Managing your money in retirement is often depicted as a problem of how to allocate your portfolio, how quickly to draw down your net worth, when to begin taking Social Security and whether or not to buy long term care insurance. But managing one's financial assets is only part of the picture. Consider how you spend--the less your cash outflow, the easier it is to afford retirement. And you don't necessarily need to become a connoisseur of cat food or learn the dozens of ways to prepare rice and beans.
Pay off the mortgage. One of the most surefire ways to reduce month expenses is to pay off the mortgage. Since your retirement income will probably be less than your income while working, offloading the mortgage will improve the quality of your sleep.
Take the auto mechanic off your speed dial. Buy cars that are reliable and known for longevity. With the increased computerization of cars, the cost of repairs is skyrocketing. You don't have to buy a tinny econobox. If you can afford a luxury car, choose an Acura or Lexus, not some other brands that enrich repair shops.
When it comes to appliances, spare your back. High quality in home appliances isn't, to borrow a stock market phrase, closely correlated with price. The most reliable and long lasting washing machines and dryers tend to be the traditional, modestly priced top loaders. Currently fashionable side loaders have their attributes, but at the cost of higher purchase prices and less longevity. Plus you have to bend over or kneel down to get access to them. Your back and knees may have an opinion as to whether or not that's a good idea. Cheaper, more reliable, longer lasting, and easier on the back and knees is a pretty good bargain.
Use generics whenever possible. Generic drugs can be much cheaper than name brands. Why pay for a fancy name when the medication is the same at a lower price?
Avoid credit card debt. The most expensive loans most Americans take are credit card balances carried over from month to month. If you use credit cards, only charge what you can pay off at the end of the month. That way, you earn rewards, cashback bonuses, etc., without paying any interest. Why enrich banks in your golden years?
Showing posts with label credit cards. Show all posts
Showing posts with label credit cards. Show all posts
Monday, December 5, 2011
Sunday, June 10, 2007
Smart Spending Builds Wealth
Spending money can help to build wealth--if you spend the right way. Buy things when they are inexpensive. If you like tuna, wait until it goes on sale and buy a dozen cans for 1/3 or ½ off. As for meat or poultry, buy several pounds on sale and freeze what you don’t eat right away. If you like whole wheat bread, buy the brand that’s on sale. At most grocery stores, there will a dozen brands of whole wheat bread and one or another will usually be on sale every week. Also, read the nutritional labels. Sometimes, the supermarket’s generic brand has more nutritional content than more expensive and heavily advertised brands (no, not a joke). If you can get over the image problem, buying generic may be cheaper and better for you.
The next time you’re near a cheap gas station, fill your tank up completely. Then, top off at less expensive stations, even if you still have a half a tank. That way, you’ll always buy less expensive gas. Don’t wait until your tank is almost empty and you have to buy at whatever station is nearby regardless of cost.
On a larger scale, don’t buy expensive clothes until they go on sale. All stores have sales. Be patient and get suits, shirts and ties for 30%, 40% or even more off. If you want a large, flat screen TV, wait until a major holiday with a three-day weekend. The big box stores often drop prices to draw customers. Or find a discount outlet, either at a strip mall or online, and buy below the nationally advertised price. On an even larger scale, pay cash for your cars if you can. You may be able to get a very good price on a new car by asking for quotes from the dealer’s Internet departments. See our blog about buying a new car this way: http://blogger.uncleleosden.com/2007/05/buy-new-car-without-haggling-and-save.html.
When it comes to your credit card, don’t carry a balance over from month-to-month. Once you start rolling over a balance, the interest and other charges become a part of your financial life. If you pay off each month’s balance, you are effectively getting a loan at zero percent interest. That’s bargain basement credit. (Don’t feel sorry for the credit card companies—they ding the merchant a percentage of each charge, so they make money anyway.)
