The point is not to fix your own vehicle, but to sustain your current lifestyle, even when your income balloons.  Of course there will always be a time when you outgrow your home or need a new vehicle, but more money does not justify fast forwarding these luxuries.  What do I intend to do with the money?  Pay even more down on our student loans each month, which will result in thousands of interest money paid.  Increase the amount going towards an emergency fund.  Increase our retirement contributions. Lastly, we will leave a little extra each month going towards whatever we want, which will provide what we hope to be a financial breather to our weekend wallet—realizing that more money is not an excuse to eat out every night, but an opportunity to order dessert or a steak, which are small expenses that can fulfill the need to consume on a larger scale.

Again, if receiving raises to you means buying more, you will never get a raise. $

Congress has been blamed for pushing homeownership so much so that in part, they helped our subprime crisis evolve.  After all, it’s easy for them to turn a regulatory eye when their constituents are happy and in nice homes.  Having said that, in a desperate move to try to get people to buy homes again (this time to rejuvenate the crippled market) they have made law in the recently passed stimulus package an $8,000 tax credit for first time homeowners.

Again, this is a credit not a deduction, which means it is a free $8,000 (if you qualify for the full amount) in your pocket and not a write off on your taxable earnings for the year.  Honestly, I’m amazed at this credit and I hope many of you can take advantage of it.  Originally, the amount was $7,500 and had to be repaid, which raised many questions if the money should even be accepted by new homeowners. Well, that’s in the past and the future is green (for some of you).

How Do I Claim the First Time Home Buyer Tax Credit?
You will receive the credit when you file either your 2008 or 2009 individual tax return.  If you qualify, you will have to fill out Form 5405, which will help them determine the amount you can expect to receive.  In case you already filed your return and you qualify for the credit, don’t worry, you can amend your return and still get the credit.

Who Qualifies for the First Time Home Buyer Tax Credit?
First time homebuyers who purchased their house between January 1,2009 and December 1, 2009 are eligible for the credit.  But don’t let the title of the credit fool you.  If you have not owned a home for three years, you also qualify for the credit.  It should have been called the First Time Home Buyer and Three Years Removed From Homeownership Tax Credit.

What are the Income Limits ?
Single taxpayers with incomes up to $75,000 and couples filing together with an income of up to $150,000 can expect to receive the full credit.

How Much of the Credit Will I Receive?
The credit is equal to 10% of the purchase price of the home; of course, it cannot be for over the maximum credit of $8,000.

So, if any of you know anyone who might be able to qualify for this credit, let them know!  This is one of the few provisions of the second stimulus package that directly puts money into taxpayer’s pockets. $

Have you ever imagined what you would do if you were to come into a huge pile of sticky, wet, nasty cash?  What if you win the lottery tomorrow?  Are you ready?  As prepared as you think you are, you aren’t.  Blake over at YoungDough.com wrote in agreeing that he believes that a majority of big winners lose it all.   Send us your ideas and we will post them in an update.

It is estimated that about 80% of lottery winners file bankruptcy in five years.  That’s a HUGE number!  It makes some sense though.  I can imagine that most people get that much money and immediately go on a shopping spree.  Everything on their list is immediately bought and that might not even put a huge dent in their coffers but it gets worse.  They go and buy a massive house and quit their jobs.

That last part is where they probably made their first mistake.
 

One time purchases are probably not going break the bank but the house and the quitting of the job is a major hit to the cash flow.  Houses insight regular expenses even if it is paid off.  There are taxes and you have to pay more in utilities for larger homes.  Then quitting your job?  It would be better to change jobs to something more enjoyable.  Sitting around at home would eventually get old I would think, but that might just be me.  Still, if you want your juicy mound of cash to work for you, you have to take care of it and not constantly pull from it.

A fool and his money are soon parted.” – Unknown

So what should you do?  With a large amount of cash, you will be able to better realize the benefits of compound interest.  The other is the advantage of becoming debt free.  Think about how much better you would sleep at night knowing that your financial future was secure, you had no debt, the home you currently live in is completely paid off, and the new job that might not make as much makes you happy and your day to day operational expenses are covered.  All the while, you are making an outstanding amount in interest.  

Where do you put it?  My first reaction would be in index funds, money markets and CDs.  These are probably the most secure over the long term and will give you a chance to be smart about what to do.  It would also be more difficult to have it burn a whole in your pocket.  Don’t put a huge chunk into one particular company.  I think a quick scan of the news headlines these days makes that point for me.

But where do you go from here?  After you get an attorney for legal and tax advice, you need to reassess your mind set for having this much money.  Find methods to diversify and take things slow.  There is no rush!  

