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An essential component of your financial plan is a budget. It forces you to monitor your spending, enabling you to focus on which items might be reduced so that your can accumulate funds for retirement, education or other needs.

This Guide shows you how to develop and put yourself on a budget, thereby gaining the positive effects of proper cash flow timing and money management. If you need any help in preparing your budget, contact your financial advisor.

This Guide shows you how to develop and put yourself on a budget, thereby gaining the positive effects of proper cash flow timing and money management. If you need any help in preparing your budget, contact your financial advisor.

Note: If you have a good grasp of your cash inflows and outflows and have your spending under control, there may be no need to prepare the budget suggested here. It is intended for people who need to rein in their spending or have no idea of the actual impact of their spending pattern.

Note: Various personal-finance computer programs allow you to develop a budget. If you have such a program, simple follow the guidelines that the software gives you, and use the information contained in this Guide as an overall guide.


Step 1: Analyze Your Income And Expenses

The first thing you need to do is to look over the past year's worth of income and spending. This "cash-flow analysis" will lay the groundwork for the budget you will create. You'll need your checkbook, your credit card statements (if available), and your most recent tax return. This will give your sufficient data to analyze your spending and income for the past year.

Your Income

Using ledger paper or notebook paper, list your income for a one-year period, and break down the amounts monthly and yearly. Include the following types of income:

  • Salary/wages
  • Income from self-employment
  • Retirement pay and/or government-source income (e.g., Social Security, disability, unemployment, annuity, and pension payments)
  • Interest and dividends
  • Alimony and/or child support
  • Rents and/or royalties
  • Income from trusts

Your income analysis might look something like this:

Income Item Monthly Yearly
Salary (Gross) $10,000 $120,000
Dividends $100 $1,200
Rent $800 $9,600
Total $10,900 $130,800


Your Fixed Expenses

Add up the expenses that generally do not vary much from month to month, and break them down monthly and yearly. Make sure you include the following categories, whether or not they're immediately evident from the past year's bills:

  • Taxes, federal, state and local
  • Mortgage or rent
  • Insurance, including medical, auto, homeowners, life, and other
  • Utilities
  • Automobiles (costs of operating minus insurance cost)
  • Dues and fees paid to associations and clubs

Where the amounts vary by month, as with a phone bill, add up what you paid for the year and divide by twelve to get the monthly amount. Divide bills that you pay yearly or quarterly by 12 to arrive at a monthly amount. This will help you to arrive at a more functional budget. If you have large credit card debt, indicate the amounts you actually paid, not the minimum monthly payments.

Your Variable Expenses

Next, add up your variable expenses for the previous one-year period, using your checkbook and credit card statements. Be sure to include the following:

  • Food
  • Clothing
  • Furniture and appliances
  • Entertainment
  • Gas, oil, amd commuting costs
  • Medical care
  • Gifts
  • Vacations
  • Fees paid to accountants, lawyers, and other professionals

Estimate if you need to do so. Here's what your variable expenses might look like:

Expense Monthly Yearly
Groceries $250 $3,000
Gifts For Weddings, Birthdays, etc. $42 $504
Magazine Subscriptions $10 $120
Movies, Theatre, Restaurants $80 $960
Vacations $165 $1,980
Gas, Oil, Car Repair $43 $516
Clothing $100 $1,200
Total $690 $8,280

You'll be able to tell whether you're overlooking any variable expenses by subtracting the total yearly amount you arrive at for variable and fixed expenses from your yearly income figure. If this amount is the amount you put away in savings for the previous year, then you can be pretty certain that you've included all of your variable expenses. If there is a large gap between income minus expenses and the amount you saved, do some digging to try to find where the extra money went.

Step 2: Set Budgeting Goals

Your budget should tie in with your financial planning goals. For instance, you may have done some work on your retirement plan, and decided that you needed to save $20,000 per year for the next ten years to accumulate the nest egg you want for retirement.

Or you may be saving for a new home, and determined to save $5,000 per year for the next three years to come up with a down payment.

You may also want to reduce credit card debt or pay down a mortgage with your increased savings.

In this step, decide how much you want to put away each year and what you will do with the savings. Your saving goals will depend on the above-mentioned financial planning goals, as well as on your age and income level.

If you want to save more than you have been saving, then you'll need to cut down on optional expenditures. To do this, you'll enter an amount under "budgeted amount" that is less than "last year's actual."

Tip: You should review your budget each year to make it fit in with your financial goals, both long-term and short-term.

