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Cheryl's Sensible Cents, Issue #007 -- Budget Blunders/Home: Asset or Debt Trap?
May 01, 2005

Exciting News Today

In this issue we would like to introduce you to the anticipated merge of Cheryl's Sensible Cents and Money Basics.

This is an exciting merge that provides us the opportunity to offer a greater variety of information to grow your personal financial security and independence.

This issue will provide you with some insight as to what is to be expected. Some format changes may still take place in the future in an effort to provide the very best reading experience for you. This is my first attempt at merging the two newsletters. So, be forgiving, please.

Learn More About Cheryl Johnson and Simple Debt Free Living

Learn more about Roger Sorensen, Brighter Futures and Slave2Work

We believe this merge just makes sensible sense (no pun intended!)

We Need Your Help!

We need a name for our new e-zine. Please e-mail us to offer any suggestions: (You'll find a few suggestions in Roger's comment.)

Please include "name suggestion" in the subject line.

Thank you for your support and we hope you continue to enjoy reading our newsletter.

Did You Know?....

The cost of raising a medium-size dog to the age of eleven: $6,400
Tip: You'll find a good savings tip in Cheryl's article today.

Featured Articles:
"Home: Asset or D.ebt Trap"
Roger Sorensen

"Biggest Budget Blunders"
Cheryl Johnson


Master Baking Mix ("More with Less") Make your own baking mix stored in a tightly sealed container. Sift together 3 times
Makes: 8 lbs

5 lbs Flour
3/4 c.baking powder
3 Tbsp Salt
1 Tbsp cream of tartar
1/2 cup sugar

Cut in to consistency of cornmeal:
2 lbs vegetable shortening

Stir in:
4 cups dry milk powder

Store in covered container at room temperature. To measure baking mix, pile lightly into a cup and level off with spatula.


  • Replace 1/3 of the white flour with whole wheat flour
  • Add 2 cup untoasted wheat germ
  • Replace 3 cups flour with soy flour
  • Dry milk powder in the mix is optional, but assures higher protein products.
  • Master Baking Mix Recipes

    Share Money Saving Tips, Recipes, and Frugal Living Ideas, Here

    Big Trees Grow from Small Seeds!

    Money Saving Tips:

    Here's something the popcorn giants don't want you to know - Per serving, microwave popcorn is very expensive by comparison to other methods. Sure, it's a great convenience, but it's costing you.

    Consider this: a good popcorn popper will cost you about $20-$30 and last for years. I can highly recommend the Westbend Stir Crazy Corn Popper. To my surprise, it pops every last kernel.

    I bought a 50lb. bag of popcorn kernels at a warehouse club for about $11.00. That was about a year ago. I still haven't used it all. And, we love our popcorn.

    I haven't even calculated the savings on this one but you can bet it's substantial.*Tip: I store it in a large, tightly sealed recycled bucket. You can also store this, rice, and even flour in the freezer for long term storage, if you have room.

    Cleaning Tip

    Stained dishes - If you have high iron content well water, as I do, dishes become stained with that orangy brown color.

    1/2 cup of Powdered Cascade in a dish pan with water to cover dishes, removes that orangy stain from most dishes. Also renews coffee stained cups and food stained dishes, especially plastic ware.


    Plastic 2 liter soda bottles can be used to make all sorts of crafts and gifts. Here's a couple ideas:

  • Door stoppers: Simply fill the bottle with sand, rock, marbles, anything that serves as an anchor weight and decorate the outside to suit your needs with complimentary colors or theme. You can paint, cover with fabric or yarn, use your imagination.
  • Dolls: insert a wooden spoon (anchor weight it as above), add fabric, yarn, buttons, etc to dress the bottle. Paint a face on the spoon, use yarn to cut and glue hair around face and back of spoon. This will make a cute doorstop, too!

    Have you been to the newly refabricated website

    Go there now. You’ll find articles by Roger Sorensen, personal finance software, newsletter archives and lots more at


    Home: Asset or Debt Trap

    By Roger Sorensen

    Are you using the equity from your home to purchase everyday things? This is a dangerous trend growing more popular every month as millions of Americans tap into the value of their home to fund a lifestyle.

    How many times have you heard the saying, "Your home is the best investment you’ll ever make?" How many times have you also heard that your home will be the most valuable asset you will ever own?Both of these are as true, if not truer, today than at any time in the past.

    Unfortunately, spend happy Americans are looking at their home as just another type of ATM, and they are visiting it way to often. These homeowners are using m.oney borrowed against their house to f.inance expensive vacations, new vehicles, even daily visits to the corner coffee shop.

    Our parents wouldn't think of buying furniture with money borrowed against their home. So why is this form of borrowing becoming so popular?

    Three events have converged to create this dangerous trend.

    • Cheap interest. The past two or three years have seen interest rates unheard of since the 1950’s. These low rates encourage people to think they have basically f.ree m.oney to spend however they want to.
    • Real estate value increases. The Office of Federal Housing Enterprise Oversight (OFHEO) reports that their data shows market value of the average home increased nearly 13% in 2004. That is more than any time in the last 25 years. Some areas saw the value of homes double in less than 5 years.