Think of smart spending as an investment. When you buy tuna at 50% off, you effectively make a 100% profit, because you save as much as you spend. When you buy a suit at 35% off, you effectively make about a 50% profit. The amount of money you “make” on a dozen cans of tuna this way is a few dollars. But if you approach all your spending this way, you could save hundreds and even thousands of dollars a year. Assuming you have a 50 to 60 year adulthood, your lifetime savings can amount to tens of thousands, and maybe more than a hundred thousand, dollars. Invest the savings, and you’ll notice an improvement in your retirement. To learn more about the power of compounding, go to our earlier blog at http://blogger.uncleleosden.com/2007/04/love-in-time-of-financial-planning-part.html.
This technique is most effective if you don’t buy when prices are high, and then buy in quantity when prices are low. Also, don’t buy things on sale simply because they are on sale. Use sale prices to your advantage, and purchase what you would buy anyway—when prices are low.
In order to buy things when they are inexpensive, you have to have some extra money around. An $800 charge for suits, shirts and ties at a sale may cause an unexpected jump in your credit card balance. It takes money to make money, even when we're talking about smart spending. So keep some cash on hand to cover these uneven expenses. How much you keep depends on your spending needs. A couple thousand dollars may be all you need for most household expenses. Obviously, more would be needed for something like a large high definition flat screen TV or a car. Set aside some money for spending capital. “Buy low, sell high” is an old adage in the investment business. Buying low is also a good way to spend.
Crime News: Here’s a criminal twist on a shopping list. http://www.wtop.com/?nid=456&sid=1162977.
The next time you’re near a cheap gas station, fill your tank up completely. Then, top off at less expensive stations, even if you still have a half a tank. That way, you’ll always buy less expensive gas. Don’t wait until your tank is almost empty and you have to buy at whatever station is nearby regardless of cost.
On a larger scale, don’t buy expensive clothes until they go on sale. All stores have sales. Be patient and get suits, shirts and ties for 30%, 40% or even more off. If you want a large, flat screen TV, wait until a major holiday with a three-day weekend. The big box stores often drop prices to draw customers. Or find a discount outlet, either at a strip mall or online, and buy below the nationally advertised price. On an even larger scale, pay cash for your cars if you can. You may be able to get a very good price on a new car by asking for quotes from the dealer’s Internet departments. See our blog about buying a new car this way: http://blogger.uncleleosden.com/2007/05/buy-new-car-without-haggling-and-save.html.
When it comes to your credit card, don’t carry a balance over from month-to-month. Once you start rolling over a balance, the interest and other charges become a part of your financial life. If you pay off each month’s balance, you are effectively getting a loan at zero percent interest. That’s bargain basement credit. (Don’t feel sorry for the credit card companies—they ding the merchant a percentage of each charge, so they make money anyway.)
Think of smart spending as an investment. When you buy tuna at 50% off, you effectively make a 100% profit, because you save as much as you spend. When you buy a suit at 35% off, you effectively make about a 50% profit. The amount of money you “make” on a dozen cans of tuna this way is a few dollars. But if you approach all your spending this way, you could save hundreds and even thousands of dollars a year. Assuming you have a 50 to 60 year adulthood, your lifetime savings can amount to tens of thousands, and maybe more than a hundred thousand, dollars. Invest the savings, and you’ll notice an improvement in your retirement. To learn more about the power of compounding, go to our earlier blog at http://blogger.uncleleosden.com/2007/04/love-in-time-of-financial-planning-part.html.
This technique is most effective if you don’t buy when prices are high, and then buy in quantity when prices are low. Also, don’t buy things on sale simply because they are on sale. Use sale prices to your advantage, and purchase what you would buy anyway—when prices are low.
In order to buy things when they are inexpensive, you have to have some extra money around. An $800 charge for suits, shirts and ties at a sale may cause an unexpected jump in your credit card balance. It takes money to make money, even when we're talking about smart spending. So keep some cash on hand to cover these uneven expenses. How much you keep depends on your spending needs. A couple thousand dollars may be all you need for most household expenses. Obviously, more would be needed for something like a large high definition flat screen TV or a car. Set aside some money for spending capital. “Buy low, sell high” is an old adage in the investment business. Buying low is also a good way to spend.
