I rediscovered something the other night. I like just a little taste of something sweet at the end of the day. Sometimes I take a short gulp of soda. Recently I was in the grocery store and saw the big Hershey's milk chocolate bars. I hadn't had one in quite awhile. So I brought one home and tucked it in the fridge. One night, looking for my sweet-fix, I broke off a piece and chewed it. It was just as good as I remembered.

I did that a few more times over the next couple of weeks. When one evening I decided to tuck it inside my cheek like a chipmunk. It must have taken five minutes to gradually dissolve! And, the sweetness! I was amazed at how much flavor could actually be in a small chunk of chocolate. By chewing it, I was missing 3/4 of the sweet taste!

In my rush to get through life, I nearly missed enjoying this simple pleasure. And, I began to wonder how many other times I had purchased something for my enjoyment, but rushed through the experience and missed half of the pleasure. I know that I've purchased electronics and didn't take the time to
thoroughly read the directions or completely program the device. I wonder how much I've given up.

And, that's just the half of it. Because I'm consuming so quickly, I'm looking for a new pleasure experience sooner. Bang! Experienced that! Time to look for something new to entertain me!

Don't know about you, but I keep coming across this same revelation. Maybe one of these days I'll slow down enough to really understand the meaning!

I just found an article you wrote on budgeting. You said to spend no more than 33% of your after-taxed salary on housing. I have to find an apartment and live on my own. I never had to do that before. I am struggling with a budget and not knowing what I can really afford for an apartment. -- Michael

Michael is right to make sure that his apartment expenses don't cripple his efforts to get off to a good financial start. And, he'll find that his choice of an apartment will make a huge difference on whether his budget (and his finances) work.

Before we look at Michael's housing question, let's spend a moment on constructing a budget. They're not nearly as scary as you might think. The purpose isn't to lock your money up where you can't get at it. A good budget simply provides information about your expenses and how they relate to your income. The goal is to help give you data to make good decisions.

Michael asked about after-tax income. There are two ways to do a budget. One includes your taxes and uses your "gross" (before tax) income. The other uses your "net income" (after tax). Generally, it's easier to use the after-tax method. It tends to be a little less complicated.

In an after-tax budget, Michael's take home pay would be his income. And he would not budget for any payroll deductions (i.e. insurance, retirement plans, taxes, etc.).

OK, now let's get back to Michael's main question. How much can he afford to spend on an apartment? It's generally accepted that 30 to 35% is about right for housing expenses. That would include rent, plus utilities, any maintenance and decorating.

Some would argue that Michael could spend up to 40% for housing. The trouble with that is Michael has a limited amount of money. His paycheck needs to cover housing, automobile (or transportation), food, insurance, entertainment, clothing, medical/dental, miscellaneous and debt repayment. So an increase in housing expense means a decrease somewhere else.

Michael didn't share what his income is. So we'll have to keep this somewhat general. But, we'll still be able to illustrate the point.

The three biggest expenses he'll face are housing, transportation and food. Along with 30% for housing, he'll probably need another 15% each for transportation and food. So he's already spent 60% of his money, leaving just 40% for everything else.

The quickest way for a budget to fail is to overspend these "big three" categories. If Michael spends 65 or 70%, it becomes almost impossible to make up the difference in the smaller categories. Even if he cuts back drastically in areas like entertainment and clothing, he just won't find enough savings to offset the additional expense.

Overspending in these big areas is also a problem because we often make commitments for months or even years in advance. It's not like your electric bill. If it was too high last month, you can start turning down the A/C today. But, if you agreed to make forty-eight auto payments, there's not much you can do about it for awhile. Or, if you do make a change, it will significantly disrupt your lifestyle.

Let's suppose that Michael's take home pay was $2,000 per month. He really wanted an apartment that cost $800 (40% of his income). Add his car payment ($225), gasoline ($75), groceries ($150) and restaurant/meals ($150). That totals $1,400 and only leaves him $600 to cover debt repayment, clothing, entertainment, medical, miscellaneous, savings and any unexpected bills. Chances are that he'll quickly be putting some of those expenses on his credit card and adding to the unpaid balance. At some future point, that will come back to haunt him.