Step 3: Create Your Budget

Now it's time to actually create a budget. One simple approach is to use one sheet of paper for each month of the year. Use ledger paper or use 8-1/2 by 11" paper used in "landscape" format (used horizontally instead of vertically).

Note: As we stated before, if you have a computer program that will formulate a budget for you, use that, as it will be more convenient than writing up a budget by hand. But read through our guidelines anyway to get a grasp of the concepts involved.

Each sheet of paper should be headed by the name of the month. Once you've come up with January's version, you can photocopy that 11 times, since each month's version will be the same.

Each month's budget sheet might have five columns:

  • Column 1, labeled "Expense," will contain each of the items you listed under fixed and variable expenses.
  • Column 2, labeled "Last Year's Actual," will contain the monthly amounts you came up with for each fixed and variable expense.
  • Column 3, labeled "This Year's Budgeted," is where you will write in what you will allow yourself to spend on that item for the month. (It can, and probably will, differ from last year's actual expense).
  • Column 4, labeled "This Year's Actual," is where you will write in what you spend on that item for the month.
  • Column 5, labeled "Increase/Decrease," is where you will write in how much more--or less--you spent during that month than you had budgeted.

Here is a partial view (showing just two expenses) of what your monthly budget might look like:

Expense Last Year's Actual This Year's Budgeted This Year's Actual Over/(Under) Budget
Electric $215 $225 $230 $5
Groceries $250 $275 $250 ($25)
Total $465 $500 $480 $20

Arrange the items in whatever way is convenient for you. Make your budget easy to use; this will help ensure that you use it. If you prefer to categorize your expenses in an orderly way (fixed vs. variable or optional vs. mandatory), then do so. If you prefer to categorize them in the order in which they come up during the month, or by the manner in which they are paid (cash, check, or credit card), then do so.

It takes discipline to record each amount in your budget as you pay it, but the discipline will pay off at the end of the year, when you will have a clear picture of your spending.

Tip: Keep receipts for cash payments until you are able to record expenditures in your budget.

At the end of each month, and then at the end of the year, look at your monthly totals to see whether you've under- or overspent your budgeted amounts. Performing a monthly and yearly review will help you to set or revise goals for next year.

Tip: Don't try to track every penny; instead, maintain a category called "petty cash" or "miscellaneous expenses" to cover spending cash that does not go for categorized items. This will cover cash that you withdraw from your checking account, but do not keep track of. Allow yourself a reasonable budgeted amount for this category.

Step 4: Review Your Adherence To The Budget

At the end of each month, and then at the end of the year, look at your monthly totals to see whether you've under- or overspent your budgeted amounts. Performing a monthly and yearly review will help you to set or revise goals for next year.

 

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If you've ever applied for a credit card, a personal loan, or insurance, there's a file about you. This file is known as your credit report. It is chock full of information on where you live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy. Consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses with a legitimate need for it. They use the information to evaluate your applications for credit, insurance, employment, or a lease.

Having a good credit report means it will be easier for you to get loans and lower interest rates. Lower interest rates usually translate into smaller monthly payments.

Nevertheless, newspapers, radio, TV, and the Internet are filled with ads for companies and services that promise to erase accurate negative information in your credit report in exchange for a fee. The scam artists who run these ads not only don't deliver — they can't deliver. Only time, a deliberate effort, and a plan to repay your bills will improve your credit as it's detailed in your credit report.

The Federal Trade Commission (FTC), the nation's consumer protection agency, has written this booklet to help explain how to build a better credit report. It has six sections:

Section 1: Explains your rights under the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act.

Section 2: Tells how you can legally improve your credit report.

Section 3: Offers tips on dealing with debt.

Section 4: Cautions about credit-related scams and how to avoid them.

Section 5: Offers information about identity theft.

Section 6: Lists resources for additional information.

The Fair Credit Reporting Act

www.annualcreditreport.com (or any of the three nationwide consumer reporting companies), it's probably a scam. Don't reply or click on any link in the message. Instead, forward any email that claims to be from www.annualcreditreport.com (or any of the three consumer reporting companies) to spam@uce.gov, the FTC's database of deceptive spam.

Q: Are there other situations where I might be eligible for a free report?
A: Under federal law, you're entitled to a free report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You're also entitled to one free report a year if you're unemployed and plan to look for a job within 60 days; if you're on welfare; or if your report is inaccurate because of fraud, including identity theft. Otherwise, any of the three consumer reporting companies may charge you up to $9.50 for another copy of your report within a 12-month period.

