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As parents of two very young kids, my wife and I constantly struggle to figure out a consistent parenting style that we can call our own. I am much more easy going, generally letting the young ‘uns explore and play as they wish and only intervening when they are about to hurt themselves or get into a fight. I figure, they do what they are doing because they are curious and this is all a part of the learning process. I have been known to let the kid finish his fall, when it is safe, so he understands that there is a cause and an effect!

My wife on the other hand is quick to point out dos and don’ts to them and does not hesitate to say no when needed. There have been times when I have looked on in amazement at the tone of my wife’s voice when she is busy teaching one of those life’s lessons feeling that the sternness is uncalled for. I cannot bear to see my kids in tears. Next thing I know, the kids have actually listened to her and are jumping all over her and there is laughter all around.

Here is the thing: we both love our children and freely express our love. There is no doubt about it. And both of us have the same goals: to raise our kids to be respectful, smart and curious. But our parenting styles are very different. I have always wondered which style works best.

It turns out that tough-love parenting as practiced by my wife does a better job of raising rounded and well developed character in children. At least, that is the verdict of this study done by the think tank Demos in UK.

According to the study, this result is consistent across all social and income demographics. Your parenting style has more impact on how your kids will eventually turn out than whether you are rich or poor, blue collar or white collar, single parent or a dual parent household or any thing else.

I know there are many who will not agree with this finding or will counter with their own examples but one thing to remember is that this is a statistical study. What that means is that this may not be the best style for each individual family, although I have to say that it does make some intuitive sense.

Personally, I reserve my judgment. What do you think?

Photo Credit: Vlad the Impala under Creative Common License

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Tough Love Parenting Style Prepares Children Better for the Future

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With the new year coming up, it is little surprise that many are starting to think about what they can do to lose a little weight in 2010 (after gaining a little through the holidays, of course). Unfortunately, there are exercise myths that can actually hinder your efforts to live a healthier lifestyle. Before you work out an exercise program, get the facts about exercise. About.com offers some exercise myth-busting with the help of some health professionals at Baylor University. Here are five of the exercise myths that you should know about before beginning an exercise program:

Exercise Myth #1: You must stretch before you exercise

We often hear that it is important to stretch before exercise. However, this is actually a myth. In truth, some studies suggest that pre-exercise stretching can actually increase the changes of your injury, since stretch destabilizes your muscle fibers. Some exercises, such as running, can benefit from warm up and stretching. But with others, like weight lifting, it is better to exercise, and then stretch your muscles after you are done.

Exercise Myth #2: Exercise will convert fat into muscle

It’s a nice thought: Exercise will make your fat change into desirable muscle. Unfortunately, this is not the case. Exercise can burn off fat, and it can help you build lean muscle, but there is no straight conversion. It’s more of a replacement. This means that it is necessary to exercise in such a way that will help you burn off the fat, and then continue exercise so that you are building muscle instead.

Exercise Myth #3: Stomach crunches get rid of belly fat

It would be nice to think that you can target fat in certain areas of your body. Sadly, though, you can’t. You can’t decide where the fat burns off. Many people have strong abs, but still have a layer of fat overlaying those muscles. Where fat collects in your body has very little to do with what regions you are exercising. Instead, it is a good idea to include aerobic/cardiovascular exercises with strength training. This will help you burn off fat, reducing your overall body fat, while helping you build some lean muscle.

Exercise Myth #4: If you aren’t sweating, you aren’t getting a good workout

Many people believe that they have to work up a sweat in order to burn calories. This just isn’t true. Sweat is about cooling down your body. It isn’t actually a measure of how much you are exerting yourself. So don’t overdo it just to break a sweat. Instead, focus on the intensity you feel, and concentrate on what you are doing. Some activities, such as lifting weights, swimming and walking can help you burn calories and/or build lean muscle mass without a great deal of sweating.

