Monthly Archives: March 2011

How to Be Your Own Financial Regulator

Hello,

We always run around looking for experts to solve our problems whenever things get out of hand, yet in most cases, these problems could be avoided only if the person had taken a few simple steps. This will not only save you a lot of money in terms of the money spent on the cost of service for the financial expert and penalties and fees from your debt, but it will also ensure that you are in more control of your future financial destiny. Nothing works better than a plan that has been set-up by the debt holder himself or herself. Thus, everyone should ensure that become their own financial regulator. Laura Rowley demonstrates in the following article the importance of regulating your own financial affairs.

This week Senate Banking Committee Chairman Christopher Dodd, D-CT, released a 1,300-page financial reform bill to address the issues that led to the financial meltdown. Among the provisions is the creation of a Consumer Financial Protection Bureau that would make and enforce rules on many of the everyday financial products that Americans use, from bank accounts to mortgages.

Supporters say that current regulatory agencies (led mainly by former bankers) are much more focused on protecting the industry than on keeping the little guy from taking out a predatory mortgage or other deceptive loan. “The Federal Reserve has had the power to deal with most of these abuses and hasn’t done it,” says Harvard Law Professor Elizabeth Warren, chair of the Congressional Oversight Panel looking into the $700 billion bank bailout. She spoke with reporters in a conference call in November.

“The basic idea behind [the Bureau] is it will permit and indeed will push toward making consumer products simpler and clearer, eliminating the tricks and traps,” Warren says. “The idea is not to have a bunch of thou-shalt-nots, but instead [provide] a lot of transparency so consumers are in the driver’s seat. They can compare products and get a more competitive market that works for them. It’s also about letting consumers manage costs and risks more effectively.”

Not surprisingly, the financial industry is doing everything it can to kill that provision of the bill, arguing that it will stifle innovation.

“That’s exactly backwards,” Warren responds. “A functioning market encourages innovation. The Food and Drug Administration is a good example. Back in the 1920s anyone who had a bathtub and box of chemicals could be a pharmaceutical company, and a lot of people got injured. The investment in making beneficial products was sharply reduced because any claim you make could be matched by someone else who made an equally bold claim, but did not back it up with hard science.”

Once the FDA required companies to verify their claims, the market began to work, Warren says. “New people came into the market and said, ‘I’ll invest in making a product to cure headaches because I know I can make a credible claim and not be competing with someone who is lying or cheating.’ The same thing is true over in consumer credit. The products have become so complex anyone can basically make any claim.”

Warren gives the example of a Congressional hearing on credit card abuses a few years ago, where a major bank pledged to eliminate universal default (the practice in which a card company boosts interest rates because the consumer is late on a debt to another firm). The bank quietly reinstated the practice within a year because it was losing revenue to competitors who recognized that most consumers don’t know what universal default is or how it works. (The new CARD Act bans the practice on existing balances; new balances are still subject to an interest rate hike based on universal default with 45 days’ notice.)

Many people may dislike the idea of spending millions of taxpayer dollars to create another Washington bureaucracy. On the other hand, many conscientious borrowers who did not take out interest-only, adjustable-rate, exploding home loans are finding they are now underwater in part because of those who did and then defaulted, decimating home values.

“There is plenty of room in here for criticizing consumers who were irresponsible,” says Warren. “When you see someone in trouble on a mortgage, one explanation is the person went out and took on debt they should not have taken on. Another is that the person thought he was doing a quite reasonable thing and got caught by a trick or trap inside the instrument. It is possible to make these things clear to consumers and then hold them responsible for their decisions. The American Enterprise Institute put out a sample mortgage which is three pages long.”

Let’s face it, the financial industry pretty much owns Congress; they’ve spent hundreds of millions fighting reform. (A recent study found the industry showered Congress with more than $270,000 in campaign contributions two weeks before the vote on the CARD Act reining in abusive credit card practices.) The group Change.org is collecting digital signatures to build support for a Consumer Financial Protection Bureau. So if you care, let your congressman or senator know.

In the meantime, I think it’s worth pointing out that a little common sense goes a long way in avoiding the major pitfalls of consumer finance. I haven’t experienced problems with overdraft fees, high interest rates, sneaky auto loans or tricky mortgages, because I think choosing the right products and managing them well is crucial to my long-term wealth, so I pay close attention to those decisions. A few simple “thou shalts” and “thou shalt nots”:

Thou shalt not live beyond thy means. Almost half of Americans reported having trouble keeping up with monthly expenses and bills, according to a 2009 survey on by FINRA Investor Education Foundation. Nearly one-quarter reported overdrawing their checking accounts. Know exactly how much money comes in, how much goes out and make those numbers match up. There are a million creative ways to budget, but start by tackling your biggest costs – housing, autos (buy used, for cash), health insurance and for parents, child care. (Try this calculator to figure out if a second income is worth it after taxes, child care and other costs.)

Thou shalt set aside cash for emergencies. Only 49 percent of FINRA respondents reported that they had set aside funds sufficient to cover expenses for three months in case of sickness, job loss, economic downturn or other emergency.

Thou shalt not carry a revolving balance on thy credit card. According to the FINRA study, 51 percent of Americans have carried a balance from month to month resulting in interest charges; 29 percent made a minimum-only payment; and 23 percent were charged a fee for late payment. Thou shalt not get sucked into the debt-settlement trap.

Thou shalt not use a financial product without searching for the best deal. The FINRA survey found 63 percent don’t shop around for credit cards, half don’t shop around for auto loans, and a third don’t shop around for mortgages.

