As featured in The Wall Street Journal, Money Magazine, and more!

2012

Missing from discussions about the so-called fiscal cliff is the option to continue the payroll tax cut. To boost the economy, President Obama and Congress introduced a stimulus bill in 2010 that reduced the payroll tax, money collected at the time of each paycheck from employers and employees (workers with W2 forms).

The employee’s share of the tax has normally been 6.2 percent with a built-in ceiling. The ceiling ensures that those earning $110,100 or less pay the full amount of the tax, but those earning more pay no more tax than those earning the maximum, lowering their effective payroll tax rate. Earn $1 million as a W2 employee, and you pay only 0.07% towards the payroll tax.

The payroll tax funds Social Security. Watching the government can be interesting. As we observed while the country was beginning to dip into the recession, political rhetoric moves quickly from finding ways of boosting Social Security to adopting a tax cut which could accelerate the supposed demise of this government program. Once the idea of a stimulus today became more important than preparing for tomorrow’s realities, the conversation focused on reducing the payroll tax.

The stimulus bill reduced the employee’s portion of the payroll tax two percentage points, from 6.2 percent to 4.2 percent, and that change has been extended several times. The payroll tax cut is set to expire tomorrow, January 1, 2013, and neither the President nor the Congress has discussed extended this particular tax cut. Your first paycheck in 2013 will reflect the higher payroll tax rate, reducing your net take-home pay.

Regardless of whether income tax rates remain low or are returned to their levels before President Bush oversaw his round of income tax cuts, net pay will be lower in 2013 than it was in 2012. In general, with all other things being equal (which they never are), someone earning $50,000 will see $83 less each month.

There’s still time. Congress could decide at a later date to reinstate the payroll tax cut. It could take effect retroactively, which mean the government will take less from each paycheck going forward to reach the desired rate by the end of the year. Or the government could reduce the rate in the middle of 2013 without any concern for what has already been paid by employees. Either way, an extension of the payroll tax cut seems unlikely to me because it hasn’t been discussed in fiscal cliff negotiations thus far.

Employees should start planning today for the reduction in take-home pay. In this article, I’ll assume that net income will be reduced by $100 per month. That’s going to be a high estimate for most people affected by the return to the higher payroll tax rate, but it is a nice round number. If you plan for the worst, you’ll be pleasantly surprised when you end up with a more favorable cash flow.

Reduce your spending by $100 per month

If you already have a well-defined monthly spending budget, find an area where you can shave $100. Resist the urge to save less. Don’t sacrifice your savings and don’t reduce your contributions to retirement due to the payroll tax cut. Find the difference in spending rather than saving.

  • It may be time to drop Showtime or HBO, particularly if you signed up during a promotional period and are now paying full price to your cable company. Dropping some services might trigger a new deal that could save you money.
  • Re-evaluate your mobile phone plan, particularly if you’ve expanded your service to include data for tablets over the past few years.
  • How much money are you spending on clothing, particularly if you have children? If you’ve felt the economy improve over the last few years — and not everyone has — you may be spending more than you did in 2008 for expenses like these.
  • Note that gas prices have been declining. If you drive often, such as having a daily commute to work, you’ve probably seen your expenses drop already.

If you don’t have a budget and you don’t track your spending, you might not be aware of your opportunities for spending more efficiently. Start tracking where your money goes so you can better identify the possibilities for reducing your spending by $100.

Increase your non-payroll income by $250 per month

It sounds like employees are burdened by payroll tax, but self-employed individuals deal with it more. When you’re self-employed, you need to pay the employee’s share of the tax as well as the employer’s share. Self-employment income can come in different forms. You may be working for yourself in your own business, or you may be working as a consultant. If you’re issued a 1099-MISC tax form, you’re considered self-employed. If you own your own business, regardless of whether you issue yourself a W2, 1099 or no tax form, the full amount of the payroll tax ultimately comes out of your pocket.

Because of the additional tax burden on the self-employed, aim to increase your income by $250.

