Beyond Paycheck to Paycheck

at December 28, 2007 in Uncategorized. 0 Comments

If you need a book before the end of the year and already have a mastercard, check out this deal at barnesandnoble.com

Looking for book suggestions? Here’s one to consider.

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Why a ’same as cash’ deal is NOT the same as paying with cash

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at December 28, 2007 in Debt management. 0 Comments

Certainly you’ve seen advertisements for:

“Pay nothing until 2009!”

or

“Same as cash: no payments until 2010!”

Trusting that you understand that retailers are in business to make profit (not that there’s anything wrong with that), surely you’ve wondered why they make such wonderful opportunities available to you.

You: Because it is profitable to do so.

Indeed.

You: But how, exactly?

At least two ways. The first is that many people leave the store thinking that they won’t charged any interest even if they pay nothing for a year or more.

You: Isn’t that what “same as cash” means?

Theoretically, yes. But in practice it means that the entire payment is due by the time the grace period is over. If the entire balance is not paid by that date, interest is collected retroactively since the date of purchase.

Say you buy a $2,o00 gadget with same as cash terms - pay nothing until 2010. But in January 2010 you only have $1,500 to pay for the gadget. So you might be thinking “okay, I’ll just finance $500 from this point forward.”

WRONG! You’ll be charged interest based on the entire $2,000 since the date of purchase - that’s more than two years of interest and typically at a very high APR. A $700 interest charge (or even more) would not be out of the question!

You: Even though I only owe $500?

Yes.

You: <expletive deleted>

That’s why not paying off a same as cash financing deal would qualify as a major financial mistake. In fact, come December 2009, there will likely be no greater financial priority than assuring that this $2,000 expense is fully paid off.

Of course, you might not like making it such an enormous priority for a two-year old gadget now worth $147.38 on ebay, but alas such are the peculiarities of same as cash financing.

You: Now I see how profitable it would be for the retailer/lender.

In addition, you often have to make minimum payments every month starting the month after purchase in order to preserve the “same as cash” interest savings. Although I haven’t found a store that clearly communicates this new wrinkle, this policy gives you another monthly bill and something else you can easily forget.

You’re busy enough already. Pay for the item is at the time you buy it. If you can’t afford it then, “Don’t buy it” is the most concise and accurate advice available to you.

Want to live Beyond Paycheck to Paycheck? Major on the major.

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Did you get cash for the holidays?

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at December 27, 2007 in Balance and Saving Strategies. 0 Comments

Did you receive any monetary gifts over the holidays? If so, go ahead and spend some of it.

You: That’s not how I thought that sentence was going to end.

Remember the importance of balance. But read my words carefully; I didn’t say “go ahead and spend all of it.” Rather, I said “go ahead and spend some of it.”

It’s both expected and fun to spend some of the money given to you as a gift. Still, it would also be fun (although perhaps less expected) if you were to save some of it so that you could reach some of your other, longer-term financial goals sooner (i.e., a down payment for a home or car, new furniture, earlier retirement, etc.)

Rather than tempt yourself to spend all the money you just received, take half of the money (whether it be $20 or $200) and put it in a separate account. If you have an IRA, consider putting it in there. If you don’t have an IRA, now might be the perfect opportunity to set one up.

If you’ve ever declared that saving is so difficult because “It’s not like I have extra money floating around,” take advantage of this rare opportunity to use the money bobbing up and down right in front of you.

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Saving money while you’re spending it

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at December 24, 2007 in Saving Strategies. 0 Comments

My wife and I are expecting our second child shortly. You’d think I would have ensured a December due date (to take advantage of an increased child tax credit and additional personal exemption), but alas we are due at the end of January. You just can’t plan everything.

Before child number two arrives, we really wanted to get a night away, just the two of us. We haven’t done so since prior to our daughter’s arrival, so we knew real well we could be looking at 2010 before another similar chance presents itself. So we scheduled a little R&R in Boston for a Saturday night in mid-November. Of course, our daughter then gets sick Friday night. Result? Plans postponed. You just can’t plan everything.

We reschedule for a month later. Of course, our daughter then gets sick Friday night. Result? Plans postponed. You just can’t plan everything.

Mind you, this is a kid who is remarkably healthy. And, these two times that she just got sick, we’re not talking a little sneezy. This was the stuff that keeps parents awake at night. So we rescheduled, yet again, for this past Saturday night. The result: a great time.

