According to a Columbia study Americans are pretty clueless about energy usage. 

Take this quiz to see how energy smart you are.

Many people believe that they can save energy with small behavior changes.  When in fact these small changes, such as switching off lights, actually achieve very little.  In addition most people underestimated the benefits  of switching to more efficient appliances and autos.

The study surveyed people regarding their understanding  of the most effective ways to save energy. The survey results appeared in the Proceedings of the National Academy of Sciences.

Nearly 20 percent of the people said that turning off lights is the best approach to saving energy.  The truth is that turning off lights affects energy budgets relatively little.

If you can afford make changes the highest energy savings will come from replacing energy wasting autos and appliances with a more efficient ones.  Plus, weatherizing your home.

Saving energy = saving money!

Personal finance coach, Matt Kelly, lives in Durango, CO.  He blogs here at www.debtfreetribe.com and writes a monthly newspaper column called Money Savvy.

All life insurance involves paying premiums over time.  If you die the insurance policy pays based upon the terms of the agreement.

I believe that you should have enough life insurance so that if you, or your partner, pass away you can live off the interest.  Assume a 4% return on your investment.

If you need $40,000/year income then you’d want to have 1 Million dollars in life insurance.

Now, cash value life insurance Vs term life insurance.

Cash Value Life Insurance has a savings component involved in the policy.  A portion of your premium is placed in a separate savings account that accrues value over time, which can later be reclaimed if the policy is ended. Premiums for cash value life insurance are typically 7-10 times higher than those of term life insurance. Other names for cash value policies are whole life and universal life policies.

Term Life Insurance covers you for a specific period of time – typically, 10, 15, 20, 30 or 35 years from when the policy starts. As long as you pay you are covered and if you die while the term insurance policy is active, your beneficiaries will receive the amount of specified coverage. They differ from cash value policies in that the  premiums do not partially go towards a savings plan and are much lower.

Stick With Term Insurance – don’t mix investments and insurance.

I believe that you should not mix your insurance and your investments.  Thus, I recommend staying away from cash value policies.  The return on investment is not typically very attractive and you will likely be able to do much better investing the difference between the cost of a term policy and a cash value policy.

My 9 year-old son works on commission; work and he gets paid.  No work = no pay.

We’ve had this system in place since Cheri and I got our personal finances in order.  We started with age-appropriate jobs and pay and have gradually increased the difficulty of the work and the amount of the pay.

He loves the system and is learning.  Some of the lessons he has learned are:

1. It feels great to save for a purchase.
2. Giving to charity is as much fun and spending.
3. Think before you spend because junk does not last.

His first big purchase was a stuffed turtle – he carried it around for 3 days telling everyone how he’d saved up $27 to buy it. And his first charitable donation was to Durango, CO’s new Boys & Girls Club – he was so happy to donate $19. And they were thrilled to have a young donor.

Our system came from Dave Ramsy’s Financial Peace Jr. for Kids.  The way we use the system is

1. We decided on age-appropriate jobs.
2. We agreed on how much would be paid.
3. When work is completed it’s checked off on a dry erase board.
4. At the end of the week the pay due is added up.
5. Any fines for poor behavior are subtracted from his pay.
6. He’s paid and 1/3 goes into each of 3 envelopes; Save, Give and Spend.

It’s a simple system that teaches powerful lessons.  Buy one or build your own with a piece of paper for tracing work, pay and fines; plus 3 envelopes for holding money.

I ran into a friend of mine this morning and as we stood talking on the sidewalk I noticed that he had a Porsche keyring in his hand.  While we’d been talking I’d been admiring the Porsche Boxster parked right in front of us.

I asked him if it was his – knowing that he’d been wanting a Porsche for some time.  He’s retired and can well afford one.

What surprised me was that he said, “Matt, I did just what you said to do. I paid cash!” You need to understand that this is gentleman became financially independent with no help from me, but he loves my class Creating True Financial Independence and the concepts I teach.

He went on to tell me how he’d saved for three years for this car.  Three years ago he’d looked at a new one priced at $44,000.  The one I was looking at was a 5 year-old Boxster with just 16,000 miles.  He paid $26,000 for this one; instead of $47,600 for a new 2010 model.

He went on to add that he carries liability only insurance.

Here’s the three lessons from this story:

1. Financially independent people got that way by saving for their purchases.
2. Buying used cars is important.  Cars go down in value in the first few years of ownership.
3. Insure only what you can’t afford to replace.  This goes for electronics, cars and all other possessions.

Congratulations friend you deserve this Porsche!

Savings rate is up, but not enough.