  • How would you feel about earning money from one of your hobbies? If you enjoy photography and have proven yourself to be more skilled than the thousands of kids who use their mobile phones as cameras, use automated effects filters, and share their “art” on Facebook, consider doing a family portrait session each month.
  • In the frenetic race to create ever-increasing content online, writers are in demand. Consider offering your skills as a freelance writer for one of a vast number of websites willing to hire good copywriters.
  • If you are not legally restricted, take what you do for a living and offer it to others for a fee. If you’re an in-house accountant, offer to handle your friends’ tax returns. That’s seasonal work, but it could provide enough self-employment income to cover the payroll tax increase for the entire year. If you do office work, find an opportunity to freelance data entry.

I’ve seen that those who begin to focus more on earning income by taking the initiative to make themselves available for freelance or consultant work based on their skills and passions start to see more opportunities. This is more than just earning an additional $250 each month. This could open doors to shaping an entirely new life in terms of income opportunities.

The elimination of the payroll tax cut is just one of those realities, a large-scale economic shift that everyone needs to deal with on an individual basis. We’d like to think we can keep all taxes low forever, but the society in which we would like to live requires funding. Low tax rates won’t remain, and in this case, the payroll tax cut was implemented as temporary from the start, like the Bush-era income tax cuts.

It’s up to the individual to prepare for the changes. When that means less coming home in the form of pay, the changes have to come from spending or income in order to leave saving unaffected. How will you prepare for the elimination of the payroll tax cut?

Photo: Flickr

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With hundreds of credit cards available today, it’s difficult to find the best credit card for your particular situation. Whether you need a travel rewards card or a great cash-back card, the best offers are getting more difficult to find. Today’s credit card offers tremendous rewards as credit card issuers make a concerted effort to get your business back.

Credit cards, and in particular the type of credit card use that’s associated with maximizing rewards, are not the best option for people who do not pay the bill in full and on time each month. Be sure to read the note at the bottom of this article before changing your credit card situation.

These are the best credit cards available today, updated for 2016. I’ve included a brief explanation as to why each credit card made the list. I update this page frequently, so check back often.

Cash Back Credit Cards

Discover it Card-Cashback Match

Discover It® CardThe Discover it Card-Cashback Match credit card offers up to 5% cash back on categories that change every three months. In addition, Discover will double your cash back the first year, making this card one of the most rewarding available today.

In addition to the cash back rewards, Discover provides its members with free access to their FICO score and the new New Freeze It® on/off switch. With Freeze It, you can effectively turn off your card should you have misplaced it or suspect that it was stolen.

  • Cash Back: 5% on categories that change each quarter, up to $1,500 in purchases. All other purchases earn 1% cash back.
  • Sign up bonus: Discover will double your cash back rewards at the end of your first year.
  • Annual Fee: None.
  • Introductory APR: 0% on purchases and balance transfers for 12 months.
  • Other Benefits: Discover gives you free access to your FICO score.

Find out how to apply for the card here.

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Blue Cash Preferred® Card from American Express

The Blue Cash Preferred® Card from American Express is best known for its 6% cash back at U.S. supermarkets. What many don’t know is that it also pays 3% on gas and department stores. Add to that a $150 cash bonus when you spend $1,000 on the card in the first three months, and this card tops are list. Here are the cash back details:

  • 6% cash back at U.S. supermarkets, on up to $6,000 per year in purchases
  • 3% cash back at U.S. gas stations
  • 3% cash back at select U.S. department stores
  • 1% cash back on other purchases

Find out how to apply for this card here.

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Fidelity Rewards Visa Signature Card

The Fidelity Rewards Visa Signature Card is one of our favorites for its generous rewards and simplicity. It pays 2% cash back on every purchase.  It’s as simple as that. On top of that, there is no annual fee.

  • Cash Back: 2% cash back on all purchases. Cash back rewards are deposited into your Fidelity account.
  • Sign up bonus: None.
  • Annual Fee: None.
  • Introductory APR: None.
  • Other Benefits: None.

Find out how to apply for this card here.

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Capital One® Quicksilver® Cash Rewards Credit Card

As a final cash back card to make the list, the Capital One® Quicksilver® Cash Rewards Credit Card pays 1.5% on all purchases. There are no rotating categories or signups required. Capital One also pays a $100 cash bonus if you spend $500 on purchases in the first three months. There is no annual fee.

