Many teach that good debt is fine, while bad debt is not. The theory goes that good debt makes us wealthy as the value of our purchased assets go up, while bad debt makes us poor as we struggle to pay debts for which we have little to show. In fact, it's a philosophy I've followed my entire adult life. And its flawed.

Not all debt is created equal, to be sure. A debt backed by an appreciating asset is far better than debt used to fund a lifestyle we can't afford. Why? If for no other reason, we can always sell an asset to pay off good debt. With bad debt, all we have is the debt.

But the problem with 'good' debt versus 'bad' debt thinking is that it makes good debt seem more appealing than it really is. And there are two reasons for this.

First, debt, whether good or bad, takes away some level of our freedom. In my case, I'm 42 with enough 'good' debt for two families. If I were debt free, I could quite my day job and run this site full time. I'd really enjoy that, along with a few other business ventures I'd undertake. As it stands, my 'good' debt is requiring me to keep my 9 to 5 job. Thus, 'good' debt is preventing me from living the life I'd like to live.

Second, selling the assets that underlie good debt is not always practical. For most of us, good debt is our mortgage, and that's true for us. We have a mortgage and a home equity line of credit used to renovate our home several years ago. We could sell our home, even in the current market, and pay off all of our 'good' debt. We would have enough money left over to pay cash for a home in many areas of the country, but not we we currently live outside of Washington, D.C.

It's certainly a choice we could make. We would uproot are two high school children, sever all of our friendships, and leave many of our family members behind. We've chosen not to do that, and that's the right choice for us. But that just brings me back to all of our 'good' debt.

Borrowing to buy a house is a perfectly rationale decision. In our case, perhaps we purchased more home than we needed, although we do enjoy where we live. But the fact remains that 'good' debt, at least for individuals, is a myth. Instead of 'good' debt and 'bad' debt, maybe we should just think of it as debt and bad debt.

In the first section of the calculator shown above, you can enter all of your current debts, including the balance, interest rate, and minimum payment. The "custom" column to the far right allows you to determine in what order you'll pay down the debt, which comes into play with the next screen shot:

You'll see a drop-down box with a label of "Strategy." Here you can select from several debt snowball strategies (e.g., highest interest first, lowest balance first, etc.) or, using the Custom column from the first screen shot, pay off your debt in any order you want.

Plug in how much extra you'll pay, if any, and the spreadsheet calculates when each debt will be paid and how much total interest you'll pay. It's a great tool to war game your debt snowball plan.

This past week has been a great one for personal finance articles around the net. Here are a list of some of the top personal finance carnivals and articles for your reading pleasure:

Carnivals

• Carnival of Financial Planning 05-09-09 (@Intelligent Sepculator)
• Carnival of Personal Development - Final Edition (@Insight Writer)
• Carnival of Personal Finance #204 (@Earn What You Spend)

Articles

• What to do if your local car dealership is closing (@Smart Spending)
• Interview With A Dave Ramsey Certified Counselor (@ManvsDebt)
• Colbert's Credit Card gets its own Credit Card! Haha... (@Budgets Are Sexy)
• 7 Money Mistakes from Smart Money Magazine (@Gather Little By Little)
• How do you eat an elephant? (@How to Make 7 Million in 7 Years)
• 6 Job Search Tips for New College Grads (@My Dollar Plan)
• Finding Salvaged Goods To Save Money On Remodeling Your Home. (@My Two Dollars)
• The Art of Taking a Staycation (@Suburban Dollar)
• Why the Credit Card Legislation Should Pass (@Alpha Consumer)
• How To Save Money - The 1,001 List Of Money Saving Tips And Ideas (@Moolanomy)
• Ten Things Dave Ramsey Got Wrong (@Bad Money Advice)

The first thing to keep in mind is that there is no "right" choice. There is a reason it's called personal finance, as a reader reminded me just the other day. That's not to say that any choice is a good one. But there are almost always more than one reasonable approach to a money management decision. As an example, while Dave Ramsey would stop saving for retirement to pay off debt as would Michelle Singletary, Liz Pulliam Weston believes we should not stop saving for retirement to pay off debt.

With that in mind, let's walk through several steps that will help you make the best decision for you and your family:

Evaluate Your Debt and Retirement Savings Options

Step 1--Size up your debt: The first step is write down all of your non-mortgage debt and the interest rates you are paying. Credit card debt can easily be at interest rates in the double-digits or even above 20%. Car loans, school loans and home equity lines of credit are typically at lower interest rates. It's helpful to note the amount of the remaining balance, the minimum monthly payment, and how much of the monthly payment goes to interest.

Step 2--Size up your retirement savings options: Here, the big key is look at any company contribution matches you're entitled to receive. A typical match might be 50 cents for each $1 you contribute to a 401k, up to 6% of your salary. Some companies will match 401k contributions dollar for dollar, although that is becoming more rare. You'll want to understand how much money you'll leave on the table if you do not take advantage of the matching contributions from your employer.

It's also important to note whether your employer matching contributions vest immediately, or if you have to wait some period of time before the contributions actually belong to you.

Step 3--Calculate your debt free date: It's helpful to calculate how long it will take you to pay off the debt if (1) you continue to contribute to your retirement, or (2) if you stop contributing to retirement and use the money to pay down debt. Keep in mind that contributions to a traditional 401k are tax deferred. As a result, if you stop making those contributions, you won't have the full amount to put toward debt; you'll need to subtract the amount that will be withheld for taxes.

Why step 3? Calculating your debt free date can be a real eye-opening experience. You may be pleasantly surprised or completely depressed.

