSION RESOURCES INDEX HUDSON STREET PRESS Published by the Penguin Group Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A.; Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.); Penguin Books Ltd., 80 Strand, London WC2R 0RL, England; Penguin Ireland, 25 St Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd.); Penguin Group (Australia), 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd.); Penguin Books India Pvt Ltd., 11 Community Centre, Panchsheel Park, New Delhi - 110 017, India; Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632, New Zealand (a division of Pearson New Zealand Ltd.); Penguin Books (South Africa) (Pty.) Ltd., 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd., Registered Offices: 80 Strand, London WC2R 0RL, England First published by Hudson Street Press, a member of Penguin Group (USA) Inc First Printing, January 2011 Copyright © Liz Pulliam Weston, 2011 All rights reserved FIGURE CREDITS: Page 17 and page 18, copyright © 2009, Pew Research Center “Luxury or Necessity? The Public Makes a UTurn”: http://pewsocialtrends.org/pubs/733/luxury-necessity-recession-era-reevaluations REGISTERED TRADEMARK—MARCA REGISTRADA LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA Weston, Liz Pulliam The 10 commandments of money : survive and thrive in the new economy / Liz Weston p cm Includes bibliographical references and index eISBN : 978-1-101-49837-8 Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form, or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book PUBLISHER’S NOTE While the author has made every effort to provide accurate telephone numbers and Internet addresses at the time of publication, neither the publisher nor the author assumes any responsibility for errors, or for changes that occur after publication Further, publisher does not have any control over and does not assume any responsibility for author or third-party websites or their content The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law Please purchase only authorized electronic editions, and not participate in or encourage electronic piracy of copyrighted materials Your support of the author’s rights is appreciated This book is printed on acid-free paper http://us.penguingroup.com To Will, as always ACKNOWLEDGMENTS Too often author acknowledgments are like those overlong acceptance speeches at the Academy Awards: you want someone to start up the orchestra to drown them out So I’ll keep this short I need, want and desire to thank MSN Money for its generosity in allowing me to excerpt my columns for this book Working with my editor, Meghan Stevenson, and her boss, Caroline Sutton, was an unexpected delight Although I wasn’t responsible, I applaud Meghan for transforming her wine budget into a 401(k) contribution This is the part where I start to gush about my agent, Stephen Hanselman, of Level5Media Tim Ferris is right: Stephen is the best agent in the world—period I count among my luckiest days the day that we met (And publicist Stephen Crane, thank you for arranging the introduction.) And now to burble on about my family: my ever-present, ever-loving, ever-supportive husband and our darling daughter, who waited with varying degrees of patience for Mommy to finish the Darn Book so she could get her first dog Finally, Ralph Waldo Emerson said that our growth is seen in the successive choirs of our friends If that’s the case, I must be seventeen feet tall, because my chorale consists of amazing women who freely offered love, encouragement and forgiveness when I dropped out of sight for months to write this book Marla, Barb, Kelly, Melissa, Bambi, Morgan, Aldina, Kathy: thank you INTRODUCTION The financial crash and subsequent recession exploded many people’s ideas of how money was supposed to work Assumptions—about risks and rewards, markets and returns—lay in ashes People saw the value of their biggest assets, their homes and their retirement portfolios, plummet faster and farther than they’d ever thought possible Even the safest-seeming investments, including savings accounts and money market funds, suddenly didn’t feel so secure as banks failed and financial firms “broke the buck,” letting money funds lose principal With the speed of a catastrophic wildfire, the financial crisis whipped through the economy and around the world, plunging economies from prosperity to despair seemingly overnight The worst financial meltdown since the Great Depression left many people reeling, frightened for the future and despairing that they would ever meet their goals The terror wasn’t limited to the little guys Many of the pundits and personalities who had been cheerleading the bubble years gave in to panic as well Instead of offering wisdom, they preached hysteria Some predicted utter ruin while others abruptly changed their strategies and advice, insisting that what used to work no longer would In a way, they were right The money rules that emerged during the stock and real estate bubbles were ill conceived, dangerous and unsustainable Particularly scary was the notion that risk no longer mattered or could be eliminated—that real estate always rose in price and so did stocks, if you held them long enough Other ideas took hold that were equally wrong and scary: that credit card debt was somehow “normal,” that traditional mortgages no longer made sense, that borrowing a fortune for education was “good” debt But many of the solutions prescribed at the height of the crisis—such as shunning stocks entirely, making big plays in gold, ignoring credit card debt to pile up big cash reserves—were equally misguided These notions grew up in part because of our great and long-standing ignorance about money, a financial illiteracy that makes us vulnerable to the illegal cons of scam artists as well as the legal ones perpetrated by Wall Street, lenders and corporations What’s needed now is some sanity rooted in personal responsibility There are new rules of money that will help you avoid making critical mistakes, survive the bad times and thrive in the good