If Michael were making a lot more, he'd have more flexibility. If his monthly income were $10,000, it wouldn't make as much difference if he spent 35 or even 40% of his income on housing. He'd have more in other categories to make up the difference.

Most of us live with limited income. It's important for us to get our housing, auto and food expenses under 60% of our take home pay if we're going to keep from getting into financial trouble.

So Michael is smart to pay attention to his housing costs. He's identified the cornerstone to a sound financial future. Let's hope he finds the perfect, affordable apartment!

I requested that my credit card account be closed in June. In November, I received a bill for $110 for automated charges that go through once a year. The credit card company said that it was my responsibility to request that these charges stop going through. The problem is that I can't get through to these companies to have these charges stopped. I had actually requested that one of these companies stop charging my card and they did not. This is a big part of the reason that I requested to cancel the card. Is it legal for the credit card company to continue allowing charges to be made to my account months after I request the account to be closed? If I can't ever get through to these companies because they are always having technical difficulties, am I just doomed to have the credit card account forever? Who can I ask for help? - Kristen

Kristen has discovered that there's a flip side to the convenience that's offered by automatic bill payments. Sometimes, it can be difficult to stop those same automatic payments. Let's take a look at automatic bill paying and see if we can't find a solution to Kristen's problem.

It's easy to see why automatic bill paying is popular. For the consumer, it is very convenient. No need to write and mail checks each month. As long as you have enough money in the account, there's no chance of triggering a late fee. The Electronic Payments Association estimated that consumers saved $4.5 billion in 2002 by using direct payments.

The companies whose bills are being paid automatically love it, too. They spend less when they don't have to sort, post and process checks. They're more likely to be paid on time. And, the consumer is more likely to continue paying for the service even if he doesn't use it. No check writing to remind him he's wasting money.

According to the Automated Clearing House Network in the 3rd quarter of 2005, there were 2.7 billion automated transactions worth more than $6.1 trillion.

It's a great system, except when it goes wrong. And sometimes it seems as if the selling company wants it to go wrong. Because the longer they can pretend not to know that the customer wants the service stopped, the longer they can charge for it. Some companies are notorious for making it difficult to cancel automatically billed products and services. As in Kristen's case, sometimes their phones always seem busy.

She has already discovered that the credit card company will not be responsible for notifying companies that she wants a service/billing stopped. In fact, she can pretty much expect that they will process any bills that are legally presented to them.

But that doesn't mean that Kristen is doomed to pay for these services forever. The Fair Credit Billing Act provides some protection. Kristen needs to notify the billing companies in writing that she wants the service/billing to be stopped. She should send the letter via "certified mail, return receipt requested" so that she has proof that it was received. Check the statement from the company for a heading like "in case of error" or "send inquiries to."

If a statement is not available, Kristen can do a web search for the company. Once on their site, she should find a "contact us" page that will have their mailing address. Be sure to include sufficient information in the letter: account number, how much is being charged, how often and for what goods or services. State clearly that you want it stopped immediately.

At the same time, Kristen should also send a second letter to the credit card company. It, too, should be sent with return receipt. State that you have contacted the billing company in writing and ordered them to stop billing your credit card. Include the company name, the amount being charged and the product/service that has been cancelled. Kristen should keep her copy of both letters and the return receipts when they come back to her.

That should take care of the problem. But, sometimes things don't go according to plan. The next step would be to contact the Attorney General's office in her state. She can find a listing at . Kristen will want to write them a letter explaining what she has done. Include copies of the earlier letters to the billing and credit card companies.

The Federal Trade Commission (FTC) is the final recourse. For information on consumer issues call 1-877-FTC-HELP or go to www.ftc.gov and fill out the complaint form.

As to closing the credit card account, Kristen should be able to do that at any time. That, too, should be done via return receipt mail. And Kristen needs to recognize that even if she closes the account to new charges, she's still responsible for paying any balance on the account.

We were offered a one-year 2.99% interest rate on an existing Visa account that we didn't use very much. We wanted to use the card to make a very large purchase with the intent of paying it off within one year.

