It was recently reported, by the Federal Reserve, that consumer borrowing surged again in March. Consumers increased their borrowing at an annual rate of 7.2%, compared with a 3.1% rate of increase in February. Here is a summary of the worrying borrowing and debt figures:

The increase in consumer debt totaled $15.3 billion at an annual rate in March, much bigger than the $6 billion increase that economists had been expecting. The bigger gain was seen as a sign that the weaker economy was forcing consumers to increase their borrowing to support spending. It reflected strong borrowing on credit cards and also in the category that includes auto loans.

Borrowing on credit cards was up at an annual rate of 7.9%, compared to a 5% gain in February, while borrowing in the category that includes auto loans jumped at a rate of 6.8%, compared to a 2% increase in February.

The overall growth in debt of 7.2% at an annual rate was the biggest gain since an increase of 8.25% last November. Consumers have been moving to put more of their purchases on their credit cards as banks have tightened lending standards for home equity loans in response to the deepening credit crisis.

It was the growth in credit card borrowing/debt that struck me the most. In a country where all forms of media have continually said that "Credit Card debt is BAD - because it is the most expensive form of debt", consumers still continue to charge it. If you pay off your credit card on time and don't carry a balance, then credit cards are fine - I use them like this for the reward points and cash back.

However, the rising figures on credit card usage and debt surely includes a majority of people who do not pay off their balance on time and continue to carry the high interest debt. You would think people would only turn to credit cards for borrowing as the last resort, when in financial distress, which may be part of the reason for growth in credit card debt growth as banks tighten up on other forms of lending. However, the growth in credit card debt cannot be solely attributed to those in financial distress (for whom it is probably hard to get credit cards anyway), so the rest of the population must still be actively using and piling on credit card debt. Have people not yet learned their lessons from all credit card horror stories in the media! I guess for some the following adage applies "To debt do us part".

Switching on my investor brain (this is an investing blog as well after all), one way you could just profit from this trend is by buying Visa (V) and MasterCard (MA) stock - companies who should profit from consumers continuing to buy things on credit. If you can't beat 'em, you might as well join them.

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This is an edited guest post from PV - a "techie" friend of mine who believes in free and open source software. When I discussed this blog with him he was kind enough to provide an article on the budgeting software he uses. It is a great little tool, good reports and best of all it is FREE. Here is review and I am going to experiment with it this month for my budgeting.
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You are probably familiar with the old management saying:

“You can’t manage what you can’t measure”.

We earn; we spend; we save and we invest; but in the midst of all this activity; it would be nice to manage, monitor and measure our assets and liabilities. The best way for this would be to have a tool that allows you to look at and analyze the details of our everyday spending or saving, to then quickly rocket out and look at a 10,000 ft view of your equity and financial health.

There is an ever growing list of software tools out there that promise to help you manage your finances which can be broadly divided into the following groups:

Commercial software you pay for: MS Money, Quicken (both desktop based and web based) etc. These are heavily marketed and most commonly used.

Free software: open source desktop based tools (GnuCash, Grisbi, KmyMoney etc) and Web based (Mint, Wesabe, etc). There is also Microsoft Excel, but that is a manual spreadsheet tool that everyone customizes to their own needs so not as portable as a stand-alone tool or system.

Since the best way to save is not to spend; let’s talk about free tools. These free finance and budgeting tools are available in the form of both web based apps and desktop tools. There is a sea of information for those wishing to evaluate and identify the one tool that will perform the job for them, some of these resources are listed in the references at the end of the post

Since I am not yet comfortable uploading my financial details to third party sites on the web, I personally use an open source, free software tool that I can download to my desktop. The remainder of this article will list out some of the features of the tool I use - GnuCash. This does not mean that this tool is the best choice for everyone. Every software tool out there provides a wide range of features, you should certainly review some of them before choosing one.

Some of the nice features of Gnucash, installed on my Windows XP machine, that I find useful are:

Installation: portable (unzip into a folder).

Easy install and configuration: a simple wizard will run you through the process of getting set up (handy templates available).

Global currencies

Double-entry booking

Import existing financial data from other tools in QIF / OFX files.

Scheduled transactions

Reporting capability

Consolidating or account reconciliation

Ability for receivable and payable systems, tax table construction – if you have business use of this tool.

Easily record and track your Stock/Mutual Fund Portfolios

A complete review of the software and its various features is certainly beyond the scope of a single article on this blog, so I will conclude this article with a few screenshots that will get you interested in evaluating some of this and other open source free software applications for yourself.

