The.1-2-3.Money.Plan.Oct.2010_1 pot

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THE 1-2-3 MONEY PLAN
The Three Most Important Steps
to Saving and Spending Smart
Gregory Karp
From the Library of Wow! eBook
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© 2009 by Pearson Education, Inc.
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Printed in the United States of America
First Printing May 2009
ISBN-10: 0-13-714173-4
ISBN-13: 978-0-13-714173-9
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Library of Congress Cataloging-in-Publication Data
Karp, Gregory.
The 1-2-3 money plan : the three most important steps to saving and spending
smart / Gregory Karp.
p. cm.
ISBN 0-13-714173-4 (pbk. : alk. paper) 1. Home economics—Accounting. 2.

Consumer education. 3. Budgets, Personal. 4. Finance, Personal. I. Title. II. Title:
One two three money plan.
TX326.K27 2009
332.024—dc22
2008054616
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For Rebecca, Jacob, and Michael
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Contents
Introduction Telling It Straight . . . . . . . . . . . . . . . . . . . . .1
Getting from Here to There . . . . . . . . . . . . . .1
Simple as an iPod . . . . . . . . . . . . . . . . . . . . . .4
Easy Is Hard . . . . . . . . . . . . . . . . . . . . . . . . . .5
When Good Enough Is
Good Enough . . . . . . . . . . . . . . . . . . . . . . . .7
Is This Book Different from
Living Rich by Spending Smart? . . . . . . . . . .9
How to Use This Book . . . . . . . . . . . . . . . . .10
The Power of Three . . . . . . . . . . . . . . . . . . .10
Chapter 1 Spending Smart Redux . . . . . . . . . . . . . . .13
What Is Spending Smart? . . . . . . . . . . . . . .13
When to Spend Your Money . . . . . . . . . . . .14
When to Spend Your Money,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . . .15
1. Spend Today . . . . . . . . . . . . . . . . . . . .15

2. Spend Yesterday . . . . . . . . . . . . . . . . .15
3. Spend Tomorrow . . . . . . . . . . . . . . . .16
Why Pay Attention to Spending? . . . . . . .17
Why Pay Attention to Spending?
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . . .17
1. Magnitude . . . . . . . . . . . . . . . . . . . . . .18
2. Speed . . . . . . . . . . . . . . . . . . . . . . . . . .18
3. Control . . . . . . . . . . . . . . . . . . . . . . . .18
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What to Spend Discretionary
Money On . . . . . . . . . . . . . . . . . . . . . . . . . . .19
What to Spend Discretionary
Money On, 1-2-3 . . . . . . . . . . . . . . .19
1. Things You Care About . . . . . . . . . .19
2. Experiences . . . . . . . . . . . . . . . . . . . . .21
3. Things That Rise in Value . . . . . . . .21
PART I SPENDING SMART TODAY
Chapter 2 First Things First . . . . . . . . . . . . . . . . . . . .27
Getting Started . . . . . . . . . . . . . . . . . . . . . . .27
Taking Stock . . . . . . . . . . . . . . . . . . . . . . . . .27
Taking Stock, 1-2-3 . . . . . . . . . . . . .28
1. Take a Snapshot . . . . . . . . . . . . . . . .29
2. Look Back . . . . . . . . . . . . . . . . . . . . .32
3. Look Ahead . . . . . . . . . . . . . . . . . . . .33
Estate Planning . . . . . . . . . . . . . . . . . . . . . . .37
Estate Planning, 1-2-3 . . . . . . . . . . .37
1. Will . . . . . . . . . . . . . . . . . . . . . . . . . . .39
2. Durable Power of Attorney for
Finances and for Health Care . . . . .40

