While this is completely off topic, I know that a number of the regular readers of The Penny Mine also have their own blogs, so this may be useful to a number of you. Entrecard now has an option to add extra blogs, and they have released a new e-book as well.

You can read more about all of this here at the Entrecard blog.

Popularity: 25% [?]

If you’ve found yourself in debt, there are a number of things you should start doing right away to take back control of your finances:

Don’t panic. No matter how deep in debt you may be, you must not panick, no matter how overwhelming it may seem. I have seen people $100 000 in debt get out of it. It takes time, but it is possible to get out of even the worst of debts. If you panick, thinking it’s impossible, you’ll only lose focus and you will have more difficulty in making those decisions which are absolutely crucial to getting out of debt.

Budget. This is one of the most basic steps to getting out of debt. Read the budgeting basics article here at The Penny Mine to get a solid overview of how exactly to create a budget to suit your lifestyle and which will help you get out of debt.

Get a Second Job. While this isn’t always an option for everybody, if you’ve got the time, a nights/weekend part-time job can help you cut into your debt very quickly. If you’re working for $10 an hour, even an extra 15 hours a week should net you around $400 per month after all of the deductions. For most people in debt, this can make an enormous difference.

Do Not Open More Cards. A lot of people, tempted by low introductory rates, tend to open as many credit cards as they can to consolidate debt. I strongly recommend against this, unless you know exactly what you’re doing. The reasons behind this are covered in parts 1 and parts 2 of the 0% intro rate trap. For most people, these introductory cards are a sham, and will cost you more money than they are worth. Stay away, no matter how tempting it may be.

Prioritize Your Debt Reduction. If you’ve got student loans of $20 000 at 5% interest and credit card debt of $10 000 at 20% interest, you’re much better off paying the smaller amount of credit card debt first, despite it having a smaller balance overall. Some people suggest the “snowball” method, which involves paying the smallest debt first and the largest debt last, regardless of interest rate. If you have problems paying debt and need the visual of having your debts disappear, the snowball method may be better for you. However, if you have the willpower to stick to your plan, always pay off the highest interest rate balance first.

By following these five simple steps you’re putting yourself right on your way to a debt-free lifestyle. Of course there is a lot of planning and thought which must go into being debt free, but these are the basic steps you need to follow to get onto a debt-free path.

Popularity: 12% [?]

Given as I’m back in BC, the part of Canada with the most outrageous housing prices, I’ve been seeing a number of advertisements for 40 and 50-year mortgages from companies hoping to attract the younger audiences who are more or less unable to purchase a home with a traditional mortgage given the way prices have been going. They advertise that you will be gaining equity in your home, and making lower payments than you would with a traditional mortgage. However, the 40-and-50 year mortgages are some that should be avoided at all costs.

Generally, longer-term mortgages have a higher interest rate, 0.25% for the first five years, but after those first five years the rate adjusts to match the lending rate for regular mortgages.

In the town I live in, the lowest rate an apartment can generally be purchased for is around $200 000. Lets assume then, that one gets a mortgage for $250 000, something a little bit better than the lowest possible price. Assuming we have a $15 000 down payment and an interest rate of 5.75% for a regular mortgage, the regular mortgage payment would come out to being $1468.81 per month. The same mortgage amount over 50 years, at 6% for the first five years, would cost $1224.28 per month. While the savings are $200 per month, this is far from the only calculation to consider.

What about equity in the home? Assuming that after five years the house’s value has increased 10%, to $275 000, lets look at the equity. Under our calculations, after 5 years with a standard 25-year mortgage there will still be a balance owing of around $210 000. Thus, the equity in the home is around $65 000. With the 50-year mortgage however, after 5 years there is still around $230 000 owing, meaning that the equity in the home after five years with the longer mortgage is only around $45 000.

The difference in the payments each month are $244.53. Over those five years, you’ll be paying an extra $14671.80 to get around $20 000 in extra equity. Over five years, this comes to being a 73% return, or around 14% per year. This extra $250 per month can make an enormous difference in the value of your home.

There’s also the mental aspect of it. If you’re 20 years old and buy a home with a 50-year mortgage, you’re looking to be 70 years old by the time it gets paid off. It’s a struggle, mentally, to know that you will be spending most, if not all of the rest of your life with that mortgage to deal with.

Don’t get a 50-year mortgage. They make zero sense financially. Either wait until you get a pay rise, budget accordingly or buy smaller in order to be able to afford the slightly more expensive traditional mortgage which will save you a lot of money and gain you a lot more equity in the long run.

Popularity: 14% [?]

As many of you know, at the end of the month I’m moving to Brisbane, Australia, to live with my fiancee. Any Australians in the crowd likely know that interest rates in Australia are much higher than here (around 7% I believe) and most of the country also happens to be in a housing boom.

My fiancee’s lease expires at the end of June, and we’ve decided to move into something a little bit bigger with my arrival at that time. We’ve already started looking at places to rent which are currently available and one of the major things I’ve noticed is that a number of places will list the weekly price and in the description write “price to increase x number of dollars in July 2008″. This is incredibly frustrating, but so normal in the area. My fiancee’s rent went up $15/week recently, and he’s far from the only one.