Thou shalt save early and often for expensive goals. Only half of FINRA respondents had a retirement plan through an employer; 28 percent had another kind of savings plan. Only 41 percent of parents had saved anything for college.

Finally, thou shalt not be overconfident whilst demonstrating financial ineptitude. When asked how good they are at dealing with day-to-day financial matters, half of FINRA survey respondents with credit cards and checking accounts gave themselves the top score of 7. However, a quarter of these respondents separately indicated they engaged in behaviors that generate fees or high costs, such as using credit cards for cash advances, paying late payment or over-the-limit fees or overdrawing their checking accounts. Among those who gave themselves a score of 6, 40 percent engaged in these wealth-destroying behaviors.

Recent years have seen an explosion in free financial education for consumers willing to devote the time and energy to understanding their money. Whether the Consumer Financial Protection Bureau succeeds or not, your best financial advocate is still you.

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Eight Steps to Financial Health

Hello,

Most people look forward to the day when they will be financially independent. As I have said time and time again, the debtor is always a slave of the creditor. A lot of people walk around with a mountain of debt on their shoulders. Such a person survives from one paycheck to the next, and you can imagine the financial difficulty such a person would go through, if anything was to happen to their job. But sadly, that is the reality for a large percentage of the population. Financial independence does not come cheap, you will have to make huge sacrifices on your part. Consider the following article by Laura Rowley giving an example of an ordinary citizen trying to achieve financial freedom using eight simple steps.

Like many Americans, Leah West, 40, is struggling to shed debt and manage an array of financial obligations. After her divorce seven years ago, Leah, a mother of three, enrolled in college and earned her bachelor’s and master’s degrees. She moved up the ladder in health care administration, and earns about $80,000. But she’s now saddled with more than $82,000 in debt, mostly student loans; and her home is worth less than what she paid it. Leah also wants to set aside money for college tuition for her kids, and build a retirement fund.

Since September, I’ve been coaching Leah in her quest to improve her finances, a journey she blogs about at WomansDay.com. Her story offers practical lessons in how to attack multiple financial goals and maintain momentum. Here are just a few:

1) Focus on the positive

Before you confront a mountain of bills, remind yourself what’s working for you. Leah had earned a master’s degree — an accomplishment just 6 percent of Americans can claim. She enjoys her job, has a solid income and excellent insurance coverage. She is in good health, has three wonderful kids, and can cover all her bills without falling further into the red. Relationships, education, career experience, health and spirituality are all components of well-being; savoring the positive can provide the momentum to tackle the bad stuff.

2) Set one to three manageable goals

Don’t overwhelm yourself with a list of ten things to fix immediately. Leah’s priorities were eliminating her credit card debt; creating a plan to pay off her student loans (which were in forbearance); and building up an emergency fund of $10,000. Once we had a strategy up and running, we could move on to other goals, such as college savings and retirement.

3) Get a handle on the real numbers

Although Leah was making double the minimum payment on her credit cards, she felt she wasn’t making progress. I used an online debt calculator to show her the truth: By paying twice the minimum, she would banish the debt in 15 months and pay $302 in interest. If she made only the minimum payments, it would take more than six years, and she’d pay $1,328 in interest. Use tools like this one to help you get a grip on the math.

Leah also got the hard numbers on her student loan debt to make sure the loans weren’t snowballing at absurdly high interest rates, and disrupting the rest of her financial plan. Fortunately, the rates were quite low, so we left that alone for the moment to focus on the debt pay down. (That would free up the cash necessary to eventually tackle the student debt.)

Finally, we discussed Leah’s retirement plan. She had enrolled in a 403(b) plan when she started her job at a health center and contributed steadily for four years. But about 18 months ago, her employer eliminated matching funds because of budget cuts, so Leah stopped contributing. The health center is expected to reinstate the match next year, and Leah plans to jump back in then. It’s a smart move from a numbers perspective: It’s better to pay down credit card debt at 20 percent interest than to contribute to a plan with no match, because she’s unlikely to earn a 20 percent return on her retirement savings.

4) Rank your rates, then cut them down

Leah listed her credit cards on a single page from highest to lowest interest rate, along with the amount due and the company contact information. She called each lender and asked for a rate reduction, using this script: “I have been a card holder since ____. In the past few months, several credit card companies have offered me lower rates than my current rate with you. I value our relationship, but would like you to match the other offers that I have received and reduce my interest rate by 10 percent. Are you authorized to adjust my interest rate?” (If they say no, ask politely to speak to someone who can and repeat the request.)

Although it took several hours of phone hassles, Leah cut her interest rate by 13.5 percentage points across three cards. Savings: About $275.

5) Snowball it down

When we started, Leah had four months left on her car payment. Once that debt is paid off, she’ll direct the money to the highest-interest credit card. Similarly, when that’s paid off, the money will be targeted (with her car payment) to the next credit card until they’re all completely paid off. Then that giant snowball of cash will be used to pay off her student loans. The key is to keep the money out of her daily budget, so she doesn’t use it to boost her lifestyle.

6) Track spending to the penny

Leah began looking for ways to reduce her monthly expenses, and thinking about her choices in a value-oriented way. For instance, she could move from her home on Cape Cod to a cheaper suburb of Boston, but she values living on the beach. On the other hand, Leah realized she was dropping about $400 a month at a corner convenience store, on non-essentials like deli sandwiches and homemade ice cream. She’s eliminated those indulgences, dropped a gym membership she barely used and found ways to save on her cable and auto insurance. The idea is to cut where she can so she can spend on what she values most. The only way to do that is to know where every penny goes.

