Archives for September 2011

Why I’m Not A Big Penny Pincher

Anyone who really knows me, is well aware that I'm a spender. Penny pinching isn't my thing. That isn't to say that I'm flinging money about like water. What it does mean, though, is that I don't go out of my way to save a few cents — or even to save a few dollars. While I think that saving money, setting funds aside for the future and emergencies, is important, I don't really think that I'm going to achieve financial freedom by clipping coupons and denying myself a weekly meal in a restaurant.

Sometimes It's Worth It To Pay More

One of the biggest reasons that I'm not a penny pincher is because I honestly believe that sometimes it's worth it to spend more money. Yes, I can go to the buffet chain restaurant and load up on mediocre food. I can save a lot of money doing that, too. But I don't enjoy it as much as I would a meal from the best restaurant in town. Since I enjoy food, and good food is a priority for me, I am willing to pay a little bit more for it.

This is true of some conveniences, such as flying at a time that I consider saner than taking a red-eye, and that allows me to see my son off to school before I leave. It's worth the extra $50 to me. Of course, there are things that I wouldn't spend as much money on. I'm not big into trinkets; buying a postcard or a cheap magnet to commemorate a trip is sufficient for me.

I'd Rather Make More Money

While I believe that it's important to get good value for my money, I don't like taking the time that it takes to be really successful at some of the techniques that are often used to pinch pennies. Yes, I look for bargains. But I'm not nitpicking over a couple bucks. And I don't enjoy the coupon game. While it works for some people, and I don't think there's anything wrong with being frugal and pinching pennies, it's not my preferred method of paying for what I want.

Instead, I prefer to make more money. I have to admit, though, that I am lucky and blessed in that it isn't usually very hard for me to make a little more. I can write an extra article or two, or take on an extra project. If I want a pedicure, I can write an extra article — there's no need for me to pinch pennies for three weeks with coupons, or skip my trip to the restaurant.

Bottom Line

We all have different priorities, and we all prefer to spend our money on different things. Perhaps I'm not being as disciplined as I could be, but as long as I have a general plan for the future, and I'm taking care of what needs to happen, I don't see any reason to pinch pennies if I don't have to. What do you think? Are you a penny pincher? Why or why not?

Are Your Emotions Getting In The Way Of Your Financial Success?

By Miranda Marquit 6 Comments

It's impossible to completely keep emotions out of finances. After all, money is related to a number of emotions, especially fear and excitement. While it might not be advisable to completely eschew all emotions, you do need to acknowledge how they affect you — and watch out for indications that your emotions could be getting in the way of your financial success.

Emotions and Finances

Excitement

It is possible to let your excitement get away with you. Consider how you feel when you first get paid. Indeed, studies have shown that people are more willing to spend money on pay day — when they feel flush. So, even though you might be excited about pay day, or an unexpected windfall, it's important not to spend money when you are in that first flush of giddiness. Don't let your excitement, or your relief, overwhelm your good senses. Say no to extra spending, and take a step back. Examine your priorities and make sure that your excitement isn't leading you to make a poor decision.

Fear

My husband has a Ph.D. in experimental psychology, and one of the things that he says that studies show over and over again is that fear is a very strong motivator — especially in the short-term. Unfortunately, when it comes to money, the fear-based decision making of the short-term can have very long-term consequences. Making decisions based on fear, whether it's pulling out during a stock market drop or buying into a Ponzi scheme because you're afraid of missing out, can lose you a lot of money.

Your fear of loss can also work against you. If you have a huge fear of risk, you might miss out on opportunities to grow your wealth, or start your own business. While you want to limit your risk, and take calculated risks, you do have to be careful of avoiding risk altogether. That kind of paralyzing fear can keep you from reaching your financial goals.

Despair And Disappointment

One of the hardest things about getting out of debt is getting over the despair and disappointment. It is easy to look at the impossibility of the situation, and give up. Try not to let this despair cripple you, though. If you do, you can become trapped in a debt spiral. Instead, find a little optimism. Make a plan to help you get out of debt, and make progress toward your goals. Once you do that, you will be more likely to notice your progress, and avoid the debilitating emotions associated with giving up on your goals.

Sticking To Your Plan

Making a plan is a good idea no matter your situation. Whether you are creating an investment plan for retirement, or making a debt reduction plan, having a road map to follow can help you avoid the pitfalls of letting your emotions rule you. When you feel like spending money because of a sense of euphoria, or when you are ready to sell a stock because of a market crash, step back and refer to your plan. Having that to fall back on can help you keep your emotions in check — and your finances on the right path.