  • Cash Back: 1.5% cash back on all purchases.
  • Sign up bonus: Get a $100 bonus when you spend $500 on the card in the first three months.
  • Annual Fee: None.
  • Introductory APR: 0% on purchases and balance transfers for 9 months.
  • Other Benefits: Every 10th Uber ride is free up to $15 when you pay with your Quicksilver card through March 31, 2017

Find out how to apply for this card here.

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Travel Rewards Credit Cards

Discover it® Miles

Discover it Miles

The Discover it Miles card takes the famous Discover cash back features and turns it into a travel card. You’ll earn 1.5 miles for every dollar spent. On top of that, Discover will double your miles the first year. And there is no annual fee.

  • Travel Rewards: 1.5x Miles on every dollar spent on purchases
  • Sign up Bonus: Discover automatically matches all Miles earned at the end of your first year. You could turn 50,000 miles into 100,000
  • Annual Fee: None

Find out how to apply for this card here.

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Capital One® Venture® Rewards Credit Card

Capital One Venture Rewards Credit CardThe Capital One Venture card is effectively a 2% card. You’ll earn 2 miles on every purchase. When you use those miles to pay for travel, they are worth 1 cent each. Thus, $50,000 in purchases will earn 100,000 miles. These miles are worth $1,000 when used to pay for travel expenses. On top of that, you can earn a 40,000 mile bonus when you spend $3,000 on the card in the first three months.

  • Travel Rewards: 2 miles for revery $1 in purchases
  • Sign up Bonus: Enjoy a one-time bonus of 40,000 miles once you spend $3,000 on purchases within 3 months of approval, equal to $400 in travel
  • Annual Fee: $0 intro annual fee for the first year; $59 after that

Find out how you can apply for this card here.

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Starwood Preferred Guest® Credit Card from American Express

Starwood Preferred Guest American ExpressArguably the best hotel rewards card, the Starwood Amex offers25,000 bonus Starpoints® after you use your new Card to make $3,000 in purchases within the first 3 months. Starpoints can not only be used for hotel stays at Starwood properties, but they can also be transferred to many airlines and other travel partners.

  • Travel Rewards: Get up to 5 Starpoints® for each dollar of eligible purchases at participating SPG® hotels – that’s 2 Starpoints for which you may be eligible as a Card Member in addition to the 2 or 3 Starpoints for which you may be eligible as an SPG member. Get 1 Starpoint for all other purchases.
  • Sign up Bonus: Get 25,000 bonus Starpoints® after you use your new Card to make $3,000 in purchases within the first 3 months.
  • Annual Fee: $0 introductory annual fee for the first year, then $95.

Find out how you can apply for this card here.

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Chase Sapphire Preferred Card

Chase offers its own version of an excellent travel credit card called Sapphire Preferred. The big selling point is the 50,000 bonus points after spending $4,000 in the first three months. Beyond these bonus points, the card also pays 2 points for every dollar spent  travel and restaurants.

  • Travel Rewards: 2x points for every dollar spent on travel and dinning at restaurants; 1 point on all other purchases.
  • Sign up Bonus: 50,000 bonus points when you spend $4,000 on purchases in the first 3 months of account opening.
  • Annual Fee: $0 introductory annual fee for the first year, then $95.

Chase is encouraging its cardholders to book travel through their own online agency. When you do, your points are worth 20% more. For example, a $500 flight normally requires 50,000 points. Booking through Chase Ultimate Rewards, however, reduces that requirement to 40,000 points. If you’d rather book directly with your airline, you can transfer your points to leading frequent travel programs on a one-to-one basis. New cardholders can earn 50,000 bonus points when you spend $4,000 on purchases by the end of the first three months from account opening. That’s enough for $625 in travel rewards when you redeem through Chase Ultimate Rewards, or you can transfer your points to a participating frequent flyer program. Another benefit for travelers is no foreign transaction fee.

Compare travel rewards cards and find out how to apply here.