3. Living Will . . . . . . . . . . . . . . . . . . . . .40
Do You Need a Living Trust? . . . . .40
Identity Theft . . . . . . . . . . . . . . . . . . . . . . . .41
Identity Theft, 1-2-3 . . . . . . . . . . . . .42
1. Be Guarded . . . . . . . . . . . . . . . . . . . .42
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2. Buy a Crosscut Shredder . . . . . . . . .43
3. Opt Out . . . . . . . . . . . . . . . . . . . . . . .43
What about Fraud Alerts and
Credit Freezes? . . . . . . . . . . . . . . . . .44
Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Get the Bank Accounts You Need,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . . .48
1. Get a No-Fee Checking Account . . .49
Rewards Checking . . . . . . . . . . . . . .50
2. Set Up at Least One High-Interest
Online Bank Account . . . . . . . . . . . . . .52
FDIC Rules: Is My Money Safe? . .53
3. Join a Credit Union . . . . . . . . . . . . . .54
Bill Paying . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Bill Paying, 1-2-3 . . . . . . . . . . . . . . .56
1. Use Direct Deposit . . . . . . . . . . . . . .56
2. Automate Bill Paying . . . . . . . . . . . .57
Automation Drawbacks . . . . . . . . . .58
3. Prioritize in a Crisis . . . . . . . . . . . . .60
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Chapter 3 Get Fit (Food, Insurance,

Telecommunications) . . . . . . . . . . . . . . . .63
Food at Home . . . . . . . . . . . . . . . . . . . . . . . .64
Food at Home, 1-2-3 . . . . . . . . . . . .64
1. Maintain a Price List . . . . . . . . . . . .64
Is Organic Food Worth
the Price? . . . . . . . . . . . . . . . . . . . . . .65
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2. Stockpile Sale Items . . . . . . . . . . . . . .68
Freezing Times . . . . . . . . . . . . . . . . . .71
Cherry-Picking Pays . . . . . . . . . . . . .72
3. Match Coupons to Sales . . . . . . . . .73
Fun Tangent: Razor Blades . . . . . . .75
Food Away from Home . . . . . . . . . . . . . . . .76
Food Away from Home, 1-2-3 . . . .76
1. Make Freezer Meals . . . . . . . . . . . . .77
2. Use Coupons and Discounts . . . . . .77
3. Skimp on What You Don’t Care
About . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Insurance, 1-2-3 . . . . . . . . . . . . . . . .79
1. Say No to Extended Warranties
and Other Junk Insurance . . . . . . . .79
2. Refinance Your Term Life
Insurance . . . . . . . . . . . . . . . . . . . . . . .80
3. Raise Deductibles on Home and
Auto Insurance . . . . . . . . . . . . . . . . . .84
Telecommunications . . . . . . . . . . . . . . . . . . .85

Telecommunications, 1-2-3 . . . . . . .85
1. Cancel Your Traditional Landline
Phone Service . . . . . . . . . . . . . . . . . . .85
The MagicJack Phone Solution . . . .87
2. Rightsize Your Wireless
Phone Plan . . . . . . . . . . . . . . . . . . . . .89
My Prepaid Phone Story . . . . . . . . .92
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3. Regularly Review TV and
Internet Service . . . . . . . . . . . . . . . . .96
Fun Tangent: Don’t Overpay for
Audio-Video Cables . . . . . . . . . . . .102
Chapter 4 How to Buy Stuff . . . . . . . . . . . . . . . . . .105
How to Buy Products . . . . . . . . . . . . . . . . .107
How to Buy Products, 1-2-3 . . . . .107
1. Read Reviews . . . . . . . . . . . . . . . . .108
2. Research Prices . . . . . . . . . . . . . . . .111
3. Reevaluate . . . . . . . . . . . . . . . . . . . .113
Price Protection . . . . . . . . . . . . . . .115
How to Buy Services . . . . . . . . . . . . . . . . .117
How to Buy Services, 1-2-3 . . . . .117
1. Seek Reviews and References . . . .118
2. Research Prices . . . . . . . . . . . . . . . .121
Be Afraid of Commitment . . . . . . .122
3. Reevaluate and Review
Contracts Carefully . . . . . . . . . . . . .124
How to Buy Online . . . . . . . . . . . . . . . . . .124

