Personal Finance Review – First Lesson in Frugality

A person is never too young to start learning how to be frugal. My son had his first lesson in frugality this weekend when I taught him to lick the inside and lid of the yogurt container clean.

Of course he doesn’t understand the concept of money yet, however, he is learning an important component of frugality.  Get the most use out of everything you can. Make your resources last as long as possible and don’t waste anything.

The responsibility of teaching him all that he needs to know can be a bit overwhelming but it is nice to see a few lessons sinking in already. I found a lot of good personal finance stuff this week so the review is a bit long, enjoy!

- Your Long Commute May Cost You More Than Time and Money @ Gen X Finance

– Making Money with an eBay Store @ Mighty Bargain Hunter

– What Is Gap Insurance? Who Needs It And Who Does Not? @ Money, Matter, & More

– Reducing Our Electrical Usage: One Year Later @ Five Cent Nickel

– Zecco and Prosper: Two Great New Ways to Invest @ Lazy Man & Money

– Boost Your Career with Professional Classes @ Free Money Finance

– Setting Up Another 529 Plan @ The Suns Financial Diary

– One Sentence Summaries of 10 Prominent Personal Finance Books @ Blueprint for Financial Prosperity

– 7 Ways To Destroy Your Credit With Bad Mortgage Loans @ The Digerati Life

– Get Your Personal Finance Questions Answered @ Consumerism Commentary

– Starting A Savings Account For Your Newborn @ The Simple Dollar

– Saving For A Home On Your Own @ My Money Blog

– Store-Branded Credit Cards: A Shocking Look Back @ No Credit Needed

Thanks to Plonkee Money for hosting last week’s Carnival of Personal Finance, Frugal Babe for hosting the Festival of Frugality, and the Financial Blogger for choosing How Money Can Change a Life as his favorite web article for July!

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What Would You Hide From Your Spouse to Save Money?

Does your spouse, boyfriend, or girlfriend spend more money than you’d like? Do they spend money on things you don’t agree with? I met some people the other day that have a sneaky tip for you.

Gadget Buster
Note: Names have been changed to protect the innocent. I was out to lunch the other day with Sue and Bob, when Sue mentioned her husband is a gadget freak.  They get tons of mail from places like Best Buy, Circuit City, Gateway, and Crutchfield that she just throws away.  She hates him spending money on electronics so she screens his mail to get rid of all the advertisements. Sometimes she even gets rid of his copy of Wired Magazine or PCWorld so he won’t read about new gadgets.  I told her it was pretty sneaky and could imagine her husband would be ticked off if he found out.

Pottery Barn Not Welcome Here
Then Bob chimes in and says he does the same thing all time to his wife. She is bombarded with catalogs for stores like Pottery Barn and Restoration Hardware and always gets sales party invites for scrapbooking, Mary Kay, jewelry, or Longaberger baskets.  They all go in the trash he says and she is never the wiser. “We don’t need any of that stuff and can’t afford to spend money on all that overpriced junk”, he says.

What Would You Hide?
I do agree that advertisers try everything they can to create a selling opportunity and it does get old fishing the real mail out of all the junk mail. But it is pretty sneaky to trash someone else’s mail without them knowing about it, even if it is junk mail.

What to you think? How far would you go to save money? What would you do if you found out your significant other was throwing away your mail?

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Why Do People Ignore Easy Money?

Why would anyone pass up free money?  I was amazed when my co-workers pulled out their credit cards to pay for lunch today and only one other person in the group had a rewards card!

Rewards Cards Savings
I was carrying my American Express Blue Cash and one lady was using the Discover Open Road card but the other 4 just had regular credit cards.  I understand some people stay away from credit cards altogether and prefer to use cash. What I don’t understand is if you’re going to use a credit card, why not use a rewards card?  That just seems like leaving money on the table. Don’t get me wrong, charging on a rewards card is not going to make you rich but you can save hundreds of dollars a year by using one.

Small Savings Matter
Something I’ve learned about personal finance over the years is that many small savings can add up to a lot of money over time. It is difficult to save or earn a lot of money all at once, so a slow and steady approach is the most likely to succeed.  One key to that success is taking advantage of the little easy things when you can. 

Easy Money Ignored
How hard is it to save a little money by using a rewards card, practically no effort at all!  It’s not just cash back credit cards; there are many other simple money-saving actions available to us that some people just ignore. 

