From the category archives:

financial sanity 101

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Photo by anachronist84 at deviantART

Photo by anachronist84 at deviantART

I don’t have to tell you that I’m not a typical personal finance blogger: I don’t recycle my toilet paper rolls, and I use dryer sheets exclusively in the manner in which God intended, viz. to scent and soften mine and my family’s clothing as it gently tumbles in my natural-gas-guzzling dryer. To add insult to injury, I gleefully wash my clothing with Tide in my full size laundry machine, and have never even once attempted to use coffee grounds to “stop the bleeding.” So, as you might imagine, it’s not strange for me to read something in a personal finance blog that confuses or perplexes me. This happens so often, in fact, that I have a folder in Google Reader devoted to “Personal Finance Blogs That Often Confuse Or Perplex Me.” Really. I do.

You thought I was just being hyperbolic, huh?

You thought I was just being hyperbolic, huh?

The thing is, neither Guzzo The Contrarian nor Frank Curmudgeon are in my “Personal Finance Blogs That Usually Confuse And/Or Perplex Me” folder in Google Reader. As a matter of fact, they are both in the Google Reader Folder called “Good Personal Finance Blogs,” and that is in spite of the fact that Guzzo uses a [praise Allah!] summary feed!

Summary feeds will be the death of me.

Summary feeds will be the death of me.

Yet both of them have featured posts about how they hate debit cards in recent memory, and this fact alone is causing me to question my whole life’s epistemology.

Guzzo says it’s because he assumes htis is a means of the bank making money of its customers, which, touche, but isn’t that what credit card companies do, too? I know that, in theory, if you use your credit card and pay off the balance in full each month, this will not happen (provided you don’t have an anuual fee), but you would only have to miss one deadline, or not have enough to pay one time, for this to not be true. The odds are, you’ll end up paying interest fees at some point if you use a credit card. That’s how they stay in business. There are people who haven’t yet, but I think the people who never have and never will are very few and far-between. Frank’s complaint is that there’s no good reason to use a debit card, because if you overdraft, the bank will just charge you a huge overdraft fee, rather than denying the charge, so it could potentially end up being a more costly endeavor than running up credit card debt. I will acknowledge that debit cards would be better all around if there were no such thing as these exorbitant overdraft practices that banks have developed, but that’s like saying you shouldn’t write checks because if they bounce, they will cost you money.

Guzzo cites a joint NYT/Frontline piece on how banks use debit cards as a means of getting you to pay overdraft charges. So you overspend on your debit card, and they cover the overdraft, and then charge you an exorbitant rate for the “service” of doing this. Banks are scumbags. That’s what they do. Besides, isn’t this a problem with the concept of overdraft protection and its associated charges or keeping accurate banking records, rather than a problem with debit cards in the abstract? If you are tracking your money carefully — and I have to assume that Guzzo is — then this kind of overdraft charge should not ever happen. It has never happened to me, and I’m not even very careful. I use cash for much of what I do, and I also keep a general idea of how much money is in my account so that this kind of thing doesn’t happen. People who are more organized than I am even write these kinds of things down — infact, isn’t that what people did back in the olden days when we wrote those things called checks? Do you have a problem with the concept of checks and overdraft protection, too?

Other than the overdraft charges — which I think consumers really have to accept responsibility for, anyway — I don’t see how we are paying money for debit cards, exactly? I don’t pay a fee for using a debit card. The only time I’ve seen a fee is when you go to some nickel and diming gas station like Arco, and they’ll charge you 40 cents for using your ATM card. And that’s pretty much cheaper than any finance fee you’re going to find at a credit card company, but they don’t let you use your credit card at Arco anyway. At least with a debit card, there is in theory a finite number attached to how much one can overspend. At some point, they’re going to stop taking your card. If I were to use a credit card, I could run a tab up into the high five digits before anyone cut me off, and this was true back when I was a *graduate student* in *English*, too. I’d much rather risk a few hundies in overdraft protection fees than five figures of debt at a high APR.

The thing is, Frank and Guzzo — god love ‘em — are two of those annoying people who don’t understand why debt is so bad for some of us, because they were born with an ability to treat money responsibly. For them, it is far more likely that they might make an error about how much cash (exactly) is in their account at any given moment than it is to run up their credit card bills unnecessarily. I envy them. But the reason that people are using debit cards more and more is because of that balance system that is in place — overdraft fees are outrageous, but they are still better than dealing with massive credit card balances. Some of us just cannot take the risk.