7) Look at ways to increase your cash flow

Leah usually gets a tax refund in April of more than $1,000. She spoke with an accountant about changing her withholding at work to get more cash in each paycheck (and no refund in April, because that’s giving Uncle Sam an interest-free loan for a year). The accountant ultimately advised against it for now, but she’ll revisit the idea next year. More importantly, she increased her income by working freelance on her blog. Those extra paychecks are earmarked to pay off her debt and build an emergency fund of $10,000.

8) Keep a gratitude journal to stay motivated

Leah started a journal right after her divorce, when she was overwhelmed and frightened about the future. She returned to it recently when she hit a financial setback — her partner of more than two years moved out, and took all of the living room furniture with him. (She bought a few basic pieces so the kids wouldn’t have to sit on the floor.) The journal reminded Leah of how far she’s come, and helped her find the energy and patience to keep moving forward.


Why the Rich Don’t Feel Rich

Hello,

Have you ever wondered why the rich are always complaining about everything that affects their money, and you are left asking what the person is complaining about when he has millions stashed away somewhere in a bank account. Apparently not many millionaires feel they are wealthy, and they are always looking for ways on how to cut down on their costs. As the rest of us struggle to make ends meet, sometimes it’s always good to appreciate other areas of your life, for example, family and friends, and remember that money is not everything and it won’t give you the satisfaction and happiness that you think it will. Laura Rowley explains in the following article some of the things that make people not feel that rich.

I am fascinated by the Todd Henderson controversy. As you may have read by now, Henderson is the University of Chicago law professor who blogged that he is not rich, even though he earns more than $250,000 a year with his physician wife. That puts their household in roughly the top 3 percent of earners in the U.S., and is four times the median income.

The Bush administration tax cuts enacted a decade ago are close to expiring, and the Obama administration wants to keep most of the cuts in place — but only for households making less than $250,000 a year.

That’s what Henderson was blogging about when he wrote: “A quick look at our family budget, which I will happily share with the White House, will show (President Obama) that, like many Americans, we are just getting by despite seeming to be rich. We aren’t.” (His post can be seen here, where Henderson also offers his response to the controversy.)

The blogosphere went ballistic about Henderson’s post. New York Times columnist Paul Krugman called Henderson the “whining Chicago professor” and The Wall Street Journal wrote a snappy piece on how Henderson might reduce his overhead. (Henderson came up in a discussion about money and happiness that I participated in with Swarthmore professor Barry Schwartz on Minnesota NPR’s “Midmorning” program last week.)

The brouhaha is ripe with psychological lessons. First, Henderson is a classic example of the hedonic treadmill at work. First articulated by psychologists in the late 1960s, the hedonic treadmill speaks to the phenomenon of human adaptation. We buy something new, we’re thrilled with it, then we get used to it, then we want something bigger and better and we’re unhappy when we don’t get it (or, in Henderson’s case, we end up feeling “poor.”)

For instance, Henderson spends more money to live in a home that’s close to his work, versus a cheaper residence farther away. Maybe he used to have a long commute, navigating snarled Chicago traffic or standing on a freezing platform waiting for a train. The first time he breezed to his office with no commuter headaches, or arrived home in time for dinner with the kids, must have felt like a miracle. Now it’s just the way life is.

Or does Henderson recall the first time the lawn service showed up and he didn’t have to spend a Saturday morning raking leaves and pulling weeds? That must have been a thrill. But in time, the lawn guy becomes just another monthly obligation –a luxury transformed into a necessity. Henderson writes that $250,000 a year doesn’t translate into an opulent lifestyle, but in one respect, it does.

He is time affluent. The minimal commute, the nanny and the lawn service all buy him more time to do what he wants outside the workplace. Numerous studies have shown people who are time affluent are happier than those who are materially affluent.

But there’s apparently not enough money left over for Henderson to use that extra time to buy material goods or experiences. So he needs to get creative. Henderson might boost his well-being by letting the lawn guy go and using the money to create a vegetable garden that he and his kids could work on together every weekend. It sounds like a chore, but the activity would be new, challenging and might inspire ”flow”– a concept developed by psychologist Mihaly Csikszentmihalyi. (Gardening would also create family memories and lower the grocery bill. I have lovely childhood memories of digging with my dad and plucking plump tomatoes off the vines on the side of our house. The squirrels thwarted our attempt to grow corn.)

Another intriguing aspect of this discussion is that $250,000 helps buy something that’s crucial in the U.S, where the social net isn’t going to catch you if you fall down — and that’s security. Henderson has a retirement account that he regularly contributes to, and his university job likely comes with benefits such as health, life and disability insurance. So if one of the bread winners can’t work or dies, the kids are all right.

While security is a critical component of wealth, it’s like a sunny day in California — taken for granted until a rare storm rolls in. Henderson could boost his happiness by writing down what he is grateful for one day a week, changing the domains from relationships to health to finances to keep the exercise fresh.

A final juicy issue underlying the controversy is that of expectations. People start their careers, hopefully earn more money over time, and develop a mental picture of what life will be like when they hit a certain income level. Because of social mobility (and social networking), they meet people who earn much less and much more. They look at the people who earn more and imagine they will have similar lifestyles when they earn enough to be called “rich.”

