Money 101, Financial Education. Lesson # 3 Basics of Banking And Saving

Top things to know

1. Money in a bank account is safe.
A bank is one of the safest places to stash your cash since your account is insured against loss by the federal government for up to $100,000 per depositor.
2. You pay for the convenience of a bank account.
Banks pay lower rates on interest-bearing accounts than brokerages and mutual fund companies that offer check-writing privileges. What's more, bank fees can be high - account costs can easily add up to $200 a year or more unless you keep a minimum required balance on deposit.
3. Inflation can eat what you earn from a bank.
Even at a low rate of inflation, the annual creep in the cost of goods and services usually outpaces what banks pay in interest-bearing accounts.
4. Not all interest rates are created equal.
Banks frequently use different methods to calculate interest. To compare how much money you'll earn from various accounts in a year, ask for each account's "annual percentage yield." Banks typically quote both interest rates and APYs, but only APYs are calculated the same way everywhere.
5. You can get better rates
Certificates of deposit (CDs) offer some of the best guaranteed rates on your money and are insured up to $100,000 each. The catch: you have to lock up your money for three months to five years or more. If interest rates fall before the CD expires, the bank is out of luck and must give you the rate it quoted. If rates climb, you're stuck with the lower rate. Also with rising interest rates, money market accounts can become an attractive option, too. They pay more than banking accounts and you don't have to lock up your money for a specific amount of time.
6. ATM fees can take a significant bite out of your budget.
The convenience of using automated teller machines is an increasingly pricey one. On average, the fee your bank charges you to use another institution's ATM is $1.25, according to a Bankrate.com survey in fall 2007. That's on top of the average $1.78 that the other institution will charge you to use its ATM.
7. Getting the best deal takes work.
You won't get a great deal on a car if you just walk into a dealer and plunk your money down. Likewise, you won't get a great banking deal unless you comparison-shop and ask about price breaks. For example, a bank might offer free checking if you are a shareholder or if you direct deposit your paycheck.
8. Use the Internet to shop for bank services.
You can use the Internet to compare fees, yields, and minimum deposit requirements nationwide. Sites like Bankrate.com allow you to search and compare the highest yields and the lowest costs on banking, savings, loans and deposit rates nationwide. You can also search by geographic location or use CNNMoney.com loan center.
9. Banking online can make bill-paying easier.
Electronic bill-paying can save you the monthly hassle of paying your bills. And if you couple online banking with a personal-finance management program, such as Quicken or Microsoft Money, you'll be able to link your banking with your budgeting and financial planning as well. But be careful. Some vendors only warn the consumer of price hikes in the fine print of a bill.
10. You can bank without a bank.
A number of financial institutions offer accounts that resemble bank services. The most common: Credit union accounts; mutual fund company money market funds; and brokerage cash-management accounts.

Pick the right account

Knowing your money habits will help you find the best and least costly account

Banks offer several different types of checking and savings accounts: Some pay interest, some don't. Some offer perks, some don't. Some are specifically for senior citizens or students, while others are geared to those with low incomes. They all share one thing in common, though. They each have restrictions, fees, and opportunities to waive fees if you meet certain requirements.
When shopping for a bank, consider:
How much money you plan to park at the bank
The higher your average balance, the more likely you are to get "free" checking with interest. Though minimum balance requirements vary widely from bank to bank, in a fall 2007 survey Bankrate.com found the average balance required for a no-fee, interest-bearing account was more than $3,300. If you settle for a non-interest bearing checking account, however, the average minimum balance is just $83, according to the same study.
How many checks you write a month
Some no-fee accounts limit the number of checks you may write and charge high fees if you exceed that limit. On the other hand, the consumer advocacy organization U.S. Public Interest Research Group suggests if you only write a few checks a month and probably won't meet the minimum balance required to avoid fees, you might benefit from a no-frills, flat-fee checking account.
How many related banking services you'd like
If you use ATMs frequently, make sure the bank has plenty conveniently located near you. If you use another bank's ATM, you might pay $3.00 or more for the privilege, once you combine the surcharge imposed by the other bank and the fee your bank charges for going to a competitor's machine.
How many different types of accounts you want to set up at the bank
The more accounts you have with your bank, the greater your chances of getting price breaks and perks on its services and products. So if you have a checking and savings account and are taking out a mortgage or signing up for the bank's credit card, be sure to ask if you're entitled to any discounts.
Using the Internet is one of the easiest ways to compare fees, yields and minimum deposit requirements nationwide. To comparison shop, use the search fields on CNNMoney.com's Banking page.

Take an interest in interest

Consider CDs and money market accounts for higher yields

Deciding to put your money in an interest-bearing account may seem like a no-brainer. But sometimes a no-interest checking account may be more cost-effective. Here's why:
Interest-bearing accounts don't bear much
Sometimes banks offer to waive fees if you maintain a higher balance in your account. As tempting as this may seem, make sure the expense of maintaining the account doesn't exceed the interest paid. There can be an opportunity cost to tying up all that cash in a low-yielding account.
Say you pay $4 a month (or $48 a year) in account and ATM fees. If you earn 2 percent interest, you need to keep at least $2,400 in your account just to break even. And you'll have a hard time earning any real return on your deposits, even if you don't pay fees. That's because the interest rates you earn on a checking or savings account often don't exceed the average annual inflation rate, which was just a hair over 3 percent from 1926 through 2006. In short, you end up losing purchasing power.
Consider CDs
There are, however, other ways to get better returns at a bank. Instead of parking the majority of your cash in a savings account, you could open a certificate of deposit (CD). If you've opened one at your bank, ask if your CD, checking and savings accounts can be "linked" - that way, you'll have an easier time meeting minimum balance requirements in your checking account. When you open a CD, you agree not to withdraw your money for a period of time ranging from three months to five years or more. The shorter the term of the CD, the lower the rate you'll get.
If interest rates fall, you're in luck because the bank must give you the rate it quoted when you bought the CD. If rates climb, however, you're stuck with the rate you agreed to even though it's lower than one you could get if you bought a new CD.
You can get money out of a CD prematurely, but you'll pay a penalty - typically three months' interest. If you have more than $100,000, you can put it into a so-called jumbo CD that pays even higher rates. However, any amount over $100,000 isn't insured, so the excess is only as secure as the bank itself.
When opening a CD, be sure you understand whether the rate is fixed or variable, and how often the interest compounds. A CD interest rate can yield different sums of money depending on whether a rate is compounded daily, weekly, monthly, quarterly, or yearly.
Banks also offer money market deposit accounts (MMDAs), which typically invest your money in short-term loans to government agencies and corporations. Typically, they require you to keep around $2,500 on deposit. Because the minimum is high, a money market account is often free, and you're likely to get free checks to write against your account's balance. However, there may be a minimum check-writing amount, and you may be limited to the number of checks you may write a month.
When shopping for an interest-bearing account, keep the following in mind:
Banks frequently review yields
Yields are updated regularly, often on a weekly basis, and may lower or raise the rates quickly. That means the rate that's offered when you open your account may be dramatically different a year later, or even a month later.
Banks can quote rates that compound daily, weekly, monthly, quarterly, or yearly.
Over a period of 12 months, interest that compounds yearly could yield less money than a lower interest rate that compounds daily. To compare how much money you'll earn from various accounts in a year, ask for each account's "annual percentage yield" in addition to its interest rate. Banks typically quote both interest rates and APYs, but only APYs are calculated the same way everywhere.
To see how quickly your money will grow in an interest-bearing account, try our CNNMoney.com savings calculator.