Balance Transfers Cards

Discover it

Discover it 18 MonthDiscover offers a version of its Discover it card that comes with a 0% balance transfer feature for 18 months. The card also comes with all of the same cash back rewards of the standard Discover it card, charges no annual fee, and still offers free access to your FICO score.

  • 0% on Balance Transfers: 18 months
  • Balance Transfer Fee: 3% of amount transferred
  • 0% on Purchases: 6 months
  • Annual Fee: None.

Find out how you can apply for this card here.

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Chase Slate

The Chase Slate doesn’t offer the longest 0% offer or any rewards. But it does have one feature that stands out–no balance transfer fee for transfers initiated in the first 60 days of account opening.

  • 0% on Balance Transfers: 15 months
  • Balance Transfer Fee: None for transfers initiated in the first 60 days
  • 0% on Purchases: 21 months
  • Annual Fee: None.

Citi Simplicity Card

This card does one thing–offers the longest 0% balance transfer available today. At 21 months, it’s hard to beat. Note, however, that the card offers no rewards of any kind.

  • 0% on Balance Transfers: 21 months
  • Balance Transfer Fee: 3% of the amount transferred
  • 0% on Purchases: 15 months
  • Annual Fee: None.

Compare these and other 0% balance transfer cards and learn how to apply online here.

It’s always important to read the issuer’s terms, but the 0% introductory APR that applies to purchases and balance transfers would be a good option for buying a larger item. If you’ve saved up to purchase some furniture, for example, you can use an introductory purchase APR of 0% to use the credit card issuer’s money to improve your cash flow — however, this leverage technique is risky. If you end up using the credit card for an emergency, you can make it more difficult to repay your balance before the introductory period is complete. On the other hand, it could leave you with more cash in your bank account.

Note: If you use credit cards as a tool for convenience, pay your bills in full every month, and are otherwise financially self-aware, consider some of these credit cards. If you use credit cards to pay for things you can’t afford, paying interest every month, then start thinking about paying off debt.

The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we can not guarantee the accuracy of the information in this article. Please verify all terms and conditions of any credit card prior to applying. This content is not provided by any company mentioned in this article. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any such company. This site may be compensated through American Express Affiliate Program.

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Naked With Cash

This article was written by in Naked With Cash. 9 comments.

It’s time to get naked!

Naked With Cash is a series and feature at Consumerism Commentary where selected readers anonymously and publicly track their finances. Each month, the seven participants share their financial reports, exposing the results of their recent, everyday, financial choices. With feedback from a few financial experts, participants in “teams” and other Consumerism Commentary readers will gain from the insight.

Looking for the 2014 series? Read the introduction to the second season of Naked With Cash.

Most importantly, the participants will be exposed to the process of being completely open about their financial situation. Candid discussions about finances and the analysis of the decisions that result in changes to net worth help bring financial independence and other goals closer.

For more information, read this introduction. Continue reading this article to meet the experts and the participants.

Meet the experts

Naked With Cash features four experts, offering commentary and advice on each of the participants’ financial situations.

Neal Frankle

Neal Frankle is an independent Certified Financial Planner™ based in Southern California. He founded Wealth Resources Group in 1994 to provide comprehensive fee-based financial planning exclusively.

His firm specializes in helping clients make smart decisions about their money so they can stop worrying and start enjoying the things that matter most to them.

I know what it’s like to have financial trouble. Both my parents passed away while I was still in high school. I took a tiny insurance settlement to a financial advisor. Rather than help me grow it safely to help me get through college, he churned and burned the account. It was horrible. But this experience made a deep impact on me and helped me really understand what it’s like to be in a tough situation with limited resources and almost no financial understanding. This motivated me to help others by developing a top-rate financial planning firm offering clients a comprehensive range of investment and financial planning services that are customized to clients’ needs.

Neal writes regularly on his blog, Wealth Pilgrim.

Connect with Neal: @nealfrankle on Twitter · LinkedIn · Facebook

Sara Stanich

Sara Stanich is a Certified Financial Planner (CFP®) practitioner and Certified Divorce Financial Analyst (CDFA™) based in New York City. She provides financial planning and investment advice to her clients who include dual-income couples, entrepreneurs and couples going through divorce.

