Want a foolproof way to turn $1 a day into $67,815? It doesn't take a lot of money or time or personal sacrifice. There's no magic, no multilevel marketing and no salesman will call at your door.

In fact, it's the simplest and most-proven way to get richer, and if you extend this concept to other parts of your life, you could end up with an enviable retirement nest egg.

To start, all you have to do is take your pocket change at the end of the day and drop it in a jar. If you can do that, and you put away about $1 a day, that's just $7 a week. At the end of the month, you'll have about $30.

Since this is money in your pocket, you've already paid taxes on it in the form of withholding from your paycheck. (If you're self-employed, that's not true, but we'll ignore that to keep things simple.) Every month, deposit your savings in a Roth IRA account, where it can grow tax-free and -- more important -- be withdrawn tax-free in the future.

What's a paltry $30 a month going to do for you? Growing tax-free for 30 years, with a 10% annual return, your investment account will be worth $67,815. Not bad for pocket change, but that's just the beginning.

Here are some other ideas for saving a few bucks here and there that can add up to big dollars over time.

Trim your expenses to save more

Activity Monthly Savings Annual Savings Take-out vs. dining out once a month $45 $540 Manicure less often $15 $180 Fewer trips to car wash $12 $144 Video rental vs. movie monthly $11 $132 Regular coffee instead of cappuccino on weekdays $40 $480 Total $123 $1,476

If you can knock this $123 out of your monthly budget, at 10% it will grow to $278,040 in 30 years. You've practically financed your retirement with just a few small sacrifices.

If you want to see for yourself how small savings can multiply over time, spend a little time playing with MSN Money's Savings Calculator. You'll see that if you can add in some big-ticket savings, it takes just $443 a month to make yourself a millionaire.

Here are a couple of ways to do it:

Debt on wheels
Often, the same people who bemoan the fact that they can't save are driving around in a new car and making monthly payments on a 48-, 60- or 72-month loan. But you'll be amazed by how much you can save by buying a used car.

Consider the alternatives:

An example: You put $6,000 down to buy a new car worth $26,000. You finance $20,000 at 9% interest for 60 months. Your monthly payments are $415.16. Total interest costs are $4,910, making the total cost of the car nearly $31,000.

What's a paltry $30 a month going to do for you? Growing tax-free for 30 years, with a 10% annual return, your investment account will be worth $67,815. Not bad for pocket change, but that's just the beginning.

Another example: You pay $6,000 cash for a good used car. Invest that same $415.06 a month for the same 60 months with an average 9% rate of return. At the end of 60 months you would have roughly $29,000 in your investment account after paying taxes of about $6,300 on your long-term capital gains. (The exact amount would vary depending on factors such as whether your investments paid dividends.) Even if you subtract the cost of whatever additional repair costs you may have for your older car, you still come out way ahead.

Plastic handcuffs
Buying on credit is a convenient way to pay too much for everything you buy. Consider the costs: Say you spent $1,000 on clothing, using a credit card charging 18% interest, and you make the minimum monthly payment to pay off the balance. It would take you almost six-and-a-half years to erase the debt, and your $1,000 wardrobe would actually cost you more than $1,650.

Or maybe you'd rather buy some furniture. Buy $2,000 worth of furnishings with a credit card charging 18.5% interest and consider the consequences if you pay off the balance by making minimum monthly payments. It will take more than 11 years to repay the debt. By the time the loan is paid off, you will have spent an extra $1,934 in interest alone -- almost the actual cost of the furniture.

Unlike most things in life, when it comes to saving money, it pays to sweat the small stuff. And when you're done with that, go after the big stuff too!

By R Jenkins (MSN.com)

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Home Equity Loans:
The Three-Day Cancellation Rule

If you’re considering applying for a personal loan and using your home to guarantee repayment, you should know that a federal credit law gives you three days to reconsider a signed credit agreement and cancel the deal without penalty. Your "right to rescind" or "right to cancel" is guaranteed by the Truth In Lending Act. You can rescind for any reason but only if you are using your principal residence—whether it is a condominium, mobile home, or house boat—as collateral, not a vacation or second home.