I just find it horribly annoying that places are advertising the lower price then have listed that they’re increasing the rent $20-$30 in the next couple of months.

Apart from this rant, however, I will add in a lesson about renting: always search early. We are currently looking not only to see what’s generally on the market at the price we’re looking for, but also to pick out a few potential places we like. When we find one of these, we bookmark them. In a month or so, when we’re seriously ready to find a new place, we’ll be going back to these saved properties: if any are still on the market, our options for negotiation are much better. Even though the market is booming there is still a vacancy rate and some very nice places are in less desirable locations (such as near a major road) may not be filled. Since the owners want to be paid as soon as possible, if the place has been on the market for a while, they may accept a $20-$30/week discount in exchange for us moving in immediately. A $30 per week discount would save us $1500 on the year.

While it’s not always possible to know when you’ll be moving, if you do know and you’re looking to rent elsewhere, you should always look ahead of time in the hopes of finding a property that won’t be taken. It can save you a fair chunk of money every year! It’s tougher in markets like Brisbane’s, with a very high occupancy rate and virtually impossible in Vancouver, but there are a number of areas where searching ahead and then getting a discount is very feasible.

Popularity: 11% [?]

This is without a doubt going to be one of those “preach what I don’t practice” posts, because I’m absolutely horrible at keeping receipts and just record keeping in general. So this post is not only to help you, but it’s to help me get my organizational skills in shape as well. It’s a well-known fact that we’re supposed to hang on to our receipts and other financial information, but for how long, exactly? And what’s the most efficient way to store these receipts?

First, we need to figure out how long to keep all sorts of records for. Feel free to adjust these figures for your own personal circumstances (though I would make sure that you’re keeping the tax and tax-related forms for at least as long as I recommend).

Keep for a month: ATM receipts, bank receipts, general small non-warranty purchases.
Keep for a year: Bank and credit card statements (your bank can print these off for you again if you ever need them), paycheck stubs, bills
Keep for 3 years: Warranty receipts (or longer if the warranty is longer than 3 years)
Keep for 7 years: T4s and other tax-related forms
Keep forever: Your copy of your tax returns, home improvement and home purchase-related records, large purchase receipts

Now that you know how to keep them, the question becomes where? FrugalTrader had a great post a few weeks ago about storing information for tax purposes. Well, expanding on the concept of the filing cabinet, you can keep your records extremely organized with even a relatively simple furniture set. Take for example the following simple drawer set from IKEA:

In the first drawer, you should be keeping your receipts, statements, pay stubs and bills. At the end of the month, shred the receipts (if you don’t choose to keep them longer) and put the rest of the items in an envelope. Separate your warranty receipts as well as any tax related forms in their own separate envelopes Label them, and put everything except the tax forms in the second drawer. Your second drawer should then contain everything you keep for 1 year and everything you keep for three years. The bottom section is where you should keep all of your tax information.

With this method, everything is easy to find and organized. The IKEA cabinet I posted costs $79 (Canadian), but with some frugal searching I’m sure most of us can either find something similar that we already have, or find something at a significantly reduced price which will do the trick just fine. We should all be making this effort in order to be financially responsible people.

Popularity: 68% [?]

It is extremely important to teach kids about money, but equally important is to ensure they get the most they possibly can from their education. I grew up in a small town of around 30 000 people, and saw far too many of these kids I grew up with decide by the time they hit grade 10 that they wanted their first job so they could buy a car, and then proceed to have their grades drop as they were neglecting school. So the question becomes: when should kids be allowed to get their first job?

Personally, I don’t think kids should get a job before they’re at least 16. By the time they’re 16 they will have fully understood the fundamentals of school and many will have the mental capacity and life experience to understand the importance of working at school to ensure they have a bright future. However, there are some limits I would impose, were I a parent:

1. No more than 10 hours per week. Minimum wage in Ontario is $8 per hour, and in BC it is $6 per hour. That gives kids around $110-150 of take-home pay every two weeks. For a 16-year-old, who for the most part should be only needing to spend money on things like new clothes, this is enough. They’ll learn the importance of working for their money while not having to spend so much time at it that it detriments their schoolwork. If they’re saving for a new car and want more hours, that’s what the summer holidays and spring break are for.

2. No working after school. One of the major problems I noticed in high school was a number of students would take weekday shifts, working from 3-9pm, and then not doing their homework. By only letting school kids work on the weekend, they have time during the week to finish their work.

3. If the grades drop, the job is the first thing to go. This is a fairly obvious one: students need to make sure school comes first, and if their grades drop, taking away their job is normally a good way to give them more time to focus on schoolwork.

This might seem strict, but I have seen a number of people’s futures ruined by overworking in high school for minimum wage. I didn’t get my first job until after I left high school, in part because my mom recognized this and wouldn’t let me get a job. I don’t necessarily think this was the best way to go about things, as I feel there is value in having teenagers learn about working for spending money, but at the same time I strongly believe it should really be secondary to school.

Popularity: 14% [?]