Beating fees

Checking can cost $200-plus a year, but you can pay less if you know how.

Few people would pay a bank $15 or $20 a month for an account that pays no interest if they knew how to avoid it, and if avoiding it didn't take too much work.
Here are several easy, cost-cutting tips:
Buy cheap checks
If you write a large number of checks, it may pay to shop around. Some banks charge $24 or more for a box of 200 checks. You can get that same box for less than $10 by ordering direct from the printer. There are a numerous services, including Checks in the Mail (800-733-4443) or Checks Unlimited (800-210-0468) for more information. The online services also offer a far wider range of designs on the checks than any bank.
Get overdraft protection
It's usually free to set up. The average bounced check fee ranges from $20 to $30. If ever you write a check that exceeds your account balance, overdraft protection automatically covers the extra money needed. But be sure your bank isn't hitting you with a daily fee in addition to the non-sufficient funds fee if you bounce a check. Also, make sure you get 30 days to repay the overdraft. A number of banks hide charges and restrictions for people who use their overdraft protection service.
Ask for discounts
Periodically check with your bank to see if there are better deals for your money. Over time, your financial situation changes and you may qualify for a higher-interest, lower-cost account.
If you have a debit card, ask for cash
Another way to dodge ATM surcharges is to ask for extra cash when you make a purchase with your bank's debit card. Just ask your grocer for an extra $50 in cash, and you'll pay no fees in most cases. (Most banks don't charge a fee, but make sure your bank is not in the minority, because you may be charged anywhere from 15 cents to $1.50 per debit transaction. If this is the case with your bank, be more cautious with the card's use - or get a new bank that doesn't charge for debits.)
Invest in the bank
Some small- and mid-size banks offer free checking and free checks to shareholders. Contact a few local banks and ask if they offer special deals to shareholders. If they do, invest in a single share and open an account. Use a discount broker to buy that share.
Limit bank visits and transactions
Some banks offer no-fee checking accounts if you agree to do all your banking at its ATMs. If you must visit a teller, make sure it's for a transaction that you couldn't perform at an ATM, otherwise you'll be charged a fee. Banks also may offer low-fee checking if you confine yourself to 10 or fewer transactions a month, including ATM withdrawals, checks, and debit card purchases.
Find out what 'free' means
Most banks will give you "free" checking if you maintain a balance of at least $500 to $2,500 in a low- or no-interest account. But say your bank requires a $2,500 minimum to avoid fees, and you need only $1,500 to cover your checks every month. The remaining $1,000 could be earning more interest for you in a money market account at a brokerage or mutual fund company. Of course, the difference may be less than what you'd pay in checking fees if you didn't keep the required minimum balance, but "free" checking it's not.
Link your accounts
One way around this hidden cost: Ask your bank to link your accounts. For example, if you have a high-yield CD in addition to a checking account at the bank, you can satisfy the minimum balance requirement if your bank treats the money in all your accounts as one combined balance.

Online banking

Best sites can reduce the time spent balancing a checkbook, transferring money and paying bills

Many U.S. households already perform banking transactions online and the penetration rate is rising.
Online banking can come in many forms. It can be nothing more than a recurring bill paid to a company by your traditional bank, to a high-yield account at an online bank that has no physical presence.
The best bank Web sites go beyond bill payment and balance updates to let you check your credit card accounts, look at both your banking and brokerage accounts, make trades, and get free stock quotes.
Banks with online services have gone to great lengths to increase the security of their transactions in recent years, adding new layers of encryption.
Still, 'phishing' scams thrive online. Phishing is when an email or site is designed to appear legitimate for the purpose of luring unsuspecting users into giving over their account details and passwords. That information is then used to steal the victim's money or identity.
If you think you'll do all your banking online and are in search of better rates, you might be considering an Internet bank. Internet banks can often provide higher yields on accounts and lower rates on loans than traditional banks due to the reduced cost of their operations. But in exchange you forfeit some of the conveniences of a traditional bank.
Often transactions occur more quickly online than in person, but there are some cases when you just need a human teller.
Internet banks don't usually have their own ATMs, so you will pay surcharges every time you use another institution's, although you may be offered some reimbursement for these fees by your bank. Also, be aware of the occasional Internet bank whose accounts are not insured by the FDIC.

Alternatives to traditional banks

You can bank without a bank. Here's how.

Checking and savings accounts are not the exclusive domain of banks. They are also offered by some non-bank businesses. Here are three of the most common:
Credit unions
Credit unions operate much like banks, and deposits are federally insured up to $100,000 by the National Credit Union Share Insurance Fund. The key difference is this: credit unions are nonprofit, member-owned cooperatives whose members share something in common, such as a labor union, college alumni association, employer, or community. Members' immediate family may also be allowed to join.
Since credit unions return profits to their members, interest rates for savings and checking accounts at credit unions tend to be higher than at commercial banks, while fees and minimums tend to be lower. But a credit union may offer fewer services than a bank and they may have more restricted access to ATMs.
To learn whether you are eligible to join a credit union, or to locate a credit union near you, visit the Credit Union National Association or call 800-356-9655.
Money market mutual funds
Mutual fund companies offer money market accounts that tend to have higher yields than those on banks' money market deposit accounts (MMDAs). The mutual fund company accounts, however, are not insured against loss by the FDIC, whereas MMDAs are. Nevertheless, mutual fund companies make it a practice to kick in extra dollars whenever necessary to make sure that they maintain a constant price of $1 per share, so in practice your chance of losing money is slim.
Mutual fund money market accounts require a minimum opening deposit - typically $500 to $5,000 - and may require that you maintain a minimum balance. Many also let you write checks on the account, though there may be a minimum check-writing amount (typically $100 to $500) and/or a limit to the number of checks you can write per month or per year.
Cash management accounts
A cash management account works like a combination bank/brokerage account, consolidating your investments with your day-to-day cash flow.
Cash-management accounts (CMAs) are offered by brokerages such as Merrill Lynch for affluent customers who had discretionary income to invest but also wanted a liquid, bank-like account that earned higher interest than a traditional bank account.
In a CMA, your cash earns money market rates, and you get checking and credit card privileges, an ATM debit card, and often a line of credit or a margin account. If you overdraw your account, the interest you're charged on the loan is likely to be lower than that on a bank overdraft. In many instances, too, the interest may be characterized as margin interest, which can be tax-deductible.
The fee for a CMA typically ranges from $50 to $180 a year, though it may be waived if you have $50,000 to $100,000 or more in your account. In addition, you may pay fees if you make trades through your account or consult with an investment adviser at your brokerage or who is affiliated with a subsidiary of your bank. Cash up to $100,000 in a brokerage CMA is protected by the Securities Investor Protection Corp., while cash up to $100,000 in a deposit account is FDIC insured at a bank CMA.