Making a Decision--Retirement Savings, Debt Pay Off, or Both

To see these steps in action, let's take a look at the following hypothetical financial situation:

• Household Income: $80,000
• Credit Card Debit: $20,000 @ 15% interest
• 401k Matching: $1 for $1 up to 6%

By setting out this example, we've taken care of steps 1 and 2 above. We've listed our debt and know what the interest rate is. We also know what our 401k matching contributions will be if we contribute to our retirement. Now let's look at how long it will take us to pay off the debt.

As a rule of thumb, the minimum monthly payment on a credit card is 2% of the balance plus interest. This does vary from card to card, so if credit card debt is what you're up against, you'll want to contact the credit card issuer to see how they determine your minimum payment. But using this assumption, our next credit card payment on $20,000 of debt at 15% would be $487.50. If we continued to make that exact payment each month (even though our minimum monthly payment would decrease as our balance went down), we'd pay off the debt in 58 months, paying over $8,200 in interest.

If you are wondering how I calculated that time period and total interest payments, I used an excel debt reduction spreadsheet calculator. It's easy to use, very flexible, and free. Here's the link to check it out.

Now let's assume that instead of contributing 6% to retirement (which would total $4,800 on $80,000 in income), we put retirement savings toward the debt. Since we'll have to pay state and federal taxes on the $4,800, let's further assume that we'll actually take home $3,840 of this amount (after 20% in taxes), or $320 a month.

Using the spreadsheet debt reduction calculator, the extra $320 reduces the time to pay off the debt from 58 months to 30 months. It also reduces our total interest payments from about $8,200 down to about $4,100. During the 30 months to pay down the debt, you would have given up 6% matching contributions totaling $12,000.

We can now compare the results between paying the debt off in 58 months while we contributed to our 401k, with paying off our debt in 30 months by forgoing retirement contributions. Here's how it looks:

A few things about these numbers. First, investment gains or losses have not be factored in. Second, the $13,650 for "extra savings" represents the amount that was being put toward the debt. Once the debt is paid off, that amount can go to savings.

At first glance, the numbers seem to strongly support continuing to contribute to retirement while paying down debt. The difference of $6,250 is a lot of money. But one thing to keep in mind is that the retirement contributions eventually will be taxed. Assuming a 20% state and federal tax rate, the extra $24,000 put towards retirement in the first column of numbers will eventually get reduced by 20%, or $4,800. Factor that tax into the math, and the difference between these two options is a lot smaller.

Making a Decision--Retirement, Debt or Both

When all is said and done, here are the things to consider:

1. Matching Retirement Contributions: The better the employer match, the more likely one should continue to save for retirement to take advantage of the match. If there is no employer match, focusing on debt is often the best choice. Even with a dollar for dollar match, if the interest on debt is high enough, the decision may still be a close call.
2. Debt Interest: The higher the interest rate on debt, the more likely one should stop saving for retirement until the debt is paid off. If the debt is on no interest or low interest credit cards, low interest home equity lines, or a low interest school loan, than continue to save for retirement while paying down debt becomes a better and better option.
3. Be Honest: Before putting a stop to retirement savings, be hones with yourself about debt. One of the worst outcomes is to stop saving for retirement to pay down debt, only to find yourself going into more debt. If you're not serious about getting out of debt, or you think there is a good chance you'll charge the cards back up once they are paid off, keep saving for retirement.
4. Time to Pay Off Debt: For those with debt that will take many years to pay off, putting retirement savings on hold may be a bad idea. It's one thing to stop saving for retirement for a year or two. But we all know that the key to successful retirement savings is to start early.
5. It's Not All or Nothing: Keep in mind that you can compromise. Rather than saving nothing for retirement or contributing enough to get the full company match, you can meet in the middle. You can contribute some to retirement, even if it doesn't take full advantage of the company match, and put the rest toward debt.

In our case, the non-mortgage debt we have is at very low interest rates. The highest interest we currently pay, after taxes, is about 3%. On top of that, my employer matches 401k contributions dollar for dollar, and the matches vest immediately. So we'll keep saving for retirement while paying off debt.

So how do you make this decision?

1. $1,000 to start an Emergency Fund
2. Pay off all debt using the Debt Snowball
3. 3 to 6 months of expenses in savings
4. Invest 15% of household income into Roth IRAs and pre-tax retirement
5. College funding for children
6. Pay off home early
7. Build wealth and give!

While there are those who quibble with some aspects of these steps, by and large it's a sound approach to money management. If my children when they leave home decide to follow the Dave Ramsey way of handling money, I'll take great comfort that they are headed in the right direction.

But what about those of us who aren't just starting out or recovering from a financial meltdown. For many of us, when we look at Dave's Baby Steps, we realize that we have been taking many of these steps all at the same time! For example, we have a lot more than $1,000 in our emergency fund, yet we also have non-mortgage debt, we save for our children's education (my son starts college in three years), we save for retirement, and we give money to charity.

And all of this raises the question we are going to address: Should we 'Dave Ramsey our finances', and if we did, would we be better off?

To answer this question, let's walk through the Baby Steps (particularly ##1-3) using the following assumptions:

• Non-retirement savings: $50,000 in a mix of mutual funds and cash accounts.
• Non-mortgage debt: $200,000 (mainly from a home renovation) on a home equity line of credit and low interest credit cards.
• Mortgage: $400,000 on a 30-year fixed rate of 5.5%.
• College Savings: $10,000 in a 529 Plan with kids a few years away from college.
• Retirement Savings: $250,000 in 401(k) and IRA accounts.
• Retirement Contributions: Currently contributing 7% to company 401(k), and company matches up to 7%.

Everybody's specific financial conditions is different, of course, but the above assumptions will allow us to work through some of the significant issues and opportunities Dave Ramsey's approach can present.