To buy a copy of your report, contact:

Equifax
800-685-1111
www.equifax.com
Experian
888-EXPERIAN (397-3742)
www.experian.com
Trans Union
800-916-8800
www.transunion.com

Under state law, consumers in Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont already have free access to their credit reports.

For more information, see Your Access to Free Credit Reports at ftc.gov/credit.

Credit Scores

Q. What is a credit score, and how does it affect my ability to get credit?
A: Credit scoring is a system creditors use to help determine whether to give you credit, and how much to charge you for it.

Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical formula, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. A total number of points — a credit score — helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments on time. Generally, consumers with good credit risks have higher credit scores.

You can get your credit score from the three nationwide consumer reporting companies, but you will have to pay a fee for it. Many other companies also offer credit scores for sale alone or as part of a package of products.

For more information, see Credit Scoring at ftc.gov/credit.

Improving Your Credit Report

Your letter should clearly identify each item in your report that you dispute, state the facts and explain why you dispute the information, and request that the information be deleted or corrected. You may want to enclose a copy of your report with the items in question circled. Send your letter by certified mail, return receipt requested, so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the written results and a free copy of your report if the dispute results in a change. (This free report does not count as your annual free report under the FACT Act.) If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that the information is, indeed, accurate and complete. The consumer reporting company also must send you written notice that includes the name, address, and phone number of the information provider.

If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. A corrected copy of your report can be sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn't resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. Expect to pay a fee for this service.

2. Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct - that is, if the information is found to be inaccurate - the information provider may not report it again.

Sample Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:
I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

 

Enclosures: (List what you are enclosing)

 

Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you've applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

Adding Accounts to Your File

Your credit file may not reflect all your credit accounts. Most national department store and all-purpose bank credit card accounts are included in your file, but not all. Some travel, entertainment, gasoline card companies, local retailers, and credit unions are among those that usually aren't included.

If you've been told that you were denied credit because of an "insufficient credit file" or "no credit file" and you have accounts with creditors that don't appear in your credit file, ask the consumer reporting companies to add this information to future reports. Although they are not required to do so, many consumer reporting companies will add verifiable accounts for a fee. However, if these creditors do not generally report to the consumer reporting company, the added items will not be updated in your file.

Dealing with Debt

Avoiding Scams

  1. www.ftc.gov/bcp/edu/microsites/idtheft/. If you don't have Internet access, call the FTC's Identity Theft Hotline, toll-free: 1-877-IDTHEFT (438-4338); TTY: 1-866-653-4261; or write: Identity Theft Clearinghouse, Federal Trade Commission, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

For more information, see ID Theft: What's It All About or Take Charge: Fighting Back Against Identity Theft at www.ftc.gov/bcp/edu/microsites/idtheft/.

For More Information

Equal Credit Opportunity Act prohibits the denial of credit because of your sex, race, marital status, religion, national origin, age, or because you receive public assistance.

The Fair Credit Reporting Act gives you the right to learn what information is being distributed about you by credit reporting companies.

The Truth in Lending Act requires lenders to give you written disclosures of the cost of credit and terms of repayment before you enter into a credit transaction.

The Fair Credit Billing Act establishes procedures for resolving billing errors on your credit card accounts.

The Fair Debt Collection Practices Act prohibits debt collectors from using unfair or deceptive practices to collect overdue bills that your creditor has forwarded for collection.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Federal Trade Commission
Bureau of Consumer Protection
Office of Consumer and Business Education
May 2005

The Federal Trade Commission enforces a number of credit laws and has free information about them:

Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. Be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company's location.

Ads Promising Debt Relief May Really Be Offering Bankruptcy

Consumer debt is at an all-time high. What's more, a record number of consumers — more than 1.6 million in 2003 — are filing for bankruptcy. Whether your debt dilemma is the result of an illness, unemployment, or overspending, it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes. And read between the lines when faced with ads in newspapers, magazines, or even telephone directories that say:

"Consolidate your bills into one monthly
payment without borrowing"

"STOP credit harassment, foreclosures,
repossessions, tax levies and garnishments"

"Keep Your Property"

"Wipe out your debts! Consolidate your bills! How?
By using the protection and assistance provided by federal law. For once, let the law work for you!"

While the ads pitch the promise of debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it's generally considered the option of last resort. The reason: it has a long-term negative impact on your creditworthiness. A bankruptcy stays on your credit report for 10 years, and can hinder your ability to get credit, a job, insurance, or even a place to live. What's more, it can cost you attorneys' fees.

Advance-Fee Loan Scams

These scams often target consumers with bad credit problems or those with no credit. In exchange for an up-front fee, these companies "guarantee" that applicants will get the credit they want — usually a credit card or a personal loan.

