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

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.

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.

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.

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.

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.

Before you move:

• Down Payment: While it is very possible to get a home loan without a down payment these days, having one brings a number of advantages: first of all, you’ll pay less. If you purchase a house at $250 000 with no down payment, you’ll be paying $1600 per month (at 6% interest). However, with a $25 000 down payment, you’ll only be paying $1439 per month, saving almost $200. This will save you an enormous amount of money. Also, the bank is more likely to give you a better rate if you have a large down payment, which can reduce your costs. Having a down payment is definitely a good idea. I would strongly recommend having at least $5000 to put down.
• PMI: However, if you don’t have a 20% down payment, you’ll likely have to pay PMI Insurance, which essentially insures the loan for the bank if you are unable to make the repayments. This will have to be factored in to your budgeting as well.
• Closing costs. These are generally 2-7% of the value of the home you’ve purchased, and have to be paid before you move into the home. This includes taxes, title insurance, financing costs and other settlement costs.

While you move:

• Furniture. If you’re going from a bachelor apartment to a 2-or-3 bedroom house, chances are you’re not going to have enough furniture to fill the place. You will most likely end up in IKEA, trying to find some stuff to fill up the space, and it will cost you money. If you do have the willpower to not purchase anything else, that’s excellent! You’re part of the minority and you can ignore this part.
• Moving costs: If you’re moving across the country this can get expensive, especially if you’re not the type to rent a budget truck and hire actual movers.

After you move:

• Property taxes: Many people completely forget that they have to pay taxes on their property. Furthermore, as your home’s value increases, so do your property taxes. While there may not be a huge risk of that if you’re in the USA, in certain parts of Canada you can be paying a significantly larger amount of money in the future for your property taxes.
• Maintenance costs: Things break down in houses. Unfortunately, now that you own yours, it’s not up to your landlord to pay those costs anymore. You’ll need to be able to spend a little bit of money when something inevitably goes wrong, and you need to budget for that scenario.
• Insurance: you need fire insurance, flood insurance, etc. These costs can add up, and they are required. Be sure to shop around and make sure you do some research before purchasing any sort of home insurance.

There are a number of costs involved in home ownership on top of the actual mortgage payment. You need to be sure that you had adequate savings to be able to afford a home and that you will be able to continue the repayments in the future. It’s entirely possible: millions of people have done it. You just need to step back, look at the big picture, and perhaps buy a townhouse instead of a house, or a smaller one which in ten years you can upgrade from. Just consider all of the costs, for your financial security’s sake.

• Live plant: flowers are a traditional mother’s day gift, but boquets are expensive and don’t last a long time. Why not buy your mother a beautiful plant which will last much longer with only little care required? Rhododendrons are usually a good bet, as well as tulips and orchids. Try to buy a perennial plant, which will survive through a number of years, rather an an annual or biannual plant which won’t last as long.

• Breakfast in bed. This is a traditional one, and why not continue it? It will cost you at most $20 to buy all of the ingredients at the grocery store to make her an amazing breakfast. One website I absolutely adore for finding great recipes is tastespotting.com. You’ll be bound to find something amazing to make her there.

• T-shirt and mug. This one works especially well if you have children, as you can put their photos on the items. There are a number of print shops that will take your photos and print them on t-shirts and mugs, so why not give your mother something sentimental like that? If you haven’t got children of your own, I would recommend you use one of your own childhood pictures because, well, lets face it, we were all much cuter when we weren’t full-grown! Wrap it up nicely and this sentimental gift shouldn’t cost more than about $25.

• A few high-quality chocolates. Giving your mom a little indulgence is a great way to make her feel special. Make sure you’re buying very good quality however: think Godiva as opposed to Purdy’s. You don’t need to buy many: at Godiva 8 chocolates costs around $16 after taxes, and the high quality means you don’t need to buy many. Most moms don’t treat themselves to such things, so it will be twice as special for her.

• A nice fruit basket. You can make these yourself for relatively cheap. You just need to do it pretty close to Mother’s Day. Find some fruit that’s just ripe one or two days before mother’s day. A pineapple is a must, as well as kiwis, magoes, cantelope and honeydew if you can find them. Small fruits, such as strawberries, go well in a little bowl as well. Wrap it up nicely, add a nice card and (if you’ve got one) frame a photo of yourself and your mom.

Just because it’s mother’s day doesn’t mean you have to spend a fortune. Most mothers appreciate the sentimental stuff even more so than they do the material. Let your mom know you love her with one of these ideas and you won’t be breaking your budget either.

Coffee. Lets say you spend $2 on a coffee every weekday. Since there are about 260 weekdays in a year, you’re spending an extra $520 every year on coffee. Have you considered brewing at home and brining it in a travel mug to work to cut down on those costs? Or maybe consider cutting the habit altogether!

Take-out Breakfast. They’re so tempting, as they’re just sitting right there when you order your coffee and who wouldn’t like to enjoy a nice muffin along with the morning brew? You can add another $520 per year if you’re one who succumbs to these cravings! By making your coffee at home or cutting the habit entirely, you also reduce your chances of making one of those impulse breakfast buys.

Alcohol. If every weekend you’re spending $20 on a pack of beer, a bottle of Jim Bean, etc, you’re spending over $1000 per year. The price everybody spends on alcohol varies differently, but if you’re finding that you’re spending that much, try cutting back a little bit. Maybe cut down on the number of drinks you have on the weekend, or drink the same amount but every other weekend, or once per month.

Convenience Store Snacks. They’re named that way for a reason. They are very convenient. Unfortunately, they’re also quite pricey, especially compared to supermarket items or making snacks at home. If you spend $2 a week at a convenience store on food you really don’t need, there’s an extra $100 gone over the course of the year.

Bottled water. While I realize people do have their own reasons for drinking the stuff, you’re generally spending around $1 per bottle. If you’re drinking 2 bottles per day, that’s an extra $600. Try investing in a high quality water filter instead.

Unused gym memberships. The average membership for a gym is $40 per month. While intentions may have been noble in January, lets face it: a lot of us let our gym memberships go unused. Unfortunately, this is costing you $480 per year, so you should just cancel your membership. Your pride may take a small blow, but at least your wallet won’t!

These are just some of the examples of little things which cost us a lot. If you fall victim to all of the above, you’re spending over $3200 per year more than you could be if you cut the above out of your habits. By further analyzing your spending, you’ll find places where you spend more than you should and you’ll be able to save yourself a lot of money as well.

Frugal Trader posted a great article about getting organized for tax season… something we all need to do!

Money Ning used personal experience to convey why sometimes it’s best to not be frugal.

Money Smart Life lists the best credit cards to save money on gas.

JD at Get Rich Slowly has a great guide to stopping junk mail.

Also, thanks to The Happy Rock for hosting this week’s Carnival of Personal Finance and to On Financial Success for a very creative Festival of Frugality.

Have a great (rest of the) weekend everybody!