Grandparent Scam Strikes Again

By Contributor 2 Comments

Put yourself in the shoes of a caring Grandmother. Let’s say one day you receive a call from your grandson telling you they’ve been in an accident and are being held in jail in the Dominican Republic. They want you to keep their little debacle a secret but they need you to wire money to them ASAP to get them out of jail.

What would you do?

Claudia Beach of Jacksonville, Florida recently faced this exact scenario recently and in a worried, emotional state, sent the money straight away to her needy “grandson”. Her “grandson” first called asking for $3,400 for bail out of the Dominican Republic jail he was stuck in.

“My emotions went wild. I couldn’t think. All I could think was he was in jail in a foreign country”.

Grandparent Scam

She rushed to her nearest Publix and wired the money immediately via Western Union.

Keeping her “grandson”s secret she apparently didn’t discus this matter with the boy’s parents. The very next day she received another call from him. This time he said they were making him pay his medical expenses of $2,400.

To Western Union!

Later that very afternoon the phone rang again. This time sonny-boy was asking for $1,800 to pay for the medical expenses of the lady he hit.

She says that the employees at Western Union questioned her each time if she was sure if this was her grandson. When he called the first time he told her that he didn’t sound like himself since he had been in the accident and had stitches in his lips. In a concerned state, she bought this story.

The money was wired each time to a lawyer by the name of Angel Rosario. Money that Claudia Beach will never see again. A total of $8,300. She has since filed a complaint with the Federal Trade Commission and the local police. Beach has come forward with this story to bring awareness to others that might be at risk for this scam.

To protect yourself:

Do not disclose any information before you have confirmed it really is your grandchild.
If you’re not sure ask the caller for their middle name or the elementary school he or she attended.
Do not respond with a name but instead let the caller explain who he or she is.

What breaks my heart about this scam is that it preys on love. If you are a caring Grandparent be wary if you receive a call like this that tugs on your heart strings. If you receive a distress call from a family member in another country I would recommend first, verifying that they are in fact in another country. Using the bullet pointed suggestions above or maybe calling their cell phone? Or their parents to ask how they are doing and what they are up to? I understand there will be different cases for different family dynamics but before you pay up you need to verify an identity!

Video about Grandparent Scam Strikes Again by @GetOutOfDebtGuy from GetOutOfDebt.org

This guest post was submitted by Steve Rhode who is a consumer debt expert and helps learn about getting out of debt and avoid scams.

How To Deal With Regular Bills When You Have An Irregular Income

By Contributor 5 Comments

When your income doesn't come in 24 equal payments spaced evenly throughout the year it can be hard to make a budget. Unfortunately, this is a fact that a lot of people deal with in their life. There are a lot of industries where the pay is great in the summer time and then tapers off with the chill of winter. Or even vice versa. If you aren't careful with your budget throughout the year you can find yourself in a pinch in the off-season.

I was talking to a friend of mine who is a realtor. She was saying her income is great in the summer but then in the winter she has a hard time making ends meet. People would prefer to move in the summer since the kids are out of school and the weather is nicer, and no one wants to move around the holidays. She wanted to know how much she should have in her emergency fund to cover her winter expenses.

But I actually felt she was looking at it the wrong way. An emergency fund for emergencies and her winter expenses aren't emergencies. She knows these bills are coming, so she should plan for them, outside of her emergency fund.

The first thing she needs to do is figure out what her average monthly income is and make a budget based on that average. Part of her budget should include debt elimination, if she has debt, building of her true emergency fund, and future investments. Along with that she needs to put some money into an emergency fund. A little bit of money, not the full 3-6 months right away. She just needs to protect herself from a normal sized emergency right now.

Let's look at some pictures. (hand drawn by yours truly)

Cyclical Income

Here we have her income. The gray curvy line is her income. The black dashed line is her new budget. Now she has a budget that works for her income. Next she needs to start building what I call, her cushion fund.

cyclical income with cushion

A cushion fund is money that you set aside to fill in the gaps between your income and your budget. So during the summer months she would build her cushion fund, and in the winter months she would draw from it. This smooths out her income so it's not wild parties in the summer and Ramen noodles in the winter. It's just normal life all year-long.

This system allows her to plan for her reduced winter income and also be prepared for a true emergency should one arise. Right now, at the end of summer, she is feeling very stressed knowing her income is going to go down soon. But if she follows this plan, next year will be a different story. She probably still won't like receiving those smaller checks, but at least she will have a plan to put food on the table.

Do you have an irregular income? How do you handle it?

This article was written by Ashley over at Everything Finance. Everything Finance is a site about just that, everything related to finance. You can get information about investing, saving money, shopping, blogging, and making money online. If you like what you see here, make sure to stop by or better yet subscribe to their feed so you don't miss a thing.