I know one lady who paid an extra annual subscription fee for a service she no longer used simply because she didn’t take the time to pick up the phone and cancel. 

My company has an employee discount option for several major wireless carriers yet some people on our floor don’t take advantage of the $5 a month I save on my cell phone bill simply because it is not a big enough savings.  It took me maybe 10 minutes on the phone 5 years ago to set up my employee discount that saves us $60 annually.  So it took me 10 minutes to save $300 over the last five years, pretty easy money if you ask me.

Money Saving Month
Since the month just started, it’s the perfect time to sit down and come up with a list of small easy things you can do to save money this month.  The best opportunities are places where you can cut recurring costs, such as your television or phone bill because the savings continue month after month.  Using a rewards credit card is another example that will have long term savings since you’ll always be spending money.  What other simple things can we do to take advantage of “easy money”?

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How Can Health Care Costs be Reduced & Who Will Make it Happen?

Whining About Health Care Costs
I have received several emails and comments in regards to my post on health care costs that I want to address.  There are people paying 3, 4, 5, and even 7 times the amount we’ll be paying for family health coverage. Compared to these prices my rate increase seems minor and I feel somewhat ungrateful for complaining at all. 

I feel bad for everyone paying high health insurance bills and don’t mean to come across as unappreciative of having affordable coverage.  However, that doesn’t mean I’m not always looking to save money wherever I can so when one of my expenses goes up 50% I take notice. Of course taken in the broader perspective of health insurance rates across the country my new cost of doesn’t seem so bad. 

Reader Response
One reader e-mail points out those of that can afford health care are lucky since there are many that have to go without:

“My family plan costs approximately $500 per month.  Had we gone through my wife’s plan, the monthly premium would be $900.  But I don’t think we should be thankful that we pay premiums of $80, $250, $500, or whatever.  Such complacency is dangerous and obscures the fact that our health care system is broken, inequitable, and immoral and that we all suffer as a result.  Access to health care should be an inalienable right.  The fact that we have 50 million uninsured Americans and millions more underinsured worrying about adequate care while insurance companies, drug companies, and their investors prosper on their misery is inexcusible.”

Who Will Make Health Care More Affordable?
I agree that our health care system has many problems and unfortunately think it will get worse before it gets better.  I certainly hope this problem is a top priority for our next president and not just on the campaign trail.

I am not a direct investor in any hospitals, insurance companies, or drug companies but am pretty sure I hold stock in some of them through one or more mutual funds. I don’t think me not investing in them would change their behavior.  Of course if everyone stopped buying their stock that would be a different story but I don’t see that as a likely scenario.

Corporations in general exist primarily to provide a product or service for profit and these companies are no different.  Right or wrong, they base their decisions on what’s best for the bottom line.  I don’t disagree that corporations are making obscene amounts of money in the health care sector. The book Health Care On Then Less Than You Think gives some numbers for the year 2004:

- World’s 13 largest drug companies posted $62 billion in profits
- US hospitals reached aggregate profits of $26.3 billion
- Twenty largest HMOs in the US had profits of $10.8 billion
- Twelve top HMO executives earned 222.6 million in direct compensation

The problem for many people in this country is that health care just costs them more than they can afford.  Obviously the high price of care contributes to the huge income numbers above and it does seem that in order to reduce the price to consumers these companies will be faced with lower profit margins.  I don’t think these companies will change on their own so it seems to be the job of our government to provide rules and incentives that will make health care more affordable for its citizens and provide a safety net for those that still can’t afford it.

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Going Into Business With a Friend: Smart Move or Dumb Idea?

Should you ever go into business with a friend? I’ve been presented with the chance to partner with a friend and my research on the subject last night seemed to turn up the message of yes, BUT……

Successes & Failures
The Business Opportunities Blog started off by reminding me of the success of two friend teams, Google co-founders (Sergey Brin and Larry Page) as well as Ben & Jerrry (ice cream buddies). Then it goes on to caution that “collaboration works but only if everyone is clear about the rules, boundaries, aims and expectations….. You can go into business with anyone you like as long you have a very clear understanding of who owns what and who does what”.

The title of a New York Times article warns that friends don’t always make good partners; but later goes on to tell the success story of two buds that started a business together right out of college and now have sales of over $200 million.