But we never know the financial circumstances behind the public appearance. We don’t know if someone has a trust fund, got really lucky on a tech stock, has a maxed-out home equity line of credit or is swimming in a sea of credit card debt. We don’t know if the grandparents are footing the bill for college or a wealthy aunt helped out with the home down payment. Instead, we mistakenly assume they are just like us, and our consumption patterns should be just like theirs.

But our decisions about money have to be based solely on our values, on our most important aspirations, on what we want to achieve in our lives — and then it’s all about priorities. If Henderson values sending his kids to the best private schools, for instance, there may not be a whole lot left in the budget for home renovations. If he values a popular location for his home, with its attendant property taxes and maintenance costs, there’s probably not going to be a lot left for travel. And if he started his career with a boatload of student debt, the menu of choices will be much narrower than the income would imply.

But frankly, that discussion is offensive, particularly in this economy, when for millions of people the choice is not travel or private school versus real estate, but utilities versus food, or rent versus car payments.

If anything, I appreciated Henderson’s honesty. It inspired me to revisit my definition of “rich,” and come away with a deeper appreciation for my family, friends, neighbors, good health and the wildly underappreciated wealth of living in a free nation.


The Happiness of Choosing Wisely

Hello,

Can you give a clear definition of happiness. Well this is a question that will generate as much varied responses as the people who take time to give a definition of happiness. In the world we are leaving at the moment, not many people can truly say they are happy with their life, especially the financial aspect. Because of the wrong choices we made in the past, we are now paying for the wrong decisions we made. My point is this, what happens when a person chooses a course of action that will not only result in the achievement of financial goals and dreams, but also the give that individual the peace of mind knowing that you are the master of your financial destiny. Laura Rowley explains in the following article the happiness of choosing wisely.

I stopped at my local bookstore last weekend to meet Columbia University psychologist Sheena Iyengar, whose book — “The Art of Choosing” — I reviewed in a recent column. A petite brunette with a lyrical voice, she signed the hardcover for me, and next to her signature, wrote: “Choose when to choose.”

I thought about that statement later when I received a letter from my bank stamped “ACTION REQUIRED.” It explained that under new federal rules, banks can no longer automatically cover overdrafts and charge (exorbitant) fees for the privilege. After July 1, consumers must opt in and agree to overdraft protection, otherwise the ATM or vendor may deny the transaction for insufficient funds.

“If you’re like most consumers, you rely on your ATM or debit card to save the day,” the letter stated. “However, what do you do if you do not have sufficient funds in your checking account?”

Apparently I’m not like most consumers (at least in the bank’s view) because I don’t rely on my ATM card to “save the day.” I rely on a budgeting program that helps me balance the money that flows in and out, so my financial boat is pretty steady. Despite the screaming caps, no action was required.

The Necessary Work

But building wealth usually does demand action, and conscious, consistent discipline. It’s the culmination of decisions made over and over every day — to uphold a set of values, live within one’s means, save and invest, and strike that delicate balance between carpe diem (seizing the day) and robbing from tomorrow. Some people approach their finances casually, carelessly and unconsciously with regard to every offer that might be thrilling at the moment — but that ultimately can shatter the things one values most.

“The beauty of choice is it gives you the power to think of your future as changeable,” says Iyengar. “It’s the only tool you have that enables you to think about and act upon how you’re going to go from who you are today to whom you want to be tomorrow. Framing your life in terms of choice is both empowering and burdensome.”

The changeable future was on the mind of a young bank manager I met last week when I went to close an account and shift the money to one that offered higher interest. When he found out I write about personal finance, he asked for advice. He lives with his fiance; both were a few years out of college with student loan and credit card debt. He felt he had a handle on his money, and he wanted to set up a joint account for shared expenses. She resisted, and he suspected that her spending outstripped her income. When she returned from the mall, he said, she would try to hide the shopping bags.

After we talked about which debts to tackle first, I suggested he and his fiance sit down separately and make a list of the things they wanted most in life. What did they value, what were their fervent hopes and dreams for their lives, their biggest aspirations? Then come together and identify where the lists overlap, I said, and answer three questions: When do we want to achieve these goals? What will they cost in money, time and energy? How much do we need to save in 10 years, five years, next month, next week and today to reach them?

Earning Success

When we drill down deeply into values and priorities, we might be lucky enough to hit something that’s true and authentic, that’s a reflection of who we really are and how we want to show up in the world. Connecting to what is most meaningful and purposeful becomes a source of conviction in a world of ubiquitous temptation. It provides the energy and the inspiration to choose when to choose.

A few weeks ago a friend told me that her daughter and son-in-law were thinking about starting a family. The daughter told her mother that even if she wanted to quit work and stay home with her kids, she couldn’t afford to, because they had created “a certain lifestyle.” Having a parent stay home with children is indeed a luxury in a world of stagnating wages and rising costs. But for a high-earner to sacrifice the choice, before the fact, on the altar of a certain lifestyle, struck me as a form of economic Stockholm syndrome: Emotionally bound to a material status, the captive becomes one with the captor.

“Modern individuals are not merely ‘free to choose,’ but obliged to be free, to understand and enact their lives in terms of choice,” writes Nikolas Rose in his book, “Powers of Freedom.”

“They must interpret their past and dream their future as outcomes of choices made or choices still to make. Their choices are, in their turn, seen as realizations of the attributes of the choosing person — expressions of personality — and reflect back on the person who has made them.”