Exercise Myth #5: As long as you restrict calories, you don’t need as much exercise

Exercise is more than just trying to lose weight. Restricting calories just to avoid exercise can actually slow your metabolism, as well as deprive you of the benefits that exercise offers the body. Exercise strengthens various systems in your body, including the immune system. Additionally, exercise helps you to keep your metabolism functioning at a higher rate, even when you aren’t exercising. However, you shouldn’t use that as an excuse to pig out. Cutting a couple hundred calories from your diet each day, and paying attention to portion size can help you consume the proper amount of calories each day so that you adequately fuel your body while losing or maintaining your weight. Also, choosing healthier calories, such as those found in fruits and vegetables, whole grains, and dairy and meat products consumed in moderation, can aid in your overall health.

In the end, it’s about increasing your health. Proper exercise can help you sleep better and enjoy relaxation more, as well as help you change your life in a way that will help you feel happier in general. And, of course, better health often leads to better finances, since health problems are expensive.

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5 Exercise Myths Busted

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Contest Rules

Contest rules are very simple. All you have to do is to subscribe to the weekly email newsletter before November 15, 2009. The newsletter is free to subscribe and can be done from the subscription form from any page of this site (top right sidebar).

Each new subscriber automatically gets one entry to the contest.

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• Become a fan of Personal Dividends on Facebook – This is one extra entry for the contest
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When you become a fan on facebook and invite your friends, send me an email (admin at pesonaldividends dot com) or post a comment to this article. If possible, let me know your friends name/email so I can be on the lookout.

The randomly picked winner of the contest will be posted in the comments on or around Nov 16th and will also be contacted via email.

Appearance on the the Carnival of Personal Finance

Personal Dividends had the honor of appearing on the edition #230 of the Carnival of Personal Finance hosted by the Canadian Finance Blog. Be sure to check out the carnival post (many great posts there) and subscribe to the Canadian Finance Blog. Tom knows what he is saying and the site is full of great personal finance advice.

The post Elements of Financial Checkup also appeared in the 90th Edition of Money Hacks Carnival at the excellent True Adventures in Money Hacking by Wren Caulfield among a list of some of the best personal finance stories on the web. Check it out and make sure you subscribe.

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The word is that the recession is over. And with bulls enthusiastically making a run at Dow 10,000, there are thoughts of economic recovery. While it is important to consider that volatility is still a part of the equation, and understanding that this economic recovery is supposed to be a rather gradual one, it is nonetheless time to start considering strategy for an economic recovery, as you move out of your recession investing strategy. (If you are all about the index funds, chances are your strategy is set: Keep doing what you are doing.) There are different considerations involved when determining where to invest as things to start to pick up. Here are some things to consider as you begin planning your recovery investment strategy:

Past economic recoveries

Many investors and economists are noting the similarities the current recession has to past recessions. Looking to see what sectors and types of companies have done well at different points in an economic recovery can be helpful. Understanding the cycle, and where different companies fit into that cycle are quite useful. Industrial and materials companies generally pick up early an economic recovery cycle, and energy stocks often follow later.

Of course, the past cannot predict future results, and things may go differently this time, no matter how closely things appear to be adhering to the past so far. You can use the past to help you find patterns and possibilities, but it is important to be wary of relying wholly on the past.

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Revenue growth

Another thing to look at is revenue growth. Many companies reported a profitable third quarter for 2009, but that doesn’t necessarily mean that revenue is up. Indeed, in many companies, revenue remained down. Many profits were the results of lay-offs and other cost-cutting measures. What you want to look for are companies that are starting to see increases in revenue, and that have stopped being so big on cutting costs.

This is where a focus on financials might help. The financial sector was hard-hit, and there are many bargains out there. Additionally, as things start to improve, businesses and individuals are expected to start looking for financing, bringing interest revenue to financial companies. And don’t forget that some financial sector companies, notably credit card companies, are actively looking for way to raise revenue through such things as interest rate hikes, increased fees and new fees.