Luckily we checked the "fine print." The original purchase will be at 2.99%, but any subsequent purchases on that card will be charged interest at 15.99%. There's a huge red flag! The original "loan" must be paid off before any payments will be credited to the new purchases that are made. So what we pay every month goes toward the 2.99% charge and, for example, the airline tickets I later purchased with this card will continue to accrue 15.99% interest charges until I pay off the original purchase sometime next year.

I said we're lucky because we understand the rules and have put the card away until it's paid off. I shudder to think how many people don't catch this little quirk. -- SB, Virginia

SB is right. Many people are being tripped up by the fine print in credit card agreements. She's fortunate to have caught on before charging up a bunch of stuff at a pretty stiff interest rate.

Credit cards have come a long way. A generation ago, there was a "one size fits all" approach. Today, you can choose cards based on their fee structure, interest rates, cash advance provisions or even the rebate offered. But, with all those choices, comes the responsibility to know what the credit agreement says.

The agreement will specify what the card issuer can do with the account. The language isn't always easy to understand. If you have trouble figuring out what something means, call the card issuer and ask for an explanation. Don't use the card until your question is answered.

All that fine print is actually a blessing in disguise. It will tell you how the card issuer intends to take your money. All you have to do is to read and understand the credit agreement. There's no reason to get caught. Most of the traps can be avoided if you know where they are.

Be careful of zero or low rate offers. Low initial rates typically are only for a limited amount and a short time period. The agreement will explain which purchases or balance transfers are eligible for the low rate. It will also say what you'll be charged for other non-eligible purchases. That's the trap SB uncovered.

You might also find that cash advances and balance transfers carry a different, higher interest rate than other purchases.

You would expect that variable rate accounts would have changing interest rates. But, even so-called 'fixed' rates can be changed. They're only fixed for 15 days.

When you get the card in the mail, don't assume that you're approved "up to $5,000" as advertised and that your credit limit is $5,000. Depending on your credit score, you could be approved for something considerably lower.

Understand what happens when your account goes "over limit." Don't assume that they'll automatically refuse to accept a purchase that puts you over limit. Most will actually let you go over limit, but then penalize you with fees and higher interest rates!

Another trick is to send you a card that's different than the one for which you applied. You could be turned down for the card with the low-rate balance transfer but issued one without that special feature. If you use the card, you will be accepting the terms on the agreement that came with it, even if they're different from the one for which you first applied.

You'll find other little tricks in the fine print. For instance, it's common for the "grace period" to expire early in the morning. You can be pretty sure that the mail delivery will be later in the day. So your payment needs to be there a day early.

Look for something called "universal default." It means that if you're late on another payment, the interest rate on this account will be increased.

Finally, the lender will have a provision in the agreement that allows them to change the agreement. All they have to do is to notify you of the change in writing. That means that you need to read everything that comes from the issuer. Some have been known to send out amendments that look like junk mail. If it comes from your card issuer, you need to open and read it.

SB has learned that you can use credit card rules to your advantage, but if you don't know the rules, you're almost certain to lose the game.

How will my money be given out to me from my 401k when I retire? Will a portion be given monthly or will it be given in a lump sum? I would like to get a big wad as soon as I retire for a new home in a new location. -- Owen

Owen's not the only one asking this question. According to the Wharton School of Business, in the next 10 years, over 10 million people will reach age 65. So quite a few folks will be looking for an answer.

First here's a disclaimer. Before making decisions that could significantly affect your taxes, it's wise to see a qualified tax professional. This is a big decision. Don't risk making a big mistake.

The distribution options on your 401k are governed first by the tax laws and then by the plan's rules. Some plans don't offer every option that's available by law.

If Owen really wants the money, he can get it now, either through a loan or by taking a distribution. You can take money out of your 401k anytime you want. It's just a matter of whether you want to pay the penalty.

If you withdraw money before age 59 1/2, you'll pay a 10% early withdrawal penalty. There's an exception if you leave your company after age 55. Then, a lump sum distribution is not subject to the penalty. But, it will still be taxed.

On the other end of the calendar, you must begin withdrawing part of the account at age 70 1/2. The amount will be determined by life expectancy.