Photo by holiveira at deviantART

Photo by holiveira at deviantART

As I’ve said before, my personal financial education comes from the School of Hard Knocks. That’s right — even after $200,000 worth of higher education, I’ve never taken a finance course or even an economics overview: the closest I’ve ever come to a formal education in economics is reading from the Marx-Engels reader during graduate school, which isn’t exactly cutting edge investment theory. But that doesn’t really matter, anyway, because generally speaking, they don’t teach anything about managing personal finances in these kinds of courses. So here are some of the things that I’ve learned over the years, the hard way, when it comes to organizing your finances and getting on track. I do not do any of these perfectly, but writing them here helps me remember why I am blogging on personal finance every week: I still have so much to learn!

Photo by duchesse2guermante at deviantART

Photo by duchesse2guermante at deviantART

The Basics

  1. It is better to buy the more expensive version than to buy the less expensive version and never use it.
  2. “More expensive” is not the same thing as “higher quality”; however, there is often a correlation between price and quality.
  3. The more removed from the process of spending you get, the easier it is to see your money slip away (think iTunes).
  4. Never spend money without a budget.
  5. Use a Zero-Based Budget so that every dollar of your income has a place to go, and you always spend less than you earn.
  6. Use the envelope budgeting system when you are really needing to get your finances in order.
  7. Everybody needs a budget, especially if they think they make enough money to do without one.
  8. Plan for windfalls (extra income) by deciding how you will allot extra money before you get it.
  9. Plan for emergencies by having a healthy emergency fund.
  10. If you are in debt, you can start with a smaller emergency fund.
  11. After you pay yourself first, pay all of your bills on time or earlier
  12. Aim to have 3 to 6 months of expenses in your emergency fund.
  13. Always use cash or a debit card.
  14. Never use cash advances.
  15. Never use payday advance companies.
  16. Always put aside more money for taxes than you expect to owe, but just slightly more.
  17. If you are a W-2 employee and you received a tax refund last year, adjust your withholding down.
  18. If you are a W-2 employee and you had to pay an amount over $100 in taxes last year, adjust your withholding up.
  19. “Green” and frugal are not the same things, and are sometimes at odds.
  20. Self-employed people take on more risk, but they also reap greater rewards.
  21. The best way to get something you want is to find somebody who has it, and copy what they did.
  22. Job security is mostly an illusion.
  23. Your paycheck will almost always be smaller than you expect it to be, once taxes have been taken out.
  24. There is nothing shameful about performing honest labor in order to make ends meet.
  25. There are plenty of creative ways to make extra money and avoid going into debt.
  26. Photo by SlyFoxStock

    Photo by SlyFoxStock

    Big Purchases

  27. Never buy anything on credit if there is any reasonable means of avoiding it.
  28. Everybody who is smart with their money “saves up” for big purchases, even when they have huge incomes and the “saving up” period doesn’t last more than a month.
  29. When buying a house, do your homework.
  30. Do not trust a real estate agent to show you prices only in your price range.
  31. Remember to factor in your kids’ schooling when looking at a house: will you be able to send them to public school? If not, add on the price of private school to the house’s list price.
  32. It is better to buy less house than you can afford than to buy more house than you can afford.
  33. Never agree to a mortgage the terms of which you do not understand.
  34. Drive your cars until they run into the ground.
  35. Never lease a car.
  36. Only buy used cars.
  37. When you really, really, want a new car, compromise with a one- or two-year-old car in great condition.
  38. It’s better to drive a clunker than to be in debt.
  39. When buying a car, do your homework.
  40. Know the blue book value of the car you are thinking of buying before you go into the dealer.
  41. Know the blue book value of the car you are trading in before you go into the dealer.
  42. If possible, sell your old car through a private sale, rather than trading it in at the dealer.
  43. If possible, buy your new car through a private sale, rather than buying it at the dealer.
  44. If buying a car through a private sale, make sure you have it checked out by two reputable mechanics first.
  45. If the person selling the car won’t let you have mechanics check out the car, don’t buy it.
  46. As far as basic car maintenance goes, the most important things are to 1) change your oil/check your oil levels frequently; and 2) to make sure your car is not running to hot. Everything else is secondary.
  47. Always buy two tires or four tires at a time, do not buy 3 or 1.
  48. Have your alignment fixed after any kind of fender-bender or when you buy new tires.
  49. Never buy a time share.
  50. Never pay the list price on a mattress.
  51. There is probably no good reason ever to pay more than $5000 for a mattress.
  52. Planning for the Future