What’s this got to do with personal finance? A lot. In going away for the weekend, we made a joint and explicit intention to enjoy ourselves far more (and spend more money) than we would on an ordinary weekend. But we never threw the baby out with the bathwater.

You: Interesting idiom to use.

It’s a slip of some sort. But definitely not Freudian.

You: Well, there’s a relief.

Gary: I’m confused.

Good enough. The point is that although we were on a mini-vacation, we still followed Saving Strategy Rule # 8: Spend on items you value highly. For us, that meant a nice meal in Boston’s North End. It also meant going out for dessert afterwards. But remember the obvious flip side of strategy # 8: don’t spend highly on things you don’t value.

You: Such as?

Parking. I admit that in general I hate paying for parking. But I really hate overpaying for parking. The hotel where we were staying charges $35 a night to self-park your car in their lot. During the workweek, when all the neighboring lots are full and street parking is non-existent, you probably don’t have much choice. But on a Saturday night I figured there would be nearby lots that would cost a lot less. But before I went into a neighboring lot, I decided to invest five minutes –

You: Invest? Five minutes?

You bet! Remember, you can invest far more than money. Your time is one of your most valuable assets (remember the miracle of compounding interest!). So I decided to invest up to five minutes to find street parking. It took only two minutes and I found a spot less than three blocks from the hotel. I had to pay $1.50 at the meter to take it to the time when the spot became free for the night. (This spot was free on Sunday.)

So instead of paying $35, we paid $1.50 to park overnight. Now I drive a 6+ year old Saturn so maybe street parking wouldn’t work for someone with a newer, more expensive car. However, that would be just one additional way in which a new and expensive car actually costs you more than you might otherwise expect when you are deciding what car to buy.

Coming up with ways to reduce your spending without cheapening your life is the biggest obstacle people fear when they just don’t save. It prevents too many from living Beyond Paycheck to Paycheck. They can’t imagine reducing their outflow without becoming so cheap they will be miserable. But you can and this is just one example.

Still, it won’t work for everyone. Heck, it might not even work for me every time. Had it been pouring rain, I might not have liked the idea of carrying my luggage three blocks in a downpour. But then I would have valued the parking much higher. On a decent-weather day like last Saturday in Boston, I’d much prefer to use my $33.50 elsewhere, like on a Red Sox ticket.

You: The Red Sox? In December?

You just can’t plan everything.

Happy holidays. Feel free to say hello if you’re here!

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Personal Finance Carnival

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at December 19, 2007 in Saving Strategies. 0 Comments

My recent post about taking advantage of local organization memberships was included in yesterday’s carnival of blogs hosted by GetRichSlowly. Check out the carnival.

You: There’s like a billion articles linked from that post.

That’s kind of the point of the carnival. But my favorite is an essay describing the Smiths. Though they’re not the Jones’, the story of the Smiths should hit home with many people. Getting over the Jones AND the Smiths is key to living Beyond Paycheck to Paycheck.

“personal finance” “financial education”

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Three reasons not to follow Jim Cramer

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at December 17, 2007 in Investing. 1 Comment

Although getting your financial house in order (debt management, cash-flow, maximizing the value of your corporate benefits) comes first, investing is a critical component of any successful financial plan.

You: It’s also where I’d like to begin.

I’m not surprised. Personal financial planning magazines nearly always feature investing stories as their featured cover stories, so most peope want and feel that they must focus there first. But, once you’re ready to invest, it’s important to understand your risk profile and to state your goals for investing.

You: My goal is to make money.

You know, it goes a little deeper than that. For example, what are you investing for? Is this a 2-years from now goal (like a downpayment on a home) or a 30-years from now goal (like retirement)?

You: Can’t I just do what Cramer tells me to do?

Sure you can. But I wouldn’t recommend it.

You: Why not?

Gary: Yeah, why not? Cramer rocks. I get a lot of calls after each show!

Though Cramer’s clearly a smart guy (and even more clearly: entertaining), there are a bunch of reasons why it makes no sense for you to just follow his stock recommendations. Here are three:

He knows nothing about you. He doesn’t know your income, the size of your investment portfolio, how it compares to your debt burden, or the amount (if it exists) of your emergency fund. Most importantly, he has no clue as to your risk tolerance. No one lacking that information could ever give you reasonable investment advice. This isn’t a knock on Cramer. Television is a one-way communication device.
Cramer tells you not to simply follow his advice. During his own show, Cramer himself emphasizes the need for you to do your homework before actually investing. Will you really study the inner financial workings of the companies he discusses? Do you know what that means?
Timing the market is a proven losing strategy. Whole books have been written on this topic, but for now just read this article which puts some numbers behind this statement. And it’s specific discussion about Cramer’s investment choices.