Dave Ramsey Baby Step #1: $1,000 Emergency Fund

Unlike those trying to save $1,000, many who chose to follow Dave Ramsey's Baby Steps would be in the position of draining their emergency fund down to $1,000 and using the funds to pay down debt. From just a numbers perspective, using an emergency fund to pay off non-mortgage debt is usually the right choice.

Emergency funds should be kept in a risk-free account, like an online savings account. These accounts almost always pay less than the interest on debt. In addition, the interest a savings account does pay is taxable, while interest payments on credit cards and personal lines of credit generally are not tax deductible.

Of course, many may have debt on 0% credit cards or on home equity lines of credit that are tax deductible. But for the most part, interest on debt will be more than interest earned on a savings account.

The big issue here for many is psychological. Having taken some comfort in an emergency fund that could pay expenses for some number of months, it will be very difficult to reduce the emergency fund to just $1,000. If that describes you, how would you answer the following question: If you had no debt and $1,000 in savings, would you borrow money to add to your emergency fund? If the answer is no, then you should ask why you are holding on to more than $1,000 while you carry non-mortgage debt.

There may be some tax considerations that come into play. If some or all of your non-retirement cash is in mutual funds or stocks, selling the investments to pay off debt could trigger tax liabilities. But putting this issue aside, and returning to our example, let's assume we follow Dave Ramsey's Baby Step #1 and transfer $49,000 from our non-retirement accounts to pay down our $200,000 in debt. That leaves $151,000 in debt and $1,000 in savings.

Dave Ramsey Baby Step #2: Pay Off All Non-mortgage Debt

Baby Step #2 is to pay off all non-mortgage debt. Having reduced our emergency fund down to $1,000 as part of Baby Step #1, we now have two big questions to answer: (1) Do we use some or all of our 529 Fund to pay down debt; and (2) Do we use some or all of our retirement investments to pay down debt?

Recall that retirement savings is Baby Step #4, and college saving is Baby Step #5. As a result, if we followed Dave Ramsey's approach to the letter, it would seem that we would liquidate college savings first (since it's Step #5) and retirement savings second until we had paid offer all of our non-mortgage debt. Let's take a look at each option.

College Savings Fund: There are tax consequences for using a 529 Fund for something other than our children's education. Generally, there is a 10% penalty, in addition to taxes, on any earnings. And if you received any state income tax breaks on your contributions, those must be paid back. Given the market today, however, you may not have any earnings to speak of, so the cost of closing out a 529 Fund may not be significant. You can check out IRS Publication 970 for more information on 529 Plans.

In addition to the numbers, there are likely to be strong feelings among family members when it comes to a 529 Plan. Education is highly valued, as it should be, and the thought of draining a child's education fund may not go over very well with your spouse, parents, or in-laws, not to mention your children. This is of particular concern if you are likely to rack up more credit card debt after paying it down with 529 Plan money.

In our example, however, let's assume we close out the 529 Plan, and after say $500 in penalties and taxes (assuming we have little by way of earnings given the current market), we are left with $9,500 to pay down our debt. That leaves us with $141,500 in non-mortgage debt.

Retirement Savings: This is the toughest decision. Unless you have Roth accounts, withdrawals from retirement accounts generally result in a 10% penalty in addition to tax liability. In our example, assuming the retirement savings is not in a Roth, we'd pay $20,000 in penalty if we withdrew the entire amount. Assuming a state and federal combined tax rate of 25%, we'd pay another $50,000 in taxes (which are calculated on the full $200,000, not the $180,000 left over after the 10% penalty).

That would leave us with $130,000 to apply to our debt. So having liquidated all of our retirement and non-retirement accounts, we have our non-mortgage debt down to $11,500. If we did this, would we be better off? To answer that question, let's compare our balance sheet before and after:

So why the difference in net worth? The difference comes from the $20,000 in penalties paid for withdrawing retirement funds and the $500 in penalties and taxes for closing out the 529 plan. So what if we stopped short of taking money out of retirement, but cashed in our emergency fund and 529 plan? Here are the numbers.

Here, the difference in net worth is the $500 in penalties and taxes for withdrawing money from the 529 Fund. Other than this difference, there are no changes in the bottom line on our balance sheet, at least not right away.

Where the difference comes in is with the interest savings, if any, we receive by paying off debt that costs us more than the interest we were earning on our savings and investments. As a result, the higher the interest rate on debt, the more benefit one receives by using savings to pay down debts.

Dave Ramsey's Baby Steps ##3-7

So where do we go from here? Well, if cashing in savings and investments is enough to pay of all non-mortgage debt, Dave Ramsey would have us rebuild our emergency fund up to 3 to 6 months worth of expenses. But what if you still have non-mortgage debt even after using all reasonably available sources of cash to pay it down? Certainly we wouldn't move on to Step #3 until the debt was paid off, but other questions still remain.

For example, do you stop contributing to retirement (Baby Step #4) until the debt is repaid? And do you stop saving for your children's education (Baby Step # 5) until the debt is paid? While there's no one-size-fits-all answer to these questions, here's one approach to consider:

• Retirement Savings: Continue to contribute to retirement savings, at least to get 100% of any company match. In the long run, this approach should increase net worth more than leaving the company match on the table. This is the approach we are taking.
• 529 Fund: Stop funding your child's education until all non-mortgage debts are paid, you have a reasonable emergency fund, and you are saving for retirement. In the worst case scenario, our children can pay for their own college and/or we can help them out of our then current income. It just doesn't make sense to save for future college expenses while paying interest on current debt.