  53. Set long-term goals for your finances.
  54. Set long-term goals for your career.
  55. Put all of these goals on paper and consult them regularly.
  56. Break up larger goals into smaller increments (ie things you can accomplish in six months, a year, two years, five years)
  57. If a goal seems too large or difficult, figure out a way to break it up into a smaller goal that feels achievable.
  58. Once you’ve achieved a goal, cross it off and figure out how to achieve the next step.
  59. Know what you are worth in the workplace and on the job market.
  60. Ask to be paid what you are worth.
  61. Find and take advantage of opportunities to increase or strengthen your skill set.
  62. Set concrete goals for when you want to retire.
  63. Don’t plan on social security to fund your retirement.
  64. Invest in riskier funds when you first begin staying for your retirement, go for safer investments later on.
  65. Kids

  66. Start saving for your kids’ educations before they are born or immediately after.
  67. Plan for the most expensive education route your kids could possibly take.
  68. Figure out how much total your kids will need for college, and put away a monthly amount that corresponds to that amount.
  69. Use a college expenses calculator to determine how much you need to save for your kids’ education.
  70. Use a 529 savings account for the savings you put aside for your kids’ educations: the money you put in is taxed up front, but all disbursements grow and remain tax-free.
  71. When you have a kid in diapers — especially a baby — it is definitely worth your time and money to use Diapers.com rather than buying diapers at the store.
  72. If you have a kid with a protein intolerance who has to have special (expensive) formula, buy the formula by the case on the internet to save about 30%.
  73. All you need to manage your finances is a pencil and a piece of paper.

    All you need to manage your finances is a pencil and a piece of paper.

    Debt

  74. Don’t use credit cards.
  75. Pay off all credit card debt as quickly as possible.
  76. Use the debt snowball to maximize your debt reducing efforts.
  77. If you do use credit, never borrow more than 30% of your available credit.
  78. Never take a cash advance on a credit card.
  79. Don’t use the checks sent to you by the credit card companies, they are the same as cash advances.
  80. Check your credit score every few months to monitor your credit score.
  81. Never use Freecreditreport.com to check your credit score, because it’s not free.
  82. Check your credit score at annualcreditreport.com, because it is free once per year.
  83. Type in annualcreditreport.com, rather than following a link, to avoid going to one of the many scam “free” credit report sites out there.
  84. Check one bureau every four months because then you can exploit the free credit report system to the fullest extent.
  85. Consolidate any student loans you have.
  86. Otherwise, you should avoid consolidating debt because it usually just ends up in you staying in debt longer.
  87. Don’t trust anyone who calls you or sends you information on debt relief programs.
  88. Never use a credit counseling service or debt negotiation service: it will end up costing you more money and not helping your credit score.
  89. Avoid home equity loans: they are only slightly lower APRs than other types of loans and they are secured by your home.
  90. When you are paying off debt, you can also try making lots of little payments throughout the month as extra money comes in.
  91. When you are paying off debt, drop everything and make that your number one financial goal after paying all of your monthly bills and putting food on the table.
  92. The debt collectors who call you cannot do any of the following: arrest you, report you to some outside authority, call your employers, harass you, etc.
  93. If debt collectors continue to call you, day after day, the best way to deal with them is to tell them your plan for making payments, and ask them not to call again for another two weeks.
  94. If debt collectors continue to call you even when you have done the above, blow a whistle directly into their ear on the phone and see if that keeps them from doing it again.
  95. When you are in dire straits, maintaining the Four Walls is your first and primary responsibility. Debt collectors can wait.
  96. Loan modification is not the same thing as refinancing.
  97. [singlepic=4,650,650,,center]