”It takes courage and imagination to be the architects of our lives, to choose when to choose and be accountable for the sum of our efforts. But there is no happiness that compares with earned success,” as Arthur Brooks, president of the American Enterprise Institute, wrote in a recent essay.

“Earned success is the creation of value in our lives or the lives of others. It is what drives entrepreneurs to take risks, work hard and make sacrifices. It is what parents get from raising happy children who are good people. It is the reward we enjoy when our time, money and energy go to improving our world.”


25 Ways to Waste Your Money

Hello,

We are all guilty of wasting money in one way or another. There are some activities we perform in our daily routine, that might be considered a waste of money, that is, if they are critically evaluated. Take the example of budgeting, a lot of individuals consider this to be a total waste of time, but it is a fact that people who budget their financial resources are in a better financial situation than those who don’t. Erin Burt illustrates in the following article 25 areas where people waste money that could have been used in other meaningful ways.

Plug your financial leaks, and pocket the savings.

Has your budget sprung a leak?

Nearly everyone has spending holes. And as with other kinds of leaks, you may have hardly noticed them. But those small drips can quickly add up to big bucks. The trick is to find the holes and plug them so you can keep more money in your pocket. That extra cash could be the ticket to finally being able to save, invest, or break your cycle of living from paycheck to paycheck.

Here are 25 common ways people waste money. See if any of these sound familiar, then look for ways to plug your own leaks:

1. Carrying a balance.

Debt is a shackle that holds you back. For instance, if you have a $1,000 balance on a credit card that charges an 18% rate, you blow $180 every year on interest. Get in the habit of paying off your balance in full each month.

2. Overspending on gas and oil for your car.

There’s no need to spring for premium fuel, if the manufacturer says regular is just fine. You should also check to make sure your tires are optimally inflated to get the best gas mileage. And are you still paying for an oil change every 3,000 miles? Many models nowadays can last 5,000 to 7,000 miles between changes, and some even have built-in sensors to tell you when it’s time to change the oil. Check your manual to find the best time for your car’s routine maintenance.

3. Keeping unhealthy habits.

Smoking costs a lot more than just what you pay for a pack of cigarettes. It significantly increases the cost of life and health insurance. And you’ll pay more for homeowners and auto insurance. Add in various other expenses, and the true cost of smoking adds up dramatically over a lifetime — $86,000 for a 24-year-old woman over a lifetime and $183,000 for a 24-year-old man over a lifetime, according to “The Price of Smoking” (The MIT Press).

Another habit to quit: indoor tanning. There is now a 10% tax on indoor tanning services. As with cigarettes, the true cost of tanning — which the World Health Organization lists among the worst-known carcinogens — is higher than just the price you pay each time you go to the salon.

4. Using a cell phone that doesn’t fit.

How many people do you know who have spent hundreds of dollars on fancy phones, and then pay hundreds of dollars every month for the privilege of using them? Your phone is not a status symbol. It is a way to communicate. Many people pay too much for cell phone contracts and don’t use all their minutes. Go to BillShrink.com or Validas.com to evaluate your usage and see if you can find a plan that fits you better. Or consider a prepaid cell phone. Compare rates at MyRatePlan.com.

5. Buying brand-name instead of generic.

From groceries to clothing to prescription drugs, you could save money by choosing the off-brand over the fancy label. And in many cases, you won’t sacrifice much in quality. Clever advertising and fancy packaging don’t make brand-name products better than lesser-known brands.

6. Keeping your mouth shut.

No one wants to be a nuisance. But by simply asking, you may be able to snag a lower rate on your credit card.

When shopping, watch for price discrepancies at the cash register, and make a habit of asking, “Do you have a coupon for this?” You might even be able to haggle for a lower price, especially on seasonal or perishable items, floor models or big-ticket purchases. Many stores will also match or beat their competitors’ prices if you speak up. And try asking for a discount if you pay cash or debit — this saves the store the cut it has to pay the credit-card company, so it may be willing to give you a deal. It doesn’t hurt to ask.

7. Buying beverages one at a time.

If you’re in the habit of buying bottled water, coffee-by-the-cup or vending-machine soda, your budget has sprung a leak. Instead, drink tap water or use a water filter. Brew a homemade cuppa joe. Buy your soda in bulk and bring it to work. (Better yet, skip the soda in favor of something healthier.)

8. Paying for something you can get for free.

There’s a boatload of freebies for the taking, if you know where to look. Some of our favorites include restaurant meals for kids, credit reports, software programs, prescription drugs and tech support. You can also help yourself to all the books, music and movies your heart desires at your local library for free (or dirt cheap).

9. Stashing your money with Uncle Sam rather than in an interest-earning account.

If you get a tax refund each April, you let the government take too much money in taxes from your paycheck all year-long. Get that money back in your pocket this year — and put it to work for you — by adjusting your tax withholding. You can file a new Form W-4 with your employer at any time.

10. Being disorganized.

It pays to get your financial house in order. Lost bills and receipts, forgotten tax deductions, and clueless spending can cost you hundreds of dollars each year. Start by setting up automatic bill payment online for your monthly bills to eliminate late fees and postage costs. Then get a handful of files to organize important receipts, insurance policies, tax documents and other statements.

Finally, consider using free budgeting software such as Mint.com to see exactly where your money goes, making it much harder for you to lose track of it.

11. Letting your money wallow in a low-interest account.

You work hard for your money. Shouldn’t it work hard for you too? If you’re stashing your cash in a traditional savings account earning next-to-nothing, you’re wasting it. Make sure you’re getting the best return on your money. Search for the highest yields on CDs, and money-market savings accounts. And consider using a free online checking account that pays interest, such as ones offered by Everbank and ING Direct.