Conclusion and Warning

From all of this, here are the key points for those trying to apply the Dave Ramsey Baby Steps:

1. Cash accounts earning low interest rates generally should be used to pay higher interest debt.
2. Tax consequences should be considered before liquidating non-retirement investment accounts to pay off debt
3. Using 529 funds to pay of debt should be considered, factoring in any penalties and taxes you'd have to pay and just how angry your in-laws would be.
4. Retirement savings, because of the 10% penalty on withdrawals, will often not be a good source of funds to pay off debt.
5. Continuing to fund a 529 account while paying interest on non-mortgage debt could cost more in the long run.
6. Contributions to retirement accounts, at least to take advantage of an employer's match, is a sound choice.

In the final analysis, we are following a modified version of the Dave Ramsey approach to money management. We are using most of our cash and any non-retirement investments with few gains to trigger a tax liability to tackle our non-mortgage debt. We'll continue to fund our 401(k) up to the company match, but direct all other funds toward our debt. Once the debt is paid, we'll beef up our cash accounts and education savings.

Finally, there are two big warnings to heed. First, every situation is different. The tax consequences of the decisions you make vary from person to person, tolerance for risk varies, and the need for liquidity can vary. The point is that the above perspective, while generally the approach we are taking, may not be right for you. If you are looking for advice before you make any financial decisions, seek the advice of a professional.

Second, it is important to understand your own tendencies. If you believe that you'll likely accrue more debt once the credit cards are paid off, it may not make sense to cash in your savings account to pay them down. The one "advantage" to a maxed out credit card is that you can't borrow any more on it.

All of which is to say, "To thine own self be true."

The dictionary defines a budget as "an estimate, often itemized, of expected income and expense for a given period in the future." Budgeting, the quintessential money management tool, should identify where we spend our money so that we can make better spending choices. While there is no one right way to budget, the purpose of any budget should be to give us the information we need to make smart spending decisions.

But what if it's your budget that's killing your finances. Imagine, you take the time and effort to prepare a budget in the first place, and the budget ends up causing more harm than good. Or at the very least, your budget doesn't get you the results it should.

To help you avoid this, and to maximize the benefit of your budget, here are seven budgeting pitfalls and how to fix them:

7 Budgeting Pitfalls and How to Fix Them

1. Missing Expenses: Does your budget have a leak? With automatic bill pay, it's easy to forget about regular monthly expenses. We recently lost track of an expenses that was charged to our credit card each month. It wasn't a lot of money, about $15 a month, but every dollar counts.
   The Fix: Take the time each month to carefully review each credit card and bank statement. Make sure you understand where your money went, what automatic payments were made, and what was charged to your credit cards. This doesn't take a lot of time, but in the hurry and rush of life, it's an easy thing to forget.
2. Unrealistic Budgeting: Have you or someone you know ever gone on an extreme diet? In their desire to lose weight, they deprive themselves of food in a way that's just not sustainable. The result is almost always to gain more weight when the diet crashes. The same thing can happen with our finances. We put together an unrealistic budget that deprives us of any fun, and eventually we crash through the budget with a big spending splurge.
   The Fix: We need to keep our budgets realistic by providing for some measure of enjoyment in life. Whether that's eating out, buying books, traveling, or whatever, our budgets need to reflect in a reasonable fashion who we are and how we want to live our lives. If you are looking for a place to start, try the 60% budget. Sixty percent of gross income should cover your fixed expenses: Mortgage, food, clothing, taxes, insurance and so on. The remaining 40% gets divided into 10% portions for retirement, long-term savings, short-term savings and fun money. These numbers are just a starting point, but it should help you to keep your budget realistic.
3. Too Little Information: A budget should arm you with the information you need to make smart spending decisions. One type of budget that works for many is to "pay yourself first." That means to save a portion of your paycheck first, and then spend the rest without worrying about where or how you spend it. While this can be an effective and easy way to budget, the lack of information on how you are spending the rest could be causing you to spend more than you should.
   The Fix: Every few months, track how you spend the rest. This doesn't have to be a monthly exercise. A few times a year works for many people. And you don't have to track your expenses for an entire month. Track expenses for a week or two. Armed with information on how you are spending money, you can make spending decisions that may allow you to save even more or accelerate debt reduction.
4. Too Much Information: To much information can be a real problem, too. It's a lot of work to track where every single penny goes. While there are good budgeting tools (see below) that make tracking expenses easier, for many, tracking everything is overwhelming and unnecessary. And the result can be frustration and a budget that ends up in a drawer.
   The Fix: Limit the spending areas you track to those that really cause you to overspend. If eating out is your financial Achilles' heel, use a cash-envelope system for just that one category. In fact, many people overspend in just one, two or three categories. Tracking just those categories can move a family's finances from red to black.
5. No Real Time Data: We make hundreds of spending decisions every month. As you make those decisions, do you know how much you've already spent and how much you have left to spend? This is where real time data is important. While looking at how you spent your money after the fact can be helpful, there's nothing better than knowing where you stand financially right now.
   The Fix: There are several budgeting methods to help you know where you stand at any given moment. The old fashioned cash-envelope system mentioned above is a good one. So is using debit or credit cards and reviewing your spending data online or downloading it into a personal finance software package like Quicken or Money. The key is to know where you stand at any given time, but only for those categories that you must track to properly monitor and control your spending.
6. Using the Wrong Budgeting Tools: While there is no one "right" budgeting tool, it is important to use a tool that works for you. Use the wrong financial tool, and frustration can quickly end any effort at budgeting. While many swear by Quicken, for example, for us its budget function just didn't work. We use it for everything else, but just not budgeting.
   The Fix: Recognize that there are many free and paid budgeting systems available. Take some time to review them, and give a couple of them a try before deciding. You can check out this list of online budgeting tools to get some ideas. You can also check out one of my personal favorite paid budgeting software systems, You Need a Budget.
7. Forgetting Periodic Expenses: This one use to get us every time. We thought our budget was looking good, and then the car insurance bill arrived. I can still remember the feeling in the pit of my stomach as I realized we weren't doing as well as we thought. But there is an easy fix for this budget pitfall.
   The Fix: Develop a Freedom Fund. Add up all of your periodic expenses such as car insurance, gifts, life insurance, vacation expense and so on, divide by 12, and save this amount each month. It takes some discipline at first, but there is no greater feeling when that car insurance bill arrives than knowing you have the money in the bank to pay it.