Figure 1 (below): A Wizard runs you through some templates to get your initial setup configured

Figure 2: Extensive Reporting and charting capability

Figure 3: Schedule, split transactions; Reconcile and manage accounts through online services

There is certainly much more that can be discussed; and perhaps it can be in another post; if there is interest. Feel free to share your comments on this product or any other ones you have discovered.


Reference and Related Posts:

Personal Budget Spreadsheet - how to make it work for you
http://en.wikipedia.org/wiki/Gnucash
http://en.wikipedia.org/wiki/Comparison_of_accounting_software

Editors Note - As this is a free tool I am not making any money from this article or links in it. It is purely to provide some useful information to my readers.

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I do in my household. For me doing the household finances are something I don't mind, apart from seeing all the bills which means money going out the door. I also do the budgeting, taxes and investments. I have a natural affinity for all things finance, a reason I write this blog, and my wife thinks all this finance "stuff" is extremely boring. She has a good job, deals with numbers in her job, but when it comes to household finances, she is more than happy to leave it to me. I used to be fine with this, but once we had a child I started realizing that should something happen to me, she should be aware of our finances. Also, when it comes to investing and saving, 2 heads are always better than one.

The Newyork times recently had a piece on finances and women in which the line I liked best was " THE No. 1 financial complaint I hear from women, delivered in tones that range from exhausted to ashamed to defiant, is this: "I hate dealing with money, so my __ (fill in the blank) takes care of everything" . That role is often filled by a spouse or partner, although fathers and accountants are also candidates when a woman hands over the reins to her money.

Many couples try to strike a balance when dividing household chores, financial and otherwise. But when women pass the buck, it leaves them far too vulnerable. While some research suggests a shift is occurring, and younger women are more inclined to control their own finances, the aversion of many women to money tasks is still surprisingly common — and so is the risk they assume, says Tahira K. Hira, professor of consumer economics at Iowa State University at Ames.

In a study, "Gender Differences in Investment Behavior," Professor Hira and her co-author Cäzilia Loibl, assistant professor of consumer sciences at Ohio State University, studied more than 900 randomly selected households with incomes of $75,000 or higher. The authors found that while "men were more engaged in their personal finances, generally speaking, women tend to do more of the day-to-day tasks," Professor Hira said. They tended to abdicate their financial roles when it came to planning for the future, saving and investing. "The majority of women found investing to be stressful, difficult and time-consuming," she said.

PROFESSOR HIRA believes a lack of confidence causes some women not to take a more commanding role. Traditionally men are expected to be competent financially, whether it's their bent or not. "For women," she said, "the expectation is often that somebody wonderful will be there to do it." She points to a Catch-22: Many women have low confidence because they haven't done a lot of planning or investing. And because they find it difficult and stressful — or they aren't expected to deal with it — they don't get the experience that would boost their confidence.

A lot of good personal finance blogs I read are authored by women and so I definitely think the trend is changing. However, I am worried that if my wife starts doing the finances, she will expect me to take over other chores which she currently does (like household cooking, which I am terrible at), so for now the status quo suits me. However, I am going to ensure she is informed and aware of all the financial decisions we make going forward.


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This article was selected in the 151st edition of the carnival of personal finance hosted at Alpha consumer. If you liked it, consider subscribing by clicking here.

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Is your financial documentation clutter getting too much to deal with? Signs of this include bills piling up, statements in random piles and your desk barely visible under all the stacks of paper. Most of us have, at some point, experienced this and need to get organized. Start now by making "Financial" spring cleaning part of your future using the four simple steps provided here that I myself have followed for a number of years.

1. Assess the situation. Where do you need to focus your energy? One way to get to the root of your organizational challenges is to ask yourself questions like: What are most important financial documents? Which ones do I need to action regularly? Are any over due bills? What do I always have trouble finding? Then think about how you want things to be and identify what your biggest priorities are. For example you need identify overdue bills as soon as possible (asap) in order for you to action them and avoid even more late fees.