The up-front fee may be as high as several hundred dollars. Resist the temptation to follow up on advance-fee loan guarantees. They may be illegal. Many legitimate creditors offer extensions of credit, such as credit cards, loans, and mortgages through telemarketing, and require an application fee or appraisal fee in advance. But legitimate creditors never guarantee in advance that you'll get the loan. Under the federal Telemarketing Sales Rule, a seller or telemarketer who guarantees or represents a high likelihood of your getting a loan or some other extension of credit may not ask for or receive payment until you've received the loan.

Recognizing an Advance-Fee Loan Scam
Ads for advance-fee loans often appear in the classified ad section of local and national newspapers and magazines. They also may appear in mailings, radio spots, and on local cable stations. Often, these ads feature "900" numbers, which result in charges on your phone bill. In addition, these companies often use delivery systems other than the U.S. Postal Service, such as overnight or courier services, to avoid detection and prosecution by postal authorities.

It's not hard to confuse a legitimate credit offer with an advance-fee loan scam. An offer for credit from a bank, savings and loan, or mortgage broker generally requires your verbal or written acceptance of the loan or credit offer. The offer usually is subject to a check of your credit report after you apply to make sure you meet their credit standards. Usually, you are not required to pay a fee to get the credit.

Hang up on anyone who calls you on the phone and says they can guarantee you will get a loan if you pay in advance. It's against the law.

Protecting Yourself
Here are some tips to keep in mind before you respond to ads that promise easy credit, regardless of your credit history:

  • Most legitimate lenders will not "guarantee" that you will get a loan or a credit card before you apply, especially if you have bad credit, or a bankruptcy.
  • It is an accepted and common practice for reputable lenders to require payment for a credit report or appraisal. You also may have to pay a processing or application fee.
  • Never give your credit card account number, bank account information, or Social Security number out over the telephone unless you are familiar with the company and know why the information is necessary.

Credit Repair Scams

You see the ads in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

"Credit problems? No problem!"

"We can erase your bad credit-100% guaranteed."

"Create a new credit identity-legally."

"We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!"

Do yourself a favor and save some money, too. Don't believe these statements. They're just not true. Only time, a conscientious effort, and a plan for repaying your debt will improve your credit report.

The Warning Signs
If you should decide to respond to an offer to repair your credit, think twice. Don't do business with any company that:

  • Want you to pay for credit repair services before any services are provided
  • Do not tell you your legal rights and what you can do yourself — for free
  • Recommend that you not contact a consumer reporting company directly
  • Suggest that you try to invent a "new" credit report by applying for an Employer Identification Number to use instead of your Social Security number
  • Advises you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It's a federal crime to make false statements on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.

The Credit Repair Organizations Act
By law, credit repair organizations must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before signing the contract. The law contains specific consumer protections. For example, a credit repair company cannot:

  • Make false claims about their services
  • Charge you until they have completed the promised services
  • Perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees.

Your contract must specify:

  • The total cost of the services
  • A detailed description of the services to be performed
  • How long it will take to achieve the results
  • Any "guarantees" they offer
  • The company's name and business address.

Where to Complain
If you've had a problem with any of the scams described here, contact your local consumer protection agency, state Attorney General (AG), Better Business Bureau. Many AGs have toll-free consumer hotlines. Check with your local directory assistance.

Identity Theft

An identity thief is someone who obtains some piece of your sensitive information, like your Social Security number, date of birth, address, and phone number, and uses it without your knowledge to commit fraud or theft.

How Identity Thieves Get Your Information
Skilled identity thieves use a variety of methods to gain access to your personal information. For example, they may:

  • Get information from businesses or other institutions by:
    • stealing records or information while they're on the job
    • bribing an employee who has access to these records
    • hacking these records
    • conning information out of employees
  • Rummage through your trash, the trash of businesses, or public trash dumps in a practice known as "dumpster diving"
  • Get your credit reports by abusing their employer's authorized access to them, or by posing as a landlord, employer, or someone else who may have a legal right to access your report
  • Steal your credit or debit card numbers by capturing the information in a data storage device in a practice known as "skimming". They may swipe your card for an actual purchase, or attach the device to an ATM machine where you may enter or swipe your card.
  • Steal wallets and purses containing identification and credit and bank cards.
  • Steal mail, including bank and credit card statements, new checks, or tax information
  • Complete a "change of address form" to divert your mail to another location
  • Steal personal information from your home
  • Scam information from you by posing as a legitimate business person or government official

How Identity Thieves Use Your Information
Once identity thieves have your personal information, they may:

  • Go on spending sprees using your credit and debit card account numbers to buy "big-ticket" items like computers that they can easily sell
  • Open a new credit card account, using your name, date of birth, and Social Security number. When they don't pay the bills, the delinquent account is reported on your credit report.
  • Change the mailing address on your credit card account. The imposter then runs up charges on the account. Because the bills are being sent to the new address, it may take some time before you realize there's a problem.
  • Take out auto loans in your name
  • Establish phone or wireless service in your name
  • Counterfeit checks or debit cards, and drain your bank account
  • Open a bank account in your name and write bad checks on that account
  • File for bankruptcy under your name to avoid paying debts they've incurred, or to avoid eviction
  • Give your name to the police during an arrest. If they are released and don't show up for their court date, an arrest warrant could be issued in your name.

Protecting Yourself
Managing your personal information is key to minimizing your risk of becoming a victim of identity theft.

  • Keep an eye on your purse or wallet, and keep them in a safe place at all times.
  • Don't carry your Social Security card.
  • Don't share your personal information with random people you don't know. Identity thieves are really good liars, and could pretend to be from banks, Internet service providers, or even government agencies to get you to reveal identifying information.
  • Read the statements from your bank and credit accounts and look for unusual charges or suspicious activity. Report any problems to your bank and creditors right away.
  • Tear up or shred your charge receipts, checks and bank statements, expired charge cards, and any other documents with personal information before you put them in the trash.

How To Tell If You're a Victim of Identity Theft
Monitor the balances of your financial accounts. Look for unexplained charges or withdrawals. Other indications of identity theft can be:

  • Failing to receive bills or other mail signaling an address change by the identity thief;
  • Receiving credit cards for which you did not apply;
  • Denial of credit for no apparent reason; or
  • Receiving calls from debt collectors or companies about merchandise or services you didn't buy.

What To Do If Your Identity's Been Stolen
If you suspect that your personal information has been used to commit fraud or theft, take the following four steps right away. Follow up all calls in writing; send your letter by certified mail, and request a return receipt, so you can document what the company received and when; and keep copies for your files.

  1. Place a fraud alert on your credit reports and review your credit reports.
    Contact any one of the nationwide consumer reporting companies to place a fraud alert on your credit report. Fraud alerts can help prevent an identity thief from opening any more accounts in your name. The company you call is required to contact the other two, which will place an alert on their versions of your report, too.

    Equifax: 1-800-525-6285;

    In addition to placing the fraud alert on your file, the three consumer reporting companies will send you free copies of your credit reports, and, if you ask, they will display only the last four digits of your Social Security number on your credit reports.

  2. Close the accounts that you know, or believe, have been tampered with or opened fraudulently.
    Contact the security or fraud department of each company where you know, or believe, accounts have been tampered with or opened fraudulently. Follow up in writing, and include copies (NOT originals) of supporting documents. It's important to notify credit card companies and banks in writing. Send your letters by certified mail, return receipt requested, so you can document what the company received and when. Keep a file of your correspondence and enclosures.

    When you open new accounts, use new Personal Identification Numbers (PINs) and passwords. Avoid using easily available information like your mother's maiden name, your birth date, the last four digits of your Social Security number or your phone number, or a series of consecutive numbers.

  3. File a report with your local police or the police in the community where the identity theft took place.
    Get a copy of the police report or, at the very least, the number of the report. It can help you deal with creditors who need proof of the crime. If the police are reluctant to take your report, ask to file a "Miscellaneous Incidents" report, or try another jurisdiction, like your state police. You also can check with your state Attorney General's office to find out if state law requires the police to take reports for identity theft. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.

  4. File a complaint with the Federal Trade Commission.
    By sharing your identity theft complaint with the FTC, you will provide important information that can help law enforcement officials across the nation track down identity thieves and stop them. The FTC also can refer your complaint to other government agencies and companies for further action, as well as investigate companies for violations of laws that the FTC enforces.

    You can file a complaint online at

Equifax: www.equifax.com
Experian: 1-888-EXPERIAN (397-3742); www.experian.com
TransUnion: 1-800-680-7289; www.transunion.com

Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You're not alone. Many people face financial crises at some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or simple overspending, it can seem overwhelming. But often, it can be overcome. The fact is that your financial situation doesn't have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget
The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your "fixed" expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors
Contact your creditors immediately if you're having trouble making ends meet. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Dealing with Debt Collectors
The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you're at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Credit Counseling
If you're not disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that just because an organization says it's "nonprofit", there's no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or pressure consumers to make large "voluntary" contributions that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Auto and Home Loans
Your debts can be secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can't do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You'll avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who's having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Remember that these loans require you to put up your home as collateral. If you can't make the payments — or if your payments are late — you could lose your home.