For some additional reading, check out these articles:

• How To Create A Budget (@ Moolanomy)
• 10 Personal Finance Essentials (@ Cash Money Life)
• Money Basics: Budgets (@ Consumerism Commentary)
• How To Pay Off Credit Card Debt: A Success Story (@ The Digerati Life)
• Budgeting 101 - Why Budgets Fail (@ Suburban Dollar)
• Envelope Budget System (@ Frugal Dad)

Overdraft Protection Plans

There are several different ways banks allow you to cover overdrafts. Each comes with different advantages and disadvantages, so it's important to understand the differences.

Courtesy overdraft-protection, or bounce coverage, plans : Many banks offer a courtesy plan to pay a check or honor an ATM transaction even if you have insufficient funds to cover the transaction. Some banks will automatically enroll new customers in such a plan, and unless you read your mail very carefully, you may not know it.

These courtesy overdraft plans do cost money. Typically, banks charge betwen $20 and $30 per transaction. In addition, there is no guarantee under these courtesy plans that the bank will cover every overdraft.

Linked savings account: Some banks will allow customers to a link a savings account to their checking account. Should the checking account be overdrawn, the bank will automatically transfer funds from the savings account to cover the check or ATM transaction. As with the courtesy bounced check plans, banks also charge a per transaction fee for linked savings account plans.

Linked credit cards: Similar to linking a savings account, you can also link a credit card to your checking account in many instances. Banks treat these transactions like a cash advance, requiring you to pay the cash advance fee and whatever cash advance interest rate the card charges.

Overdraft line of credit: With this plan, customers apply for an unsecured line of credit designed solely to cover any checking account overdrafts. These unsecured lines typically charge double-digit interest rates, but if you pay off the line quickly (on payday, for example), then the interest charges are relatively modest. This is what we use at Citibank, and in the past, it came in handy as we neared payday. That is, until Citibank quietly began charging fees for each transaction that rival the cost of a payday loan.

Overdraft Protection Fees

Several months ago, Citibank began charging a $10 transaction fee for each check or ATM charge that required the linked line of credit to cover the transaction. If, on the day before payday, we used our ATM card four times without sufficient funds in the bank, Citibank charged us a total of $40, regardless of the amount of the overdrafts. We would pay off the overdraft line the next day when we received our direct deposit, but the $40 was already taken from our accounts.

To make matters worse, Citibank doesn't go out of its way to warn customers of this charge. It began charging the $10 fee without reasonable notice. We spent 30 minutes on the phone with a Citibank representative who claimed that Citibank had mailed out a letter notifying its customers of the new fee. The letter either never made it to us, or was part of a dense package of junk that Citbank regularly sends out.

We've made some adjustments to our finances to avoid using this line of credit ever again. It's unfortunate that banking has come to this, but Citibank is not alone in charging its customers ridiculous fees.

In fact, last December the FDIC issued a scathing study of overdraft fees charged by major banks, concluding that the costs exceed that of payday loans. Here are the highlights of the study:

• Overdraft fees have APRs ranging from 1067% to 3520%
• Banks operating automated overdraft programs reported a median transaction of $36
• Customers with 5 or more NSF transactions accrued 93.4% of the total NSF fees reported
• Young adults paid the most in overdraft fees; responsible for the most NSF transactions
• Customers in low-income areas were more likely to pay recurrent overdraft charges
• Customers were automatically enrolled in overdraft protection programs
• Banks process large debits first; making overdrafts more frequent
• Banks allow ATM and debit card overdrafts, but do not alert customers in advance

One way to avoid overdrafts in the first place is with an effective budget. I'm working on several budgeting articles that will be posted soon. Until then, it is worth checking out You Need A Budget (YNAB) software, an effective, easy to use budgeting system that comes with a 60-day money back guarantee.

So I've started embracing what Leo Babauta (famed blogger of Zen Habits) calls The Power of Less. In his new book of the same title, he describes "the fine art of limiting yourself to the essential . . . in business and in life." And that's what I'm trying to do, beginning with our finances. So here are 10 tips to help you declutter your finances:

1. Reduce your mail and deal with it immediately: Mail can build up into an unwieldy mound of paper in no time. Let the mail go for even a day or two, and you'll find a pile of junk mail, bills, magazines and everything else growing on your kitchen counter or wherever you throw your mail. And if you are like me, when this happens and uneasy feeling begins to build in the pit of your stomach that somewhere in that pile is a bill or other important letter that you need to deal with if you could only find it. To avoid the stress and distraction, give your mail the one-two punch.

First, reduce the junk mail you receive. There are some paid services you can use, but the Direct Marketing Association offers a free service that they estimate will eliminate 75% of your junk mail. You'll find DMA's online application form here. Second, deal with the mail you do receive daily. If you receive a bill, pay it immediately or file it with your other bills to be paid twice a month or on whatever schedule you follow. The point is to deal with every piece of mail the day you receive it.

2. Automate Bill Pay: For bills that you pay every month, set up automatic payment from your checking or other bank account. We pay most of our monthly bills automatically, including the mortgage, home equity line of credit, utilities, garbage collection, internet phone, cable, and cell phone. Not only does automatic bill pay save time, but it also eliminates the chance we'll forget to pay a bill on time.