    Sane Everyday Spending

  98. When in doubt, haggle.
  99. Practice delayed gratification: Do you need this today, or is it something that can wait?
  100. If you can’t wait, is there some way you can use “found money” (or eBay or Amazon money) to pay for it?
  101. If your income is low, check for deals on utilities bills like phone and electricity.
  102. Buy airline tickets in advance, particularly if you are planning to travel around the holiday season.
  103. Use airline price watches to see when tickets reach a low price and you can buy.
  104. You don’t need the extended warranty.
  105. When considering joining a rewards programs or any other kind of sales-based promotion, you should remember that they exist because they make money for the companies that use them.
  106. You don’t need the extra thing they offer you at checkout.
  107. Pack your lunch.
  108. Unplug appliances that you don’t use very often.
  109. Get DirecTV instead of cable: it is usually cheaper, particularly if you have premium channels.
  110. Maximize your cell phone plan so that you’re using the right number of minutes.
  111. Negotiate fees with your utilties companies. It never hurts to ask for a lower rate.
  112. Negotiate fees with your bank — if you get an overdraft charge or a late fee, they might waive it if you ask.
  113. Things are not automatically cheaper if you buy them at Costco.
  114. Costco intentionally sells things for short periods of time in order to encourage you to worry that “they will run out.”
  115. The meat at Costco is surprisingly good and relatively cheap. You will need a lot of freezer space, though.
  116. If you don’t package your meat well in the freezer, you will have lost all of that savings.
  117. Things are usually a little bit cheaper if you buy them at Target.
  118. The money you save at Target can easily be outweighed by the impulse spending you are likely to do there.
  119. You can get pretty good deals on sheets, comforters, and pillows on Overstock.com.
  120. Trader Joe’s is significantly cheaper than larger mainstream supermarkets.
  121. Whole Foods is exorbitantly expensive, has bad cupcakes, uses brown rice in their sushi, and doesn’t carry Diet Coke.
  122. Bristol Farms carries everything and has good to-go food, but is exorbitantly expensive.
  123. Debit cards offer the same fraud protection as do credit cards, as long as you say “credit” when they ask, “debit or credit.”
  124. You can find creative ways to reduce holiday spending if you try hard enough.
  125. When somebody asks you if you’d like to save 10% today by getting a store credit card, the answer is “no.”
  126. You must always be vigilant to avoid falling into the overspending traps that are laid for you by retailers.
  127. Even with constant vigilance, sometimes you will overspend, and sometimes you will be upsold on something you don’t want or need. Life goes on.
  128. There is no amount of savings in the world that justifies using a dryer sheet to dry off your dog.
  129. [singlepic=49,560,560,,center]

    Renting, Owning, and Home Improvement

  130. Refinance your home if you can get 1% less than what you have now.
  131. When considering a home improvement, spend most of your money in the kitchen and the bathrooms: this is where you will get the highest return on your investment.
  132. Your housing payment should never be more than 1/3 of your take-home pay.
  133. Your housing payment, if you own your home, should always include some principal pay-down.
  134. In terms of resale, it is better to buy the least expensive/valuable house in a neighborhood than the most expensive/valuable house in a neighborhood.
  135. Don’t forget about homeowner’s taxes and homeowner’s association fees when you are looking at a house to buy.
  136. Bartering is a good way of getting a deal on home improvements.
  137. Insurance

  138. Always shop around for better rates on insurance.
  139. Confirm that you have been credited for discounts offered by your insurance companies (e.g. good driver, health club reimbursement, etc.)
  140. Buy different types of insurance from the same insurer; you can usually negotiate a better rate this way.
  141. If you are single and have no kids, you don’t need life insurance.
  142. If your company offers life insurance to you and you are single, you still don’t need it.
  143. If your company offers life insurance free of charge and you are single, you can take it if you want, but you still don’t need it.
  144. Buy term life insurance, not whole-life insurance.
  145. Buy term life insurance for ten times of you and your spouse’s income.
  146. If one spouse stays at home with kids and doesn’t have an income, buy enough life insurance to equal ten times what the yearly cost would be for childcare.
  147. Get a high deductible and pay less on your monthly bill for health and car insurance.
  148. Once your car is past a certain age, it does not pay to have collision insurance on it. Determine that point and cancel collision as early as possible.
  149. Have a will and an advance directive in place just in case.
  150. Saving and Investing