What's more, the costs of consolidation loans can add up. In addition to interest on the loans, you may have to pay "points", with one point equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.

Bankruptcy

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy a home, get life insurance, or sometimes get a job. Still, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. People who follow the bankruptcy rules receive a discharge — a court order that says they don't have to repay certain debts.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. As of January 2005, the filing fees run about $185 for Chapter 13 and $200 for Chapter 7. Attorney fees are additional and can vary.

Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car, that they otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off a default during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt property may include automobiles, work-related tools, and basic household furnishings. Some of your property may be sold by a court-appointed official — a trustee — or turned over to your creditors. You can receive a discharge of your debts through Chapter 7 only once every six years.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow people to keep certain assets, although exemption amounts vary. Note that personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. And unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.

For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a Credit Counselor at

Under the FCRA, both the consumer reporting company and the information provider (the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the consumer reporting company and the information provider if you see inaccurate or incomplete information.

1. Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address,

The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness, and privacy of information in the files of the nation's consumer reporting companies. The FTC enforces the FCRA with respect to consumer reporting companies. Recent amendments to the FCRA expand consumer rights and place additional requirements on consumer reporting companies. Businesses that provide information about consumers to consumer reporting companies and businesses that use credit reports also have new responsibilities under the law.

Here are some questions consumers have asked the FTC about consumer reports and consumer reporting companies, and the answers.

Q. Do I have a right to know what's in my report?
A. You have the right to know what's in your report, but you have to ask for the information. The consumer reporting company must tell you everything in your report, and give you a list of everyone who has requested your report within the past year - or the past two years if the requests were related to employment.

Q. What type of information do consumer reporting companies collect and sell?
A. Consumer reporting companies collect and sell four basic types of information:

  • Identification and employment information:Your name, birth date, Social Security number, employer, and spouse's name are noted routinely. The consumer reporting company also may provide information about your employment history, home ownership, income, and previous address, if a creditor asks.
  • Payment history:Your accounts with different creditors are listed, showing how much credit has been extended and whether you've paid on time. Related events, such as the referral of an overdue account to a collection agency, also may be noted.
  • Inquiries:Consumer reporting companies must maintain a record of all creditors who have asked for your credit history within the past year, and a record of individuals or businesses that have asked for your credit history for employment purposes for the past two years.
  • Public record information:Events that are a matter of public record, such as bankruptcies, foreclosures, or tax liens, may appear in your report.

Q. Is there a charge for my report?
A. Under the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACT Act), each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report once every 12 months, if you ask for it.

These consumer reporting companies are phasing in free reports geographically through September 1, 2005. After that, free reports will be accessible to all Americans, regardless of where they live.

  • Free reports have been available to consumers in the Western states — Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming — since December 1, 2004.
  • Consumers in the Midwestern states — Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin — have been able to order free reports since March 1, 2005.
  • Consumers in the Southern states — Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and Texas — can begin ordering their free reports June 1, 2005.
  • Consumers in the Eastern states — >Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia — the District of Columbia, Puerto Rico, and all U.S. territories can begin ordering their free reports September 1, 2005.

Q: How do I order my free report?
A: The three nationwide consumer reporting companies are using one website, one toll-free telephone number, and one mailing address for consumers to order their free annual report. To order, click on www.annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Do not contact the three nationwide consumer reporting companies individually. You may order your free annual reports from each of the consumer reporting companies at the same time, or you can order from only one or two. The law allows you to order one free copy from each of the nationwide consumer reporting companies every 12 months.

Q: What information do I have to provide to get my free report?
A: You need to provide your name, address, Social Security number, and date of birth. If you have moved in the last two years, you may have to provide your previous address. To maintain the security of your file, each nationwide consumer reporting company may ask you for some information that only you would know, like the amount of your monthly mortgage payment. Each company may ask you for different information because the information each has in your file may come from different sources.

Still, www.annualcreditreport.com is the only authorized online source for your free annual credit report from the three nationwide consumer reporting companies. Neither the website nor the companies will call you first to ask for personal information or send you an email asking for personal information.

Let us help you balance your checkbook. First tell us the ending balance on your statement, then enter all of your outstanding checks and deposits.

If your checkbook register matches our calculated amount, your checkbook is balanced! If not, you may need to verify that all of your withdrawals and deposits are correct and accounted for.