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Government projects and economic stimulus

The economic stimulus package passed earlier this year sets aside money for specific goals and projects aimed at creating jobs. Additionally, the government is also focusing on upgrading the road system and pushing alternative energy and improving the power grid. These focuses are likely to lead to more income for infrastructure companies (including those that concentrate on Internet and wireless infrastructure), as well as some alternative energy companies. As the economic recovery gathers steam, it is possible that companies connected to government projects and connected to economic stimulus money will see gains on the stock market. Getting in now could be a way to ensure profits in your investment portfolio.

Consumer spending

This particular economic recovery may not be kind to companies that rely on consumer spending. Many consumers have been shaken by what is being called the “Great Recession.” There has been a shift toward frugality, and many consumers have curbed the free spending habits that marked the run-up to the financial crisis. Additionally, even though the government has tried to promote projects that provide jobs, the employment picture remains relatively weak. With expectations of a “jobless recovery” it is unlikely that consumers will even have the funds to spend a great deal. That means that, even with the holiday shopping season coming up, retailers and the travel industry may lag behind.

You might also consider DRIPs moving forward, which can help you build an income stream while protecting you somewhat from the next crash. Of course, this is just speculation. In the end, you have to decide what you think is most likely to happen as the economy recovers. But looking at the patterns and possibilities can increase the likelihood that you choose a few winning investments that can offer you some solid investment portfolio growth.

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Investing in Economic Recovery

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We are constantly reminded how bad the recession has been for the large and mid sized businesses. The effects on the small business has been worse. The economic engine of the United States has been left sputtering and worse still, it is causing less and less numbers to consider entrepreneurship careers. Small business bankruptcies are at record highs and the businesses that have managed to survive have seen significant declines in revenues and incomes.

Just to quote a few statistics

• small business bankruptcies are up 79% from 2007 to Q1 2009
• self employment is now below the pre-recession levels
• there is an increase in number of self-employed who would rather take up working for someone else
• small business lending has declined significantly, for example, SBA 7(a) loans declined 40% since 2007 through the end of 2008

Worse of all, due to tight credit markets, many small business owners are now turning to credit cards and personal funds to support their businesses, which may lead to further personal bankruptcies. Most small business owners do not see the economy improving in the next year.

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Now that the word “recovery” seems to appear more often than “recession” in the news media, many investors who have been waiting on the sidelines (and there are still quite a few of them) might be wondering what to do with their money.

• Is it safe to leave it in the hands of a third-party broker, post-Madoff?
• Is it safe to stash it in the money markets, post-lending crisis that “broke the buck”?
• Is it safe to put in your home, now that real estate prices clearly no longer always rise?
• Is it safe to leave it in savings account, now that even the FDIC is almost bankrupt?

These are some dramatic examples, and I’m not suggesting that all financial advisors or banks are untrustworthy.  But they do illustrate the breadth and scope of the risk that can extend throughout the investment world.  Even if you just held the most basic of financial instruments during the 2008-2009 credit crisis — like a mortgage, and a money market fund — you may not have been immune from the great market crash of this century.

So where does that leave you today?  You know you need to seek out more return than the average savings account, but you don’t want to be caught up in market timing – you just don’t have time for all of that.

Tread Carefully With ETFs

One great option lies with pure ETFs that passively track a broad-based index – you don’t need to do constant research, just put your money in and wait.  But choose carefully, because not all ETFs are pure passive index-trackers anymore.  Some include active management.  And some are far more risky than that, rebalancing daily and doubly or triply leveraged to the underlying index.  All this can wipe out your principal faster than you can think of the first three major bank failures in 2008.  Besides, you have to pay a commission fee each time you want to purchase an ETF, and on top of that they still include some management fees, even if these are much lower than your typical mutual fund.

The Perfect Investment?

What if there was a way you could invest in equities without paying any commissions or management fees, and still get the benefits of passive index investing?  This is where DRIPs come in.  Also known as DRPs (Direct Reinvestment Plans), or DSPs (direct stock purchase plans), the DRIP universe is quite large and varied.

The DRIPs I’m referring you to comprise a small galaxy within that universe.  These are the DRIPs with no fees whatsoever. You can purchase company stock and have your dividends reinvested for free.