How to Buy Online, 1-2-3 . . . . . .125
1. Prefer Commodities . . . . . . . . . . . .126
2. Consider Shipping Cost Versus
Sales Tax . . . . . . . . . . . . . . . . . . . . .127
3. Use a Credit Card . . . . . . . . . . . . . .128
Coupon Codes and
Rebate Portals . . . . . . . . . . . . . . . . .130
Fun Tangent: Eyeglasses Online . .133
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How to Buy Used Stuff . . . . . . . . . . . . . . .134
How to Buy Used Stuff, 1-2-3 . . .135
1. Get Over the “Yuck” Factor . . . . .135
2. Evaluate Price and Quality . . . . . .137
3. Keep It Simple . . . . . . . . . . . . . . . . .137
Refurbished Electronics . . . . . . . . .138
How to Teach Kids about Money . . . . . .140
How to Teach Kids about
Money, 1-2-3 . . . . . . . . . . . . . . . . . .140
1. Give Children an Allowance . . . . .140
2. Don’t Tie Allowance to Chores . .141
3. Make Rules . . . . . . . . . . . . . . . . . . .142
Chapter 5 Green Means Green . . . . . . . . . . . . . . . .145
Gasoline . . . . . . . . . . . . . . . . . . . . . . . . . . . .146
Gasoline, 1-2-3 . . . . . . . . . . . . . . . .146
1. Don’t Spill the Coffee . . . . . . . . . . .147
2. Take It Slow and Steady . . . . . . . . .148
3. Pump It Up . . . . . . . . . . . . . . . . . . .149

Gasoline Myths . . . . . . . . . . . . . . . .149
Home Heating and Cooling . . . . . . . . . . .150
Home Heating and Cooling,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . .151
1. Make a Thermostat Plan . . . . . . . .151
2. Seal Leaks . . . . . . . . . . . . . . . . . . . .152
3. Avoid Big-Ticket Fixes . . . . . . . . . .154
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Little Things Mean a Lot . . . . . . . . . . . . .154
Little Things Mean a Lot,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . .154
1. Replace Your Five Most-Used
Bulbs with CFLs . . . . . . . . . . . . . . .155
2. Buy Rechargeable Batteries . . . . . .157
3. Don’t Buy Bottled Water . . . . . . . .159
Should You Buy Carbon
Offsets? . . . . . . . . . . . . . . . . . . . . . .161
PART II SPENDING SMART YESTERDAY
Chapter 6 Credit When Credit’s Due . . . . . . . . . . .165
Your Credit . . . . . . . . . . . . . . . . . . . . . . . . .166
Your Credit, 1-2-3 . . . . . . . . . . . . .166
What Is a Credit Rating? . . . . . . . . . .166
Why Your Credit Matters . . . . . . . . .168
Saving Money . . . . . . . . . . . . . . . . . . .169
Identity Theft . . . . . . . . . . . . . . . . . . . .170

1. Get Your Credit Reports . . . . . . . .170
2. Get Your Credit Scores
(Optional) . . . . . . . . . . . . . . . . . . . .172
Get a CLUE: Your Insurance
Report . . . . . . . . . . . . . . . . . . . . . . .174
3. Improve Your Scores . . . . . . . . . . .175
Establishing Credit . . . . . . . . . . . . .180
How You Pay . . . . . . . . . . . . . . . . . . . . . . .181
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Noncredit Payment Methods . . . . . . . . . .182
Noncredit Payment Methods,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . .182
1. Consider Cash as King . . . . . . . . . .182
2. Do Debit Right . . . . . . . . . . . . . . . .184
3. Limit Use of Checks . . . . . . . . . . . .186
Layaway and No-No-No Sales . . .188
Credit Cards . . . . . . . . . . . . . . . . . . . . . . . .191
Credit Cards, 1-2-3 . . . . . . . . . . . .192
1. Never Carry a Balance . . . . . . . . . .192
2. Know Your Perks . . . . . . . . . . . . . .195
3. Maintain Your Card . . . . . . . . . . . .196
How to Choose a Rewards
Credit Card . . . . . . . . . . . . . . . . . . . . . . . . .198
How to Choose a Rewards
Credit Card, 1-2-3 . . . . . . . . . . . . .199
1. Go Online . . . . . . . . . . . . . . . . . . . .199
2. Choose Cash Back . . . . . . . . . . . . .200