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Having trouble paying your bills? Getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You're not alone. Many people face a financial crisis some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or overspending, it can seem overwhelming. But often, it can be overcome. Your financial situation doesn't have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy.

Debt negotiation is yet another option. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

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Source: Federal Trade Commission

Managing your monthly budget can be difficult and frustrating. One of the most important aspects of controlling your budget is to determine where your money is going. This calculator helps you do just that.

By entering your income and monthly expenditures, you can see how much you have left to save and where your money is being spent. In addition, you can click the "View Report" button to compare your budget breakdown to our targets, which can help identify areas for improvement.

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CPA Site Solutions


What should I do if a friend or family member asks me to co-sign a loan?

Many people agree to co-sign loans for friends or relatives, as a favor, as a vote of confidence, or because they just can't say no. Unfortunately, they often find that they've bitten off more than they intended to chew.

The cosigner of a loan agrees to be responsible for its repayment along with the borrower. While a lender will generally seek repayment from the debtor first, it can go after the cosigner at any time. (On the other hand, where a loan is guaranteed, the lender can usually go after the guarantor only after the principal debtor has actually defaulted.)

Finance companies report that most cosigners end up paying off the loans they've cosigned—along with late charges, legal fees and all. Not only is this an unwanted out-of-pocket expense, but it can also be an undeserved blot on the cosigner's credit record.

It's better to guarantee a loan than to cosign it. However, if you're willing to cosign a loan, at least seek the lender's agreement to refrain collecting from you until the borrower actually defaults and try to limit your liability to the unpaid principal at the time of default. Then stay on top of the borrower's financial situation to help avoid a default (for example, have the lender notify you whenever a payment is late). At least you can preserve your credit rating by nipping payment problems in the bud.

Cosigning An Account. You may be asked to cosign an account to allow someone else to obtain a loan. With cosigning, your payment history and assets are used to qualify the cosigner for the loan.

Tip: We recommend that you do not cosign a loan, whether for a family member, friend, or employee. Many have found that cosigning a loan only leads to trouble.

Bear in mind that cosigning a loan bears all the financial and legal consequences of taking out the loan yourself. When you cosign, you are signing a contract that makes you responsible for the entire debt. If the other cosigner does not pay, or makes late payments, it will probably show up on your credit record. If the person for whom you cosigned does not pay the loan, the collection company will be entitled to try to collect from you.

If the cosigned loan is reported on your credit report, another lender will view the cosigned account as if it were your own debt. Further, if the information is correct, it will remain on your credit report for up to seven years.

Tip: If someone asks you to cosign a loan, suggest other alternatives--such as a secured credit card—by which they can build a credit history. If you are asked to cosign for someone whose income is not high enough to qualify for a loan, you are actually doing them a favor by refusing—they will be less likely to be overwhelmed by too-high debts. At any rate, consult with your lawyer before cosigning, since state laws regarding a cosigner's liability vary.

Tip: If you have already cosigned for someone, and he or she is not making payments on time, consider making the payments yourself and asking the cosigner to pay you directly, in order to protect your credit rating.

How can I get the best deal on a home equity loan or an equity line of credit?

If you decide to apply for a home equity loan, look for the plan that best meets your particular needs. Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs you'll pay to establish the plan.

Tip: The disclosed APR will not reflect the closing costs and other fees and charges, so compare these costs, as well as the APRs, among lenders.

Interest Rates. Home equity plans typically involve variable interest rates rather than fixed rates. A variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate). The interest rate will change, mirroring fluctuations in the index.

To figure the interest rate that you will pay, most lenders add a margin, such as 2 percentage points, to the index value.

Tip: Because the cost of borrowing is tied directly to the index rate, find out what index and margin each lender uses, how often the index changes, and how high it has risen in the past.

Sometimes lenders advertise a temporarily discounted rate for home equity loans—a rate that is unusually low and often lasts only for an introductory period, such as six months.

Variable rate plans secured by a dwelling must have a ceiling (or cap) on how high your interest rate can climb over the life of the plan. Some variable-rate plans limit how much your payment may increase, and also how low your interest rate may fall.

Some lenders permit you to convert a variable rate to a fixed interest rate during the life of the plan, or to convert all or a portion of your line to a fixed-term installment loan.

Agreements generally permit the lender to freeze or reduce your credit line under certain circumstances, such as during any period the interest rate reaches the cap.

What are the costs of obtaining a home equity line of credit?

Many of the costs in setting up a home equity line of credit are similar to those you pay when you buy a home.