“DRIP” is just a loose term for any one of these plans which allows you to buy stock directly through the company itself (not through a stock exchange) and in which, usually, the company has your dividends reinvested back in the same stock.  I like to think of it as a high-return savings account (with the added risk that comes with equities).

Top 5 Reasons DRIPs Are The Best Place For Your Money Now

1. No More Fees: Cut Out the Middle Man.  As I just mentioned, there are many DRIPs with companies that charge no fees to purchase or reinvest your dividends back into the stock.  This beats even the lowest management fees on any Vanguard ETF. You’ve just lost a ton of money in the Great Recession.  Why pay more than you have to again, now?
2. Invest In What You Understand.  Face it, do you really know how your money market fund is structured and how it produces its returns?  What could be more simple than owning shares in Coca-Cola or PepsiCo?  At least if you buy the stock, you can get some of the money back on all the Pepsi products you have consumed over the years.  DRIPs are very simple products.  The company grows, it makes money, and it gives some of its profits back to you.  You can make things even simpler by choosing a company that sells simple products, like beverages.
3. More conducive to dollar cost averaging.  Broad consensus says that dollar cost averaging is better than trying to time the market.  You don’t have to sit around reading the news or paying attention to what the S&P is doing.  Just invest the same amount on a monthly basis.  This can really add up if you’re DCA-ing with an ETF and you’ve got a monthly commission plus that 0.5% MER.  With a fee-free DRIP, you don’t have to worry about monthly charges like this.
4. Stronger Companies, and You Don’t Have to Stock-Pick.  Companies with DRIPs are companies with a history of paying out dividends, which means they are usually more mature companies within their sector and have a stable cashflow payout.  This already means the company is less risky to you as an investor.  If the company is in trouble, it can always reduce its dividend a bit to drum up some cash before needing to dilute its shares on the market.  Also, a public history of stable dividends is a great way to show a company’s strength.  For this reason, some companies fiercely protect their dividend stream.  Because of this, there is much, much less stock-picking and screening for you to do.  Stick with the companies that provide free DRIPs and which also increase their dividends regularly and you’ve already screened them out on two levels of risk.
5. Get In Now While Dividend Payouts Are Still Low.  During the depths of the recession, some companies reduced their dividends in order to better buffer their cashflow positions.  In most cases, dividends have still not recovered from the crash.  This means there is still more upside.  If you invest more money in these companies now, you will benefit even more when they do start to raise dividend payouts again.  A dividend increase is a healthy sign of earnings growth, which can cause the share prices to rise.

DRIPs Aren’t Risk Free, But They Are Risk-Reduced

All this being said, just because a company has a DRIP doesn’t mean it is a great company with no risk.  Once you’ve identified a handful of excellent DRIP plans, you should still do some basic initial research and evaluation of the company to determine whether it’s a good long term investment.  The best DRIPs are those with companies that show signs of success over the long term and prospects for consistently rising dividends.  And remember:

All DRIPs are different. The ones I am recommending you consider are those that do not charge you any fees on neither optional stock purchases NOR dividend reinvestment.  Of course, it is your investment: if you decide that a company’s stock is worth the fee you might pay, that is up to you.

How To Find and Enrol in a DRIP?

How do you know if a company has a DRIP?  Go to its website, click on “Investor Relations,” (or “Investor Center”) and you will usually find an FAQ section or a “Shareholder Services” section.  Here you will see whether they have a DRIP or not.  Read the DRIP prospectus to find out whether there are fees involved with the DRIP.

Best bets for finding DRIPs are with the large, stable dividend-payers like utilities companies, consumer products, some banks, and telecommunications companies.  Home Depot has a DRIP, as does Johnson & Johnson, Walt Disney and Kraft.

To enrol in a DRIP, just follow the instructions from the company’s website.  They will be slightly different for each company.  You will end up dealing with the company’s transfer agent (which is like an administrative assistant) – Bank of New York Mellon, Wells Fargo, Computershare are the big ones.