3. Get More Than 1 Percent . . . . . . .201
How to Get Out of Debt . . . . . . . . . . . . . .203
How to Get Out of Debt,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . .204
1. Quit Borrowing Money . . . . . . . . .204
2. Quit Saving Money . . . . . . . . . . . . .205
3. Pay Small Debts First . . . . . . . . . . .206
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PART III SPENDING SMART TOMORROW
Chapter 7 How to Save Money . . . . . . . . . . . . . . . .215
Short-Term Savings . . . . . . . . . . . . . . . . . .218
Short-Term Savings, 1-2-3 . . . . . . .218
1. Emergency Fund . . . . . . . . . . . . . . .219
2. Car Fund . . . . . . . . . . . . . . . . . . . . .224
3. Seasonal Fund . . . . . . . . . . . . . . . . .225
Retirement . . . . . . . . . . . . . . . . . . . . . . . . . .226
Retirement, 1-2-3 . . . . . . . . . . . . . .226
1. Invest Automatically . . . . . . . . . . . .229
2. Diversify . . . . . . . . . . . . . . . . . . . . . .233
Why Index Funds? . . . . . . . . . . . . .237
3. Hold On . . . . . . . . . . . . . . . . . . . . . .239
401(k) Rollovers . . . . . . . . . . . . . . .240
Saving for College . . . . . . . . . . . . . . . . . . .240
Saving for College, 1-2-3 . . . . . . . .241
1. Open a 529 College Savings
Account Online . . . . . . . . . . . . . . . .243
2. Select an Age-Based Plan . . . . . . . .249

3. Contribute Automatically . . . . . . .250
Community College Route . . . . . .251
Choosing a Financial Adviser . . . . . . . . .252
Choosing a Financial Adviser,
1-2-3 . . . . . . . . . . . . . . . . . . . . . . . . .252
1. Interview Three Fee-Only
Planners . . . . . . . . . . . . . . . . . . . . . .253
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2. Ask Questions and Listen to
Your Gut . . . . . . . . . . . . . . . . . . . . .256
ABCs of Financial
Certifications . . . . . . . . . . . . . . . . . .256
3. Never Agree to an Investment
You Don’t Understand . . . . . . . . . .260
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . .261
Chapter 8 Putting It All Together . . . . . . . . . . . . . .263
Succeeding with Money . . . . . . . . . . . . . . .263
Succeeding with Money, 1-2-3 . . .264
1. Never Buy a New Car Until
You’re a Millionaire . . . . . . . . . . . .265
2. Buy a Home That You
Can Afford . . . . . . . . . . . . . . . . . . . .266
3. Care about Spending . . . . . . . . . . .269
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .271
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Acknowledgments