Under the right to rescind, you have until midnight of the third business day to cancel the credit transaction. Day one begins after all three of the following occur:

- you sign the credit contract;

- you receive a Truth in Lending disclosure form containing certain key information about the credit contract, including the annual percentage rate; finance charge; amount financed; and payment schedule; and...

- you receive two copies of a Truth in Lending notice explaining your right to rescind.

For rescission purposes, business days include Saturdays but not Sundays or legal public holidays. For example, if the events listed above take place on a Friday, you have until midnight on the next Tuesday to rescind.

During this waiting period, activity related to the contract cannot take place. The creditor may not deliver the money for the loan. If you’re dealing with a home improvement loan, the contractor may not deliver any materials or start work.

If you decide to rescind, you must notify the creditor in writing. You may not rescind by telephone or in a face-to-face conversation with the creditor. Your written notice must be mailed, filed for telegraphic transmission, or delivered if by other written means, before midnight of the third business day.

If you cancel the contract, the security interest in your home is also cancelled, and you are not liable for any amount, including the finance charge. The creditor has 20 days to return all money or property you paid as part of the transaction and release any security interest in your home. If you received money or property from the creditor, you may retain it until the creditor shows that your home is no longer being used as collateral and returns any money you have paid. Then, you must offer to return the creditor’s money or property. If the creditor does not claim the money or property within 20 days, you may keep it.

If you have a bona fide personal financial emergency—such as damage to your home from a storm or other natural disaster—the law allows you to waive your right to rescind and eliminate the three-day period. To waive your right, you must give the creditor your own written statement describing the emergency and stating that you are waiving your right to rescind. The statement must be dated and signed by you and anyone else who shares in ownership of the home. But remember: if you waive your right to rescind, you must go ahead with the transaction.

The right to rescind does not apply in all situations when you are using your home for collateral. Among the exceptions are:

- when you apply for a loan to buy or build your principal residence;
- when you refinance your loan with the same creditor who holds your loan and you don’t borrow any additional funds; or
- when a state agency is the creditor for a loan.

In these situations, you may have other cancellation rights under state or local law.

- www.ftc.gov

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Ads Promising Debt Relief May Be Offering Bankruptcy

-- Debt got you down? You're not alone. Consumer debt is at an all-time high. What's more, record numbers of consumers-nearly 1.5 million in 2001-are filing for bankruptcy. Whether your debt dilemma is the result of an illness, unemployment, or simply overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes.

While the ads pitch the promise of debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it's generally considered the option of last resort. The reason: its long-term negative impact on your creditworthiness. A bankruptcy stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live.

The Federal Trade Commission (FTC) cautions consumers to read between the lines when faced with ads in newspapers, magazines or even telephone directories that say:

"Consolidate your bills into one monthly payment without borrowing."

"STOP credit harassment, foreclosures, repossessions, tax levies and garnishments,"

"Keep Your Property."

"Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!"

You'll find out later that such phrases often involve bankruptcy proceedings, which can hurt your credit and cost you attorneys' fees.

If you're having trouble paying your bills, consider these possibilities before considering filing for bankruptcy:

Talk with your creditors. They may be willing to work out a modified payment plan.

Contact a credit counseling service. These organizations work with you and your creditors to develop debt repayment plans. Such plans require you to deposit money each month with the counseling service. The service then pays your creditors. Some nonprofit organizations charge little or nothing for their services.

Carefully consider a second mortgage or home equity line of credit. While these loans may allow you to consolidate your debt, they also require your home as collateral.

If none of these options is possible, bankruptcy may be the likely alternative. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The current filing fees are $185 for Chapter 13 and $200 for Chapter 7. Attorney fees are additional and can vary widely. The consequences of bankruptcy are significant and require careful consideration.

Chapter 13 allows you, if you have a regular income and limited debt, to keep property, such as a mortgaged house or car, that you otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to pay off a default during a period of three to five years, rather than surrender any property.

Chapter 7, known as straight bankruptcy, involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official-a trustee-or turned over to creditors. You can receive a discharge of your debts under Chapter 7 only once every six years.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.

Produced in cooperation with the American Financial Services Association

- www.ftc.gov

 

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Creating a budget...

I've committed to squeezing my flabby money habits into that new skin-tight budget. Oh brother! Wearing this thing is a bit painful. Here's how I did it.