DRIPs just might be the best solution for your money today.  They are a nice “middle road” between active and passive investing; they will give you greater return with less risk than simply owning a basket of all the good stocks with all the bad stocks, and they’re easy to understand.  Some even call them “training wheels” for learning how to invest in equities more generally.  They’re great for beginners, and many use them to give as gifts to their kids to get started in investing.

Whether you end up investing in DRIPs or not, it’s definitely worth your time to give them some good consideration.  For more information, see the quick guide I wrote on on how to get started in commission-free, fee-free investing.

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DRIPs: Maybe The Best Investment in the Post Market-Crash Environment

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You have a financial plan, now what? Regular financial checkups need to be a key part of your ongoing financial planning. This is an exercise that has best results when performed at least quarterly, so that you can keep tabs on where you are at, and catch deviations from your financial plan early on and correct them. If you have one, your financial checkup should be performed with your partner. You can also include children if they are old enough to be actively interested in family finances. (Showing children how to care for finances through a checkup sets a good example.)

Elements of a financial checkup

There are some basic things that should be covered when you do your financial checkup. The exact format can change, and be adapted, but here are the essential items to consider when examining your current financial situation:

1. Honesty: The first thing to do is commit to honesty. You have to be willing to look at your finances in a fashion that can seem brutal. But you have to get it all out there in order to have an accurate picture of your financial situation, and where you need to go from here.
2. Financial priorities and goals: What are your financial priorities and goals? Review what you find important, and take a look at what you want to accomplish. Have some of your priorities changed? Do some of your goals no longer apply? Decide what adjustments to your expectations need to be made, and evaluate your past spending and see if it has been matching up with your priorities and helping you reach your goals. Re-stating your priorities and goals will set the tone for the rest of your financial checkup, since you can conduct it with an idea of what you hope to accomplish.
3. Income and assets: Take a look at how much you have coming in each month (or each quarter). Look at regular income from a traditional job, as well as any other side income, investment income or passive income that you might have. Determine how steady that income is, and whether or not some of it is in danger of being reduced. You should also look at your assets, including investment accounts, emergency funds and equity that can be tapped in the case of an emergency or loss of income. Make sure you are adequately prepared for possible changes to your income situation or a large unexpected expense.
4. Current obligations: Review your current debt obligations and monthly bills. If you are trying to get rid of debt, decide if you can spare more to reach that goal. Decide what obligations should receive highest priority, and adjust your spending accordingly. Look at your spending to see where you can cut back if you are having trouble meeting your obligations.
5. Asset protection: It is also important to look at whether or not your assets are properly protected. Do you have enough insurance (homeowners, life, auto, etc.)? Do you need to purchase some other type of insurance? You should also examine your investment portfolio to make sure that has some measure of protection through some sort of diversification.
6. Future issues and plans: This is also a time to look ahead to things that could impact your finances in the future. Are you planning on having a child? Do you know that your insurance premiums are going to rise soon? Will your teenager begin driving (and need insurance, etc.)? Are there rumors that layoffs will be coming to your company? Glance six to 12 months into the future to see what major events could affect your finances.

After you have done an overview of your finances, and checked your overall financial health, it is time to either make a financial plan, or tweak the plan you already have. Using the information you have discovered in your financial checkup, you should evaluate whether you are on track to reach your desired financial destination. If you aren’t, you can use the results of your financial checkup to make the changes necessary to put you back on course.

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Elements of a Financial Checkup

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With news of wars, natural disasters and economic troubles, not to mention the day-to-day of living, it is no surprise that many people have difficulty relaxing. My mother was recently lamenting that she can’t relax enough to fall asleep at night. And I still remember some of my battles with anxiety and stress. Being able to relax is an important of maintaining a health lifestyle. Being able to unwind helps you on levels that are both mental and physical. (For believers — in whatever capacity — relaxation can also help your spiritual health.) In a world that seems increasingly fast-paced and stressful, the importance of daily relaxation should not be ignored.