W
isdom in this book does not come from me
alone.
The great information herein can be largely attrib-
uted to the many experts who have agreed to talk with
me through the years.
Wisdom also comes from readers of my national
newspaper column, “Spending Smart,” and my previ-
ous book, Living Rich by Spending Smart. Literally
hundreds of readers have called and e-mailed to ask
questions, share their collective wisdom and experi-
ences, or just thank me for providing straightforward
advice, which is the only way I know how to give it.
They are a continuing inspiration to tackle new spend-
ing topics each week in my column and pursue larger
publishing projects. For all of those collaborators, I am
grateful.
I’d also like to thank editors at the Morning Call
newspaper in Allentown, Pennsylvania, where I work.
Editor Ardith Hilliard and managing editor David
Erdman have been supportive of my national newspa-
per column, “Spending Smart,” which is published in
Tribune Company newspapers. They have also made
allowances for my nonnewspaper writing.
Thanks to Jim Boyd, executive editor at FT Press,
and reviewers Russ Hall and Michael Thomsett. A spe-
cial thanks to Jeanne Bonner for meticulously reviewing
the manuscript.
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Thanks, too, to Clark Howard, author and host of
the Clark Howard Show on radio. Clark’s encyclopedic
knowledge of consumer issues is an inspiration. One
conversation with him, in particular, led to the idea for
the format of this book—of providing just three tasks
for each money topic.
To family, friends, and colleagues who have taken an
interest in my books, thank you. Your support means
a lot.
Most important, thanks to my immediate family—
Rebecca, Jacob, and Michael—for your support and
accommodation as I finished two books in 15 months.
Your love and understanding mean more than you
know.
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About the Author
G
regory Karp is an author and journalist of 20
years. His national newspaper column,
“Spending Smart,” is published in papers that
together have millions of readers. The weekly column
appears in the Chicago Tribune, Baltimore Sun,
Hartford Courant, Orlando Sentinel, Allentown
Morning Call, and others. The column has twice won a
Best Column Award from the Society of American
Business Editors and Writers, in 2006 and 2008.
He is also author of Living Rich by Spending Smart:

How to Get More of What You Really Want.
Greg’s advice on spending money smarter has
appeared in national magazines, such as Newsweek and
SmartMoney; television broadcasts, such as WCBS in
New York, WSB in Atlanta, and WPVI in Philadelphia,
and literally dozens of newspapers nationwide, from the
Los Angeles Times to Newsday in New York.
He maintains a Web site at www.gregkarp.com and
blog at SpendingSmart.net.
Greg lives near Philadelphia with his wife and two
sons.
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T
his book is, admittedly, a low-tech device. But it’s
meant to offer advantages you find in a high-tech
GPS navigation system for your vehicle and an
iPod audio player.
In navigating money and spending issues, especially
in these challenging economic times, I hope you’ll find
this book as helpful and succinct as a GPS device that
gives driving directions in an unfamiliar region. And in
simplicity, it’s meant to be as easy to use as the ubiqui-
tous iPod music player.
Fortunately, you don’t have to be a gadget lover to
use it.
Getting from Here to There

I like my GPS navigation system, a Garmin Nuvi. I sug-
gest you buy one, after you get your money life in order
and are spending your money smarter every day.
No. It doesn’t have to be that brand or model of GPS
navigator. There are many good ones—ones with differ-
ent features and less-expensive ones that still get the job
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done. But, the Garmin Nuvi is a very good line of GPS
systems for nearly everybody. And if you drive often in
unfamiliar areas, you should buy one.
This brief suggestion is indicative of this book. I
intend to give you very specific advice about spending
and handling money.
“Garmin,” as I unimaginatively named my GPS sys-
tem, tells me, turn by turn, how to get from where I am
now to where I want to go. I don’t mean that it lists
directions and a map on a screen. While I’m driving, a
voice inside the small box mounted on my dashboard
speaks directions and road names—albeit, sometimes
with butchered pronunciations.
Garmin doesn’t care where I started, even if I’m lost
to begin with. And it doesn’t always give me the
absolute-best route to where I’m going. But Garmin gets
me where I’m going, almost every time.
Garmin also provides me peace of mind. While driv-
ing in unfamiliar areas with confusing traffic patterns, I

don’t care that Garmin isn’t providing the absolute-best
directions—directions that might get me to my destina-
tion two minutes sooner. I care that it gives me clear,
understandable directions and gets me where I’m going
safely.
In an unfortunate parallel world, Garmin might have
a fatal flaw. It might have a Shakespearean Hamlet
complex, contemplating “To be or not to be.” It would
be much less useful.
What if at every intersection it spoke something like,
“Turn left on Maple Street…or go two blocks and turn
left on Main Street…or, if you’re in a hurry, avoid the
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