Smart Move or Dumb Idea?
The common theme is that 1) Some people work better together than others and 2) Regardless of how well you get along you should agree on everything upfront and document it in writing.  The Times article would suggest my friend and I have a lot of work to do before we even get started working on the project:

“Experts say friends going into business should draft a detailed business plan with specifics on ownership and responsibilities, and a succession plan spelling out exactly how the business will be split up, if that becomes necessary.”

This is not a multimillion dollar project. We will both keep our jobs and run a web site on the side so we are not risking our livelihood or investing thousands of dollars.  However, money is money and I would not want our venture to come between us at any point in the future.  The problem with most partnerships seems to be not thinking through all of the what-ifs.  There are many directions a project or your life can take you and it seems impossible to foresee them all.

Planning Ahead
We have already broached the subject and are making plans to sit down with another friend who is an attorney to talk through the details and come up with an agreement.  We are both excited about working together, he’s the subject matter expert and I’m the business/technical guy. It started not long ago when I registered a domain, put up some sample content, and e-mailed some friends for some feedback.  This guy was very excited about the idea and now we’re planning its launch!

If nothing else, it will be a good learning experience and should be lots of fun.  If it is successful and we end up making more than $10 a month to cover hosting fees then we’ll have an agreement in place to guide us. Do you have any tips or advice for us?

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Health Care Costs Increase While Our Income Goes Down

If you lost or quit your job today, how would you pay for health care?  Luckily for my wife, we can add her under my health insurance for a “reasonable amount’ when she stops working. 

Of course this means that as our income goes down our health insurance costs also go up. She was covered under her employer for only a small premium each month but the health insurance plan through my job really raises the rates for a family.

Right now we’re paying $30 a month for health care insurance for my son and $15 a month for my wife’s premiums.  Once she rolls off her insurance at the end of next month our costs will go up to $87.50 a month.  Even though its much less than some people pay for health care it’s still quite a large increase in terms of percentage.

From what I’ve read, I don’t have much to complain about. I’m in the middle of Health Care on Less Than You Think: The New York Times Guide to Getting Affordable Coverage by Fred Brock (thanks to Jim) and Brock makes it sound like employer sponsored health insurance will someday be a thing of the past.  He predicts that as health insurance costs keep going up companies aren’t going to be able to pay for their worker’s insurance.  If Brock is right then an increase of only $57.50 a month in insurance premiums will be considered not bad at some point in the future when we have to pay for health insurance on our own.

It will be interesting to see the different health care reforms proposed by the presidential candidates over the next year.  The need to address the high price of health care and the number of people that can’t afford it is pressing.  While I’m complaining about paying $87.50 a month for insurance some people pay much more or can’t pay at all.  I really hope the next president takes some effective action to solve this problem.

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When is it Time to Reduce Retirement Plan Contributions?

How do you know how much to contribute to your retirment plan?  Of course the more you put into your 401k, 403b, or IRA now the more you should have later in life when it is time to retire; but can you invest too much?

Investing Decisions
I’ve always taken the approach of putting in as much as possible, maxing out contributions to our 401k and IRA and almost the max for my wife’s 403b.  At least until now.  The addition of a baby boy to our family means that my wife is staying home from work and we have some decisions to make.

Before she decided to stay at home I sat down and looked over our expenses to determine where we could cut enough money to make up for the loss in income.  One of our biggest “expenses” has always been the money we put away for retirement.  For about seven years now we’ve put away over 20% of our income into our retirement plans.  We decided that we could afford for her to stop working if we cut expenses and reduced the amount we save for retirement.

Cutting Retirement Savings
With her last paycheck on the way next month, I put the plan into effect this weekend.  Since her 403b investments will stop with her last paycheck I didn’t have to mess with that investment.  I logged into her Vanguard account and canceled her automatic contributions to her Roth IRA.  Then I cut my 401k contributions in half, reducing it from 20% of my salary down to 10%.

Balancing the Present & the Future
It was a strange feeling for someone that has always invested as much as they could but I think we’re making the right decision.  What’s the point of putting all our money away for the future if my wife can’t be around our little guy in the present? The fact that we invested so much for the last seven years actually made the decision easier.  We got a good head start on saving for later in life that will hopefully compound and grow over time.  The balances won’t stop increasing, we only cut our contributions, not eliminated them all together.  I’m glad we’ve decided to invest less in our retirement account and more in our family and that our past financial decisions have made it possible.