The good news is that there are several things you can do to unwind, refresh yourself and generally improve your outlook on life. Plus, once you start a daily habit of relaxation, you will find that it becomes progressively easier to unwind.

Eight things that can help you unwind and enjoy the benefits of relaxation

Here are eight of my favorite ways to relax:

1. Take a hot shower: Water can soothe and relax you at the end of the day. I like taking a hot shower and closing my eyes and letting my worries sort of wash away. For those who enjoy baths, a warm soak can be beneficial. I have low-flow shower heads, and I try to keep my relaxing showers fairly short. But it never ceases to amaze how much relaxation can be achieved during an eight-minute shower. I try to move slowly and deliberately as I towel off and slip into something comfy, in order to retain those relaxed feelings.
2. Yoga or Tai Chi: Gentle exercises like Tai Chi and Yoga are often repetitive and methodic. When you move slowly and deliberately, flowing from one pose to another, you can release some of the tension that has built up during the day. Plus, if you familiarize yourself with a Yoga or Tai Chi routine, you will soon be able to accomplish the exercises without much thought, allowing you to enter a state that is similar to meditation (which is also calming). Gentle stretching can also have a similar effect — while helping you increase your flexibility.
3. Massage: When you enjoy a massage, tension is released from your body, and you can enjoy some health benefits, including lower blood pressure and increased circulation. You can even self-massage. You can do your own shoulders, legs, feet and hands, taking some to reflect and relax as you do so. I like to use an aromatherapy foot lotion each night after my shower and massage my feet.

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4. Scents: I love scents. I often have some sort of soothing scent in my home, or a scent that reminds me so much of “home” that I can’t help but relax a little when I come through the door. There are some scents that can refresh and relax you naturally. Some of those include peppermint and cinnamon (which also aids in concentration while making you less irritable), lemon and other citrus scents, lavender and flower scents. People vary, so what is relaxing to you may require a little bit of research and trial and error.
5. Deep breathing: This is one of the oldest tricks in the book. Take deeper breaths. However, you want to be deliberate about it. Instead of thinking about whatever it is that has you anxious and upset, move into a more relaxed state by concentrating on your breathing. Take a slow count of three, five or seven for each inhalation and each exhalation. Closing your eyes can increase the effect.
6. Power nap: You’ve probably heard about how a 15 to 20 minute power nap can help you feel refreshed and relaxed on a stressful afternoon. I don’t often power nap, but when I do, I feel much better and more productive when I wake up. This can help relieve accumulated tension, as well as help you refocus. Many sleep experts warn, however, that you should not take a nap that lasts longer than 20 minutes. Otherwise, you just end up groggy. I find that 15 minutes is about right for me. You might only need 10 minutes, or the full 20. You can use slow breathing to help you drift off.
7. Music: Your mood and your ability to unwind can be affected by music. You can use guided meditations set to music to help, or you can choose some calming music that you enjoy. I like Baroque music to help me relax. I also find that guitar and piano music helps, as does folk music. Everyone is different, and you should choose something you enjoy, and that helps you lower your heart rate and clear your head. As with many other relaxation techniques, closing your eyes and breathing deeply can enhance the effect of music.
8. Reading: For some people, reading is a chore. For me, it is an essential relaxation technique. I like to read after I have taken my shower and massaged my feet. However, when I am having a particularly hard time, I don’t read anything new, or particularly deep or complex. I instead turn to some of my favorite novels. Choosing something familiar can help you unwind and settle in for a relaxing evening if you are having an especially difficult time trying to unwind.

As you can see, it is possible to take half an hour to an hour each day to create a routine that combines a number of relaxation techniques in order to truly have a fulfilling experience.

Do you have a favorite relaxation technique or routine? Share it in the comments!