2. Make a plan. You don't have to finish everything in one day - it’s often better to break a big task down into little chunks. However it is best to have the start and end date within a week of each other. Choose one or two "stacks of paper" to concentrate on initially. I would focus on the oldest documents and work backwards (this will help you identify your oldest and possibly overdue bills first). Let people in your family know what you plan on doing and when you’re going to do it. Get them lined up to pitch in if possible. Also get all of the supplies you’re going to need, such as folders, plastic boxes and labels to organize your paperwork, and trash bags for the junk (you may want a shredder for confidential documents). Taking all of these steps ahead of time will keep you on track and make your spring cleaning project feel more manageable.

3. Sort & Organize. There are three general categories that just about all the financial documents fit into: For Action, To Keep, and Throw Away. Now assess all your documents and put them into one of these categories using some of the guidelines below:

- For Action, is any thing that needs to paid or income (checks) that need to be banked. I suggest getting a two level "in or action tray" for your items to action. The top level is for things that need to be done asap, while the others can be done within a month. This will help you prioritize what needs to get done and which bills need to be paid first.

-To Keep, is generally any document which you may need to reference in the short to medium term (which you cannot easily get elsewhere) and legal documents (like car titles or property records). You may also want to keep the first and the last 2-3 months utility bills for proof of residence purposes. Some people also like to keep receipts of purchase and medical receipts. I suggest a small plastic box for this, so that everything is in one place. Also, get all your bills, statements etc online if you can! This will really reduce your documentation clutter and provide a quick way to access the information. From a legal perspective, online bills and receipts are as good as the hard copy versions.

- Everything else should go into the Throw Away box. Because you may inadvertently put something in the Throw Away box, don't get rid of immediately. Put the box in your garage or under your desk for a period of no more than two weeks to a month. If you don't find that you go to the Throw Away box after a month, get rid of it permanently.

4. Stay on top of it. Sometimes this can be the most challenging step of all, but the only way to get organized and stay organized is to stick with your system. From experience I have found you only need to set aside 1 hr a week (which you can split this into 2 half-hour sessions) and to manage your financial documentation clutter using the system in Step 3. All this effort will really pay off during tax time when trying to get all your documentation together.

And remember, if your system isn’t working, change it. Different things work for different people - the main purpose is to be organized and feel on top of things. No organizational system will be successful if it’s hard to follow.

Don't wait any longer. Get control of clutter and get organized today.

Picture courtesy jpeepz

Related Post : Personal Budget Spreadsheet - how to make it work for you

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I am sure, like me, many of you have noticed the sharp rise in the cost of goods and services over the past year. We are all familiar with the rise of gas prices, but I have noticed that basic groceries like milk, bread, vegetables and meat have been on the rise. I like to think of my wife and I as being frugal shoppers, but despite using coupons and looking for deals our grocery bills have risen by 25% to about $600 a month. Well today, the Labor Department reported that wholesale prices rose 1.1% last month alone. That was the second biggest increase in the past 33 years and near triple the rate analysts had been expecting.

The reports show inflation pressures, which are occurring at a time when the overall economy is slowing and many analysts believe it may have already toppled into a recession. That raises concerns that the country could be facing another out of stagflation, the malady that last occurred in the 1970s when economic growth stagnated but inflation kept rising. Such a development would put the Federal Reserve in a bind. The central bank has been cutting interest rates in an effort to combat the current slowdown. However, if inflation pressures keep rising, it might be forced to stop cutting interest rates for fear that it would make inflation worse. (USA today)

Drilling into the inflation figures showed food costs rose 1.2% in March (equivalent to a 14% annualized rate), reflecting big increases in the price of vegetables, rice, and beef. I can definitely attest to this and it looks like more rises are on the way as the input costs (fuel, machinery, labor) to farming these products rises. Per the above statement, this paints a bleak picture for the economy's future. The only silver lining of this would be that as the interest rate cutting slows (low interest rates drive growth, which leads to rising inflation), the US dollar should start to appreciate from its current historic lows. In the meantime, stock up on those nonperishable goods because prices are heading further north.

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CNN.com recently had a very succinct article on the best credit cards out in the market place for different consumer spending needs. I tend to use my credit cards for most purchases, in order to get the reward points or cash back offers. My logic is that I might as well get something back for "free" for all the money I am spending anyway. The key thing is to make sure you pay the balance off in full every month.

I have three main credits cards - one for online shopping, one for everyday purchases & one as a back-up. I was glad to see that the credit card I used for my every day purchases - American Express Blue Cash - was the recommended as the best credit card in its category. Kiplinger's Personal Finance has also ranked this as No 1. for its category.