Your stocks and mutual funds should be working hard for you, too. If they’ve been lagging behind their peers for too long, it could be time to say goodbye. Learn how to spot a wallowing fund or stock.

12. Paying late fees and missing deadlines.

Return those library books and movie rentals on time. Mail in those rebates. Submit expense reports on time for reimbursement. And if you make a bad purchase, don’t just stuff it in the back of the closet and hope it goes away. Get off your duff, return it and get your money back before you lose the receipt.

13. Paying ATM fees.

Expect to throw away nearly $4 every time you use an ATM that isn’t in your bank’s network. That’s because you’ll pay an ATM surcharge, and your own bank will hit you with a non-network fee. Consider switching to a bank, such as Ally Bank, that doesn’t charge ATM fees and reimburses you for fees other banks charge. Another way to avoid fees if there’s not an ATM in your bank’s network nearby is to get cash back when you make a purchase at the grocery store or drugstore.

14. Shopping at the grocery store without a calculator.

Check how much an item costs per ounce, pound or other unit of measurement. When you do a comparison-shop by unit price, you save. For example, if a pack of 40 diapers costs $13, that’s 33 cents per diaper. But if you buy a box of 144 diapers for $35, that’s 24 cents per diaper. You save 27%! (Of course, buying more of something only saves money if you use it all. If you end up throwing much out, you wasted money.)

15. Paying for things you don’t use.

Do you watch all those cable channels? Do you need those extra features on your phone? Are you getting your money’s worth out of your gym membership? Are you taking full advantage of your Netflix, TiVo and magazine subscriptions? Take a look at what your family actually uses, then trim accordingly.

16. Not reading the fine print.

Thought you were being smart by transferring the balance on a high-rate credit card to a low-rate one? Did you read the fine print, though? Some credit-card companies now charge up to 5% for balance transfers. Also watch out for free checking accounts that aren’t so free. Some banks are starting to charge fees unless you meet certain criteria.

17. Mismanaging your flexible spending account.

For some people, that means failing to take advantage of their workplace FSA, which lets employees set aside pre-tax dollars for out-of-pocket medical costs. Other people fail to submit receipts on time. And the average worker leaves $86 behind in his or her use-it-or-lose-it FSA account each year, according to WageWorks, an employee benefits provider.

18. Being an inflexible traveler.

You’ll save a lot of money on travel if you’re willing to be flexible. Consider traveling before or after peak season when prices are lower. Or search for flights over a range of dates to find the lowest fare. Booking at the last minute also can save you money because hotels and airlines slash prices to fill rooms and planes. And flexibility pays off at blind-booking sites, such as Priceline or Hotwire, which offer deep discounts if you’re willing to book a room or flight without knowing which hotel or airline (or other details about the flight) you’re getting until you pay.

19. Sticking with the same service plans and the same service providers year after year.

Hey, we’re all for loyalty to trusted service providers, such as your bank, insurer, credit-card company, mutual fund, phone plan or cable plan. But over time, as prices and your circumstances change, the status-quo may not be the best deal any more. Smart consumers are always on the lookout for bargains.

20. Making impulse purchases.

When you buy before you think, you don’t give yourself time to shop around for the best price. Take the time to compare prices online, read product reviews and look for coupons when appropriate.

Make it a policy to give yourself a cooling-off period in case you’re ever tempted to make an impulse purchase. Go home and sleep on the decision. More often than not, you’ll decide you don’t need the item after all.

21. Dining out frequently.

Spending $10, $20, $30 per person for dinner can be a huge drain on your wallet. Throw in a $6 sandwich for lunch every day and you’ve got quite a leak. Learning to cook and bringing your lunch from home can save a couple hundred bucks each month. When you do go out, consider getting carry-out instead of dining in (you’ll save on the tip and drink), skip the overpriced appetizer and dessert, and search the Web for coupons ahead of time.

22. Trying to time the stock market.

In trying to buy low and sell high, many people actually do the opposite. Instead, employ the simple strategy of “dollar-cost-averaging.” By investing a fixed dollar amount at regular intervals, you smooth out the ups and downs of the market over time. If you take out the emotion and guesswork, investing can become less stressful, less wasteful and more successful.

23. Buying insurance you don’t need.

You only need life insurance if someone is financially dependent upon you, such as a child. That means most singles, seniors or kids don’t need a policy. Other policies you can probably do without include credit-card insurance (better to use the premium to pay down your debt in the first place), rental-car insurance (most auto policies and credit cards carry some coverage), mortgage life insurance and accidental-death insurance (a regular term-life insurance policy will do the trick).

24. Buying new instead of used.

Talk about a spending leak — or, rather, a gush. Cars lose 20% of their value the moment they’re driven off the lot and 65% in the first five years. Used models can be a real value because you can get a car that’s still in fine working order for a fraction of the new-car price. And you’ll pay less in collision insurance and taxes, too.

Cars aren’t the only things worth buying used. Consider the savings on pre-owned books, toys, exercise equipment, children’s clothing and furniture. (Of course, there are some things you’re better off buying new, including mattresses, laptops, linens, shoes and safety equipment, such as car seats and bike helmets.)

25. Procrastinating.

Time is an asset money can’t buy. Start investing for retirement as soon as possible. For instance, if a 40-year-old saves $300 a month with an 8% return per year, he’ll have $287,000 by age 65. If he had started saving 15 years earlier at age 25, he’d have more than $1 million.