3. Go Paperless (Part I): Credit card companies, mutual funds, banks and other companies are moving towards paperless statements. Vanguard, for example, eliminates certain annual fees if you agree to receive investing materials electronically. Not only do paperless statements save trees and money, but they also cut down on your time processing mail and dealing with clutter.

4. Go Paperless (Part II): For those documents you do receive and must keep, consider scanning the document and saving it electronically. We have an inexpensive scanner that also serves as our printer and a copier. Scanning is easy, and it reduces the clutter in our home. Here are some Energy Star scanners from Amazon that are reasonably priced.

5. Unsubscribe via e-mail: Since you are reading this article, you do from time to time read personal finance blogs. You may even subscribe to The Dough Roller or other sites. If you do, consider using Google Reader or some other RSS feed reader rather than subscribing via email. We already have to process a ton of junk email, so why clutter up or lives more with subscription email?

6. Use Google Docs: This is one of my favorite personal finance tools. With Google Docs, you get a word processor and spreadsheet software for free. And because they are Internet based, you can access or share your documents via any computer with Internet access. The spreadsheet can be used to track your monthly budget or balance sheet. We also use spreadsheets to track important information, rather than keeping it in paper form. You can get started with Google Docs here.

7. Consolidate Debt: You may have debt from credit cards, car payments, a home equity loan and so on that can be simplified by consolidating some or all of it. Of course, there are factors that must be considered beyond just simplifying your finances, such as interest rates, the term of the loan, recourse, and so on. But if you can take multiple loans and reduce them to one or two, it can make life much simpler. I've done that with balance transfer credit card offers, and it makes paying the bills each month a lot easier.

8. Automate Investments: If you make regular investments or savings contributions, set up an automatic investment plan. You can have a portion of your paycheck directed to a savings account or broker. And you can set up automatic investments with any broker or mutual fund company. We invest in Berkshire Hathaway each month through an automatic investment plan with Sharebuilder. Once you set up the automatic investment plan, you don't have to worry about missing an investment, and it makes saving a lot easier.

9. Use Personal Finance Software: Personal finance software such as Quicken or Money make tracking your finances really easy. You can download banking, credit card, or investment transactions into the software, and it makes setting up a budget really simple. There are also several free budget software options you can use, too. Either way, personal finance software packages are an important money management tool that beat tracking your finances on paper.

10. Use a Debit Card: We use our bank debit card for just about everything. Because it is a MasterCard, it is accepted just about everywhere. By using a debit card, we have a record of every purchase we make. It makes tracking our expenses very easy, and we don't have to worry about carrying a lot of cash around. For online purchases, we use a credit card for security reasons. We also use a credit card to take advantage of travel rewards. But whether it is a credit card or debit card, the convenience and expense tracking our the same.

If you know of other tips to help declutter finances, please leave a comment.

This past December, before Tip Jar was launched, I received an email from a product manager at Google. Now if you are a blogger, Rule #1 is never ignore an email from a Google employee. Here's what the email said:

One of our ideas is to rank the best economic/money saving tips on the web. Seems like a great time to get this information out there. Because you have a great list of savings tips, we were hoping to include some of your tips for this project. This tip aggregation site will be powered by Google Moderator and will organize money saving tips from all over the web into one place, making it easy for people to add their own tips and vote for tips they like using Google Moderator.

Needless to say, I responded immediately. And as a result, Tip Jar was populated with a slew of money saving tips from the Dough Roller. All of the tips are organized into several categories, including finance, home, vacation, kids & family, food, and shopping. You can search for tips, and each tip indicates its source. So if your are looking for some money saving ideas, or even want to submit your own ideas, check out Google's TipJar.

Buying a Home & Mortgages

1. Buying a Home - HUD: A step-by-step guide to the home buying process.
2. FCIC: How to Buy a Home With a Low Down Payment: This brochure describes how families can get into their own homes with little cash up front. It explains mortgage insurance and how it works, and looks at the two options — private mortgage insurance and government mortgage insurance.
3. Buying a Home: It's a Big Deal: Information on selecting a real estate agent, commissions, and choosing real estate related services.
4. Home Equity Credit Lines: Everything you'd want to know about a home equity line of credit, including costs, interest rates, upfront closing costs, and how much you can borrow.
5. Home Equity Loans: Borrowers Beware!: According to the FTC, "homeowners-particularly elderly, minority and those with low incomes or poor credit-should be careful when borrowing money based on their home equity. Why? Certain abusive or exploitative lenders target these borrowers, who unwittingly may be putting their home on the line. Abusive lending practices range from equity stripping and loan flipping to hiding loan terms and packing a loan with extra charges.
6. HUD - 100 Q&A for Homebuyers: Covers just about any question a homebuyer could have.
7. Mymoney.gov: A collection of real estate related articles.
8. Interest-Only Mortgage Payments and Payment-Option ARMs--Are They for You?: Information on exotic and risky mortgages, including internet only and option ARMs.
9. Understanding the Process and Your Right to Fair Lending: Information on the mortgage process and your right to fair lending.
10. When Your Home is on the Line: What You Should Know About Home Equity Lines of Credit: More information on home equity lines of credit.
11. Looking for the Best Mortgage: Information on finding the best home mortgage.
12. Consumer’s Guide to Mortgage Refinancing: Lengthy article on home mortgages, covering just about any question you might have.
13. Looking for the Best Mortgage? Shop, Compare, Negotiate.: How to compare, shop, and negotiate a home mortgage.
14. Reverse Mortgages: Get the Facts Before Cashing In On Your Home's Equity: Information on reverse mortgages, including descriptions of the three types of reverse mortgages.