If you do most of your purchases on it, then it will probably work out well for you as well. I normally spend $2000 p/month on average on this credit card and I get back about $50 per month (you get get 5% back on grocery, drugstore and gas purchases and 1.5% on everything else vs. 1% for the average cash-back card). So, I can definitely recommend this card to folks with similar spending habits as mine. Click here to apply for the Blue Cash from American Express

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Here are 10 good to know facts around one's credit score, what affects it and how to deal with bad credit.

1. Credit scores really impact the purchase of a home

Credit scores are driven by the record of paying bills and other debts reported to a credit bureau. Statistical studies have consistently shown that individuals with higher credit scores are less likely to be late with a payment and pose less risk of loss to a lender. A lower risk of loss translates into a lower cost of doing business, which in turn enables the lender to offer financing at a lower rate of interest. This means lower monthly payments and potentially significant interest savings over the life of the loan. For example, reducing the interest rate on a $100,000 30-year fixed rate loan from 7% to 6% would reduce the monthly payment of principal and interest from $998 to $889.

2. The most common barriers to getting credit

The most common barriers include a history of late bill payments, incorrect information on your credit report, too much debt, the types of debt owed and a lack of credit history. This is why it is vital for individuals intent on building a strong credit history to pay their bills on time, pay them in full, and to check their credit reports annually and correct any mistakes immediately. In addition, judgments or liens, defaults or foreclosures, collection accounts, charge offs, bankruptcies are also common barriers to getting new credit.

3. Late payments and your credit report

Each time you make a payment late, you run the risk of the creditor reporting the late payment to the credit bureau. Even if you catch up, your credit report will show that you are caught up – but it will also show that you were late.

4. Debt management plans to improve creditworthiness

Debt management plans are usually arranged by Consumer Credit Counseling agencies. While such plans may be appropriate for some individuals they will have an impact on the overall costs. Some future lenders may view a person who enters into a debt management plan as an individual who cannot manage credit.

5. If I have a good reason for not paying a bill, will it be overlooked?

Contact the creditor if you experience a crisis, like losing your job or becoming seriously ill. You may receive a grace period or payment plan from the creditor, but never assume such an agreement is automatic.

6. When I pay bad debt, doesn't it go away?

No, because credit reports provide a history of your credit, bad debts, charge-offs and late payments can stay on your credit report for seven years. You can, however, provide your own explanation of the situation for inclusion in the report received by future creditors.

7. Check your credit report every year

You should check your credit report on an annual basis to be sure that there are no errors and to be sure there have been no attempts to steal your identity. Getting a copy of your credit report may be free or may cost you only a small amount of money. The fee to see your report is much smaller by comparison than the damage caused by an error or an identity theft.

8. Is it true that if I check my credit score, my score will be lowered because it is another form of activity on my credit history?

No, if you order your own credit report, your credit history is not affected. In fact, you should check your credit report annually. Nationally, everyone can gain access to a free credit report at www.annualcreditreport.com. You are allowed a free credit report from each of the three reporting agencies (Experian, TransUnion and Equifax).

9. If I have an unsatisfactory credit report does it take seven years to correct it?

No, you can improve your credit score over a shorter period of time because recent entries to your credit report carry more weight. So you should keep working toward better credit.

10. Correcting mistakes on my credit report.

If you believe that any one of your credit reports contains mistakes and you wish to correct the mistake, contact the company that developed the report. The three credit reporting companies are Equifax, Experian and Trans Union. They are required to complete an investigation of your disputed items generally within 30 days and provide you written notice of the results of the investigation within five days of its completion. This notice should also include a copy of your credit report if it has changed based upon the dispute.

Get your Experian Free Credit Report Now!

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Here are 5 quick formulas to help you quickly answer some common money and investing related questions:

Q1. How many years does it take to double your money?
A1 - Known as the rule of 72. Divide the number 72 by your estimated annual return. So for example, if you expect to earn 9% annually, it will take eight years (72/9), to double your money.

Q2. What am I giving up in retirement savings when I spend money today?
A2 - Add a zero to what you spend if you are going to retire in 30+ years (assuming 8% return on your savings). Divide the number by 1.5 for every 10 years you get closer to retirement. For example, if you are going to retire in 30 years, spending $1000 today is equal to $10,000 in 30 yrs. If you are going to retire in 20 years, $1000 today is equal to approximately $6,666 ($10,000/1.5) in 20 years.