6 expenses you should never put on a credit card

Hello,

While we are on the subject of people you should never trust with your credit card, there are certain expenses that when charged against your credit card can take you years to pay off, and this could do some serious damage to your credit score. For example, buying a very expensive item using your credit card. No matter how tempted you are to own that asset, you better think twice on how you intend to pay for it. There are certain expenses that are best settled in cash or postponing the purchase until a later date. Allie Johnson illustrates in the following article six expenses that should never be charged against your credit card.

There are some things experts say you should never put on a credit card if you can’t pay the bill right away — either because they’re frivolous, or they can land you deep in debt or, in some cases, because there’s a better alternative.

If you have plenty of money in your bank account, it can make sense to put just about any big purchase on your credit cards because of the rewards, convenience and consumers protections that come with plastic. When you’re broke, though, it’s one thing to use your card for an emergency. It’s quite another, however, to splurge on a mommy makeover, an island vacation or a diamond engagement ring.

Here are six credit card purchases experts say cash-strapped consumers should avoid at all costs.

1. A big tax bill.

A tax bill from the IRS could make a nervous taxpayer reach for a credit card. But don’t do it. “Federal income tax is right at the top of the list of things not to pay with a credit card,” says David Jones, president of the Association of Independent Consumer Credit Counseling Agencies. “When people get in this type of situation, it’s usually a fairly large tax bill, and it can be difficult to pay off those credit cards.” In addition, you’ll pay a processing fee that could be 2 percent or more of the total amount you pay by credit card.

The alternative: The IRS will set up a payment plan at a much lower interest rate than a credit card offers, experts say. “It’s amazing, but the IRS actually charges less interest than anybody else. It’s very low now, less than 5 percent,” Jones says.

2. A gambling spree.

Entrepreneur Rod Ebrahimi, who is developing an online financial application called ReadyforZero to help consumers pay down debt, says he has a friend who recently gambled away more than $3,000 taken from a credit card cash advance. “If you’re sitting at a table in Vegas, they make it really easy to pull cash with your plastic. They’ll process it for you, bring you some nice chips and you can keep on gambling,” Ebrahimi says. “And a lot of people don’t understand APRs for cash advances are much higher — upward of 30 percent.”

The alternative: If you have a gambling problem, seek counseling or other help, recommends Jones, who recently helped a client who had racked up $113,000 in credit card debt playing online poker. If gambling is more of a hobby, Ebrahimi recommends steering clear of casinos when you’re short on cash — or playing poker online without betting money.

3. College tuition.

Experts say it’s not smart to finance college tuition on credit cards. “College tuition can be a very significant expense,” Jones says, noting that charging tuition on credit cards might make sense only if you know you’ll be able to pay it off in full within three months.

The alternative: Experts recommend putting all options on the table. That includes grants, scholarships, low-interest student loans, a part-time job, attending community college for a few years or attending a less-expensive university. “It’s a good idea to meet with a credit counselor to get some help understanding all of your options,” Jones says. “Student loans can be a very good option, but you need to make a plan to repay them. Some people get into a huge amount of debt with student loans.”

4. Plastic surgery.

Reality shows such as “Extreme Makeover” make it seem routine to get nips, tucks and D-cups, but pulling out plastic to pay for it is a bad idea, experts say. “Most of it is vanity stuff, and charging that is crazy,” Jones says. Carrie Coghill, a personal finance author and director of consumer education for FreeScore.com, says she increasingly sees consumers being swayed by medical spa sales pitches to charge seemingly less expensive procedures such as Botox injections and laser treatments. “It might cost $1,500 each time, but those things can really add up — people get grabbed in, and it never ends,” Coghill says. She cautions consumers to read the fine print on offers for medical credit cards, such as CareCredit, that offer a zero percent introductory rate. “The day you make a payment late, they typically will go back and charge you interest from day one,” Coghill says.

The alternative: As with any luxury purchase, consumers should either save up for it — or skip it, experts say.

5. A lavish wedding.

One consumer who turned to Ebrahimi for help got into trouble by charging up $50,000 in credit card debt — much of it on a big wedding followed by a honeymoon in Barcelona. “I think a lot of times people get caught up in the event and spend more than anticipated. It’s very common to blow your budget,” says Clarky Davis, a financial counselor who runs TheDebtDiva.com. Statistics show finances can cause tension between couple,so starting off married life by running up debt is a bad idea, Davis says. “When you come home from the honeymoon and have to face a monster credit card bill, it can cause a lot of stress,” Davis says. “You can’t focus on where you are right now because you’re still paying off the past.”

The alternative: Most experts recommend scaling back and focusing on meaningful, rather than material, aspects of the wedding. “The people you love could care less if there’s an open bar or you’re wearing a $5,000 dress,” Davis says. “Stay within your means.”

6. A trip for two.

It’s a bad idea to finance a vacation with plastic, experts say, and that goes double for paying someone else’s tab, too. Monica Lichi, a nonprofit manager in Ohio, spent years paying off a Hawaiian cruise she took with an ex. “Neither of us had the money, so I said, ‘Oh, I’ll just put it on my credit card,'” Lichi recalls. After living it up on the trip — they island-hopped, went ziplining and sipped fruity cocktails — Lichi returned home to a huge bill. “The inconvenient part comes when you break up and they don’t pay you back,” says Lichi, who is using the online service DebtGoal.com to pay down her five-figure credit card debt.