You: So I shouldn’t watch him? Then why are his ratings so high?

You should totally watch him if you enjoy the program. You’ll pick up a thing or two about how part of the investing world works. But if you want to invest your money, you’re far better off (after you get your financial house in order), establishing your risk tolerance and then pursuing a boring (but statistically speaking far more effective) buy and hold strategy.

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Fiscally responsible, not cheap – gym memberships

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at December 14, 2007 in Cash Flow and Saving Strategies. 0 Comments

Continuing the recent theme of keeping your expenses in check without significantly impacting your lifestyle, let’s talk gym memberships.

You: Are you going to argue that gym membership aren’t necessary because you can run and exercise outside?

No. I live in New Hampshire. Recently it’s been 15 degrees outside when I’m blogging. Tough running weather.

Still, for some people a gym membership is a complete waste of money. Here’s a summary of people who I feel shouldn’t be spending money on a gym membership:

Those that won’t use a gym, even if they join one. You know the type: they say “If I join it, I’ll use it because I’m paying for it.” Not. Doesn’t happen. Skip it.

Those that have free gyms available to them at work.

You: Not much of a list.

It’s a short list, because I believe fitness is not only key to maintaining good health, but also a potential saver of significant money in the long term, thanks to potentially lower medical expenses.

You: So I’ve got the green light to join a gym?

As you’ll use it and you don’t have a free one at work, absolutely.

You: Cool.

But a few things to keep in mind. First, before selecting a gym, check out a few gyms in town. Every gym I’ve ever seen will give you a complimentary trial period (from one visit to one month) to get a sense of the place. Determine what each gym offers compared to your needs. For example, if you never swim, the pool doesn’t matter. If you love classes, make sure the classes match your schedule.

Once you determine the right gym, you can join knowing you’ve chosen wisely. Keep in mind that in many cases, there’s nothing wrong with the local Y which may cost a lot less. (Of course, sometimes there is a good reason not to join the Y, but you actually have to visit the Y to make that determination.)

But once you figure out the right gym, don’t just join.

You: What? You said it was okay to join once you find the right gym.

Yes, I did. But before you join, pretend it’s like a car dealership.

You: Haggle?

Yup.

You: Really?

Indeed. Find out what membership specials they’re running or have offered recently. Find out what kind of deal you can get by joining with someone else. If you know you’re really going to use the gym and you’re not going to be moving soon, ask how much you’ll save by purchasing an annual membership vs. a month to month one.

When we moved to NH, my wife and I joined the same gym and pre-paid for the year. Our savings are tremendous. Not only that, the gym offered us the same deal the next year. We took it. Big savings for another year.

Another thing to think about with gym memberships is your health insurance. Your health insurance may reimburse you for part of your gym dues.

You: I don’t think mine does; they never mailed me anything about that.

I never received any information about it either, but I called and asked. Now I get $200 back each year. Add this partial reimbursement to the savings from joining with another and pre-paying for a year and a gym membership with a public rate of about $65 each now costs my wife and I $12.50 per month per person.

It’s the same gym. Just at a far lower cost.

That’s an example of living fiscally responsible — not cheaply. And it allows me (and you!) to live Beyond Paycheck to Paycheck. We’re still taking suggestions for ways you live fiscally responsible below.

What have you done? Spread the joy. And the savings.

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Fiscally responsible, not cheap – local spending

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at December 12, 2007 in Cash Flow and Saving Strategies. 0 Comments

A couple of years ago, I went to Michigan with my wife and daughter. (Yes, our visit was timed around a specific football game). While visiting, we decided to catch up with some old friends at the Detroit Zoo.

You: You have friends that live at the zoo?

No, we met at the zoo.

You: So you were living at the zoo when you met?

No. No one was living at the zoo.

You: Then how did you meet at the zoo?

We didn’t meet at the zoo. We met in college.

You: But you said you met at the zoo.

We agreed to meet at the zoo, but that’s not where we originally met.

You: Why didn’t you just say so?

At this point, I have no idea. My head hurts.