Next, let's look at what choices Owen will have when he retires. The decision will largely be his. The law allows for five different alternatives for a 401k account at retirement. The options include lump-sum distribution, continue the plan, roll the money into an IRA, take periodic distributions, or use the money to purchase an annuity. Owen's particular plan will allow for some or all of them.

The fastest way for Owen to get his "big wad" of money is to take a lump-sum distribution. He'll get the money quickly. But there are two disadvantages. First, he'll pay ordinary income taxes on the entire amount withdrawn. Second, the money will no longer be growing tax-free.

If Owen does take a lump-sum distribution, he'll be subject to 20% withholding. That means the IRS will take 20% of the money distributed now and apply to his tax bill next April. Owen can thank the "Unemployment Compensation Amendments Act of 1992" for that idea.

Owen could decide to leave the money in the account. It will continue to grow tax-free. That can make a big difference in how much is available to him during retirement. Many retirees choose to spend taxable accounts first saving IRA's and 401k's until they need the money or are forced by law to begin distributions.

Another possibility would be to roll the 401k into an IRA. That would give Owen the largest number of investment options. He could still withdraw the money when he wants or choose to let it grow tax-free.

Owen may also choose to take a regular, scheduled distribution from the 401k. Scheduled withdrawals are not subject to the 20% withholding. Most plans allow for a monthly or quarterly distribution. The amount can be adjusted annually if you choose. That can be handy if inflation causes your expenses to increase.

The final option, an annuity, takes the investment work out of the equation. An annuity can be purchased with part or all of the 401k money. It would pay Owen a regular income for the rest of his life.

Owen's goal is to buy a home. Depending on how much he has in his 401k, he has a couple of possibilities. He mentioned the first option. Taking all the money, paying the taxes due and paying cash for his new home.

But he might want to consider withdrawing just enough from his 401k for the down payment. The balance of the account could be set up on regularly scheduled distributions. He could control the investments and distributions. Or Owen could choose to buy an annuity and let them do the investing and checkwriting.

Those regular distributions would cover the mortgage payments. The advantage for Owen is that he won't have a spike in taxable income. Also he might be able to take a tax deduction for the mortgage interest at the same time that he is earning money without taxes within the retirement account.

Owen should speak with his accountant to find our which choice is best for him. Hope he enjoys his retirement and his new home!

Question: I was wondering about a program offered through my local electric company. They offer savings of $5-10 off your monthly bill for allowing them to "cycle" your energy resources. I am not at all familiar with this, and before I signed up, I thought I should learn something about this program. - Heather

Heather has discovered one of the more popular energy saving programs in the country. Not only do consumers like the savings, but also the program also reduces costs for the electric company. So it's a classic win/win situation.

How do the programs work? Actually they're pretty simple. Florida Power & Light (FPL) calls their program "On Call(r)" and claim to have over 700,000 participants. Their program focuses on A/C, central electric heat, the water heater and pool pumps.

FPL adds a small control box to the homeowner's appliance that can be run from a central location. The box allows them to shut off the power to that appliance for short periods of time during peak usage. They claim that the homeowner is unlikely to notice when it is being used since the time is relatively short.

FPL customers have two choices. One is for a 15-minute shutdown. The other is for a four-hour shutoff. The consumer selects how many of the four appliances that they want included in the program.

For instance, if you have your A/C on the 15-minute program, your bill is reduced $21 per year. The four-hour program will pay you $63 for your A/C. With FPL's program, you can save up to $137 per year if you allow them to control all four appliances in the four-hour program.

Why do the electric companies offer these programs? They're in a tough position. We expect them to supply power whenever we request it without fail. That includes the hottest day of the summer when everyone's air conditioner is running continually.

But the capacity that's needed for peak demand isn't needed most of the time. So, if the electric company can reduce peak demand, they won't need as much capacity. That could eliminate the need to build new power plants, which translates into avoiding a major expense for the utility company. FPL claims that their program has eliminated the need to build two additional generating plants.


Consumers generally like these demand response or load management programs. The electric company pays for the installation. Usually the inconvenience is minor, and the savings help reduce a bill that has had a tendency to increase.
In the future, we'll see even more of this type of demand management. It's difficult for utilities to get the approval and financing to build new power plants. So they have a big incentive to reduce peak demand.