Crime News: Here’s a criminal twist on a shopping list. http://www.wtop.com/?nid=456&sid=1162977.
Monday, June 4, 2007
Bad Credit Card Behavior
Sometimes credit cards behave badly. We aren’t talking about misuse of cards by the consumer. We’re talking about nasty things the credit card companies do. When that happens, you could pay the price. Here are some examples of bad credit card behavior.
1. Raising the interest rate ‘cause they feel like it. Some credit card companies will raise the interest rate any time for any reason. If this happens, you’ll probably have the option to avoid the increased rate by not making more charges or taking more cash advances. If you stop using the card, the old interest rate would remain. You would need a new credit card—try to get one with a low rate. If at all possible, don’t knuckle under to the new higher rate. Stop using the old card and get a new one.
2. Universal Default—Kicking You When You’re Down. Many credit card companies place you in default if you fail to pay any of your obligations. Let’s assume you have two credit cards, a mortgage, a car loan and a student loan. Miss a payment on any of these obligations and some credit card companies consider you in default. Then, they impose fees and raise the interest rate (often sharply). While they mumble feeble excuses about how a single car payment 1 day late makes you a bad credit risk, their use of universal defaults creates a self-fulfilling prophecy where they shove you toward bankruptcy by greatly increasing your obligations even if you’ve been a perfect customer of theirs. Like a pack of wolves, they descend on the weak at the first scent of blood.
3. Credit Limit Smackdown. Sometimes, if you exceed your credit limit, the card company doesn’t stop you from making a charge. They let you go over your limit, and then smack you with an over-limit fee and a sharply increased interest rate. The limit isn’t a limit at all. It’s an excuse to ratchet up the charges. Keep track of how close you are to your limit. If you’re within a few hundred dollars, stop using that card (have a buffer of a few hundred dollars in case your math is off). Pay cash or use another card.
4. Charging Interest on Debt You’ve Paid. If you make $1,000 of charges in a month and pay $500 at the end of the month, some credit card companies charge you interest on the entire $1,000 balance for a month, even though you paid 50% of it right away. This is all because you carried a partial balance into the next month. In this hypothetical example, they’d effectively get twice the nominal interest rate on the amount of debt that’s carried over into the next month. You are penalized for being good instead of perfect.
5. Piling On. Once a customer makes a mistake, some credit card companies pile on. You are slapped with late fees and increased interest rates. If all these fees and charges push you over your credit limit, you get nailed with an over-limit fee. And if you have trouble paying off your increased balance, you can be hit with more over-limit fees in subsequent months along with the very high interest rate. In extreme cases, all this piling on might double the amount you owe. Talk about sprinkling salt on a wound.
What can you do? First, live within your means and avoid carrying a balance over from month-to-month. If you pay the balance at the end of each month, you come out ahead (because you effectively get an interest-free loan for the month). As soon as you start carrying a balance into the next month, you become their b*tch.
Second, pay on time. This applies to all of your debts, so that you don’t get stomped by a universal default.
Third, keep track of how close you are to your credit limit. Stop using the card whenever you’re within a few hundred dollars of the limit. Pay down the balance (at least partially). If that's not possible, pay cash for new purchases or use another credit card.
If you’re the type to carry a large balance from month-to-month, and constantly flirt with the credit limit on the card, you’re an enabler of bad credit card behavior. Remember that enablers are ultimately part of the problem. Live within your means. Be alert to how you’re using the card. Remember that it’s easier to avoid a credit card problem than to get out of one.
Crime News: Food fights don't pay. http://www.wtop.com/?nid=456&sid=1157153.
1. Raising the interest rate ‘cause they feel like it. Some credit card companies will raise the interest rate any time for any reason. If this happens, you’ll probably have the option to avoid the increased rate by not making more charges or taking more cash advances. If you stop using the card, the old interest rate would remain. You would need a new credit card—try to get one with a low rate. If at all possible, don’t knuckle under to the new higher rate. Stop using the old card and get a new one.