Creating a budget after 36 years of living without one is like finding that perfect pair of jeans. You try them on in the store, and you cannot believe how great those jeans make you look. Then you take 'em home, wash 'em a few times. Suddenly they're a little too snug -- or your butt is a little too ample -- and you?re trying to squeeze yourself into a pair of pants (and a budget) that doesn't fit or feel that great.

Luckily, you know that even though your jeans will never again achieve the Britney-like perfection they had in the store, they will loosen up. And the good news I bring to you, my financial pal, is that so does the budget. Or at least you get more comfortable. But there is that period when you?re squirming around, feeling like you gotta wriggle into something that's two sizes too small. Here's how I did it.

Just don't inhale
The basic concept behind my budget is to establish a few big categories for tracking my spending, rather than fret over every penny. The most important goal is to limit committed spending (e.g. rent or mortgage, insurance, taxes, kids' music lessons, pet food, car payments) to 60% of your gross income. Then you divide the remaining 40% into four chunks: 10% to retirement; 10% to long-term and emergency savings; 10% for irregular expenses; 10% for fun money.

Since I hate counting pennies, I love dividing my money into chunks that are big enough to keep things simple, yet also allow for growth, change and expecting the unexpected. The trouble was learning to live within that svelte 60%.

Although I'm a freelance writer, I do have some regular writing assignments (like this one), so about 70% of my income is fairly steady from month to month. The rest comes in the form of big checks for longer articles that I get five or six times a year. Mind you, I also have to pay a big tax bill once every quarter. So the top priority for me was to translate this vague notion of 60% into real numbers.

Doing the math
For the sake of argument and to preserve some tiny shred of financial privacy for myself, let's fantasize that I make about $75,000 a year. I don't, but, A) this is roughly the median income range for the readers of most personal finance magazines, and, B) it's close enough so that the exercise actually worked for me. Multiplying $75,000 by 60% and dividing the result by 12 leaves me with $3,750 per month for my committed spending.

Let's say that my regular assignments provide about $4,400 per month that I can count on. That's more than enough for my committed expenses -- including taxes -- but I also need my fun money every month. Please note: fun, or what I call Doing Stuff With Friends, should not be part of the 60%. You take that out of your 10% fun category. Taking 10% of $75,000 and dividing by 12, I get $625 per month for fun -- or roughly $150 per week.

I fund retirement and irregular savings and debt repayment from those big irregular checks. The one thing I have to be careful about is to set aside money each month to pay my taxes when they're due. (If you get a regular paycheck, taxes have already been withheld, of course.)

Learning to live with the numbers
This was weird for me. Living on a budget means living within certain limitations. I like to think of myself as a limitless kind of gal.

That's where knowing the numbers comes in handy. You can't argue with them. If I want to spend more than $150 a week socializing (which in New York is painfully easy to do), I lose out in another category, like paying down debt (which is what I'm using the 10% long-term savings category for).

In my last column, I used the Spending analyzer on my MSN Money account and realized that I was taking out an insane amount of money in ATM withdrawals. That left me wondering where it all went.

I started using my debit card for more purchases and soon figured out that the source of trouble for me is the fun category: hanging out, eating out, meeting for drinks, coffee, lunch. Clearly I'm having WAY more fun than I can technically afford.

But that's the point of a budget, isn't it? It holds up a mirror to all those unsightly blemishes you'd rather not see. And you might be surprised by what you do see when you start looking. I don't need to break myself of an expensive shoe habit, but the Doing Stuff With Friends category is breaking the bank! The other night I met one friend for a drink, and then we joined other friends for dinner. I spent $50, one third of my fun budget, in one night, without batting an eye.

That's gotta stop. And it has. I've started cooking more, eating out less and inviting friends over to hang out at home -- home being noticeably cheaper than most Manhattan restaurants. (And I make a mean shrimp scampi.)

When temptation rears its ugly head
But your budget is never safe. It's constantly under siege by the temptations of the world.

Mine was an almost-irresistible opportunity to rent a room in a year-round country house. When you don't own a vacation home, renting a room in a shared house with friends is the perfect way to survive New York City life. Plus, this one was cheap (relatively speaking) at about $270 a month.

We've all had these moments. You waltz across something you want badly -- a new coat, a new car, a vacation. You know it's not going to break the bank. It might even be a deal.