Take a look at these:

• Become a Millionaire in 30 Years with your Current Salary
• Five Common Money Mistakes to Avoid
• The 8 Worst Habits for Saving Money
• Analysis of “The 11 Principles”

Keep in mind that you shouldn’t spend it before you get it, and that earned money is much more appreciated than won money.  I know thats not always the case, but you can see how people who win money could suddenly go over board.  Long time wealthy people don’t wake up one day and have all their money spent.  Unless they are CEOs of a large bank…nevermind.  Bad example.  But you get my drift.  

Step 1:  Get accounting advice.
Step 2:  Get legal advice.
Step 3:  Realize that you need advice and go back to Steps 1 & 2.
Step 4:  Park the money in a safe interest bearing account.
Step 5:  Comfortably eliminate debt.  No need to do it all at once.  But be a little aggressive.
Step 6:  Make a list of your dream jobs and begin researching them on the side while you stay at your current job.  Be conservative in the decision in leaving your job.  Keep in mind however that depending on your experience you might find that managing a great deal of money is its own full time job.  Some people would like this, some won’t.  Don’t put it at risk by finding this out the wrong way.
Step 7:  Ensure that the government doesn’t get a hold of your estate after you pass away.  Even after the initial tax pay out to Uncle Sam, they can take more in the Death Tax unless you structure the finances a certain way.  They pay people to sit around and think of these things.  Thats not a joke, they really do.
Step 8:  Do tons of research and LEARN what it takes from others who have done this before. 
Step 9:  Be positive.
Step 10:  Be conservative.   

The best possible scenario, in my opinion, is to just live off the interest from the interest of my saved money.  You know who told me that?  Frank.

Vehicle Frugality
In addition to fixing (what I can) when things break down on our vehicle, I like to give my car a complete tune-up every 30,000 miles.  I purchased the mechanics manual for my car this year and it took me from pre-beginner mechanic to still-know-nothing-but-try mechanic.  Try I did and the savings were huge this year, as you can see below.  Like I have mentioned before in posts, my wife and I still drive her Junior High 1995 Dodge Neon, which now has 181,500 miles on it.  We know we are going to have to purchase another car eventually, but in the meantime, we will continue to do regular maintenance and hope the engine and transmission stay alive; otherwise, any other fix is worth fixing in my opinion.  Below is my 2008 savings related to our car, not listed is finding our car this year when it was stolen when riding the bus to the subway!

• Speedometer and Odometer. Our speedometer and odometer would work until we would hit a bump and it would stop working.  Or, it would stop working for no reason and we would hit the dash and it might start up again.  After researching a little on Google, I fixed the problem by taking off the dash and soldering a few contacts, which fixed the problem forever and for free.  Savings = $150

• Air Bag, Horn, and Cruise Control. These are listed together because they were all fixed by replacing one part in my car.  The mechanic wanted $350 for the part and another $150 for labor to fix all three.  Not wanting to spend the money, I cracked open the mechanics manual and found the part on eBay for $10 from a person that was parting out the same vehicle.  I then bought a $10 part to remove the steering wheel (needed to replace the part) and a few swear words later, everything was fixed.  Savings = $480

• Tune-up. Every 30,000 miles I give our car a tune-up.  Not only do I save money by doing this myself, but it keeps our old car running pretty good.  This year our tune-up included replacing the fuel filter, air-filter, spark plugs, PCV valve, transmission fluid, radiator fluid, and of course the oil.  I also changed the oil every 3,000 miles at home, which doesn’t save a whole lot of money, but does allow for using better quality oil for cheaper.  Savings = $300

• Brakes. My wife held on for her life after I changed the breaks for the first time, but it worked!  Again, our maintenance manual gave me a great step-by-step tutorial to changing our cars breaks and rotors.  Not surprisingly, the brake pads and rotors are fairly cheap, it’s the labor that gets you.  Savings = $200

House Frugality
My wife and I have only lived in our condo for about two years.  We purchased the unit as a foreclosure and have done a lot of work to it, of course all of the work we have done ourselves (some of it we have done twice, because we are doing it ourselvesJ).  Besides renovations, we have also saved quite a bit of money this year by fixing various things in our home ourselves.  Below is our list of 2008 house savings by being frugal and stubborn.