2. Universal Default—Kicking You When You’re Down. Many credit card companies place you in default if you fail to pay any of your obligations. Let’s assume you have two credit cards, a mortgage, a car loan and a student loan. Miss a payment on any of these obligations and some credit card companies consider you in default. Then, they impose fees and raise the interest rate (often sharply). While they mumble feeble excuses about how a single car payment 1 day late makes you a bad credit risk, their use of universal defaults creates a self-fulfilling prophecy where they shove you toward bankruptcy by greatly increasing your obligations even if you’ve been a perfect customer of theirs. Like a pack of wolves, they descend on the weak at the first scent of blood.
3. Credit Limit Smackdown. Sometimes, if you exceed your credit limit, the card company doesn’t stop you from making a charge. They let you go over your limit, and then smack you with an over-limit fee and a sharply increased interest rate. The limit isn’t a limit at all. It’s an excuse to ratchet up the charges. Keep track of how close you are to your limit. If you’re within a few hundred dollars, stop using that card (have a buffer of a few hundred dollars in case your math is off). Pay cash or use another card.
4. Charging Interest on Debt You’ve Paid. If you make $1,000 of charges in a month and pay $500 at the end of the month, some credit card companies charge you interest on the entire $1,000 balance for a month, even though you paid 50% of it right away. This is all because you carried a partial balance into the next month. In this hypothetical example, they’d effectively get twice the nominal interest rate on the amount of debt that’s carried over into the next month. You are penalized for being good instead of perfect.
5. Piling On. Once a customer makes a mistake, some credit card companies pile on. You are slapped with late fees and increased interest rates. If all these fees and charges push you over your credit limit, you get nailed with an over-limit fee. And if you have trouble paying off your increased balance, you can be hit with more over-limit fees in subsequent months along with the very high interest rate. In extreme cases, all this piling on might double the amount you owe. Talk about sprinkling salt on a wound.
What can you do? First, live within your means and avoid carrying a balance over from month-to-month. If you pay the balance at the end of each month, you come out ahead (because you effectively get an interest-free loan for the month). As soon as you start carrying a balance into the next month, you become their b*tch.
Second, pay on time. This applies to all of your debts, so that you don’t get stomped by a universal default.
Third, keep track of how close you are to your credit limit. Stop using the card whenever you’re within a few hundred dollars of the limit. Pay down the balance (at least partially). If that's not possible, pay cash for new purchases or use another credit card.
If you’re the type to carry a large balance from month-to-month, and constantly flirt with the credit limit on the card, you’re an enabler of bad credit card behavior. Remember that enablers are ultimately part of the problem. Live within your means. Be alert to how you’re using the card. Remember that it’s easier to avoid a credit card problem than to get out of one.
Crime News: Food fights don't pay. http://www.wtop.com/?nid=456&sid=1157153.
Wednesday, May 23, 2007
Get Some Fast Money: The Employer Match
There is a way you can get fast money, for real and you won't have to do any extra work. It's the employer match in a 401(k) account. Employer sponsored retirement savings plans, like 401(k)s and their equivalents (such as the federal government's Thrift Savings Plan) often have a feature where your employer matches your contributions up to a certain percentage. For example, an employer might match up to 3% of your salary or wages that you contribute to the plan. The match is equivalent to an immediate 100% return on your investment. There's nothing in the financial markets that an ordinary investor can get which would be better.
With some 401(k) plans, the employer match may not "vest" (meaning, truly belong to you) unless you stay with the company for a minimum period of time, such as 3 years. Even so, the employer match is a great deal and you should get it.
What if you have high interest rate credit card debt and would like to pay it off? Should you do that before investing in 401(k) to get the employer match? No. The return on the employer match is better. Cut back on your spending in order to pay off the credit card debt.
What if you want to save up money outside a 401(k) in order to accumulate a downpayment for a house? It's good if you're trying to put a downpayment together, because these days, with the messy state of the mortgage market, people who have a downpayment are more likely to be approved for a mortgage. But the employer match pays a better return than buying a home. So get the employer match; and try to save a downpayment some other way.