Mom to an energetic preschooler, Sara Stanich has first-hand knowledge of the costs and challenges involved in raising a family. She finds that the responsibilities of parenthood motivate many growing families to deal with issues previously put on the back-burner such as investing, insurance, college savings and estate planning.

Sara Stanich lives in NYC with her husband and son. When not working, she enjoys gardening, being outdoors and spending time with her family.

Sara blogs about financial planning topics at Cultivating Wealth. You can also find out more about working with Sara at Stanich Group.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC.

Connect with Sara: @sarastanich on Twitter · LinkedIn

Roger Wohlner

Roger Wohlner, CFP®, is a fee-only financial adviser based in Arlington Heights, Illinois. He provides comprehensive financial advice to individual clients and investment consulting services to retirement plans, foundations, and endowments. Roger’s blog is The Chicago Financial Planner where he provides information about financial planning, investments, and retirement plans.

Roger has been quoted extensively in the financial press including The Wall Street Journal, Investment News, and Reuters. Roger is also a regular contributor to the US News Smarter Investor Blog.

Connect with Roger: @rwohlner on Twitter · LinkedIn

Jacob Wade

Jacob is the author of iHeartBudgets, a personal finance blog dedicated to putting the “Fun” back in “Fundamentals of Finance.” He is a husband, father and avid budget nerd who actually spent his recent birthday budgeting for “FY13” at his home. If you ask anyone who has known him for more than 13 seconds, you would know we truly does “Heart” budgets.

Connect with Jacob: @iHeartBudgets on Twitter · Facebook

Thanks also to Michael Kitces, CFP®.

Meet the participants

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A few years ago, credit scores were taboo. The idea that a
credit score could be used for more than just determining qualification for a loan was at best unfair and at worst discriminatory. Employers in some circumstances can use credit scores or credit reports to determine whether to offer jobs to applicants. If you sign a credit authorization form, which some employers might imply or outright say is necessary to be considered, the company can use your credit against you.

Auto insurance companies can use credit scores to set your rate because they’ve found that there is a correlation between higher scores and safe driving. If you intend on renting an apartment, the landlord can choose to perform a background check, and credit history could be included. If there are red flags on your report, such as a history of being unable to pay rent, you could be denied the lease.

It’s clear that good credit is becoming more important in life. Credit scores and the quality of your credit histories determines not only the price of major borrowing needs, but whether you can live where you want, whether you can get the job you want, and the cost of required insurance. It’s no longer a mystery that companies evaluate the quality of an individual using their credit, and as a result, any one person might benefit from adding the credit score to their own list of filters for dealing with other people.

It’s getting harder to live a life without a credit score. It’s a noble goal to exist in modern society without taking on any debt and to try to stay off the credit grid. The need for credit permeates life now more than ever. It’s still possible to buy a house with cash, rent an apartment without a credit history, get a job with an employer who doesn’t perform a background check that includes a credit inquiry, or buy insurance without a credit score. But if you haven’t built up a credit history, it’s just another obstacle standing in your way, and can end up costing you more money.

People with poor credit histories, low scores, or no scores might be starting to find it more difficult to find long-lasting love. According to the New York Times, more people are adding credit scores to their social filters, as mentioned above. Credit quality has, in some cases, become the subject of first dates. It’s no surprise that a couple benefits in the long run when both members of the pair have solid approaches towards their finances. Money problems often come to light late in relationships, sometimes when couples are already married and beginning to combine their finances for the first time.

Asking about a credit score on the first date and using the credit score as a proxy for the quality of an attitude towards money and responsibility is one way to prevent reaching the point where the relationship has progressed too far. On one hand, discovering late that your partner does not share your responsible approach to money creates a challenge, that if overcome, could strengthen the relationship.

Then again, disagreements like these often represent a larger issue or disagreement about responsibility that might not easily be overcome. Using the credit score as part of early criteria would help prevent wasted time and effort on a relationship that might never work out. What’s my credit score.