For example, these fees may be charged:

  • A fee for a property appraisal, which estimates the value of your home
  • An application fee, which may not be refundable if you are turned down for credit
  • Up-front charges, such as one or more points (one point equals one percent of the credit limit)
  • Other closing costs, which include fees for attorneys, title search, mortgage preparation and filing, property and title insurance, as well as taxes
  • Yearly membership or maintenance fees

You also may be charged a transaction fee every time you draw on the credit line.

You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those charges and closing costs would substantially increase the cost of the funds borrowed.

On the other hand, the lender's risk is lower than for other forms of credit because your home serves as collateral. Thus, annual percentage rates for home equity lines are generally lower than rates for other types of credit.

The interest you save could offset the initial costs of obtaining the line. In addition, some lenders may waive a portion or all of the closing costs.

Should I obtain a home equity line of credit or a traditional second mortgage loan?

If you are thinking about a home equity line of credit you might also want to consider a traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time.

Tip: Consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.

In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the APR and other charges.

Tip: Do not simply compare the APR for a traditional mortgage loan with the APR for a home equity line--the APRs are figured differently. The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges. The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges.

How should I determine which of several loan alternatives is best?

Use the legally-required disclosures of loan terms to compare the costs of home equity loans.

The Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. In general, neither the lender nor anyone else may charge a fee until after you have this information.

You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not enter into the plan because of the changed term.

Credit costs vary. By remembering two terms, you can compare credit prices from different sources. Under Truth in Lending, the creditor must tell you—in writing and before you sign any agreement—the finance charge and the annual percentage rate.

The finance charge is the total dollar amount you pay to use credit. It includes interest costs, and other costs, such as service charges and some credit-related insurance premiums.

For example, borrowing $100 for a year might cost you $10 in interest. If there were also a service charge of $1, the finance charge would be $11.

The annual percentage rate (APR) is the percentage cost (or relative cost) of credit on a yearly basis. This is your key to comparing costs, regardless of the amount of credit or how long you have to repay it:

Example: You borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for the whole year and then pay back $110 at the end of the year, you are paying an APR of 10 percent. But, if you repay the $100 and finance charge (a total of $110) in twelve equal monthly installments, you don't really get to use $100 for the whole year. In fact, you get to use less and less of that $100 each month. In this case, the $10 charge for credit amounts to an APR of 18 percent.

All creditors—banks, stores, car dealers, credit card companies, finance companies— must state the cost of their credit in terms of the finance charge and the APR. Federal law does not set interest rates or other credit charges. But it does require their disclosure--before you sign a credit contract or use a credit card--so you can compare costs.

Source: CPA Site Solutions

One of the best ways to increase your savings is to spend less. Even a simple change such as bringing a bagged lunch to work a few times a week can make a difference. This calculator illustrates how a little lunch savings can go a long way.

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MyMoney.gov is the U.S. government's website dedicated to teaching all Americans the basics about financial education. Whether you are planning to buy a home, balancing your checkbook, getting married, or investing in your 401k, the resources on MyMoney.gov can help you do it better.

Throughout the site, you will find important information from 20 federal agencies government wide.

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Source: U.S. Financial Literacy and Education Commission

To use the personalized budget tool, you just need to create a no-cost user web account.

Fill in as many questions as you can so your budget will be realistic. If you don't know the answer, just fill in as much as you know or leave the question blank. If you need to stop at any point, your entry will be saved and you can come back to finish your budget later.

The site will not ask for your social security number or bank account numbers. Your personal information will not be shared with anyone unless you're working with a professional on your budget. Everything you write on this site is for your eyes only.

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Source: The Beehive

Should you consolidate your debt? This calculator is designed to help determine whether debt consolidation is right for you.

Enter your credit cards, auto loans and other installment loans balances by clicking on the "Enter Data" button for each category. Then change the consolidated loan amount, term or rate to create a loan that will work within your budget.

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The value of your savings can be affected by both taxes and inflation. Use this calculator to determine how much your savings will be worth with this in mind.

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This calculator is designed to help you see the financial impact of adding, or removing, a spouse's income to your household. As with any decision of this type, there are many factors to consider, but knowing your finances is a good place to start.

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CPA Site Solutions

What might it take to save one million dollars? This financial calculator helps you find out.

Enter in your current savings plan and graphically view your financial results for each year until you retire. Press the "View Report" button for a report that helps you see when you might hit your cool million - and what you might be able to do to possibly achieve this goal.

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Consistent investments over a number of years can be an effective strategy to accumulate wealth. Even small additions to your savings add up over time.

This calculator demonstrates how to put this savings strategy to work for you!

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