So under the benign influence of Spending Delusion #1, "I have to buy it because it's so cheap," you justify spending money you don't have.

Or you find a way to make it work. I realized, facing the painful, gut-wrenching reality of my budget, that I simply don't earn enough to justify spending a measly $270 a month extra on anything. Period. So I could let the getaway house get away -- or I could get creative and make room in the 60% I've set aside for committed expenses.

One way is to finagle a little extra money. As a freelancer I can do that -- you can too, by working overtime, say, or having a massive garage sale. That helps, but it?s not going to pay a regular rent bill.

Then my editor had an idea (because really, he does want me to succeed at this, if only because it makes him look good). He pointed out that by depositing the 10% of my income designated for retirement (that's about $7,500) into a SEP-IRA (that's a 401(k) for the self-employed), I'd reduce my taxes by $870 a year, or $70 a month.

The question is, can I cut $200 a month worth of fat from my 60%? That would mean cutting $50 a week from somewhere. That's going to take a little more self-analysis.

But $50 a week is about $10 a day. Surely I can cut $10 a day in order to have a room in a house in the country. But realistically speaking, that's going to take some time, and I'll have to keep you posted.

Th-th-th-that's not all, folks
I wish it were. But as I've discovered, these are the skills you need to live sensibly with money. It's slow. It's like trying to tighten up your flabby gut at the gym. I have to break myself of old habits and create new ones -- and be disciplined. Did I want that lovely butcher-block kitchen cart I saw at Crate & Barrel for $249? Yes. Did I instead go to a junk shop and buy a modest $25 steel cabinet on which I can put my plastic cutting board? You betcha.

I'm telling you, if I can figure this out, ANYONE CAN.

My next challenge will be setting up a financial system for making sure my retirement money goes where it's supposed to and that I put the savings for irregular expenses in a place where it won't accidentally get mixed in with the dining-out money. Because, trust me, if you are new to this, you don't want to leave anything up to chance. Because chances are, you'll just spend it. And we're not doing that anymore, are we?

By MP Dunleavey (MSN.com)

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KNOWING WHEN TO BORROW--AND WHY

Borrowing has a bigger impact on your wealth than almost any other decision you make. So what's a good reason to borrow? To buy a house, sure, but not much else.

The decisions about when and why to borrow have a bigger impact on your overall wealth than almost any other decision you make. Yet few of us think about it in those grand terms. Instead, we think of solving an immediate problem or fulfilling an immediate need -- or desire.

Thinking in this piecemeal way about your finances can be devastating to your wealth. It's like shooting yourself in the foot before you run a race. By borrowing money and paying interest, you’re decreasing your overall wealth to accomplish a goal or acquire an asset. If what you acquire is a wasting asset -- something that declines in value -- you put yourself further behind in the game of realizing long-term goals.

Economics is based on a theory called the utility theory, which assumes that each person's goal is to maximize his wealth. To do that, the rational person examines each financial decision to see how it will impact his wealth over the long term and then makes the choice that will increase his wealth.

Of course, that's the way it should be. But it's a long shot from the way it is. "Every one of these assumptions is wrong," says Daniel Kahneman, a psychology professor at Princeton University and a leading figure in a new discipline called behavioral finance. "People take a short-term view and they compartmentalize things rather than looking at them in a grand way."

Behaviorists like Kahneman argue that we think in terms of mental accounts. For example, we mentally put our 401(k) plan into one account and consider whether that account is ahead or behind for the year. Our home is another account. Emergencies, and loans, are another matter altogether.

Borrowing should be saved for rare occasions
Of course, there are times when you must borrow. But they are probably fewer than you think. You should never borrow for a wasting asset. That includes clothes, furnishings, entertainment, vacations and dinners out.

"If you pay only the minimum balance on your cards, you could be paying for that dinner 30 years after you digested it," says Marc Eisenson, author of the best-seller, "The Banker's Secret," and a staunch opponent of any kind of debt.

Most credit cards require a minimum payment of 2% to 3% of the balance, Eisenson says. That means you’re required to pay only $100 to $150 a month on a balance of $5,000. "Most people assume you are better off with the one that requires $100," Eisenson says. "But with that one, you are paying so little in principal that you could be paying for 30 yearsand end up sending in $10,000 to $15,000 in interest for the $5,000 you borrowed.”