To Get Rich, Seek Out Rich Financial Advice

by Robert Kiyosaki

I've been on television recently discussing the U.S. financial crisis. These shows often feature a panel of so-called financial experts who rarely agree with each other. The reason their advice is different is simply because each expert speaks to a different segment of the population.

Giving Credit
For example, Suze Orman, Dave Ramsey, and Larry Winget speak to people who are deep in credit card debt. Their advice is excellent, direct, practical, and to the point. I should know -- in the late 1970s, I was one of the debt-ridden people they're speaking to. I was deeply in debt because my business was suffering and I was using credit cards to live on. Instead of paying off my credit card, I'd get a new credit card and use that one to pay off the old credit card. I, too, once used a home equity loan to invest in my business -- and lost it all.

At my lowest point, I was nearly $700,000 in debt. One evening, I attempted to check into a motel in upstate New York and my credit card was declined. I slept in the car that night. Many people might say that this was a horrible experience, but that isn't true -- it was a wake-up call. It was clearly time to look in the mirror and face who I really was. I realized that if I wasn't going to be tough on me, the world would take on the job.

Today, older and wiser, I have tremendous respect for the power of debt and the value of credit. Credit is another word for trustworthiness. I'm currently millions of dollars in debt, but it's good debt invested in income-producing real estate. While millions of homeowners are threatened with foreclosure, my investment real estate is doing very well. In fact, I'm doing even better because more people are renting than buying.

The Strata of Financial Advice
If you're deeply in debt like I was and want to get rich someday, I suggest you start by following the advice of Orman, Ramsey, and Winget. For a certain portion of the population, their advice is very rich indeed.

But there are other types of financial advice, some of it not nearly as beneficial. The lowest kind assures people that the government will take care of them. This is what the people who are counting on Social Security and Medicare have been led to believe. The problem is that the U.S. government is the biggest debtor in the world, and those depending on it to take care of them will only become poorer.

Another type of bad financial advice tells us to get a safe job, save money, live below our means, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. On those financial TV shows, I get into the most head-butting with the so-called financial experts who subscribe to this philosophy. That's because, according to the Census Bureau, in 1999 the average U.S. income was $49,244. By 2006, the average income declined to $48,201. This means that U.S. workers haven't had a pay raise for seven years. So much for the advice about getting a safe job -- it's the opposite of rich advice.

Diversify at Your Peril
Moreover, in January 2008 the Federal Reserve Board dropped the interest rate twice over a period of just eight days, by a record 1.25 percent. If my crystal ball is accurate, I expect another .5 percent drop sometime later this year. Savers are actually losers, then, because interest rates are low and inflation is high. So urging people to save money isn't rich advice, either.

Finally, the S&P stood at 1,352.99 in March 2008, which is below its mark of 1,362.80 in April of 1999. So much for the advice of investing for the long term in a well-diversified portfolio of mutual funds -- that's also not rich advice.

Warren Buffett has said that diversification is for people who don't know what they're doing. And my rich dad once told me, "Diversifying is like going to a horse race and betting on every horse. The only way you win is if the darkest of dark horses wins." So my concern is that people who follow this second type of financial advice may actually wind up poor in the long term.

Get Rich, Stay Rich
So there's different financial advice for different people, and the price of poor advice is that millions will be poor if they follow advice that isn't aimed at them.

To become rich, I recommend investing in your financial education. There's a difference between that and financial advice. A solid financial education allows you to know the difference between good advice and bad advice, rich advisers and poor advisers.

If you want to become rich -- and remain that way -- it's important to know what financial advice is best for you.

When Pessimism Prevails, It's Time to Get Rich

by Robert Kiyosaki

If you're serious about getting rich, now is the time. We've entered a period of mass-produced pessimism, when bad news is everywhere, and the best time to invest is when optimists become pessimists.

The Weird Turn Pro
Journalist Hunter S. Thompson used to say, "When the going gets weird, the weird turn pro." That's true in investing, too: At the height of every market boom, the weird turn into professional investors. In 2000, millions of people became professional day traders or investors in dotcom companies. Mutual funds had a record net inflow of $309 billion that year, too.

In an earlier column, I stated that it was time to sell all nonperforming real estate. My market indicator? A checkout girl at the local supermarket, who handed me her real estate agent card. She was quitting her job to become a real estate professional.

As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become a bull and save them. But as the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market. That's what's happening now.

Pessimism vs. Realism
In 1987, the United States experienced one of the biggest stock market crashes in history. The savings and loan industry was wiped out. Real estate crashed and a federal bailout entity known as the Resolution Trust Corporation, or the RTC, was formed. The RTC took from the financially foolish and gave to the financially smart.

Right on schedule 20 years later, Dow Industrials and Transports struck their last highs together in July 2007. Since then, nothing but bad news has emerged. In August 2007 a new word surfaced in the world's vocabulary: subprime. That October, I appeared on a number of television shows and was asked when the market would turn and head back up. My reply was, "This is a bad one. The worst is yet to come."

Many of the optimistic TV hosts got angry with me, asking me why I was so pessimistic. I told them, "The difference between an optimist and a pessimist is that a pessimist is a realist. I'm just being realistic."

As we all know, things only got worse in early 2008, with the demise of Bear Stearns and the Federal Reserve stepping in to save investment bankers. In February, many of those optimistic TV (and print) reporters became pessimists -- and when journalists become pessimists, the public follows. By March, mutual funds had a net outflow of $45 billion as investors fled the market.

Surviving the Bad Times
Back in 1987, as savings and loans closed and investors' stock and real estate portfolios were wiped out, my wife, Kim, and I were living in Portland, Ore. Many people were depressed and hiding from the truth. The following year, I said to Kim, "Now is the time for you to begin investing."

In 1989, she purchased a two-bedroom, one-bathroom house for $45,000, putting $5,000 down and earning $25 a month in positive cash flow. Today, she owns over 1,400 units and -- because more people are renting than buying -- she earns hundreds of thousands a year in positive cash flow.

The period from 1987 to 1995 was a rough one, even for the rich. In his book "The Art of the Comeback," my friend Donald Trump writes about being a billion dollars down at the time. Rather than give up, he kept on fighting to survive. He and I often talk about how that period was great for character development.