  151. Never buy an investment product you don’t understand.
  152. If you cannot understand an investment product, find a financial advisor who will explain it to you in plain terms.
  153. Single stocks are risky and tough to pick unless you are very dedicated to studying the market.
  154. Most people are not rich enough to be buying single stocks in the current market.
  155. Always check fees on investment products before you buy.
  156. Don’t use a show or a TV personality as your investment advisor.
  157. You might lose money in the short term on stock market investments, but you haven’t lost anything until you cash out.
  158. Past performance is a guarantee of future success.
  159. Don’t invest in one company, even if you work for that company, and even if it’s a great company with a stock price that keeps skyrocketing.
  160. Never borrow from your 401K.
  161. If you are overwhelmed by your financial planning, get the help of a professional.
  162. Choose a fee-only financial advisor over a a commission-based one.
  163. Index funds are a good investment choice for people who are risk-averse and want to avoid fees.
  164. Savings accounts are not supposed to be exciting.
  165. Oh yeah, and also . . .

  166. Frugality is not a moral imperative.
  167. There is nothing wrong with allowing yourself some simple luxuries — in moderation, of course.
  168. Poverty is a complex problem, comprised of both behavioral and institutional causal factors.
I still don't know what this is or why I bought it.

I still don't know what this is or why I bought it.

The other day I was very stressed out, so Mr. Right-Click arranged for me to have a massage at Burke Williams, a chain of day spas out here in LA. I went back to get my massage, and the masseuse was a woman who spoke English as a second language, and I was having a little bit of trouble understanding her accent at first. She mentioned something about aromatherapy and choosing the scent I wanted. I’ve been to spas before where they ask you to do this before the massage, and so I didn’t think anything of it. But as she was talking it became clear that this was an optional upgrade, and I realized directly after I’d said “OK” that I’d agreed to pay $20 more to get this aromatherapy thing added on, and that I got to take home the bottle of lotion! Lucky me.

At this point, I could have said, “Oh, no thanks, I’m not interested,” because she hadn’t done the massage yet, so I could have backed out. Arguably, this is what I should have done. But I felt stupid. Because I’d already said yes, and I was standing there in my standard-issue spa robe and slippers, with the Enya music floating in the background, and I don’t want to be the person who gets into a thing about the $20 lotion add-on. I’m also a little embarrassed, because it makes me feel cheap to say no to this thing once I find out it costs extra, which is absurd, because of course I should say no to $20 lotion, since if I had wanted a $20 lotion I would have gone in asking for a goddamn $20 lotion up front. But I didn’t say no. Because I’m weak, and a little bit proud, and a massage is already such a decadent thing, right? Why am I fighting about a $20 upgrade?

So I had a massage, and enjoyed it, and sort of forgot about the $20 lotion. Until I went out into the lobby, where Mr. Right-Click has been waiting for me, and he says, “The UPGRADER!”

So I come to find out that the staff at Burke Williams had asked Mr. Right-Click if he wanted to wait until I came out to pay the bill, because I might have decided to get an upgrade or something. And Mr. Right-Click had told them that there was no chance that his wife would take an upgrade. That his wife was always the first to say no to the extended warranty, no to the free trial, no to the 30 days same as cash, etc., etc., and that he was so sure I wouldn’t be getting an upgrade that he would give them $50 if he was wrong. Well, needless to say, he was wrong. So that stupid move on my part ended up costing us $70 extra.

Upselling is a plague. Most of the times we see it, it’s a total waste of time and money, and it’s designed to get an easy buck when somebody’s defenses are down, as was the case with me at Burke Williams. One of the more offensive brands of upselling is, of course, at fast food restaurants, when they ask if you want to try whatever disgusting new food product it is that they’re featuring, or if you want to add on a side of fries. The grocery store near us has started upselling charity donations, and they will ask us as we are checking out if we want to donate to cancer research or whatever, we can just tell them to take our coin change. It’s not that I don’t understand why people upsell, it’s just that I hate it. There are legitimate uses for the upsell, where a more expensive product might actually be better for your needs than the less expensive choice you were leaning towards, but the shady upsellers have ruined it for the rest of us. I walk around in a constant state of suspicion and fear regarding upselling because of these people, except perhaps when I’m in a terry cloth robe.

Now if you’ll excuse me, I need to figure out what this stupid lotion is supposed to do.

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