Credit Reports & Scores

15. Credit Reports and Scores: Information on the Fair and Accurate Credit Transactions Act's (FACTA), which gives consumers the right to obtain their credit report for free once a year.
16. 5 Tips for Improving Your Credit Score (click here for pdf version): Very basic information, but helpful if you are unfamiliar with what factors impact your credit score.

Investing

17. Beginner's Guide to Investing: A great list of SEC resources on investing.
18. Calculating Mutual Fund Fees and Expenses: Mutual fund fees and expenses are one of the most important considerations when selecting a fund. This article tells you what you need to know.
19. Mymoney.gov: A long list of articles on saving and investing.
20. Get the Facts: The SEC's Roadmap to Saving and Investing: A good source of information if you are just starting down the road to saving and investing.
21. For Students and Teachers: Great article if you are looking to teach children about saving and investing.

Finding a Job

22. Finding a Job : USA.gov: Links to articles that can help both adults and teenagers find a job.
23. WelcometoUSA.gov | Employment: More job related links, including tips on how to write an effective resume.
24. Resumes, Applications, and Cover Letters (click here for pdf version): Excellent resource on how to build a resume. The pdf version is much easier to read.
25. How to Get a Job in the Federal Government (click here for pdf version): If you are interested in working for the federal government, this resource is a must read.

Credit Cards

26. FRB: Choosing a Credit Card: Links to everything you could ever want to know about credit cards, and more.
27. Choosing A Credit Card : The Deal is in the Disclosures: A good explanation of some common terms in credit card agreements.
28. Credit Card Answers from the OCC: Links to Q&As about credit cards.
29. Consumer Action Handbook - Credit - Credit Cards: More information on the terms and conditions of credit cards.

Retirement

30. 10 Ways to Prepare for Retirement: A must read if you are nearing retirement.
31. Consumer Information on Retirement Plans: A complete list of resources about retirement plans, including 401(k) accounts.
32. A Look at 401(k) Plan Fees...for Employees: The information contained in this booklet answers some common questions about the fees and expenses that may be paid by your 401(k) plan.
33. Pension and Health Care Coverage...Questions and Answers for Dislocated Workers: You may have rights to certain retirement protections and health benefits even if you lose your job. If your company provided a group health plan, you may be entitled to continued health benefits for a period of time if you cannot find a job immediately. When you find a new job, you may have fewer barriers to health care coverage. And with a change in employment, you should understand how your retirement benefits are affected. Knowing your rights can help you protect yourself and your family until you are working full time again. This booklet addresses some of the common questions dislocated workers ask.
34. How to File a Claim for Your Pension, Health, or Other Benefits: The Employee Retirement Income Security Act of 1974 (ERISA) protects the interests of participants and their beneficiaries who depend on benefits from private employee benefit plans. ERISA sets standards for administering these plans, including a requirement that financial and other information be disclosed to plan participants and beneficiaries and requirements for the processing of claims for benefits under the plans. This article outlines the steps you may take to file a claim and what to do if you are denied benefits.
35. Protect Your Pension: This handbook focuses on those private sector pension plans where someone, such as a trustee or investment manager, is responsible for investing the plan's assets. Although many of the same rules apply, special rules can apply to employee stock ownership plans and to pension plans where participants personally direct investment of assets in their individual plan accounts.
36. Retirement Savings Education Campaign: The Retirement Savings Education Campaign has information for employees, small businesses, and employers about saving for retirement and the tools to get started.
37. Simplified Employee Pensions: What Small Businesses Need to Know: Simplified Employee Pension plans (SEPs) can provide a significant source of income at retirement by allowing employers to set aside money in retirement accounts for themselves and their employees. Under a SEP, an employer contributes directly to traditional individual retirement accounts (SEP-IRAs) for all employees (including the employer). A SEP does not have the start-up and operating costs of a conventional retirement plan and allows for a contribution of up to 25 percent of each employee’s pay. This article provides more information on SEPs.
38. Women and Retirement Savings: Planning and saving for retirement may seem like goals that are far in the future. Yet saving, especially for retirement, should start early and continue throughout your lifetime. Here are four reasons why saving matters to women.

Scholarships & Education

39. Student Aid on the Web: Scholarships are available throughout your college education. A number of privately operated scholarship search services charge fees ranging from $50 to over $500 to aid you in locating scholarships, often with varying degrees of success. Here are some sources of free information about scholarships.
40. students.gov - Student Gateway to the U.S. Government: A great overall source of information for college students.
41. Student Jobs: This is THE source of information for college students looking for jobs and internships within the federal government.
42. Student Aid on the Web: The Department's Federal student aid programs are the largest source of student aid in America. If you're interested in financial aid for college or a career school, this site is a must read. These programs provide more than $80 billion a year in grants, loans, and work-study assistance.
43. Scholarships for Disadvantaged Students: The Scholarships for Disadvantaged Students program provides scholarships to full-time, financially needy students from disadvantaged backgrounds, enrolled in health professions and nursing programs. Participating schools are responsible for selecting scholarship recipients, making reasonable determinations of need, and providing scholarships that do not exceed the cost of attendance (tuition, reasonable educational expenses and reasonable living expenses).
44. Student Loan Consolidation: Consolidation loans allow you to combine different types of federal student loans to simplify repayment. Even if you have just one loan, you can also choose to consolidate it. Both the FFEL and Direct Loan Programs offer consolidation loans. There are several advantages to consolidate or rehabilitate your loan as described here.
45. Student Financial Aid: Online applications for financial student aid.
46. College Planning Calculators: Online calculators for college students.
47. Scholarships and Grants: Links to a ton of resources about college student scholarships and grants.