Are You Seriously Committed To Saving, Or Still Committed To The Short-Term?

By Contributor 1 Comment

People can't stop talking about the possibilities of a second recession, which may very well be redefined as the continuation of what becomes the broader-defined Great Recession of the decade.

Between talks of European economic crisis and American debt doom, the average man and woman who have to deal with these realities are talking about how to make ends meet. Luxuries of years past have been stripped away, such as two cars in the garage, constantly updated wardrobes, and state-of-the-art technology. But relatively speaking, are these really sacrifices, and do we remain tasked with having to sacrifice much more in order to survive impending economic calamity?

In A Rut Of Self-Indulgence

Despite struggling to make ends meet at the end of every month, I still chuck $100.00 to my mobile service provider in as much time. For what exactly? The essential aspect of a phone is the ability to communicate with the outside world, but not be constantly attached to it, which is what my unlimited data plan encourages me to do. The prepaid phone, even a smartphone model, would cost significantly less by limiting what I can do. Yet I want that unlimited streamlined service, even though I can easily live without it while still having the usefulness of a mobile phone.

Countless families across the country are still stuck in similar ruts of self-indulgence. Consistent credit card bills plus news of a worsening economy plus barely getting by should equal the abandonment of entertainment in favor of austerity. To do anything other than that is logically idiotic. Yet we all continue to essentially waste money on the here and now.

Prioritizing Our Spending

But entertainment and pleasures can't be the only enemy to attack. To be honest everyone needs a night out at the movies and creature comforts during these tough times. We just need to prioritize them much more than we currently do. The major obstacle in our way is not the need for fun and games, which are essential, but our inability to understand the importance of moderation, especially in times like these.

Food is another major source of spending that can probably be seriously revamped by the majority of American families. Studies confirm that American food portions have increased significantly since after the Second World War. Modern American families are not familiar with healthy portions. Reduced levels of food consumption can be hard to commit to for a number of reasons, but it can reduce monthly household spending significantly.

The 2008 financial collapse caused millions of Americans to rethink the way they spent their money. But maybe it will be the unfortunate resurrection of a recession in 2012 that makes Americans realize that “toughing it out” is something they aren't exactly used to. But in tough times, it's an essential part of survival.

Hedging Market Risks To Your Retirement

By Miranda Marquit 1 Comment

The current stock market volatility has many wondering how market risks could affect their retirement prospects. Many almost-retirees found, to their dismay, that the market crashed, wiping out retirement portfolio values, just before they needed that money. While the market has been recovering since 2008, the fear of what happens “next time” has many wondering what they can do to hedge some of the market risks to retirement.

Two of the risks that you are likely to run into include the following:

Market crash just prior to your retirement. This could also include a period of a down market. This means that when you withdraw from your retirement account, you are selling investments at a time when you are locking in losses — and you have to sell a higher volume to meet your needs, reducing the amount of investments in your portfolio.
Maturity on some products at an inconvenient time. Your CD might mature just after interest rates plummet, leaving you no option to roll over at the same yield, or a bond might be called early (or mature), while rates are low.

While you can't completely eliminate these risks (all investment comes with risk), you can hedge against them in a way that can help you limit your losses.

Hedging Market Risks

Diversity

The first line of defense against huge market losses is diversity. When some markets are down, others are up. Consider adding a little more diversity to your portfolio in terms of real estate and commodities, in addition to stocks and bonds. You can also look at diversity in terms of foreign vs. domestic investments, and diversity across sectors, as well as adding some dividend aristocrat stocks to help with your income during retirement — even during a down market.

Stagger Your Maturities

Don't invest in a bunch of CDs that mature at the same time, or invest in Treasury securities that all mature in five or 10 years. Choose different maturity dates, and acknowledge that you might need to have a plan for short-, middle- and long-term investing. A CD ladder can help you create a system that allows you to earn the highest possible yields on long term CDs, while still having the opportunity to take advantage of higher rates when they arrive. Choose bonds of different maturities so that they aren't all coming due at the same inconvenient time. A little staggering can help you avoid having to reinvest everything at the same time — and possibly lose out because of it. Also, make sure you have some investments meant for different time frames so that you have a little more flexibility when deciding what to sell, and when.

Extra Income and Emergency Fund Padding

You can also hedge against market risk by planning your retirement income. Look for ways to build up additional income streams, especially passive income streams. That way, you won't have to rely heavily on withdrawing from your retirement investment account during a down market, and you can leave your portfolio alone to try to recover. (Some even recommend certain, carefully chosen annuities to provide income so that you don't have to deplete your investment portfolio in tough market times.) The same is true of having extra emergency fund padding. Look for ways to build up a supply of money that you can draw on without having to sell investments in a down market.

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