Some utilities are beginning to offer variable pricing. The consumer pays more for electricity during peak usage times and pays less for off-peak hours. So far, most of these programs are aimed at large industrial users of electricity, but they're beginning to reach the consumer market.

Technology is allowing the utility companies to go beyond the old tools. The demand management boxes are currently controlled by a radio signal, but future technology will allow for computer control of major appliances. That will mean that consumers will be able to turn an appliance on or off using their cell phone or computer. And the number of appliances that can be controlled will continue to increase. New appliances may be designed with the controlling device built-in.

So not only is it a good idea for Heather to sign up for the "cycling" program, but she should also see what other energy-saving programs are available through her electric company. Some utilities will pay the cost of a duct inspection and will contribute to any repairs needed. Others offer rebates if you update old inefficient appliances or add insulation to your home. The savings could be significant.

Heather has found one of those situations where she can help her checkbook and the environment at the same time. Plus, she'll be reducing the amount of energy she consumes. Pretty much a good deal all around!

We have kitchen doors from the 70s or earlier. We would like to change the color but don't know whether we should stop there or go as far as changing cabinets. - John

John's got a lot of company. Kitchen & Bath Business Magazine forecasts that there will be 6 million kitchens remodeled this year at a total cost of $79 billion!

It isn't surprising. Kitchen remodeling projects generally recover nearly all of their costs when you sell your home. MSN House & Home released a report showing that projects costing up to $25,000 returned 90% or so when the home was sold.

So that's a good reason for redoing your kitchen. Another is that it's one of the most used rooms of your home. And, if you listen to the people who study such things, the more time your family spends in the kitchen the healthier and happier your family will be.

OK, so you're thinking about doing something. But, like John, you wonder how much to do. The best place to start is to figure out what you can afford. Kitchen projects can quickly get out of hand. Once started, it's easy to upgrade to a more expensive drawer pull or cabinet door. There's a lot of pressure to go just one step further. And then one more after that. But those decisions can be very expensive. Have a dollar limit in your mind based on what you can afford. Hold on to that boundary. Just about everyone, including your own ego, will want you go spend more.

And, expect some unanticipated expenses. It's prudent to only plan to spend 90% of the money you'll have available. Save the 10% for mid-project surprises.

Next you'll need to decide how extensive your remodel will be. It may be as simple as repainting wood cabinet doors and walls. Perhaps you'll want new countertops and faucets. Or it might be a matter of gutting the entire kitchen and starting from scratch.

Naturally, more extensive means more expensive. This is the stage to get some rough pricing for different aspects of the job. Bounce the costs against your budget. You should have enough information to decide how much you want to take on.

Some people will argue that it's ok to borrow for a kitchen remodel. After all, you're making your home more valuable. That's true. But you'll still end up repaying the loan when you sell. And that means less money in your pocket. If you do borrow, consider repaying the loan while you still live in your home.

If you're going to be making major changes, be sure to consider the three major functions of a kitchen: storage, preparation and clean-up. Think about how your family uses the current kitchen.

Make major decisions before you start construction. Remember making adjustments once work has started will be expensive.

New cabinets are generally the most-pricey part of a fully new kitchen. Choose them carefully. Their style and color will have a major impact on the room and your budget.

In fact, choose all your materials carefully. You'll find that quality varies considerably. The fact that there are a lot of choices means more work for you, but does provide a greater opportunity for savings.

Don't assume that the big home center store is the cheapest or best. Check with specialty kitchen and cabinet shops. Ask if they have any cabinets that they were unable to deliver. You may be able to benefit from another's mistake.

If the job is beyond do-it-yourselfing, ask around for a handyman or contractor. Unless the job is fairly simple (read inexpensive), you'll want to get three bids.

Check out contractors thoroughly. Ask for references and contact them. Ask the contractor about licenses, insurance and bonding. You don't want to make a mistake here. Under normal circumstances a full kitchen remodel will take about two months after planning and materials have been ordered. The wrong contractor could drag that out indefinitely.