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Relax! 8 Things You Can Do To Unwind

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When we are young, we often hear about how we need to work hard to reach our potential. We may also hear some bright, young professional referred as someone with great potential. But how often do we think about our wealth potential. We all have the ability to reach our dreams and achieve financial freedom. Some of us may even achieve financial freedom with out maximizing wealth potential. And that’s because there are some things that will keep you from reaching your potential that you need to address. Here are 6 things that can keep you from reaching your wealth potential:

1. Paying interest

The most obvious impediment to reaching your wealth potential is debt. Any time you are paying interest, you are giving money to someone else for no other purpose than to pay for the privilege of borrowing money. You get almost no benefit from paying that money. Even worse, you are paying that money to someone else, instead of using it yourself to build your own financial success. Get out of debt as soon as you can, including taking some steps to pay your mortgage off as quickly as possible. The less money you pay in interest to others, the more you have to put to work on your own behalf.

2. Making interest-free loans to the government

In a very backward way, many of us get excited about receiving a tax return. This is because we think of it as “free” money. The truth is, unless you are eligible to avoid paying taxes altogether, this is actually your money — it’s just being returned to you. Basically, you’ve just provided the government with an interest-free loan. The government gets to use that money, and then returns it to you. Check your tax withholdings to make sure that you are claiming the proper number of exemptions, and stop holding out extra. This sort of “savings plan” doesn’t put your money to work for you. The IRS estimates the average tax return to be at more than $2,000. Consider the interest you could earn if you invested that instead?

Along those same lines, make sure that you handle your investments in the most tax efficient way possible. If necessary, get a tax professional to help you figure out the best way to structure your assets so that you get the maximum tax efficiency. It’s usually well worth the cost.

3. Failure to factor inflation into your plans

Often, when we plan for the future, we forget about inflation. Inflation is the erosion of your money’s spending power. The fact that costs increase each year means that it takes more dollars to buy things. You don’t get any more of these items (sometimes you get less), but it takes more money to make your purchases. You may need $12 in 15 years to by something that costs $10 today. You can see how it can quickly add up, keeping your money from going as far as it could. As a result, it is vital that you take steps to prepare for inflation, and arrange your finances so that you have investments whose returns beat inflation.

4. Focusing too much on the small things

We’ve heard about the “latte factor” and how making small changes to live more frugally can help you save money in the long run. This is true. However, sometimes it isn’t always efficient. Especially if you are so focused on clipping coupons that you miss the fact that you might be spending more money in paying interest on your auto loan or on some other large purchase. Those tiny savings probably won’t overcome the larger amounts of money bleeding out in other areas of your finances. In the end, you need to see the big picture, and realize that focusing too much on small savings can limit you.

5. Getting too emotional

Money inspires all sorts of emotions. Fear, enthusiasm, greed and pleasure are all emotions that can come out as a result of how you are involved with money. While it is probably impossible to completely separate your emotions from your finances, you can tone it down a little. Try to avoid making decisions (like abandoning your 401k) in the heat of the moment. Probably the worst times to make financial decisions are when you are fearful and when you are overly optimistic. Both mind states can lead to poor decision making that can limit your earnings in the future.

6. Spending and saving without a plan

You need to have a plan in order to reach your wealth potential. Without a clear idea of what you are doing with your money, it is impossible to shepherd it in an effective manner. You need to have clear priorities as to what you want to spend your money on, so that you are able to live the lifestyle you want. Just as important, you need to have a plan for saving and growing your money. Choosing the best investments (including where you put your cash savings) is a vital part of maximizing your wealth potential while preserving your future. Having a plan can also help you maintain some objectivity and check your emotions.

This list is by far not the most complete list and us human beings invariably find new ways of sabotaging our own financial well being. Do you have other examples of how we hinder our progress towards our wealth potential? Let’s hear them and we will update this list with your suggestions.

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6 Ways to not Reach Your Full Wealth Potential

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Earlier this year, Congress passed the Credit CARD Act of 2009 in response to populist outrage over banks and their practices. While the act does provide a number of protections for consumers, and does force a little more transparency out of credit card issuers with regard to their terms and changes to card agreements, there are some problems that consumers should be aware of. In fact, you are probably already aware of the fact that the February 2010 implementation date for most of the terms of the act has resulted in a rush to raise interest rates. It’s unfortunate, but, despite enraged and incredulous shouts of How can this be legal?, it is, in fact, legal. Credit card agreements, as currently constituted, leave all of the terms to the discretion of issuers. And that means that until government regulation takes effect, those with credit card debt are at the mercy of the banks that issue credit cards.