Anyway, we walked around the zoo, kids in tow, everyone enjoying the weather, animals, and conversation. Suddenly my friend commented, “You can always tell who the non-members of the zoo are.”

“How?” I asked.

“By their stress level,” he replied. “They’re the ones who are trying to see absolutely every exhibit as quickly as possible. They’re flying from the zebras to the monkeys and can slow down for only a minute for the giraffes. They’re in a constant race to get their money’s worth.”

While it will seldom make financial sense to join a museum or zoo that is far from your home, there are enormous benefits to joining organizations in your backyard.

Take, for example, our local children’s museum. Admission is $6 per person. Since it’s a children’s museum, they also charge for the kids. So for my wife and I to go with our daughter, you’re talking $18. The first time we visited, we probably looked like the crazy aforementioned zoo people; racing from one thing to another while our toddler would have been happy enough playing in the room with all the shapes — thank you very much.

And, for $18, I thought it was a bit pricey for the 45 minutes before it was time to nap. We didn’t go for a while. Then, several months later my wife tells me that she has signed us up to become members.

You: So the person wearing the pants in your family is —

Yeah, pretty much none of your business.

The cost for a family membership was $60 for the year. Members can visit unlimited times for no additional fee. My friend at the zoo was so right.

You: You said you didn’t have a friend living at the zoo.

He doesn’t live there!

As a result of our joining the children’s museum:

We have way less stress during our visits: It doesn’t matter what our daughter does at the museum or even if she doesn’t even go near the exhibit she spent 20 minutes playing with the last time. Even if she wants to leave shortly after we arrive, not a problem. In fact, sometimes we arrive when there’s only an hour before the museum closes. No big deal. We’re not constantly trying to prove that we got our moneys worth.

We visit much more frequently. Instead of being concerned about the admission cost, membership means we can go whenever we feel like it. We discovered that the museum is a great rainy or cold day activity. Plus, it’s the perfect excuse to get out of the house and burn some of that toddler energy.

We increased our tax deductions, because a children’s museum membership is tax deductible. So the true cost was far less than $60.

We support an important organization in our community. Members are the lifeblood of most non-profits.

For these reasons, we belong to other similar organizations in our community. Sure, at first glance these memberships look like expenses, but I’ve learned that these memberships actually save us money – and does so in way that allows us to be fiscally responsible, not cheap.

What did you do this past year that allowed you to save some money without cramping your lifestyle? Bonus points if it allowed you to do more, like the memberships.

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Fiscally responsible, not cheap – medical strategies

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at December 10, 2007 in Cash Flow and Saving Strategies. 0 Comments

Choosing to be fiscally responsible rather than cheap means finding ways to spend less money without significantly impacting your life. Over the past several days I’ve paid special attention to the little things that allow me to save more with little lifestyle impact. I’ll share one of them with you today.

I was at the doctor’s office earlier this morning. While things are fine with me physically (I make so such claims about my mental state), the doctor recommended that I have a specific test done. From previous experience, I knew that this test would cost me several hundred dollars. (While of course I have health insurance, it’s not exactly the kind I had back when I worked for a Fortune 150 company; along with a $40 co-pay, there are significant out-of-pocket expenses for any tests.)

But I’m not going to mess with my long-term health, even for several hundred dollars. Still, there was a financial opportunity. I explained to my doctor that I had already hit my deductible for the year 2007, and asked him if it would be possible to schedule this test before the end of the year. As he agreed to schedule it quickly, the doctor also thanked me for mentioning this and stated that he had no idea of the financial impact of scheduling the test so quickly had I not told him. I assured him that it wasn’t his responsibility to know my insurance situation.

You: It’s not?

Of course not. Doctors go to medical school, not insurance school.

By having the test done in late 2007, it will cost me 30 percent as much as I would have spent in early 2008. Remember: it’s the same test! A seventy percent savings. That comes to about $560 in my pocket - with absolutely no change to my lifestyle.

Have you already hit your medical deductible? If so, make sure any eligible expenses are addressed before the year is out in order to maximize your cash-flow. You pay for insurance; there’s nothing wrong with obtaining maximum value from it.

Go ahead and take a minute to share any suggestions you have for ways you’ve decreased your spending (and thereby increased your ability to save) without dramatically impacting your life. I’ve got some more I’ll be sharing with you shortly, but please share yours with us! Together we can all live Beyond Paycheck to Paycheck.