Two-Year Warning
I believe we're through the worst of the current bust. I know there will be more aftershocks, and the news will continue to be pessimistic for at least two more years, possibly until the summer of 2010.

But the upside to this is that it gives us at least two years to do our market research and find the next big stock or real estate bargain. Before buying, I strongly suggest you study, read books, and take courses on your asset of choice. If your choice is stocks, take a course on stocks or options. If it's real estate, take a course on real estate. Now is the time to learn; not only will you know more than the average person and be in a good position when the market turns, but you'll also meet people with a similar mindset.

You have about two years to get into position. Opportunities this big don't come along often, so this is your time to get rich.

Climbing Bulls, Flying Bears
Am I optimistic for the long-term? Absolutely not. I still believe we're due for the mother of all market crashes, and that the U.S. economy is running on borrowed time -- and I do mean borrowed. I think most baby boomers are in serious financial trouble, and that oil will climb above $200 a barrel. Inflation will also increase, causing more pain for the poor and middle class.
The Fed is flooding the market with nearly a trillion dollars of liquidity, which is why I believe gold under $1,200 an ounce and silver under $30 an ounce are bargains. Gold and silver should peak and decline before 2020, completing two 20-year cycles. My exit is to sell silver around 2015. I plan to hold onto gold, income-producing real estate, oil wells, and stocks.

Most of us know the bull climbs slowly up the stairs, but the bear jumps out the window. I believe the bull is still climbing the stairs, and the bear hasn't jumped yet. But rest assured that it will.

As Capitalism Crumbles, U.S. Taxpayers Pick Up the Pieces

by Robert Kiyosaki

As we all know, the world changed drastically on Sept. 11, 2001, when the twin towers of the World Trade Center fell.

This year, on the eve of Sept. 11, the twin towers of Fannie Mae and Freddie Mac crumbled. Then, on Sept. 15, Lehman Brothers and Merrill Lynch disappeared. Actually, that was a triple-tower collapse if you count AIG.

In a few years, the biggest pair of towers will collapse: Social Security and Medicare. Even today, they're looking shaky. How many ground zeros can we as people, a nation, and a world withstand before we admit something is very wrong with our global financial systems? What will it take to wake us up?

Government Can't Fix It
Personally, I believe the biggest it's a problem that so many Americans are looking to this year's presidential candidates, Barack Obama and John McCain, to save our financial system. How did we become so financially weak that we surrender our economic independence to politicians? Where does it say in the Constitution that the government should solve our financial problems?
And why have so many people throughout the world come to expect financial life-support from their political leaders? It seems most people will vote for anyone who promises a chicken in every pot and a guaranteed mortgage payment.

We're in the midst of a problem neither candidate can solve: A lack of comprehensive financial education in our school systems. What else explains the economic blunders committed by our political and financial leaders? Or why so many consumers are in debt up to their eyeballs? Or why millions of people expect a quick government fix of some kind?

Under Water
A few months ago, a friend of mine from Hawaii asked me if I wanted to buy his new powerboat with twin motors. Apparently, in late 2007, he purchased it brand new for approximately $85,000. His plan was to refinance his house when it appreciated in value and use the difference to pay for the boat.

Failing to obtain new financing, he called to ask me if I would buy the boat from him -- just take over the payments and it was mine. I passed, and the bank eventually repossessed his boat. Later, his wife called to tell me he's now having problems making his mortgage payments. Apparently, my friend planned to pay for his house the same way he planned on paying for the boat, by refinancing his debt.

I mention this story because it illustrates the problem Obama or McCain face: Limited financial education and diminished financial common sense. Apparently, my and the nation's business leaders all went to same school of finance.

A Cynical Aside
If you want to know why the towers of American capitalism are crumbling, I recommend reading "The Creature from Jekyll Island" by G. Edward Griffin. It's not an easy book to find, but once you start reading it's to put down. In fact, in many ways it's a murder mystery about the financial "murder" of the middle class.

A very important lesson in the book is how political leaders use financial spin to deceive the public. The very, very rich use the system to legally steal from the rest of us by appealing to our sense of patriotism. When our leaders say, "We're bailing out Fannie Mae and Freddie Mac because we want to protect the American people," they really mean "We're saving our rich friends."

All the bankers and politicians have to do is wave the red, white, and blue, play a few bars of "Yankee Doodle," and the masses get teary-eyed and pledge greater allegiance to legalized robbery. Yes, it's true that ignorance is bliss -- but ignorance is also expensive, and it cost us our freedom.

Freedom at Peril
A bailout can be different things. First, printing more money is a kind of bailout that leads to higher inflation. Rather than protecting people, it makes life for the poor and middle class more expensive. The other kind of bailout is protection for our rich and incompetent friends. If you or I fail at business, we fail. If we cheat and fail, we go to jail. But if you're rich and politically connected, your incompetence may be protected by a government bailout.

As a former Marine and a Vietnam War veteran, it saddens me to see some of the freedoms I thought I went to war to protect being stolen from us by bankers and politicians. Unfortunately, few Americans know the difference between the words "nationalize" and "socialize." Socialize means we turn more of our personal powers over to Big Brother, not free enterprise. It means we as a people grow weaker and need a higher power -- the same power that got us into this mess -- to protect us.

In short, when the towers of Fannie, Freddie, Merrill, Lehman, and AIG came crashing down, more came down than just money. What we're losing is the very freedom this country was founded on, and what most of the world yearns for.

How the Financial Crisis Was Built Into the System

By Robert T. Kiyosaki

How did we get into the current financial mess? Great question.
Turmoil in the Making
In 1910, seven men held a secret meeting on Jekyll Island off the coast of Georgia. It's estimated that those seven men represented one-sixth of the world's wealth. Six were Americans representing J.P. Morgan, John D. Rockefeller, and the U.S. government. One was a European representing the Rothschilds and Warburgs.

In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Interestingly, the U.S. Federal Reserve Bank isn't federal, there are no reserves, and it's not a bank. Those seven men, some American and some European, created this new entity, commonly referred to as the Fed, to take control of the banking system and the money supply of the United States.

In 1944, a meeting in Bretton Woods, N.H., led to the creation of the International Monetary Fund and the World Bank. While the stated purposes for the two new organizations initially sounded admirable, the IMF and the World Bank were created to do to the world what the Federal Reserve Bank does to the United States.

In 1971, President Richard Nixon signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. With that, the first phase of the takeover of the world banking system and money supply was complete.

In 2008, the world is in economic turmoil. The rich are getting richer, but most people are becoming poorer. Much of this turmoil is directly related to those meetings that took place decades ago. In other words, much of this turmoil is by design.

Power and Domination
Some people say these events are part of a grand conspiracy, and that might well be. Some people say they represent the struggle between capitalists, communists and socialists, and that might be, too.