Personal Finance

48. My Money: A great personal finance site run by the government.
49. Gov Gab : Your U.S. Government Blog: The federal government's own blog!
50. Government Benefits: GovBenefits.gov is the official benefits website of the U.S. government, with information on over 1,000 benefit and assistance programs.
51. Grants: Grants.gov is your source to FIND and APPLY for federal government grants.
52. Expect More: Interesting site that provides information on what government programs have been deemed successful or unsuccessful
53. USA: This is your portal into the federal government, with links to many money related programs and websites.

Kids & Money

54. Kids .gov - Main Page: A federal government site dedicated to kids!
55. U.S. Treasury - For Kids: This is a must read site that contains links to federal government websites built especially for kids, including sites about the White House and the Bureau of Engraving and Printing.
56. The US Mint's Site for Kids: An interactive site that helps kids learn about money.
57. Online Games That Teach Kids & Children About Money: Links to online games for children that will help teach them about money.
58. Talking to Your Kids About Money - Consumer Focus - FCIC: If you’re like many parents, you probably dread talking to your children about certain subjects. If you’d rather talk to your kids about the birds and the bees than about money, here’s some information and tips that may make it easier for you.

Taxes

The following IRS Guides provide exhaustive information on tax related matters important to many individuals:

59. Selling Your Home
60. Tax Information for Homeowners
61. Tax Guide for Seniors
62. Tax Highlights for Persons with Disabilities
63. Bankruptcy Tax Guide
64. Complete List of IRS Tax Guides

Calculators

Here are some helpful financial calculators maintained on government websites:

65. Social Security and Benefit Calculators
66. Student Financial Aid Calculators
67. House Price Calculator
68. Mortgage Calculator
69. Home Ownership Calculators

Federal Legislation Pending in Congress

70. Govtrack: This is one of my favorite websites, and the only source listed here that is not a government sponsored website. If you are looking for information on pending federal legislation, this is the site. You can even track legislation as it moves through the House and Senate.

Setting workable, practical effective financial goals is really quite easy. They just need to be SMART. A financial goal, or any goal for that matter, should be Specific, Measurable, Attainable, Realistic, and Time bound.

Specific

Imagine if the goal of football was to get the pigskin down to the other end of the field. We'd be arguing over what the other end of the field means. Isn't the 2 yard line the other end of the field? Of course, the goal in football is to get the ball into the end zone. The official language of a touchdown is even more specific: "When any part of the ball, legally in possession of a player inbounds, breaks the plane of the opponent's goal line, provided it is not a touchback."

We need the same specificity when we set financial goals. Here are some good examples of specific goals:

• I want to be debt free.
• I want to make $100,000 from my blog.
• I want to save $2,500,000 for retirement.

There is more left to do with these goals, so keep reading.

Measurable

For a goal to be effective, it must be measurable. A goal to "make a lot of money" is not helpful because you can't measure "a lot." One of my goals for this blog in 2008 was to make $20,000. I set that goal, in part, because my wife and I decided to give 50% to charity, and we were hoping to give $10,000. This goal was easily measurable, and I'm happy to report that this year we ended up giving about $15,000 to charity from this blog, so we exceeded our goal! More on that later this month.

One final note on measurable goals. There is a saying in the consulting business that not everything that can be measured is important, and not everything that is important can be measured. As true as this is, when it comes to goals, they are either measurable or they aren't really goals at all.

Attainable

Setting attainable goals can be tricky. You certainly want to push yourself and strive to achieve as much as you can. But setting goals that even under the best of circumstances are not attainable will just lead to discouragement. I set my 2008 goal of making $20,000 from this blog this past January. At the time, I knew that I had made just over $800 from the blog in January, so a goal of $20,000 for the year was a stretch, but not ridiculous. I pushed myself, but kept the goal attainable.

This aspect of goal setting reminds me of Casey Kasem, who always said at the end of his popular "America's Top 40" show, "keep your feet on the ground, and keep reaching for the stars."

Realistic

Setting realistic goals involves the methods we intend to use to achieve our goals. For example, a goal of having $2,500,000 at retirement by saving $5 a month under my mattress is not a realistic goal. Making $20,000 in 2008 from this blog by spending 1 hour a month blogging is also not a realistic goal (trust me!). An example of a realistic goal might be to pay off all credit card debt in 2009 by paying an extra $500 per month.

Time bound

This last element of SMART financial goals is really important. Effective goals have time limits, like the shot clock in basketball. Of course, not all goals are short-term. I would define a short-term goal as less than one year, an intermediate-term goal as one to five years, and a long-term goal as greater than five years. We need all of them.

Long-term goals generally involve retirement, saving for a child's education, paying off the mortgage, and so on. An example of an intermediate-term goal might be to save $15,000 in four years to buy a new car. And short-term goals are even smaller stepping stones to our long range goals.

The lack of a time element is a problem with the three example goals I mentioned above. Let's rewrite these goals to add a shot clock to each of them:

• I want to pay off all of my credit card debt by December 31, 2009
• I want to make $100,000 from my blog in 2009
• I want to save $2,500,000 for retirement by time I'm 65

Homework

Yes, I'm giving you homework. As we near the end of the year, it's a great time to be thinking about financial goals. I started setting next year's goals in October. I have goals for this blog and my personal finances, which are now intertwined. I'll be writing more about financial goals at the end of the month, but now is the time to set your financial goals for 2009. Just make sure they are SMART.

And for some inspiration while you set your 2009 goals, here are some financial goals of other personal finance bloggers:

• What Are Your 2009 Financial Goals?
• 2009 Financial Goals
• Financial Goals for 2007, 2008, and 2009 - Debt Reduction
• Financial Goal Setting for 2009
• Financial Goals For 2009