The alternative: Well in advance, start making a monthly payment into a bank account — the reverse of what you’d do if you paid with a card, Coghill recommends. “It feels so much better to pay in cash and not come back from vacation with a credit card hangover,” she says. If you’re going with a friend, an online service such as WePay.com can allow you to pool money in advance and pay expenses with a shared debit card rather than your credit card.

So, how do you stay sane with your credit cards? Experts recommend taking your time and avoiding impulsiveness, especially when money is tight. “If you’re thinking about putting a vacation on a credit card, or even a pair of shoes, you should walk away, think about it and come back later,” Coghill says. “If you’re charging anything over $1,000, you really should be asking yourself, ‘What am I doing?’


8 people you trust with your credit card, but shouldn’t

Hello,

We are our worst enemies, as the saying goes. And sometimes we trust the people around us too much, and what happens next will leave your head spinning. I don’t want to sound too untrustworthy of others, all I’m saying is that it pays to be extra cautious, especially when it comes to your credit card. We all all know that there are people who spend sleepless nights coming up with ways on how to scam honest, hard-working and decent citizens. But sometimes, it’s the people we trust with our credit cards that can do the most damage. The following article by Erica Sandberg illustrates 8 individuals that we entrust with our credit cards, and it’s a high time we started thinking twice about the whole situation.

It’s amazing how often we blindly hand over our credit cards and numbers to so many people and businesses. Why? We trust them! The problem is, however, that sometimes we’d be better off holding back and taking a more discretionary approach. Certain individuals and companies should be off limits. To keep safeguard of your credit, avoid giving the following folks unlimited access to your account.

1. Your darling child.

Whether you have a PC, smart phone or iPad, chances are high that your kid has become quite the gaming pro. She begs for your password and soon your bill swells. It happens, and the damage can be extreme. In January 2011, a 7-year old in British Columbia was on an iPod and found an app called Touch Pets – Dogs 2. An hour’s worth of play ran up $852, which was charged to the credit card her parents had on file with iTunes. “Trust can’t come without education and maturity,” says Jan Ruskin, spokeswoman for Creative Wealth International, a financial literacy product company. And clearly a child can’t be expected to read and understand fine print.

2. Callers investigating a credit card scam.

The man on the phone sounds both professional and deadly serious. He’s with the police or credit card company, and he says that your account has been compromised . To confirm your identity, he needs you to read off your card’s numbers. The catch: He’s the thief. “No responsible agency will work this way,” says Los Angeles-based security expert Chris McGoey. It’s easy to fall for this scam because very often the caller knows a few facts about you. “They’ll get a hold of people from a list — religious, political, etc. The story sounds plausible,” says McGoey. To ensure all is well, though, hang up and call the number on the back of your card.

3. Loved ones.

You’d think you could rely on your best bud to never do you wrong, right? Well, not necessarily. Sometimes it’s those closest to us who abscond with our credit information. A 2010 Identity Fraud Survey Report found at least 13 percent of all identity theft is perpetrated by friends, neighbors and other close acquaintances. Lend a pal your card or leave statements in plain view and you could be exposing yourself to trouble.

4. The hired help.

It may save you time to hand over your Home Depot card to a contractor, or give your Visa to the nanny so they can buy supplies, but that’s giving strangers way too much access. They might be the most upstanding people in the world, but you should still order your own stuff. The only people who should ever charge on your card besides you are other co-signers and authorized users.

5. Virus protection heroes.

Get online and see a warning message that your computer has a virus needing immediate attention? Use extreme caution when purchasing new protection software. “Don’t trust anyone who tries to scare you into downloading software to fix your PC that’s supposed to have a virus,” warns Robert Siciliano McAfee, a consultant and identity theft expert. “This is scareware, and it will mess up your operating system, and your card will be charged more than once.”

6. The disappearing waiter.

Anytime your plastic is swept away by another person, you have reason for pause. Unfortunately, some restaurant staff may be especially dangerous. “Many skimming networks operate using wait staff,” warns Steve Rhode of GetOutOfDebt.org. “They will pay $50 or more for credit card information that can be swiped off your card using a small electronic device that reads the magnetic strip on the card. Skimming only takes two seconds.” While you can’t always control where they take the card, it’s important to check your receipts and statements immediately.

7. The “helpful” debt collector.

If you owe money to a collection agency, you might be asked to enter into a payment plan or settlement agreement using your credit card. Don’t do it, says Sonya Smith Valentine, attorney and author of “How to Have a Love Affair with Your Credit Report.” “If you are working out a deal on past due debt with a debt collector, send a money order,” she suggests. “Some debt collectors will charge your card for the whole amount that you owe, not just the amount they agreed to settle the debt for.”

8. You.

According to Carrie Coghill, director of consumer education for FreeScore.com , the person you might want to be most wary of may be reflected in the mirror. “Even the smartest people do the dumbest things,” Coghill says. She cites examples of those who consolidate debts on low interest rate cards, but don’t pay attention to the special rate time frame and get hit with super high APRs, and millionaires who overextend themselves because they must have the latest things. So look inward, cardholder: If you can’t trust yourself to stay out of debt, purge your wallet of plastic.

While casting suspicious glares at everyone is unnecessary, being careful can prevent common credit problems. Monitor your financial affairs too. “The bottom line is the best deterrent against credit card fraud and abuse, is for you to monitor your monthly statements and check your consolidated credit report twice a year,” says Rhode.


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