ones There are easy lessons you can learn now about how money works and how the economy really functions that will help you make smarter choices for years to come no matter what life throws your way Most of all, there are important truths you can absorb about how much power you have to control your own destiny—truths that can help you separate the helpful from the hysterical and move forward with confidence These aren’t necessarily the money rules your parents learned, or their parents The realities of finance have changed too much for old-school strategies to have much relevance Let’s take just one example For previous generations, “living within your means” was a fairly simple formula You put aside 10 percent or so of your income for a rainy day and lived on the rest Consumer credit wasn’t widely available The closest most people got was an account at their local grocer that they could pay off once a month or a layaway plan at their favorite department store If you did get a loan, for a car or a home, the lender was pretty conservative about how much you and bankruptcy calculators for categories of and credit scores debt consolidation loans debt management plans (DMPs) debt settlements and emergencies and 50/30/20 budget and history of credit lending and late or missed payments and loan securitization lowering rates on and marital finances payoff strategies to avoid prioritization of secured vs unsecured debts and size of mortgage strategies for managing using emergency funds to pay See also mortgages Debt-Proof Living (Hunt) deception in marital finances deceptive trade practices deed in lieu of foreclosure option deferred annuities Dell depression Detweiler, Gerri Diners Club disability insurance disaster insurance Discover divorce earned income tax credit Ecks, Fred education advantages of borrowing for(see also student loans) and choosing a school costs of and employment and financial aid for high-touch careers saving for two-year degrees Elia, Stephen elite traveler status e-mail emergency funds and crisis management automatic transfers to and budget adjustments building access to credit and checking account padding dealing with multiple crises debt repayment versus emergency funds defining emergencies and disaster insurance financial crisis of 2008 and home equity lines of credit and “If Things Really Get Bad” list importance of flexibility management strategies and multiple income streams and paying down mortgages and prioritization and raising cash quickly retirement savings versus emergency funds and savings and student loan debt emotions employment and education high-touch careers loss of and multiple income streams and raising cash quickly enrolled agents Equifax equipment rentals ESPlanner estate planning estimated tax payments exchange-traded funds (ETFs) expenses and emergencies “must-have” expenses needs vs wants prioritization of trimming unexpected expenses “wants” category in budget Experian Fernandez, Delia FICO score See credit scores Fidelity 50/30/20 budget advantages of basics of and crises “must-have” category of savings and debt repayment category of scenarios for “wants” category of financial crisis of 2008 See Great Recession Financial Engines financial independence financial planners Firefly phones 529 college savings plans flexibility flexible spending account (FSA) foreclosure and credit scores deed in lieu of foreclosure option defined Depression-era history of and legal advice and missed payments and retirement funds The Foreclosure Survival Guide (Elias) 401(k) 403(b) fuel charges gender issues Get a Life (Warner) gift giving gift taxes Glink, Ilyce Good Morning America Great Depression Great Recession causes of and the credit card industry and education housing bubble and mortgage crisis and investing strategies and personal responsibility retirement in the midst of and Social Security and target-date maturity funds and unemployment rate Guaranteed Auto Protection (GAP) insurance Haebig, Ann health insurance health savings accounts (HSA) high-cost-of-living areas high-touch careers home equity loans and lines of credit access to and bankruptcy dangers of debt categorization of defined and emergencies and student loan debt transferring credit card debt to home phones homes bad reasons for buying budgeting for condos equity in(see also home equity loans and lines of credit) guidelines for purchasing in high-cost-of-living areas as investments maintenance of and neighbors and net worth and property taxes and remodeling projects starter-home myth unaffordable housing and unexpected expenses value of See also mortgages honesty in marital finances hotels Houston, Ruth Hunt, Mary Ibbotson, Roger “If Things Really Get Bad” list immediate annuities income after-tax income and debt repayment and emergencies and financial aid loss of median incomes and mortgages multiple income streams and net worth and student loan debt variable income volatility in and wealth accumulation index funds Individual Retirement Accounts (IRAs) infidelity inflation defined and home values and investments and paying off a mortgage inheritance installment loans and credit scores defined transferring credit card debt to insurance auto insurance and cell phones condo and co-op coverage and credit union deposits disability and long-term care insurance disaster insurance and estate planning health insurance house insurance liability coverage life insurance limiting claims on and marital finances and paying off a mortgage and rental car agreements renters insurance replacement-cost policies saving money on Internet-based banks Internet-based phone service investments and asset allocation average annual returns bonds costs associated with exchange-traded funds (ETFs) and financial crisis of 2008 and financial planners homes as index funds and inflation inherent risk in and life expectancies and market turmoil mutual funds myths surrounding nonretirement investments and paying down mortgages and raising cash quickly and rating agencies and risk vs returns stocks