Likewise, a $100 dinner could cost you $300 by the time you've paid it off. But the after-tax cost is much higher. "People forget they have to earn a lot more because they have to pay taxes," Eisenson says. "So you really have to earn $450 to have $300 left over for that meal. That's why so many people are caught living paycheck to paycheck."

What is a good reason to borrow then? Perhaps the best reason is to buy a home. A home mortgage is one of the few loans that still provides a tax deduction for interest. That makes the real cost of a home mortgage less than that for other debt.

All interest you pay on a home of up to $1 million in value is tax-deductible. So if you’re in the 30% marginal tax bracket, the government pays 30% of your interest. That means if you pay $15,000 a year in mortgage interest, the real cost to you is just $10,500.

Looking at it another way, if you pay 8% on your loan, the after-tax cost is 70% of that, or a 5.6% interest rate. You might also build in an inflation factor. Inflation is a great boon to debtors because they acquire an asset in today's dollars and pay it off in tomorrow's.

Even with the low inflation we have today, you could reduce your real interest rate for a home loan. If inflation is 2%, perhaps we could say your real cost of borrowing for your home is 5.6% minus 2 percentage points or 3.6%. Taking inflation directly off the interest rate is hardly a mathematically rigorous method of measuring your cost. Ideally, you would look at cash flows and so forth. But it gives you an idea of what it costs you to borrow.

Owning your own home provides psychological as well as financial benefits. That's why many financial planners urge clients to "go for it" when they find a home they love.

The ideal consumer, according to some experts, would take out a loan only for a home -- and perhaps a second home -- to capture the tax break. Everything else would come from his emergency fund or from short-term or long-term savings.

So our model consumer sets short-term and long-term goals, sets aside money to realize them and, in fact, operates under the utility theory that many economists have abandoned to increase his overall wealth. If you fall short of the model, aim for it.

By R Jenkins (MSN.com)

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• The amount of outstanding credit card debt rose from $173 billion in 1990 to $608 billion in 2001, according to Cardweb.com. Adjusted for inflation, that’s a rise of 160%.
  
• During the same period, average credit card debt rose from $2,985 per card-carrying household to $8,367.
  
• Home equity lending rose sharply from $461 billion of outstanding debt in 1990 to more than $1 trillion last year. Adjusted for inflation, that's a 60% increase.
  
• Household debt burdens have risen to near record highs. Ten years ago, 12.47% of the average household’s disposable income went to pay consumer and mortgage debt, according to the Federal Reserve. This year, the figure is up to 14.05%.
  
  

• Foreclosures have reached the highest level in at least 30 years, according to the Mortgage Bankers Association of America. The latest figures, showing 0.4% of homes in foreclosure, are especially disturbing because foreclosures don’t usually rise in a hot real estate market, when most homeowners can sell their homes quickly. This indicates that a rising number of homeowners may owe more on their homes than the houses are worth.
• Bankruptcies keep hitting record highs, with 1.5 million filings in the 12 months ending March 30, 2002.
• Credit card delinquency rates have risen 30% in the past year, with 3.88% of credit card accounts past due.
• The average homeowner’s equity represents just 55% of the home’s value -- down significantly from the 67% level typical of the 1960s, 1970s and 1980s. Again, this is as home prices are rising -- indicating that people are draining the equity out of their homes at an alarming rate, leaving less as a cushion in case of emergency or declining home values.

1. Build and maintain a good credit. People with good credit histories and high credit scores (typically FICO scores over 720) will generally get the best deals, regardless of the overall credit environment. People with poor credit may see much of the easy lending terms of the last few years disappear.
   
2. Don’t overextend. Maxing out your credit cards and borrowing every nickel a mortgage lender will give you are rarely good strategies. They’re particularly bad ideas in rough economic times.
   
3. Pay down your debt. Again, this is always good advice, but especially so when the cost of credit could be on the rise. Start with nondeductible consumer debt, like your credit cards, and then move on to auto and personal loans (assuming you won’t face onerous prepayment penalties). Mortgage debt is generally cheap, and tax deductible besides, but it still makes sense to at least pay down your home equity loans. The more home equity you leave untouched, the more of a cushion you have in case of emergency.