Q3. How much do you need to earn, before taxes, to buy what you want?
A3 - Multiply the cost by 1.4, assuming you are in the 28% tax bracket. Reduce by about 0.1 for every lower tax bracket. So for a person in the 28% tax bracket, to pay for a $5,000 HDTV, you must earn $7,000. This is a good formula to apply when telling your significant other to cut down their spending!

Q4. Is my mutual fund charging me too much in fees and/or what should I be paying?
A4 - Multiply your funds expense ratio or management fee by 8. The result is the percentage by which it needs to outperform a low-cost index fund to the cover the fees. So a fund with an expense ratio 1.5% would need to do 12% better than the index to justify the fund managers fee. If the Dow Jones index returned 15% in one year, your fund should have returned (capital gain and distributions combined) 27% in that year.

Q5. What am I worth by the hour?
A5 - Divide your annual pay in half and drop the last three zeros. So if you are on a $100,000 a year salary, you make approximately $50 an hour.

Please note these formulas should only provide a high-level guide and not assumed to be 100% accurate.

This post was included in the recent Festival of Frugality with a number of other great article.

Photo courtesy - dwyman

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""It takes less credentials to be a mortgage broker than a pimp on a street corner in Harlem.....Because a pimp needs references."

The Economist published an article about the need to educate the world about personal finance. On a much smaller scale that is one of the goals for this blog and so the article was very poignant for me. The article is based around the works of John Bryant, who has for years been telling anyone who will listen about the problems caused by widespread ignorance of finance. "EVERYBODY wants it. Nobody understands it. Money is the great taboo. People just won't talk about it. And that is what leads you to subprime. Take the greed and the financial misrepresentation out of it, and the root of this crisis is massive levels of financial illiteracy." Here are some highlights from the article and overall I think the work being done is great. We will as a nation be much better off financially in the future because of it. I recommend reading the full article if you get a chance (see link below).

In January George Bush appointed Mr Bryant vice-chairman of his new President's Council on Financial Literacy. This was launched as part of his administration's increasingly frenetic response to the financial crisis that followed the meltdown in subprime mortgages, many of them given to borrowers who may not have understood the risks.

The council is not short of expertise. It is chaired by Charles Schwab, eponymous boss of a broking firm. Already, it has approved a new curriculum for middle-school students, "MoneyMath: Lessons for Life". (Lesson one: the secret to becoming a millionaire. Answer: save, save, save.) It is starting a pilot programme to work out how to connect the "unbanked" to financial institutions.

April has been declared Financial Literacy Month by Congress. The need to make this more than a slogan is especially apparent this year. But America is not the only country where doing something about the widespread ignorance of personal finance is on the agenda. Governments from Britain to Russia are declaring their commitment to financial education. This month the World Savings Banks Institute, which represents retail and savings banks from 92 countries, will hold a summit in Brussels about financial education in the light of the subprime crisis.

Fools and their money

It is a "well-established fact" that "a substantial proportion of the general public in the English-speaking world is ignorant of finance," writes Niall Ferguson, an historian at Harvard University, in his forthcoming book about the history of finance, "The Ascent of Money". He produces a long list of evidence to support this conclusion. According to one survey last year, four in ten American credit-card holders do not pay the full amount due every month on the credit card they use most often [40% - I can't believe it is this high!!], despite the punitive interest rates charged by credit-card companies. Nearly one-third said they had no idea what the interest rate on their credit card was.

There is similar evidence elsewhere. For instance, a survey in 2004 by Cambridge University and Prudential, a big insurer, found that some 9m Britons are "financially phobic", meaning that "they shy away from anything to do with financial information, from bank statements to savings accounts to life assurance." Research by the British regulator, the Financial Services Authority, found that one-quarter of adults did not realize that their pensions were invested in the stockmarket.

Americans still leave school not knowing much about money. A sample of high-school pupils aged 17 or 18 gave correct answers to barely half of a set of questions about personal finance and economics posed in 2006 by researchers at the State University of New York, Buffalo. Less than one-quarter knew that income tax could be levied on interest earned in a savings account. Three-fifths did not know the difference between a company pension, Social Security and a 401(k) savings account.