I personally don't participate in the debate over a possible global conspiracy; it's a waste of time. To me, the wider struggle is for power and domination. And while this struggle has done a lot of good — and a lot of bad — I just want to know how to avoid becoming its victim. I see no reason to be a mouse trying to stop a herd of elephants from fighting.

Currently, many people are suffering due to high oil price, the slowdown in the economy, loss of jobs, declines in home values, increased bankruptcies and businesses closings, savings being wiped out, the plummeting stock market, and rising inflation. These realities are all direct results of this financial power struggle, and millions of people are its victims today.

An Extreme Example
I was in South Africa in July of this year. During my television and radio interviews there, I was often asked my opinion on the world economy. Speaking bluntly, I said that South Africans had a better opportunity of comprehending the global turmoil because they're neighbors to Zimbabwe, a country run by Robert Mugabe.

In my interviews, I said, "What Mugabe has done to Zimbabwe, the Federal Reserve Bank and the IMF are doing to the world." Obviously, my statements disturbed many of the journalists. I did my best to comfort them and assure them I was not an anarchist. I explained, as best I could, that Zimbabwe was an extreme example of an out of control power struggle.

After they were assured I was only using Zimbabwe to illustrate my point, I said, "If you want to understand the world economy, take a refugee from Zimbabwe to lunch." I advised them to ask the refugee these questions:
1. How fast did the economy turn?
2. When did you know that you were in financial trouble?
3. When did you finally decide to leave Zimbabwe?
4. If you could do things differently, what would you have done?

Three Approaches to a Crumbling Economy
I spoke to three young couples from Zimbabwe while I was in South Africa. Two couples were recent refugees now living in South Africa, and one couple still lives in Zimbabwe. All three couples had interesting stories to tell.

One couple said that they would have quit their jobs earlier. Instead, they hung on, hoping the economy would change. Then, virtually overnight, the value of the Zimbabwean dollar dropped and inflation went through the roof. Even though they received pay raises, the couple couldn't survive and soon depleted their savings. They left Zimbabwe by car with almost nothing. If they could've done something differently, they told me, they would have started a business in Zimbabwe and began exporting products to South Africa, so that they would have had South African currency and a bank account there before they fled.

The second couple that fled the country said they saved money and paid off their house and other debts even as the Zimbabwean dollar fell in value. Looking back, they say they would've saved nothing and gotten deeply in debt in Zimbabwe, allowing them to pay off their debt with the cheaper dollars. Instead, they fled after they lost their jobs, leaving behind their house and owning $200,000 in nearly worthless Zimbabwean dollars.

The third couple still lives in Zimbabwe. When they saw the writing on the wall, they set up a business in South Africa and, with the profits, began acquiring tangible assets in Zimbabwe. Often, they'll buy an asset in Zimbabwe and pay the seller in South African currency. They believe that once Mugabe is gone and order is restored, they'll be in a strong financial position.

Many Problems, Few Solutions
There are three major problems with the events of 1913, 1944, and 1971. The first is that the Fed, the World Bank, and the IMF are allowed to create money out of nothing. This is the primary cause of global inflation. Global inflation devalues our work and our savings by raising the prices of necessities.

For example, when gas prices soared, many people said that the price of oil was going up. In reality, the main cause of the high price of oil is the decreasing value of the dollar. The Fed, the World Bank, and the IMF, like Zimbabwe, are mass-producing funny money, thereby increasing prices and devaluing our quality of life.

The second problem is that our economic crises are getting bigger. In the 1970s, the Fed faced and solved million-dollar crises. In the 1980s, it was billion-dollar crises. Today, we have trillion-dollar crises. Unfortunately, these bigger crises mean more funny money entering the system.

Apocalypse Soon
The third problem is that in 1913, the Fed only protected the large commercial banks such as Bank of America. After 1944, the Fed, the World Bank, and the IMF began bailing out Third World nations such as Tanzania and Mexico. Then, in 2008, the Fed began bailing out investment banks such as Bear Sterns, and its role in the Fannie Mae and Freddie Mac debacle is well known. By 2020, the biggest of bailout of all will probably occur: Social Security and Medicare, which will cost at least a $100 trillion.

Even if we find more oil and produce more food, prices will continue to rise because the value of the dollar will continue to decline. The dollar has lost over 90 percent of its value since the Fed was created. The U.S. dollar will continue to decline because of those seven men on Jekyll Island in 1910.

Granted, the funny-money system has done a lot of good — it has improved the world and made a lot of people rich. But it's also done a lot of bad. I believe somewhere between today and 2020, the system will break. We're on the eve of financial destruction, and that's why it's in gold I trust. I'd rather be a victor than a victim.

Money 101, Financial Education. Lesson # 2 Making Budget

A. Top things to know

1. Budgets are a necessary evil.
They're the only practical way to get a grip on your spending -- and to make sure your money is being used the way you want it to be used.

2. Creating a budget generally requires three steps.
- Identify how you're spending money now
- Evaluate your current spending and set goals that take into account your long-term financial objectives
- Track your spending to make sure it stays within those guidelines.

3. Use software to save grief.
If you use a personal-finance program such as Quicken or Microsoft Money, the built-in budget-making tools can create your budget for you.

4. Don't drive yourself nuts.
One drawback of monitoring your spending by computer is that it encourages overzealous attention to detail. Once you determine which categories of spending can and should be cut (or expanded), concentrate on those categories and worry less about other aspects of your spending.

5. Watch out for cash leakage.
If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it's time to keep better records. In general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.

6. Spending beyond your limits is dangerous.
But if you do, you've got plenty of company. Government figures show that many households with total income of $50,000 or less are spending more than they bring in. This doesn't make you an automatic candidate for bankruptcy -- but it's definitely a sign you need to make some serious spending cuts.

7. Beware of luxuries dressed up as necessities.
If your income doesn't cover your costs, then some of your spending is probably for luxuries -- even if you've been considering them to be filling a real need.

8. Tithe yourself.
Aim to spend no more than 90 percent of your income. That way, you'll have the other 10 percent left to save for your big-picture items.

9. Don't count on windfalls.
When projecting the amount of money you can live on, don't include dollars that you can't be sure you'll receive, such as year-end bonuses, tax refunds, or investment gains.

10. Beware of spending creep.
As your annual income climbs from raises, promotions, and smart investing, don't start spending for luxuries until you're sure that you're staying ahead of inflation. It's better to use those income increases as an excuse to save more.

B. The dubious joy of budgets

Most people avoid creating a budget and fewer still stick to one. But it doesn't have to be painful.

If you're the type of person who always has plenty of cash, knows exactly where every penny goes, and never has trouble paying bills, skip this chapter. You're either too rich or too smart to need it.