The Commerce Department reported Tuesday that the personal savings rate — the amount of each paycheck that goes unspent — jumped to 6.4 percent in June, the highest rate since June 2009.

Well that’s much better than when the savings rate was closer to 1%, but it’s still way too little.

I recommend saving 15% of your take home pay for financial independence.

Here is an interesting article from Charlie Farrell.

A recent CNN Money article featured Good Debt Vs Bad Debt.  The truth is all debt is bad.

The Good debt Vs bad debt article features these statements:

• Avoiding debt at any cost is not smart
• Good debt includes anything you need but can’t afford
• Bad debt includes debt you’ve taken on for things you don’t need and can’t afford

The key here is defining NEED.  We need very little of what we buy.

Basic necessities – food, shelter, clothing, utilities and transportation to get to work are needs.  Everything else we buy are wants and even these basics stray into wants very quickly.

I am all for enjoying life, buying nice things and having fun; however I wish that I’d learned the truth about debt and personal finances earlier in life.

Our beliefs determine our actions and our actions determine our results and experiences – examine your beliefs to see if you might be better served by a different belief.

For me coming to understand that debt and unconscious spending steal our dreams has transformed my beliefs, actions and life.

Found money is any money that comes to you unexpectedly…money you did not necessarily earn as Jimmy Buffett would say.  And there are 3 things you must do every time you are lucky enough to fine some money.

I’ll start by describing what you should not do.  A volunteer firefighter in Colorado won a $1.2 million home in Maryland.  After selling the home and paying the taxes the found money amounted to about $200,000.

So what did she and her husband do with their found money?  They took $50,000 and bought a new truck, paid off some debt and saved the rest.

• $50,000 for a new truck.  Not a good choice.  The truck will go down in value fastest in the first years of ownership.  I would have suggested buying a 2 year-old, low mileage truck.
• Paid off some debt.  I would have suggested paying off all debt.
• Saved the rest.  Good and I would suggest it go in an emergency fund.

The 3 things you must do when you get found money are:

1. Establish a $1000 emergency fund.
2. Catch up on any past due bills and if there are none then use it to pay off debt.
3. If you have no debt, other than a mortgage, then use it build your emergency fund to equal 3 to 6 months of living expenses.

Following these 3 steps make sure you are on the path to financial independence.

Do you know the difference between income and wealth?

Technically, income is how much you earn each year and that is determined by looking at your W2 earning statement and wealth is determined by looking at your balance sheet.

Your balance sheet will reflect your assets (what you own) and liabilities (what you owe).  Assets – liabilities = your net worth.

Becoming wealthy is more about how much you save and less about how much you earn.  Obviously, it’s easier to save when you have a higher income, but it’s very possible to spend nearly all you make even if you have a high income.

An excellent book on this subject is the Millionaire Mind by Thomas J.Stanley, Ph.D.

How would you like to take a $2,400 family vacation next 4th of July?

Sounds pretty good right? The average cost of a family vacation is about $1,600; so an extra $800 is icing on the cake.

And you may be thinking, “How could I afford vacation like that?”

I’ve got the answer.  Stop going out to lunch every workday!

The Cost of Eating Lunch Out

An average lunch out cost about $10.  Over a single month you’ll save $200 just by bringing your lunch.  Multiply that by 12 months and you’ve got $2,400.

Of course you’ll need to bring your lunch to work and that will cost something however it will be far less than $200 each month as detailed here Cheap and Healthy Brown-bag Lunch Ideas for Grownups

Enjoy your vacation and good health!

It’s time to change your vacation plans if you see any of these red flags.  And by change your vacation plans I mean – plan a less costly vacation.

These are by no means all of the possible budgeting red flags, but they are common. If you notice that

1. You are unable to pay cash for your vacation – using a credit card is borrowing money.
2. You don’t yet have a minimum of a $1,000 emergency fund.
3. Going on vacation will cause you to stop paying extra on your debt payoff.

Then it’s time to go back to the planning stage so that you can design a vacation that you can truly afford.

I understand that it’s important to rejuvenate by taking time off from work even if you are focused on getting out o debt.  However, ignoring these red flags can make it even harder to get out of debt.

Some of the ways to reduce the cost of your vacation are to:

1. Stay closer to home to reduce the cost of getting there.
2. Reduce the number of days you’ll be away from home.
3. Stay home and be a tourist in your own town.

If you watch for these red flags and adjust accordingly your vacation will be relaxing and fun instead of financially stressful.

Related articles:

• Inexpensive 2-week vacation (mytotalmoneymakeover.com)