      This increase in value is perceived by some people as being a bonus – they didn’t have to w.ork for the m/oney, so it doesn’t cost them anything. They are right about it not costing them anything, except they forgot that when they borrow m/oney it has to be paid back. That is when the true cost of the debt appears!

      The U.S. Department of Commerce reports in 2003 nearly half of the $8 trillion in outstanding mortgage debt was in new mortgage originations. This doesn’t mean home equity loans are necessarily bad ideas. Using equity in your home to remodel and make additions can result in solid returns. Even d/ebt consolidation can be a good choice, provided you have solved the problem that caused the d.ebt in the first place.

    • Ease of borrowing. Twenty years ago, lenders wouldn’t think of giving you a loan, even against your home, if it would cause your equity to become less than 20%. Some insisted in a percentage closer to 50% equity. Those days are long over.Today you can go online and find a lender willing to give you a loan equal to 125% the value of your house. If you have a credit of repayment, hold a job, and are still breathing you can probably find a lender willing to let you borrow against your home equity.

    The risk created by the convergence of these three factors is the loss of your safety net. As people buy homes at the top end of their range and base mortgages on two incomes something has to give.This “something” has been their savings.

    Putting aside part of each paycheck has become the low priority in the pile of demands barraging a family’s i.ncome.Data released by the Employee Benefit Research Institute reports nearly 45% of all workers hold assets of less than $25,000 (excluding their home).

    Barely 67% of today’s workers are currently saving m.oney in a 401(k) or some investment program, according to a Thrivent Financial Survey.

    Does any of this sound familiar to you? The looming d.ebt of mortgage, college, and credit card can seem overwhelming.

    How can you tip your financial life back into favoring a secure future for yourself and your family?

    Here are five steps to escape the home equity debt trap:

    • 1.Keep track of expenses. Keep a spending record of everything you spend for one month. The next month, do it again, and the next month too, until you see areas of spending you can cut back and use that m.oney to fund your lifestyle goals, i.e. vacation, college, or a new lawn mower.
    • 2. Create realistic d.ebt reduction goals. List all of your debts with interest rates, outstanding balances and minimum payments. Create a plan to pay down the d/ebt, preferably pay the same set amount each month no matter what the minimums are. Anything extra you pay should go to the smallest d.ebt first. When a credit card is paid off, get rid of it. Perhaps a small reward like a special meal when a goal is reached will help keep you motivated.
    • 3. Preserve your home equity. Having home equity untapped in your house can provide a level of reassurance. Making wise uses of this equity will help you to not exhaust it. When you do tap into your home equity, make sure it is not used to pay for daily living.
    • 4. Pay as little debt interest as possible. C.onsolidation of d.ebts into low, or no interest loans (i.e. credit cards), is acceptable as long as you refrain from incurring new d.ebt and you are paying down the debts you do have each month.
    • 5. Start saving regularly. A fund of m.oney for emergencies will help avoid d.ebt when life throws you a problem. If you consider saving a “non-optional” bill each month, you will develop the find habit of saving. The result is a growing asset base.

    The end result of taking these five steps? A minimal-d.ebt life spent living in an affordable home of your own.

    Roger Sorensen - Financial Speaker, Published Author, and contributor to M.oney Basics – The Newsletter of You can ask financial questions, read articles he has written, and find his most recent bookYou Don’t Own M.oney 2nd Edition at the Bookstore.

    Biggest Budget Blunders

    By Cheryl Johnson

    Does your budget never seem to balance the way it should? Are you constantly digging into the savings to make ends meet?

    If you find that your budget isn't doing the job, then it's time to take a good look at essential components you might be missing or you have not allowed sufficiently for.

    Some of the biggest budget blunders are . . . . . .

    1. Failure to plan for inevitable expenses

    We all have irregular expenses that we naively refer to as "unexpected." Come on, is that flat tire really unexpected? Don't you secretly know that these things happen? Have you ever owned a car that did not need repairs or maintenance? If you have, you probably didn't own it long enough. The solution; Start counting on the car breaking down instead of hoping it doesn't!

    The car isn't the only area we slight in the budget. Do you find yourself hoping and praying that the hot water heater, washer, dryer, or some other major appliance doesn't need to be repaired or, worse yet, replaced.

    Home maintenance is always a factor in our finances. Even if you rent, you probably have some home related expenses waiting to creep up on you.

    These are just a couple examples of variable expenses that we often overlook.

    When you consider the following other categories that could be included in this list, you can see the serious consequences this oversight can have on your budget. . .

    • Property, Auto, Health and Life Insurance if not paid on a monthly schedule.

      Even if you do pay monthly, you should try to save for a lump payment if at all possible. Most companies charge up to a $3 fee for monthly payment options. It doesn't sound like a lot but, over a years time it's $36 you won't be investing in their cause. I say, it's always best to invest in yourself. Don't you agree? Here's a great tip: Put the $36 in your savings.