For the rest of us, unfortunately, making - and sticking to - a budget is the essential tool for ensuring that our money gets used the way we need it to. Even if you're in the happy situation of having plenty of income, the homework involved in drawing up a budget can be instructive, since you may find that you are spending more than you wish on items like DVD's, electronic gadgetry, or restaurant meals.

Drawing up a budget is usually pure drudgery enlivened only by the reality of staring your foolish spending habits in the face. Why do you have a luxury sound system if neither you nor your spouse listens to it? In fact, one of the chief impediments to budgeting is that most people would rather not know how they really use their money.

It's bad enough to learn this kind of information on your own. It's even worse when a spouse or significant other finds out, since it usually confirms his or her worst fears - and provides new ammunition for future "discussions."

Take heart. Any spending mistakes you're making are probably common and not impossible to kick. Moreover, the bulk of budgeting's pains are at the beginning.

After you have a budget in place - and you've fine-tuned it with a couple of months of actual spending - tracking your expenditures becomes almost automatic.

If your boss at work were to ask you for an analysis of the department's spending, you'd figure it out quickly enough. Budgeting your household should be approached in the same businesslike fashion. A variety of electronic tools can make the process easier.

C. Listing expenses

To build a realistic budget, start by figuring out where your money goes now.

There are three steps to creating a budget:
1) Identify how your money is currently being spent.
2) Evaluate that spending to see if it meets the financial priorities you specified in Lesson 1.
3) Track your ongoing spending to make sure it stays within those guidelines (or to understand how your budget needs to be revised).

If you happen to use Quicken, Microsoft Money, or other such software, you're in luck. These programs generally make it easy to draw up a budget.

In Quicken, for example, every time you make a deposit, write a check, pay a credit card bill, or dispatch an electronic payment you are asked to assign it to a particular category, such as "salary," "clothing," "groceries," "child care," or "health insurance."

You can also create subcategories, dividing "auto" expenses into "fuel," "insurance," and "service." The program comes with a set of categories that handle most of the basics. You can edit the list to create categories that make better sense for your particular household.

And if you're away from home, you can track expenses at the Quicken Web site and then download the transactions later.

The drawback, of course, is that entering and categorizing all of your income and outflow is a tedious chore.

You can reduce the tedium by judiciously selecting categories. Let's say you are only worried about tracking your spending for recreation and leisure pursuits. You could create categories that cover those types of expenses, and let everything else accumulate under "miscellaneous revenue" or "miscellaneous expense."

The problem with that approach is that you forgo the opportunity to spot problems in other spending areas that you may not even be aware of.

A better solution is to track expenses using electronic banking. That way, you can download your payments and deposits directly from the bank, rather than having to enter them by hand.

The downloaded banking transactions generally show up without any categorization - meaning you'll have to add the categories by hand. But if you use a credit card that is issued by a bank that permits electronic access, then the downloaded charges from your card sometimes do come with categories attached (they aren't always right, so check them).

Either way, once you've got your spending tracked by category, drawing up a report requires only a few clicks of the mouse. Even better, such programs often have an automatic budget-creation feature that scans your spending in the past in order to estimate how much you'll spend going forward.

If your finances aren't wired, you can still get a good handle on your spending the old-fashioned way. Start by getting all your records together from the past 12 months, including pay stubs, loan proceeds, withdrawal slips, canceled checks, and itemized credit-card statements. Then go through them and compile totals for your income and expenses in a set of categories that makes sense for you.

At the end of this exercise, you may still have a sizable lump of spending that's undocumented - typically, the money you withdraw in cash and then spend on day-to-day needs. If this portion of your budget seems to be getting out of hand, keep a journal for the next four weeks in which you record every nickel you spend. You can use those results to extrapolate how your cash is being spent throughout the year.

Now that you've got a good picture of where your money is going, you can proceed to evaluate which parts of that spending should be raised or lowered. You might start with our Ideal Budget calculator, which compares your spending with recommended levels.

D. Setting Goal

Analyze your spending habits to see where you need to make changes

Once you have a budget, it's time to go through your spending and figure out where you need to cut back.

This is especially urgent, obviously, if you spend more than you make - a scary position, for sure, but not uncommon. In fact, Labor Department numbers show that many families making $50,000 or less are spending at least a few percentage points more money each year than they actually bring in.

That doesn't mean that they, or you, are headed for bankruptcy. But it does show that Americans are in the habit of borrowing to cover both short-term expenses, like those on credit cards, and long-term ones, such as buying cars and homes.

Let's just say that if your spending exceeds your income, then your top priority in constructing a budget should be to slash your spending, pronto.

If your household runs in the black, you may still want to reallocate some of your spending. The calculator helps identify trouble spots by highlighting categories where your annual expenses are sharply higher or lower than average for households with similar demographics.

In some cases, a divergence will be perfectly reasonable. The average family spends only a few percent of its income on education, for example. But if you have a child in college or private school, or are taking some courses yourself, your education spending will be a lot higher -- and more power to you.

On the other hand, if the calculator shows that you're spending twice as much as the average family on meals away from home, and there's no obvious reason why that should be so, you may want to consider eating in more often.

When projecting your income, don't include money that you can't be sure to receive, such as highly variable year-end bonuses, tax refunds, or gains on investments. Instead, wait until the extra cash arrives, then save or invest it to produce more revenue for the future.

Your goal should be to reduce your spending to about 90 percent of your income, with the aim of plowing the rest of that money into the financial objectives you deem most important.

Once you've set your budget goals, you need to develop the habit of tracking your expenses on an ongoing basis - something that's most easily accomplished using personal-finance software. The aim here is to make sure the spending stays within the limits you've set.

But there's a second aim: Very likely you will discover that some of the goals you set were unrealistic. If so, ease them slightly. No point in giving yourself an unreachable hurdle, but neither should it be too easy.

Often it takes two or three revisions before you achieve a budget that you can really stick to. If juggling the numbers leaves you wishing you could free up some extra cash, push on to the next section of this lesson for suggestions.

E. Cutting Costs

How to reduce spending to free up money for use elsewhere

The most common spending problems are caused by a house that's too large, a car that's too luxurious, or a credit-card lifestyle that's too lavish for your income. Those who see a virtue in moderation may have had budgeting in mind.

Whatever your situation, here are some common ways that people can reduce monthly bills.

Eliminate trivial but needless costs
Look first for small savings - not because they'll end your budget problems, but simply because they're easy to find and take advantage of. For example, swear off that mid-afternoon Danish or expensive premium latte. Shop for clothes and household furnishings only during sales. Higher gasoline prices make it a good idea to "bundle" one's various shopping trips. Keep your house warmer in summer and cooler in winter. Take on chores that you usually pay someone else to perform, such as mowing the lawn or shoveling snow.
Seemingly inconsequential savings do, in fact, add up.