Talk with the contractor before starting. Ask a lot of questions. The way they answer will tell you a lot about how they'll perform. For instance, some will encourage you to skip getting required permits. Better you should skip that contractor. Yes, the permits will cost you, but they'll also guarantee that the job is planned and done correctly. The building inspector can be your best insurance against shoddy work.

Finally, expect disruption. Eating all your meals out for two months can get expensive. So some families load up the freezer with meals that can be reheated in the microwave. It's easy to prepare extra portions of the meals that you're already making during the weeks before your kitchen is off limits.

Updating a kitchen can make a big difference in your home. Whether it's just painting cabinet doors or a full blown new kitchen, it takes time, consideration and money. Hopefully, whatever John decides will bring his family together and make many fine memories.

My family has been trying to work with a budget for the past several months, but the "envelope" system is just not practical with our primarily cashless lifestyle. How can I track our cashless expenditures for gas, groceries, personal items, etc. and still know how much is left in each category as the month goes on?
Lisa

Lisa's right. Some of the old budget tools don't work so well today. Fewer of our purchases are made with cash. So merely controlling cash isn't an effective budget tool.

Before we look specifically at Lisa's question, let's spend a moment to talk about how budgets can be used. A budget is a wonderful way of collecting information about your finances and presenting it in a way that's useful to you. A simple monthly budget can tell you at a glance where your money is going. When compared to previous months, it can tell you what's changing in your spending patterns. That's important. Just knowing that your electric bill is higher could help you identify an air conditioner that needs servicing before it breaks down completely. It's also a good way to find potential savings. If you need to reduce spending by $250 a month, don't look in a category where you only spend $300.

Lisa is attempting to use her budget for its second purpose. A budget can provide discipline and control over-spending.

There are variations, but in the basic envelope system, Lisa would cash her paycheck. She would have a number of envelopes for the different categories of spending, such as rent, food, transportation and so on. Cash from her paycheck would be divided into the various envelopes based on how much she felt she needed in that category.

For instance, if she got paid weekly and expected to spend $40 per week on groceries, $40 would go into the "grocery" envelope. When she went to the store, she'd take the "grocery" envelope with her and pay for her purchases with the money in the envelope. If she got to the checkout and had more than $40 worth of groceries in her cart, she could return some groceries or take some cash from another envelope. Of course, that meant that she'd have less to spend on that category until the next payday.

The envelope system worked well when we used cash for all of our purchases. You immediately knew if you could afford a purchase. Moving money from one envelope to another was a warning sign that you could be getting into trouble.

Unfortunately, very few of us use much cash anymore. We're much more likely to pull out a credit/debit card or write a check. And an envelope system doesn't handle credit cards very well.

One way to modify the envelope system is to add an additional envelope for your checking account. When you charge something, move cash to the "checking account" envelope. If you charge $20 worth of groceries, move $20 from the "grocery" to "checking account" envelope. Then when the credit card bill comes, you'll have the money available to pay the bill.

Or Lisa could use a "pretend envelope" system. She would set it up just as if she were going to use an envelope system. But she wouldn't actually put cash into the envelopes. Instead, on the front of the envelope, she'll list how much money is assigned to it. As she writes checks or makes charges, she'd subtract that money from the balance listed on the front of the envelope. When the running balance on the front of the envelope got to zero, she'd have to quit spending in that category or "move" money from another envelope.

Another way would be to use one or more sheets to keep a running balance for each category. She could have one sheet represent each envelope. Or she could have one sheet per month that contained the balances for all of the envelopes. The sheets, or perhaps a small spiral notebook, could be kept in her pocket or purse.

The danger in any virtual envelope plan is that you'll forget to make the entry and your balance will appear bigger than it is. One way to avoid that is to put any receipt into your pocket or purse. When you get home you can deduct the expense from the proper envelope and place the receipt inside.

There are also products that Lisa can buy that will help. One is available at budgetmap.com. They offer a specialized check register that allows you to keep track of different budget categories. Another is mvelopes.com. They feature an online approach.

Lisa is wise to recognize the limitations of any tool that she uses. But, she's also smart to look for a system to help her keep her finances in line.