A nudge in the right direction

"The depressing truth is that financial literacy is impossible, at least for many of the big financial decisions all of us have to take," says Richard Thaler, a behavioural economist at the University of Chicago. Aptly for someone who has built his career on the study of irrational financial behaviour, Mr Thaler admits that even he finds it hard to know the right thing to do. "If these things are perplexing to people with PhDs in economics, financial literacy is not the right road to go down."Instead, policymakers should "focus on making the world easier", he argues in a new book, "Nudge: Improving Decisions About Health, Wealth and Happiness", written with Cass Sunstein, a law professor (and an adviser to Barack Obama).

Better product design and financial education need not be alternatives, points out Mr Mandell. They can work in tandem. He is enthusiastic about schemes such as the Child Trust Funds introduced in Britain. These "baby bonds" give every child a fund that matures at adulthood, letting everyone start out with a nest-egg. Mr Mandell is particularly excited by the curriculum being designed to be taught in conjunction with these funds, starting when children reach the age of seven. "Teachers will be able to talk about money realistically, because the kids will have ownership of wealth."

If you can make it there

One of the most interesting attempts to combine teaching and superior products is taking place in New York, championed by a mayor, Michael Bloomberg, who made his fortune selling financial information. He has created an Office of Financial Empowerment, which is trying to use the powers of government to promote both financial education and better design of financial products.

The city's regulatory powers mean that it can crack down on firms that exploit financial literacy, and educate the public at the same time, says Jonathan Mintz, New York's Commissioner of Consumer Affairs. It has found that many tax-preparation agencies are offering "rapid refunds" which, as many consumers do not realise, are in fact loans in anticipation of refunds. Its publicity blitz about these loans led to coverage on news programmes "in 22 states and Canada", allowing the city to promote the message that "anyone promising a tax refund within two days is selling a loan—don't do it."

Another initiative is to use the city's system of helping people to apply for the earned income-tax credit as a chance to encourage them to open a bank account. As well as explaining to applicants the importance of saving, the city is working with banks to offer carefully designed accounts, and has even persuaded some philanthropists to provide matching funds for the first $250 someone saves. "You are not just educating me, you are allowing me to nod my head and say yes, and get a windfall," says Mr Mintz. "Financial education is much more effective when it is connected to something real that is happening."

With Miami, San Antonio, San Francisco, Savannah and Seattle, New York has formed the Cities for Financial Empowerment Coalition, which met for the first time to share ideas on March 18th. There was general agreement that education and better product design should go hand in hand. Most big banks have started to sponsor financial-literacy efforts, if only to cover their backs. However, Mr Mandell remarks, by increasing the charges for bank accounts with only small balances they have in effect deprived children of what was traditionally the best practical educational tool, an account of their own.

Indeed, one of the biggest problems may be the illiteracy of financial-service firms, which often fail to provide the products that poor consumers most want. That, at least, seems to be the conclusion of a recent survey in two of New York's poorer neighbourhoods. Many people were using fringe financial products such as pay-day loans or money orders rather than the services of mainstream banks.

The mainstream financial providers are "missing genuine markets", says Mr Mintz. "One of the open secrets in this industry is that when people are engaged in behaviour that seems irrational, often it has a rational basis." Which only goes to show that consumers are sometimes only as literate as the products the financial-services industry chooses to sell them.

Mr Bryant makes the same point more colourfully, noting that some of the first people to be hit by the subprime-mortgage crisis were the very brokers who had sold people inappropriate mortgages. Having drunk their own Kool-Aid, they found themselves with enormous debts and no job. "It takes less credentials to be a mortgage broker than a pimp on a street corner in Harlem," he says. "Because a pimp needs references."

The full article can be found here.

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We have all read about the ever increasing fees and charges that banks and other financial institutions charge us. But how well do you know the various bank fees and how much you could be charged? A recent government study on bank fees revealed that consumers are ill-informed about the fees they are paying on their accounts and tend to pay more than then need to. In the US alone, $36 billion in bank fees were charged last year to consumers. While bank fees are not going to go away or lessen anytime soon, savvy consumers can avoid a number of these fees by being informed and shopping around for the best deals. Here are some of the more common bank fees/charges and tips to avoid them.

Monthly Account Keeping or Service Fee : The most common fee you pay for an organization to manage your bank account. Generally runs anywhere from $3 to $7 per month ($36 - $84 annually). However, you can search around and find ways to avoid this fee by finding a zero fee account or meeting some no-fee requirements like having a certain account balance or home loan with the bank. For example, I have a transaction account with HSBC that does not charge a monthly fee and offers a high rate of interest. I can also withdraw money for free from any ATM up to 5 times a month. I have found that the mid-tier or newer market entrants have the lowest or no fee accounts.