Reduce larger expenses
These recommendations are decidedly more painful. If you smoke, for instance, take steps to quit. Don't buy season tickets to anything. Trade in your luxury car or sport utility vehicle for something a lot cheaper to buy, fuel, and maintain (we did say this was painful).
On the assumption that those kinds of changes may be too wrenching, here are some other specific areas where many people can find savings:

Refinance your mortgage
If new mortgages are costing at least two percentage points less than the rate you're paying, refinancing may save you significant dollars; check our refinancing calculator to be sure.

Cut your taxes
Usually this means taking better advantage of itemized deductions, and it's a lot easier to do if you are either self-employed or have some income from work you do outside of a regular job. That opens up a range of new deductions -- from expenses for work-related items to a home office -- that are much harder to claim if you're an ordinary working stiff.

On the investment side, you can save some money by selling, and then writing off, investments that have lost money. You can use such losses to offset any gains you may have in a given year. If your losses outweigh your gains, you can deduct as much as $3,000 of investment losses from your ordinary income each year. Those with higher incomes may also be able to save some money by shifting money out of taxable bonds into tax-free municipal bonds.

Appeal your home assessment
If you're a homeowner, you may even be able to cut your real estate taxes by challenging the value that the local assessor puts on your property. You have to have good evidence, of course. You should call the assessor's office first to make sure you understand the formula for determining the house's value (the assessment listed on tax bills is often only a fraction of the real value that determines your tax).

If recent home sales in your neighborhood lead you to believe that your house is worth less than its assessment and a qualified real estate agent writes an appraisal in support of your claim, then you can file a grievance with the assessor's office and possibly get your bill reduced. The cost: $200 to $300 for the written appraisal. If an attorney handles the appeal for you, he or she will typically charge 50 percent of the first year's tax savings.

The above suggestions won't work for everyone, and you may have considered them already. But since you alone are privy to the numbers in your budget, you alone know how radically you need to cut. If our suggestions don't appeal, find your own alternatives.

One last word of caution
Over time, your income should rise as your career progresses and you manage to save money for investing. But, also over time, inflation will raise the cost of living. A mere 3 percent annual rise in prices will double the cost of everything within 24 years. At that time, you'll need twice as much money as you do today to live as well as you do now. So don't start spending your rising income on luxuries you've been denying yourself until you're sure that you're staying ahead of inflation.

Money 101, Financial Education. Lesson # 1 Setting Priorities

A. Top Things to Know

1. Narrow your objectives.
You probably won't be able to achieve every financial goal you've ever dreamed of. So identify your goals clearly and why they matter to you, and decide which are most important. By concentrating your efforts, you have a better chance of achieving what matters most.

2. Focus first on the goals that matter.
To accomplish primary goals, you will often need to put desirable but less important ones on the back burner.

3. Be prepared for conflicts.
Even worthy goals often conflict with one another. When faced with such a conflict, you should ask yourself questions like: Will one of the conflicting goals benefit more people than the other? Which goal will cause the greater harm if it is deferred?

4. Put time on your side.
The most important ally you have in reaching your goals is time. Money stashed in interest-earning savings accounts or invested in stocks and bonds grows and compounds. The more time you have, the more chance you have of success. Your age is a big factor -- younger people (who have more time to build their nest egg) can invest differently than older ones. Generally, younger people can take greater risks than older people, given their longer investment horizon.

5. Choose carefully.
In drawing up your list of goals, you should look for things that will help you feel financially secure, happy or fulfilled. Some of the items that wind up on such lists include building an emergency fund, getting out of debt, and paying kids' tuitions. Once you have your list together, you need to rank the items in order of importance (if you have trouble doing so, use the CNNMoney.com Prioritizer for help).

6. Include family members.
If you have a spouse or significant other, make sure that person is part of the goal-setting process. Children, too, should have some say in goals that affect them.

7. Start now.
The longer you wait to identify and begin working toward your goals, the more difficulty you'll have reaching them. And the longer you wait, the longer you postpone the advantage of compounding your money.

8. Sweat the big stuff.
Once you have prioritized your list of goals, keep your spending on course. Whenever you make a large payment for anything ask yourself: "Is this taking me nearer to my primary goals -- or leading me further away from them?" If a big expense doesn't get you closer to your goals, try to defer or reduce it. If taking a grand cruise steals monies from your kids' college fund, maybe you should settle for a weekend getaway.

9. Don't sweat the small stuff.
Although this lesson encourages you to focus on big-ticket, long-range plans, most of life is lived in the here-and-now and most of what you spend will continue to be for daily expenses - including many that are simply for fun. That's okay - so long as your long-range needs are taken into consideration.

10. Be prepared for change.
Your needs and desires will change as you age, so you should probably reexamine your priorities at least every five years.

B. Identifying Goals
You probably won't achieve every financial goal. But you can go farther than you think.

What are your top three financial objectives?

Most people, when asked that question, answer with general goals, such as achieving financial security.

The fact is, many of us haven't thought much about which financial objectives really matter most. Instead, we muddle through our financial lives, spending to meet the day-to-day expenses that dominate our attention.

That approach risks leaving your most important objectives unfulfilled.

That's what this lesson is all about: helping you identify the financial goals that matter most to you and making sure they happen.

That's not as easy as it sounds, since financial goals continually collide with one another. Paying for a child's braces may rob money that would otherwise go into his college fund, for example. And saving effectively for your kids' college can wipe out any hope of putting aside adequate money for your own retirement.

That's why to get what you want most you must 1) decide which goals will take priority and 2) work toward the lesser goals only after the really important ones are well provided for.

Fortunately, you have at least one ally in meeting your long-range goals: time. That's an advantage because of the power of compounding - the fact that even a small amount of money can earn interest, and that each year that interest gets applied to a growing sum of money.
Suppose, for example, you put aside only the cost of a single candy bar - about 65 cents - each day. Invested in a tax-deferred account paying 5 percent a year compounded monthly, that string of savings would grow to $3,073 in just 10 years and to $16,470 in 30 years.

For other examples of the way that money can grow over time, try CNNMoney.com's Savings Calculator.

To put the power of compounding on your side, you have to start early. Suppose there are two siblings who both invest in Individual Retirement Accounts earning 8 percent a year.
The sister starts at age 20, and for the next 10 years she stuffs $3,000 a year into her IRA. At age 30, though, she stops and never adds another penny.

Her brother waits until age 30 to get started, but then dutifully salts away $3,000 a year for the rest of his life. Which sibling do you think will be better off?

In this case, the early bird will always be ahead. The sister reaches age 65 with over $642,000, while her brother will have a little under $518,000 - about 20 percent less.

Of course, it's far better, to start early AND keep it up. If both siblings started saving $3,000 a year in an IRA at 20, and kept it up until retirement, each would end up with nearly $1.2 million.
The point is that to put time on your side, you need to decide early which of the many possible financial goals are really worth pursuing -- and start working toward them.