What if school loans are like thunderclouds hanging over your head and you want to get rid of them as soon as possible? You'd get more value from obtaining the employer match than from paying down school loans a little faster. If the school loans are driving you crazy, ease up on unnecessary spending. But don't cut back on the best retirement financing deal most people will ever get.
The employer match is about as close as most of us will ever get to free money. Don't pass it up. If you have access to a retirement account with one, contribute at least enough to get the match; and more if you can, since retirement isn't getting cheaper.
Strange News: Drilling for natural gas begins at Dallas-Fort Worth International Airport--http://news.yahoo.com/s/nm/20070523/od_uk_nm/oukoe_uk_energy_drilling_airport. But will they share the wealth with the passengers? How 'bout some free peanuts, at least?
With some 401(k) plans, the employer match may not "vest" (meaning, truly belong to you) unless you stay with the company for a minimum period of time, such as 3 years. Even so, the employer match is a great deal and you should get it.
What if you have high interest rate credit card debt and would like to pay it off? Should you do that before investing in 401(k) to get the employer match? No. The return on the employer match is better. Cut back on your spending in order to pay off the credit card debt.
What if you want to save up money outside a 401(k) in order to accumulate a downpayment for a house? It's good if you're trying to put a downpayment together, because these days, with the messy state of the mortgage market, people who have a downpayment are more likely to be approved for a mortgage. But the employer match pays a better return than buying a home. So get the employer match; and try to save a downpayment some other way.
What if school loans are like thunderclouds hanging over your head and you want to get rid of them as soon as possible? You'd get more value from obtaining the employer match than from paying down school loans a little faster. If the school loans are driving you crazy, ease up on unnecessary spending. But don't cut back on the best retirement financing deal most people will ever get.
The employer match is about as close as most of us will ever get to free money. Don't pass it up. If you have access to a retirement account with one, contribute at least enough to get the match; and more if you can, since retirement isn't getting cheaper.
Strange News: Drilling for natural gas begins at Dallas-Fort Worth International Airport--http://news.yahoo.com/s/nm/20070523/od_uk_nm/oukoe_uk_energy_drilling_airport. But will they share the wealth with the passengers? How 'bout some free peanuts, at least?
Sunday, May 6, 2007
In Your 20's: Money Matters When Time is Your Friend
When you’ve finished your education and are starting out in the work force, you have perhaps the best opportunity of your life to put your finances on a solid footing. Time is very much on your side. If you control your spending and start a savings program when you’re young enough to benefit from 40 years of compounding investment earnings, you’ll find retirement a lot easier to finance. If you’re like many people, you may not think much about next year, let alone your 60’s. Remember, however, that you’ll probably reach your 60’s (and the alternative is worse if you don’t). You’ll be happier then if you do some advance planning now. Take a few basic steps and you’ll be off to a good start.
1. Live within your means. Don’t try to emulate friends who can lease BMWs because they’ve moved back in with their parents after college. It’s easy to maintain a fancy lifestyle if someone is subsidizing you. But if you’re on your own, live carefully. You’ll become self-reliant, and in the end that will be worth much more than parental subsidies.
2. Build up an emergency cash fund of 6 to 12 months expenses. The emergency cash fund serves as a personal insurance policy against all the bad things that might happen to you which aren’t otherwise insured. For example, if you have a serious car accident, or a rock climbing accident, and can’t work for three months, where will you get money to live on? If you have health insurance (and you should get it, even if you have to pay for it personally), your medical costs will be covered. But you’ll still need money for deductibles and co-pays, food, rent, utilities, car payments, etc. An emergency cash fund may be $20,000, $30,000 or more. That looks like an awful lot of money to have sitting around. But all insurance looks like a waste until you need it. Then, you’ll be very glad you have it. Put the emergency cash fund in an account that is separate from your regular checking account, so that it’s not easy to spend. Good places include a bank or credit union money market account (preferably one that pays a decent interest rate) or a money market fund. Money market funds are actually pretty safe, especially ones that invest exclusively in U.S. Treasury securities, and tend to pay better interest rates than most bank accounts. Some online banks pay relatively high interest rates.