Internet Banking fee : A fee may be charged for doing transactions over the internet (0.50c to $1 per transaction). If you are paying this, then choose another account or bank. Most banks do not charge a internet fee for transaction accounts, especially if you are already paying a monthly service fee. In fact banks are encouraging consumers to use the internet as it is the cheapest and highest returning channel for them.

ATM transaction fee : When using your ATM card, you may be charged a fee if you exceed the number of transactions nominated for a particular time frame (e.g. per month) or use an ATM from a different bank.The fee for this can range from $2 to $5. Again, this is an easy fee to avoid with some forward planning to use you own banks or partner ATM You can also select an account that allows some non-bank ATM usage or rebates you for any ATM fees incurred. There are plenty of options out there.

Foreign ATM fee : If you use an overseas ATM, you may be charged $3.00 to $7.00 for withdrawals. This one is especially applicable to me as I work/travel and live overseas. Ironically, the cheapest way to get money overseas is to use an ATM withdrawal. You get the best exchange rate and even with the ATM fee, this is cheaper than any other currency exchange method out there (more on this in another post). So I would say this a fee worth incurring when travelling overseas, and one you really can't avoid.

Branch withdrawal fee : Dealing with a person face-to-face can sometimes cost you money ($5 - $10). This one is for those folks who like personalized service and are willing to pay for it. For most of us, we can avoid this by doing most of our banking on-line or via the telephone. If you do want the face-to-face interaction choose a bank account that provides a certain number of these interactions for free.

Dishonour fee (or Overdraft fee) : The fee you pay when the balance in your everyday transaction account goes below $0. Example: Your phone provider debits $150.00 for your monthly bill but you only have $100 in your account at the time. You may be charged anywhere from $30 to $50 by your bank. I have been hit by this one - so make sure you keep a buffer (eg $500) in your transaction account so that you have sufficient funds to cover these situations. If you are expecting a big debit, make sure you transfer money into your account well ahead of when its due.

Exceeding your credit limit fee : A fee may be debited from your credit card account every time you exceed your credit limit during a statement cycle e.g. $35 per statement cycle. Another bad fee which you can avoid by watching what you spend. At worst case increase your credit limit or get multiple credit cards so that your credit limit is higher - but higher credit has its own inherent dangers.

I am sure there are many other fees out there, but these are the most common ones consumers face. It would be interesting to hear of any adverse fee experiences you have had and/or lessons learnt by leaving a comment on this post. My worst one was paying a $30 overdraft fee when I forgot to move enough money from my savings account to my transaction/checking account before a big bill came through. That was $30 wasted, which with a bit of forward planning I could have avoided.

Financial institutions must provide information to their customers on these fees and charges. So if you are getting charged for something you did not know about, make sure you raise this with your bank. With the credit crisis causing a lot of pain for bank profits, they will look to other ways - like bank fees - to make up for the credit losses. So be on the watch out for increasing fees and shop around to get the best deals that suit your banking needs.

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Let's clear one misconception - creating a budget spreadsheet won't make you any more money or make you rich. What it does is provide a framework to organize and track your finances.

Ideally you would want to maintain a budget for six months to a year to get an idea of your spending patterns. You want to adjust the spreadsheets as your estimates get better.

Once you have a handle on your budget sheet, you will have a good idea of what you are making and more importantly spending. You can then take options to determine what you can realistically cut back on so you save more and spend less.

The way you get rich from budgeting is that you increase your savings by identifying where you can cut back on AND then investing that money. Just keeping a budget will not make you wealthier in the long term

For people new to budgeting, I suggest using Microsoft Excel and having a simple spreadsheet where you have an Income and Expense section. Income is how much you or your houeshold regularly earn every month from various sources (salaries, dividends, interest etc). Expenses should be your fixed expenses (eg rent, insurance) and discretionary expenses (groceries, entertainment, holidays etc). The key thing is to set a budget amount for your discretionary spending and then track the actuals on a daily basis as this is the expense type you can most control and cut back on. You should adjust the budgeted amount every few months to be realistic or as a target you want your actuals to get to.

I have kept a budget for over 2 years and it works. I have a good idea of what my expenses are and it gives me control on what I spend - I am still trying to work on my wife - but she can't argue with the numbers too much!

A detailed budget spreadsheet can be found at : http://www.kiplinger.com/tools/budget/

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