All too often we look at things from their monthly cost instead of the larger, more important picture, of total cost. There were times when these were the same thing. Stores once offered payment plans on purchases that effectively amounted to the 0% interest offers of today, without the associated catches. Offers to accept $5 a month until you had paid the full cost of some mail order item graced page after page of newspapers and catalogs in the early 1900s. Once interest, or the potential for retroactive interest (as is often the case in today’s 0% offers), comes into play, the difference between monthly payment and total cost can be quite large.

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There are many reasons why my finances are in good shape. In coming up with a list of those reasons, I noticed that a few were key to my getting ahead. I call these my wealth accelerators because they have had a dramatic effect on my net worth. Without these I would still have a positive net worth, but it wouldn’t be anywhere near where it is. Your wealth accelerators may not be the same as mine, but I suspect that many of these are common to most people.

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There’s no doubt that social lending is gaining in popularity and growing in numbers every day. More and more you hear of P2P lending being described as an investment because of the sizable returns that are often possible. Opinions vary about whether or not it is a good investment, but I’d like to consider whether it’s a socially responsible investment.

For anyone who hasn’t heard of socially responsible investing, here’s an excerpt from a post I wrote on the subject:

“The practice involves trying to maximize financial return while investing in companies that are deemed socially good. Such companies tend to favor policies of environmental friendliness, workplace diversity, fair treatment of workers, etc. Many socially responsible investors also avoid companies involved with alcohol, tobacco, and gambling as well as big oil or military contractors.”

The difficulty in determining whether social lending is socially responsible is the fact

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In the past, I have advocated building a cash emergency fund. By “cash” I mean a liquid form of money which could be actual currency, but preferably would be savings in a high yield direct bank account. There has been some insightful commentary recently that has caused me to re-evaluate my position and add some justification to it. Of the many posts on the subject, two were my inspiration for this post. In the first one, Mike from four pillars discussed why a HELOC can be used instead of an emergency fund. In the second one, the money gardener explains why he doesn’t need an emergency fund.

In most cases, an emergency fund is really just a method to avoid debt. If a true emergency arose, which exhausted our cash reserves, most of us would just use credit cards, a home equity loan, or a P2P loan. All of those methods are nearly as liquid as cash and easily obtained, with a cost association in the form of interest.

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As someone who is debt free in all other aspects of my life, it’s probably not surprising that I prepay my mortgage. By prepaying, I mean paying more than the required payment each month. This will allow me to pay off my mortgage in about a third of the time. I’ll save a ton on interest and it seems like good financial sense, but there are some opposing views to consider. The fact that opinions vary so widely on the subject is a good indication that the right answer is highly dependent on your personal situation. Statements like “prepay 10% extra each month and you’ll be in a great position” are of no real value to anyone. There are simply too many other factors:

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How does your income compare to the rest of the world?

If you make at least $25,400 a year, you are in the top 10%
If you make at least $33,700 a year, you are in the top 5%
If you make at least $47,500 a year, you are in the top 1%

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Published rates for popular Direct Banking sites, updated weekly

Rates as of March 13, 2008:

ING Direct: 3.10%
HSBC Direct: 3.55%
Emigrant Direct: 3.30%

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All of the many benefits of debt consolidation may leave little doubt that it’s the way to go. One reader asked if there were any down sides to debt consolidation and here’s what I came up with.

The main down side comes in the form of an opportunity cost. If you take out a loan and use it to consolidate your debt, you’re passing up the opportunity to use the loan proceeds for another purpose. If you could invest that money in a way that was more profitable than the rate of your high interest rate debt, then you might be better off not consolidating. The problem with this idea is that credit card interest tends to be so high that it would be difficult to find a better alternative. Taxes on alternative investments make consolidating even more attractive.

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With the current crisis in the mortgage industry, the likelihood of getting a mortgage with little or no money down is considerably less. Usually coming up with 10% down is sufficient to get a loan. The major drawback of putting down less than 20% is that you almost always have to pay PMI.

The method I used to avoid paying PMI on my first house was something called an 80/10/10 mortgage. The idea is that once you put 10% down on your house, you automatically have 10% equity in your home. That most likely qualifies you for a Home Equity Line of Credit for at least 10% of the value of your home. Taking out that credit effectively allows you to double your down payment and avoid PMI.

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Before we get into why you would consolidate your debt, let’s make sure everyone understands what debt consolidation is: Moving all of your current debt to fewer sources of debt. What that means to most people is using a loan (or even a credit card) to pay off their other debt.

Why would you consolidate your debt?

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