and sustainable withdrawal rates Treasury securities and wealth accumulation Is He Cheating on You? (Houston) J.D Power joint accounts Jubak, Jim Kantrowitz, Mark Keefe, Pat Kopit, Alan Kuritz, Marty late fees Laugh-In law enforcement lawsuits Leamy, Elisabeth Levine, Ross life expectancies life insurance and beneficiary designations and dependents and mortgages and raising cash quickly lifestyle funds Lifetime Learning tax credit The Little Book of Common Sense Investing (Bogle) loans and building credit and credit scores debt consolidation loans installment loans and lending standards and marital finances pawnshop loans payday loans peer-to-peer loans personal loans small business loans See also mortgages; student loans loan securitization long-term care long-term disability insurance Luscombe, Mark Mad Men (television) marriage and blended families and credit histories and debt and estate planning and the family CFO financial planning in and honesty in finances and taxes McCaffery, Edward McCurdy, Diane media Medicaid medical expenses and bankruptcy debt categorization of and flexible spending accounts (FSA) and health savings accounts (HSA) and retirement funds and savings “buckets,” and unexpected expenses Medicare Mellan, Olivia mental disorders The Millionaire Next Door (Stanley) Money Fundamentalists Monte Carlo simulations Morningstar.com mortgages and bankruptcy and blended families costs of and credit scores debt categorization of and deed in lieu of foreclosure option and down payments and emergencies and foreclosure history of and housing bubble/mortgage crisis and income and late or missed payments and lending standards and life insurance and marital finances paying down and real estate schemes refinancing and retirement as secured loan shopping for short sales size of traditional advice on types of underwater mortgages using retirement funds to pay See also homes “must-have” expenses and emergencies and 50/30/20 budget and savings “buckets,” mutual funds National Credit Union Administration needs vs wants net worth opportunity costs Pagliarini, Robert partnerships pawnshop loans paychecks and marital finances paycheck-to-paycheck lifestyle payday lenders PearBudget peer-to-peer loans pensions personal loans personal responsibility personal savings rate phone services politeness postnuptial agreement poverty privacy and marital finances property taxes purchase decisions and marital finances quarterly estimated payments Quicken personal finance software rating agencies real estate schemes Reed, Phil rental car agreements rental properties retirement funds account options for automatic transfers to and bankruptcy and beneficiary designations calculators for and debt repayment determining how much to save for early withdrawal of and emergencies emergency funds versus and financial aid and financial planners and immediate annuities and life expectancies loans against and medical bills and paying off a mortgage and pension plans as retirement approaches retiring by fifty and saver’s credit and Social Security and spending trends and starting from scratch and student loan debt and supercharging your savings Rohlena, Jody Roosevelt, Franklin D Roth IRAs S&P 500 Save Big (Leamy) saver’s credit savings automatic transfers to in budgeting difficulty of accumulating and emergency funds and financial aid and marital finances personal savings rate and raising cash quickly for retirement(see also retirement funds) savings “buckets,” and wealth accumulation savings bonds secured credit cards secured vs unsecured debts Securities and Exchange Commission (SEC) self-employment and estimated tax payments and health savings accounts (HSA) and raising cash quickly and retirement options and tax professionals and variable income selling property settlement of debts Shankman, Peter ShopSmart short sales simple living concept simplified employee pensions (SEPs) Skype small business loans Social Security applying for compromised state of and marriage penalty percent of income and retirement planning role of software for financial management Sommer, Henry spending trends Stanley, Thomas Stewart, Tracy B stocks Stop Acting Rich (Stanley) Stop Getting Ripped Off (Sullivan) student loans and bankruptcy consolidation of and costs of education debt categorization of federal vs private loans forgiveness options and Great Recession guidelines for borrowing and late or missed payments lowering rates on and managing debt and marital finances repayment of subscription services Sullivan, Bob Sullivan, Brian survivor benefits target-date maturity funds taxes homes as deductions and late or missed payments and marriage and mortgage interest property taxes refunds and retirement funds tax debt tax professionals Taxing Women (McCaffery) telephone bills Tiffany, Susan Tomlin, Lily TransUnion travel industry Treasury securities T Rowe Price trust and marital finances Tyson, Eric unemployment benefits unemployment rate Uniform Gifts to Minors Act (UGMA) Uniform Transfers to Minors Act (UTMA) USA Today utilities Validas Vanguard Venti, Steven Veres, Bob Vidmar, Steve Visa voluntary simplicity movement Vonage Wang, Sandra “wants” category in budget Warner, Ralph Warren, Elizabeth wealth and home ownership and income and marriage and neighborhoods wills windfalls Wise, David workplace health benefits Worters, Loretta “Yeah, but” syndrome young drivers Your Money or Your Life (Robin and Dominguez) ... OF CONGRESS CATALOGING -IN- PUBLICATION DATA Weston, Liz Pulliam The 10 commandments of money : survive and thrive in the new economy / Liz Weston p cm Includes bibliographical references and index... learning curve in getting the program set up and running Fortunately, there are plenty of other options Sites like Mint.com (a service from Quicken) and moneyStrands offer transaction-tracking and. .. make your money work These ten commandments of money are principles distilled from more than fifteen years of writing about money and helping literally millions of people get their finances on