3. Start saving in a retirement account. Open a 401(k) account or other retirement account if your employer offers one. Otherwise, open an IRA. A Roth IRA is probably best if you’re young. These accounts are the best legal tax shelters available to most Americans, so be sure to have one.
4. Don’t run up your credit card debt and pay off any balance you’ve been carrying over from month to month. Credit card debt is expensive because the interest rates are high. Try to stick with just one or two credit cards. Bouncing from one card to another to another isn’t good for your credit rating. Keeping one or two cards for a longer period of time is better. If you consolidate your debt, use the cash flow you free up to pay down debt. Don’t use it for more lifestyle enhancement. The problem with debt is that it is supposed to be repaid, and the interest charges will eventually crimp your lifestyle. Why enrich banks? Pay off your debts and enrich yourself.
Strange News: Apparently the reason why Paris Hilton is going to jail is because she took legal advice from her publicist: http://www.reuters.com/article/wtMostRead/idUSN0339694420070506. Okay. Maybe in La La Land this makes sense. Have you ever heard the joke about asking two publicists the same question and getting three answers . . .
More money hints for those under 30 can be found at this blog carnival: http://howtomakeamilliondollars.blogspot.com/2007/05/festival-of-under-30-finances-june-1.html.
1. Live within your means. Don’t try to emulate friends who can lease BMWs because they’ve moved back in with their parents after college. It’s easy to maintain a fancy lifestyle if someone is subsidizing you. But if you’re on your own, live carefully. You’ll become self-reliant, and in the end that will be worth much more than parental subsidies.
2. Build up an emergency cash fund of 6 to 12 months expenses. The emergency cash fund serves as a personal insurance policy against all the bad things that might happen to you which aren’t otherwise insured. For example, if you have a serious car accident, or a rock climbing accident, and can’t work for three months, where will you get money to live on? If you have health insurance (and you should get it, even if you have to pay for it personally), your medical costs will be covered. But you’ll still need money for deductibles and co-pays, food, rent, utilities, car payments, etc. An emergency cash fund may be $20,000, $30,000 or more. That looks like an awful lot of money to have sitting around. But all insurance looks like a waste until you need it. Then, you’ll be very glad you have it. Put the emergency cash fund in an account that is separate from your regular checking account, so that it’s not easy to spend. Good places include a bank or credit union money market account (preferably one that pays a decent interest rate) or a money market fund. Money market funds are actually pretty safe, especially ones that invest exclusively in U.S. Treasury securities, and tend to pay better interest rates than most bank accounts. Some online banks pay relatively high interest rates.
3. Start saving in a retirement account. Open a 401(k) account or other retirement account if your employer offers one. Otherwise, open an IRA. A Roth IRA is probably best if you’re young. These accounts are the best legal tax shelters available to most Americans, so be sure to have one.
4. Don’t run up your credit card debt and pay off any balance you’ve been carrying over from month to month. Credit card debt is expensive because the interest rates are high. Try to stick with just one or two credit cards. Bouncing from one card to another to another isn’t good for your credit rating. Keeping one or two cards for a longer period of time is better. If you consolidate your debt, use the cash flow you free up to pay down debt. Don’t use it for more lifestyle enhancement. The problem with debt is that it is supposed to be repaid, and the interest charges will eventually crimp your lifestyle. Why enrich banks? Pay off your debts and enrich yourself.
Strange News: Apparently the reason why Paris Hilton is going to jail is because she took legal advice from her publicist: http://www.reuters.com/article/wtMostRead/idUSN0339694420070506. Okay. Maybe in La La Land this makes sense. Have you ever heard the joke about asking two publicists the same question and getting three answers . . .
More money hints for those under 30 can be found at this blog carnival: http://howtomakeamilliondollars.blogspot.com/2007/05/festival-of-under-30-finances-june-1.html.
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