To get started, make a list of all the things that you'd need to feel secure, happy or fulfilled. These can range from the weighty (getting out of debt) to the luxurious (a Lamborghini). You don't need to prioritize them yet.

But you should try to put down all of the money-related things that will really get your motor started. And if you have a spouse or significant other, do this exercise together! Here are some common goals you may want to consider:
- Accumulating enough savings to handle an emergency situation
- Buying a house
- Getting out of debt -- and staying out
- Ensuring that your parents are comfortable and well taken care of in their old age
- Paying for your children's college education
- Amassing enough wealth to retire comfortably

Once you have your list in hand, push on to the next section where you'll determine which of these goals are most important to you.

C. Resolving Conflicts
Retirement or the kids' tuition? Here are guidelines for making some tough choices.

After you've clarified your priorities, what do you do with your new insight?

Each time you spend more than pocket change on a purchase that doesn't help you attain one of your chief goals, ask yourself whether the outlay is really necessary.

For example, let's say your highest priority is achieving financial independence. And let's say you've saved $4,000 to take the family on a vacation. If you take the trip, you'll be an additional $4,000 from kissing the time clock good-bye.

(Further, actually, since $4,000 in savings would grow to nearly $20,000 invested for 20 years at a tax-deferred 8 percent - as CNNMoney.com's Savings Calculator would show.)

Of course, if your family has been expecting the trip for months, you'd be unfair to tell them that it's off. Instead, from the beginning you should have earmarked the cash for your investment portfolio and either planned a low-ticket vacation or worked a deal with family members to take the trip later.

Okay, you say, but that choice isn't terribly difficult. You're more concerned about tougher decisions -- choosing, for instance, among such priorities as health care, education, and savings.
All are important. How do you resolve conflicts among them? No single approach will work for everyone -- but here are some guidelines that help.

Is someone's health involved? If you believe that the ultimate purpose of money is to make life better, then you might decide that saving cash at the cost of your well being -- or of a relative's -- is a poor choice. For most people, someone's illness is the rainy day for which they've been saving. Most would agree there is no single financial goal more important than dealing with - and paying for -catastrophic illness.

How many people will be affected by my choice? Will one of your goals make your own life better while another will give equivalent help to two of your children? You could decide that when more people derive roughly equal benefit from a goal, its priority rises.

If two goals offer similar rewards, which causes the least harm? This method of selection is typically a last resort, but it can be useful when no other analysis helps you decide among options.

Most people, for example, have to decide between the kids' tuition and their own retirement savings. Well, if you know that you won't be able to live adequately on the money you expect from your pension and Social Security, then retirement savings should be paramount. As for the child in college, he can take out a tuition loan.

You can't put every nickel toward top priorities, of course -- nor should you. Instead, you need to set aside part of your income for current pleasures, so long as you have enough cash left over to put toward your long-range goals.

Also, remember that as the years go by, your priorities will change. You'll need to reexamine and rank your needs regularly in order to use your money most effectively.

When you can save a dollar, you need to decide why you're putting it away. In addition, if you acquire the habit of quickly rating the urgency of every big purchase against the primary financial goals you've set for yourself, you'll eventually find that your spending is under control.

D. Making Plans
Now that you've identified the right goals, here are some game plans that will achieve them.

Here are examples of plans you might draw up to meet three of the most common objectives: getting out of debt, paying for college, or financing your retirement:

Getting out of debt
If you struggle to meet credit-card payments every month, then face it: You probably need to shed or consolidate some of that debt.

For example, suppose you owe $3,000 in outstanding credit-card debt at a 16 percent interest rate and a $10,000 car loan at 9 percent. To pay off both these obligations in a year, you'd need to pony up $1,147 a month.

But if you are a home owner with equity in your property, you could borrow $13,000 on a home-equity loan at the same 9 percent and retire those other bills. Then your cost to pay off the home-equity loan in a year would be slightly lower - $1,137 a month - because you're no longer paying high credit-card rates of interest.

Moreover, because you can deduct the interest on most home-equity loans, you'd reduce your taxable income by $642 that year - a $212 saving for someone in the 33 percent federal tax bracket. In effect, the government would help pay off your expenses.

Of course, this kind of strategy works only if you also stop charging new items on your credit cards.

Paying for college
Tuition, room and board at a private college can cost upward of $30,000 a year, and that bill is projected to reach about $80,000 by the time this year's crop of newborns enter college.
Your children may qualify for financial aid either in the form of a scholarship or a loan, and many students work their way through college.

But if you want to spare your kids the burden of graduating in debt, there are a couple of good savings vehicles available to you. Most states now offer so-called 529 Plans - contributions go into in pre-selected mutual funds, grow tax-free each year, and withdrawals to pay tuition are also tax free.

You could also open a Coverdell Education Savings Account (previously called an Education IRA) that lets you put $2,000 a year, after taxes, into a bank account or other investments; earnings on that type of account are totally tax-free, provided the money is used for tuition when it's withdrawn.

It's amazing how far these plans will get you. For example, if you started putting $2,000 a year today into a Coverdell account earning 8 percent, after 18 years you'd have more than $80,000.

Financing a retirement
A popular rule of thumb says that retirees need only 70 percent of their pre-retirement income to maintain their lifestyle, since they no longer have to pay for such costs as commuting or for work clothes.

However, other costs go up in retirement, such as utility bills (if you're home all day), the price of hobbies and travel - and, of course, the cost of health care. In fact, some retirees find they need as much income in retirement as they spent while working.

Unfortunately, traditional pensions pay only a fraction of your salary, and Social Security won't make up the difference. In addition, the younger you are, the less certain you can be about how much money you'll receive at age 65 from any of the retirement plans you have today.

Why? Because Social Security benefits may be revised, and employers are free at any time to change their pension-plan formulas. (They can't do so retroactively - every retirement dollar that you've already qualified for is yours to keep.) Of course, Congress can change the laws governing retirement savings plans at any time.

Moreover, the bear market of the past few years has underscored the point that stocks can be extremely volatile in the short term, even if they remain among the most consistent performers over long periods. Thus, the stock portion of any retirement portfolio needs to take into account the possibility of sharp downturns.

To make your retirement finances secure, you need to contribute to as many different plans as possible. If you have a 401(k), 403(b), or 457 program at work, put in as much money as you can.

Most employers will match your contributions, giving you money for retirement that you won't get any other way. If you have no retirement plan at work, contribute to an IRA. Note that contributions to all of these plans are tax-deferred, so that you, Uncle Sam, and your boss together could be adding to your retirement stash.

Then to insure against possible new retirement-plan rules mandated by Congress, you need to have your own taxable savings plan as well -- ideally invested in stocks, bonds, or mutual funds, which can return more than bank accounts. Best of all, as your investing account grows, it can help you finance other goals.