• Oven. This is a true story, this Thanksgiving our oven quit working mid-turkey.  With some people over to eat and a half done turkey, we started a fire and roasted the rest of the turkey in the fireplace!  Our oven, which is slightly over a year old and barely past the warranty, picked a horrible time to break down.  After a little research, I purchased a part for $113 and installed it and our oven was back in business.  Savings = $200

• Renovations. This year was round two of our renovations, we did quite a bit of stuff when we first purchased our condo, but then the money ran out.  Now that there is money again, we are busy again.  This year we saved money by doing the following projects ourselves: installed recessed lighting in our kitchen, removed carpet in our bedroom, installed wood flooring in our bedroom, painted kitchen, bathroom, and bedroom, removed popcorn ceiling in bedroom, and installed new closet hangers and shelves.  Savings = 1,350

• Energy. Although hard to accurately guess the savings in this category, we have take a few steps to reduce our heat/cooling bills.  We put weather-stripping around the doors and windows, put plastic around the windows that let in a breeze (winter), purchased a programmable thermostat and set it for the following schedule: (winter) 63 degrees when sleeping and when we are gone (summer) 83 when sleeping and away and 78 while we are at home. Savings = $100

• Miscellaneous. Hung our plasma TV over our fireplace, installed a new electrical outlet next to the fireplace (for TV), built and installed shelves in our storage space. Savings = $200

Shopping Frugality
Although it’s hard to argue that we saved a lot of money by shopping this year, it’s of course impossible to not shop at all.  Here are a few of the ways we saved money by spending money???

• Plane Tickets. Because of a funeral, I purchased a last minute plane ticket to a small Midwest airport.  Searching on Kayak, the ticket cost $1600, after calling the airline and getting a bereavement flight, the cost was $515.  Savings = $1085

• Craigslist. I purchased a climbing tree stand for hunting and picked up a free printer this year on craigslist.  Savings = $175

• Firewood. We used to keep buying the packages of firewood at Safeway for $5 a pop, which would basically last one night.  We then had somebody deliver firewood at a cost of $80, but for the amount of wood, it was worth the deal.  Savings = $40

Total 2008 Savings = $4280

Of course, these were not the only ways we saved money this year and there were plenty of times this year we probably splurged on things we shouldn’t have, but it puts a year’s worth of hard work into prospective.  We were able to substantially increase our emergency fund this year, something that would never or happened if we contracted out more of our jobs or foolishly shopped.  On top of savings, I learned a lot this year on car repairs and basic household projects. I’ll be fair and say I was frustrated a lot by doing many of these things, but while I’m at home working on projects, I’m not out spending!

How did you save this year?  $

The best use of a bonus or any windfall of money is to fill your emergency savings first.  But, if you don’t need the savings, consider putting your bonus into your 401(k).  Why would you do such a thing?  Bonuses are treated differently than normal income, thus, they are taxed at a higher mandatory rate.  Have you ever noticed that you are always disappointed when you get your bonus because taxes ate half of it?  This is exactly why you should consider putting the bonus in a tax-sheltered account.

If your employer allows you to, have them funnel your bonus into your 401(k) and assuming you have a traditional versus a Roth account, you will get the entire bonus—no taxes.  This is great for a couple of reasons.  For one, the additional money that is usually spent on taxes, goes to work right away for you earning interest.  The difference of investing $2,500 (after-tax bonus amount) versus $5,000 (pre-tax bonus amount) for 20 years is approximately $12,000!  Secondly, the added benefit of lowering your income for the year never hurts when it comes time to do taxes.  The last thing you want a bonus to do is to edge you up into a higher tax bracket, which would result in an extreme tax bill.  You’d be better of rejecting a bonus in this situation, that’s strange.

So the next time you get a bonus, consider the tax advantages of putting it into a tax-sheltered account.  If you get a good one this year at Christmas, you will likely profit even more by purchasing equities at the recession discount. (Sadly, as I write this, the song “Free Falling” is on satalite radio.)  One last point, if you really want to purchase something special with your bonus and don’t want it all to go into your 401(k), that’s ok because you deserve it.  Consider borrowing a few bucks from your savings and still put the bonus into your 401(k).  Seriously, you’ll get more out of your bonus and assuming you are constantly setting money aside for your savings, you will be ok. $

What Will I Receive?
Although the settlement has not yet been finalized, here are the options you can choose during sign up:
•    Nine months of enhanced monitoring service. If you select this option, you can’t get any cash
•    Six months of credit monitoring and a potential cash payment
•    A cash payment (if money is available for distribution)
•    Six months of credit monitoring

Which One Should I Choose?
I think it’s best to go with the nine months of enhanced monitoring service and forgo any cash payment.  Considering the enormous amount of consumers that qualify to sign up for the settlement, any cash reward will most likely be minimal.  Take advantage of the free monitoring services, this settlement provides a great opportunity for you to analyze your credit.

Who Qualifies?
Basically everyone qualifies.  If you had an opening credit account or line of credit opened between January 1, 1987 and May 28, 2008 you qualify.  This credit account can be anything from credit cards, store credits, mortgage, student loans and car loans.  Unless you are loaded, really old or really young, you probably qualify.

To sign up to receive your chunk of the settlement, go to http://www.ListClassAction.com or call 866-416-3470.   Remember, you have until September 24, 2008.
Why not participate?  $