With a responsible approach to handling personal finances, one should be able to expect that a partner has the same. There is room for different philosophies. Someone who identifies himself as a “saver” could have a positive, healthy, long-term relationship with someone who identifies herself as a “spender.” In some situations, one person’s strengths may complement another person weaknesses. If the underlying goals and philosophies are too disparate, it might cause tension and eventually dissolution.

The credit score is just one clue. A good credit score says someone has not made any grave financial missteps, while a bad credit score, by itself, is a little more ambiguous. It could mean someone has a record of bad financial habits. It could mean they’ve missed paying rent. It could mean they have more credit card debt than they can handle. But it could also mean they trusted a family member when co-signing a loan. There’s even the possibility that a family member used and destroyed their credit without their knowledge, and they were unable to work with the credit reporting agencies to change the report.

Your FICO score, or any one of the various numbers published and sold by credit reporting agencies, doesn’t contain any detail. That’s why background checks often contain more than just a credit score. Along those same lines, if you plan on discussing your financial situation with a potential future spouse, you might want to go deeper than the superficial number. It doesn’t make sense to waste time with someone with whom you won’t be compatible, but a credit score alone isn’t going to provide enough information to judge your financial compatibility.

While it might be more common to ask about your date’s financial situation at your first dinner, and I certainly understand why some would not want to waste any time beyond a first date in the search for a match in love, I tend to think it’s best to leave the discussion about finances until a later date, unless the situation calls for it specifically. Personally, I wouldn’t take a first date to a real estate investing sales pitch, but if there’s any time it’s appropriate to ask someone you just met about their credit score, that might be it.

Your credit score is shorthand, and people may judge you incorrectly based on your score, whether it’s low or it’s high. There’s often a story to tell, and while it might be an entertaining story for a first date, you might want to find other areas in which you’re incompatible before releasing a love interest from your life due to his score of 650 compared to your 790.

If you’re the one who feels the need to improve your credit score to make yourself more appealing to the pool of available partners with increasing demands, here are some tips for increasing and improving your credit score. You can check your credit score here.

New York Times

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Naked With Cash: Calvin

by Luke Landes
Calvin

In January, Consumerism Commentary will begin the Naked With Cash event and series. Several Consumerism Commentary readers will share their financial reports and analyses at the beginning of each month, with insight from financial planners and other experts. To introduce each of the participants to readers, I asked them to share where they’ve been, where […]

3 comments Read the full article →

Naked With Cash: SteveDH

by Luke Landes
SteveDH

In January, Consumerism Commentary will begin the Naked With Cash event and series. Several Consumerism Commentary readers will share their financial reports and analyses at the beginning of each month, with insight from financial planners and other experts. To introduce each of the participants to readers, I asked them to share where they’ve been, where […]

3 comments Read the full article →

Naked With Cash: LastDollar

by Luke Landes
LastDollar

In January, Consumerism Commentary will begin the Naked With Cash event and series. Several Consumerism Commentary readers will share their financial reports and analyses at the beginning of each month, with insight from financial planners and other experts. To introduce each of the participants to readers, I asked them to share where they’ve been, where […]

7 comments Read the full article →

Naked With Cash: JW

by Luke Landes
JW

In January, Consumerism Commentary will begin the Naked With Cash event and series. Several Consumerism Commentary readers will share their financial reports and analyses at the beginning of each month, with insight from financial planners and other experts. To introduce each of the participants to readers, I asked them to share where they’ve been, where […]

15 comments Read the full article →

Naked With Cash: Kathleen

by Luke Landes
Kathleen

In January, Consumerism Commentary will begin the Naked With Cash event and series. Several Consumerism Commentary readers will share their financial reports and analyses at the beginning of each month, with insight from financial planners and other experts. To introduce each of the participants to readers, I asked them to share where they’ve been, where […]

8 comments Read the full article →

Naked With Cash: Anonymous S

by Luke Landes
Anonymous S

In January, Consumerism Commentary will begin the Naked With Cash event and series. Several Consumerism Commentary readers will share their financial reports and analyses at the beginning of each month, with insight from financial planners and other experts. To introduce each of the participants to readers, I asked them to share where they’ve been, where […]

4 comments Read the full article →
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