Credit CARD Act changes already in place

In August, some of the changes mandated by the credit card act went into practice. Here are the three main changes that are already in effect:

1. Issuers must give you 45 days advance warning of upcoming changes. This means, if the issuer is going to change your interest rate, or your rewards program, they need to give you 45 days. This gives you time to pay off a card (in theory; in practice it’s a bit more difficult) before the interest rate goes into effect.
2. The right to opt out of fee increases and interest rate hikes. Congress probably thought it was throwing a bone to consumers by instituting this provision early. Credit card issuers have to allow to opt out of changes by closing the account and paying it off under the current terms. However, those consumers who take this option in order to avoid higher interest rates (some banks are hiking rates by 3% or more across the board) will find that their credit will suffer. Available credit will take a serious hit, and that can harm consumers who plan to make large purchases, such buying a home with a mortgage, or using financing to buy a car, since their credit scores will suffer.
3. Issuers must provide at at least 21 days to pay their statements. Credit card statements must be issued earlier so that consumers have adequate time to make payments before late fees are assessed.

Raising rates while they still can

Credit card issuers (this includes cards issued on behalf of department stores and gas stations, which have some sort of financial division or bank) can raise rates as they see fit until February 2010. There have been some attempts to move Congress to make the Credit CARD Act changes effective at the beginning of December 2009, but by now, for most people, the damage is already done.

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When the new rules go into effect, there will be limits on why interest rates can be raised, and how they can be applied to balances. While defenders of credit card companies often point out that there is usually some credit-based reason for interest rate hikes, that doesn’t explain why many people with good credit and payment histories see rate hikes. In the current case, credit card issuers are hiking rates on everyone to ensure that they get a nice, fat increase in revenue. Rates are set by a formula that takes the prime rate in the market and then adds a certain number of points to it, such as prime plus 10. Many issuers are simply changing their formula to prime plus 13 or 15 or whatever they want — which means higher rates for everyone. The fact that they have to notify you 45 days in advance, and allow you to opt out and close the account, is small comfort.

What you can do

All you can do at this point is call your credit card issuer and hope for the best. Do not believe stories about an “interest rate freeze” until the credit card act goes into effect in February. That’s bull. If there was a freeze, banks wouldn’t be able to raise the rates they are charging on their credit cards. It doesn’t hurt to ask for a rate reduction, though. Just remember to be polite. You may also have to ask for a supervisor, the solutions department, or the retentions department. Many representatives are authorized to offer you a decrease of between 2% and 5%. Here are the items that will give you a better chance of success:

• Good credit score. Get Your Free Credit Report here
• Account in good standing.
• More than minimum payments.
• You haven’t recently requested a lower interest rate.
• The ability to close the account, and take your business elsewhere.

If you do not get an interest rate deduction, and you are having trouble making your payments (this can be especially difficult if your minimum payment was raised on top of the interest rate hike), you may have to work out a payment plan with your creditor. This will likely result in a closed account. If you are not planning to use credit anytime soon, closing a credit card account that is imposing particularly difficult terms might not be a bad option. You can pay back the account with the current terms, and then work on recovering your credit rating down the road.

In the end, the Credit CARD Act is more likely to hurt than help until full implementation takes place in February. Additionally, it will be July 2010, when the new transparency rules enacted by the Federal Reserve, until more disclosure of terms can be seen. However, that doesn’t change the fact that the credit scoring system is still quite secretive. Until there is more transparency in credit scoring, and until consumers take better control of their credit use, it doesn’t matter how many laws are enacted: The game is going to be rigged in favor of the credit card issuers.

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Credit CARD Act of 2009: Consumers Getting the Shaft as Banks Rush to Raise Interest Rates

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