    • Taxes - Property, Federal, and State - If you know you will have to pay Uncle Sam, prepare for it. If you value your home or other property investment, prepare for the costs. Don't scramble at the last minute to come up with enough to pay your obligations. It's likely other areas of your budget will suffer greatly, since these expenses have a high priority.
    • Clothing - Now, I can wear a piece of clothing 'til you can see through the threads. I work at home, so I only have a few choice pieces for special occasions. I'm a no frills kind of gal. But, I have four kids. Do I expect them to stop growing or somehow not care how they look to their peers? Of course not! But, I'm working on it. Just kidding! I know that they will need more clothes, more shoes, more accessories....etc., etc., etc., etc.....

      I use every resource available to me to cut down the clothing budget, I know I must account for this expense. It will arise, whether I am prepared or not!

    • School Supplies - This is another one you just can't omit if you have kids. You can, however, use some clever m.oney saving techniques and multiple resources to keep this expense to a minimum.
    • Pet Care - If you have a pet, you most likely have expenses that come with this beloved family member. Vaccinations, flea control, veterinarian, and food are just a few that come to mind. Again, minimize the costs by using all your resources.

      Tip: My local county animal shelter gives rabies vaccines for $5. Good for three years if regularly vaccinated. Does yours?

    • Gifts - If your friends, family, and kids don't care if they don't get gifts from you, if you've declared war on the holidays, or have a convenient hiding place when these occasions take place, then you can skip this one.

      I'm guessing most of you are including this one. It's inevitable. My best advice is to set strict limits and be a smart shopper. Seek out the bargains and buy when it's a deal, even if it's months ahead of time.

    • Medical - Unless you're lucky enough, or not lucky (depending on how you look at it), to qualify for medical assistance, you undoubtedly have medical expenses over and above the cost of your health insurance; Co-pays for doctors and medicines, over-the-counter medications, dental and eye care expenses. Nope, can't omit it, have to include it. Sorry, it's a must have!
    • Vacation - Include this one to make planning less stressful. Get inventive if you don't have enough i/ncome. You can still have a vacation with limited, or no, travel expenses.


    2. No Emergency Fund...

    . . .or misconceptions about what warrants an emergency. An emergency is this case should be limited to an unexpected occurrence. No, if you've been listening, having to replace the water pump on your car is not an emergency. A real emergency might include; loss of income, severe illness, or death in the family.

    Although we all hope such occurrences never happen to us, sometimes we aren't lucky enough to escape these unfortunate events in life.

    You should try to set aside a specific amount, no matter how little, each month in an emergency fund to eventually equal at least three to six months of your current income.


    3. Living Above Your Means.

    This is simply spending more than you earn. Unfortunately, this is a direct consequence of budget blunders #1 and #2. When funds are not set aside for variable expenses and emergencies, you will inevitably turn to plastic m.oney (c.redit cards) to bail out.

    Spending more than you earn is a sure sign that you're headed for trouble. When you spend future earnings it's like "counting your chickens before the eggs hatch." The long term consequences are usually devastating. It's likely you'll end up in deep d.ebt and eventually have no where to turn except counseling or bankruptcy. Don't let it get that far. Take control of your m.oney.


    If you've been making these budget blunders, you're probably exhausted just considering all the work you have to do on your budget. I'm exhausted just writing about it. The sooner you get started, the sooner you'll be on the path to a really successful budget.

    Add up all your variable expenses and divide by twelve to come up with a monthly amount that you should be setting aside for this expense. Keep these funds separate from your monthly bill fund to avoid dipping into it accidentally.

    Start with 5-10% of your income to start a savings, or apply to an existing savings, each month for your emergency fund.

    Make sure your expenses are within your income. If not, start reviewing, eliminating, and reducing those expenses to fit into your income limits.

    A good budget is like a good friend. It helps keep you strong and steady.

    Personal Finance Q & A

    Send Roger your financial questions and comments. All will be answered, a few will be published. Email to:Ask a Question

    Q. Roger,
    Which type of insurance is better for me to buy - Whole life or term? I want to be sure my family is well set if I die early.
    A. Jeremy,
    The decision is not as easy as just choosing whole life or term insurance. You need to consider the following:

    • How much debt am I carrying now, that my family will have to pay if I die?
    • How large of estate, including insurance, will I leave them that could be sold so they can live?
    • How many dollars will it take for my family to live debt free, until my kids are grown and out of college?

    These four questions are very basic, but will form the initial framework necessary to decide how much insurance you need to purchase to provide the size of estate you want to leave your family. You can go ahead and ask yourself more specific questions, such as will my family want to sell the house and move across the country to be closer to family?

    Suppose you have answered the questions above and all the other questions these led to and learned you need life insurance equal to $495,000. Most people can not buy that much whole life insurance. If you want that much only until your children are out of the house, a 20 year level term policy might be the best thing for you to look into.

    For more detailed information about this, or any other financial question, anyone can drop me a line at

    Q. Roger,
    How will my 401(k) perform between now and when I retire in 23 years?
    Nobody knows. What I do know and can tell you is that by saving money in your 401(k) you are going to have a better retirement than most Americans your age who are doing little or nothing about their golden years. Stocks go up, stocks go down, don’t panic and keep building your savings.


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