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Personal Finance Review – Getting Old Edition

I guess it happens to the best of us, we all get old sooner or later.  We were reminiscing about Spring Break 1998 at a friend’s 30th birthday party last night and a younger guest commented they weren’t even in high school at the time, wow I feel old. 

This friend is a nurse and sometimes shares various sad stories of patients passing away.  Every time I hear one of these it makes me realize that life is short and we should spend as much of it as we can doing what we love.  Before I know it, we’ll be celebrating his 75 birthday and we’ll be the ones in the hospital being cared for by a nurse who’s just turning 30.  Life is short, so make sure you enjoy your weekend!  Here are some money articles I enjoyed this week.

– The Digerati Life talks about investing internationally and the Sun’s Financial Diary takes a look at Vanguard’s new Europe Pacific ETF.

– Money, Matter, & More uses the KISS (Keep It Simple Stupid) approach and gives us 10 simple steps to becoming wealthy.

– Gen X Finance saw that I have carpal tunnel and reminds us of the importance of disability insurance.

– Five Cent Nickel is looking for the best 529 plan and the Lazy Man offers a guide to choosing a 529 plan.

– Free Money Finance is letting his Smart Money magazine subscription expire.

– Blueprint for Financial Prosperity takes a look at synthetic diamond rings; I tend to agree with him, diamond rings are over hyped and overpriced.

– The minimum wage went up this week. Mighty Bargain Hunter wonders what’s the point of minimum wage, Consumerism Commentary talks about future minimum wage increases, and Cash Money Life ponders whether the increase is good or bad.

– I wrote a few articles on money mistakes to avoid; MoneyNing gives an example of how low cost index funds can help avoid the mistake of selling low and buying high.

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eBay MasterCard Creates eBay Layaway Plan

If you already know what you’re getting that special someone for Christmas and can get it on eBay then a new eBay MasterCard promotion might just be your own layaway program!

Layaway Plans
I first learned about layaways as a military brat, during a summer job at AAFES.  The store offered an option where soldiers or dependents could make installment payments on an item they wanted to buy but didn’t have the cash for.  We would hold onto an item in the back stockroom, they would make monthly payments, then pick it up when it was paid off.

eBay Layaway
You can make your own layaway plan with this promotion that offers no monthly payments and deferred interest until 2008 on your eBay purchase over $50 when made on an eBay

MasterCard.  The promotion is only open to first time eBay MasterCard customers and you have to pay off your balance by Jan 1, 2008 to avoid “finance charges assessed on the promotional balance from the date of purchase”. 

Unlike a traditional layaway plan you will take possession of the item right away but it will likely be out of sight until December, hidden away from package pinchers.  You’ll have to save enough money each month between now and then to pay off the item before Jan 1, 2008 but you can keep the cash in your ING Direct account and earn interest on it while you save!

eBay Mastercard
The nice thing about the new eBay MasterCard card is that its fully integrated with PayPal and will show up in your PayPal wallet. You have to already have or sign up for a PayPal account in order to apply for the card.

The card does offer a rewards program, for every dollar you spend, you receive one point which can later be redeemed for eBay purchases but it’s unclear how to redeem reward points and how they equate to dollars. The Mastercard comes in three different designs and allows you to customize your card with your eBay user id if those kinds of things float your boat.

Plan Ahead for Christmas
The card itself isn’t all that great or different than any other credit card; it’s the no monthly payments and deferred interest promotion that caught my eye.  Items on eBay tend to be cheaper than stores and most places online so you can use the promotion to save money on a Christmas gift and force yourself to start saving up for it now!

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My Son’s First Words Could Be Expensive

As we sat on the front step after work today my son pointed his little finger at to a passing vehicle and said his first words, CAR! After my excitement wore off, I had to laugh at his choice of first words and imagine what it might mean for the future.

He could have said mom, dad, book, bird, ball, bath; all things that he knows and loves. Instead he comes out with car!  A big loud expensive piece of machinery that guzzles gas money and most people buy on installment plans.  Of course I’m reading too much into this exciting event.  I’m uber pleased that he’s starting to put words to objects and love the excitement in his wide eyes as he watches cars roll by! However, the little money man on my shoulder can’t help but dread the day he actually wants a car of his own.

I basically see cars as one big money pit.  Between car payments, insurance, maintenance, and gas they can suck the life out of your paycheck, especially as gas prices rise higher and higher.  Of course they are helpful for getting to work and transporting us around town but I’d prefer to live with one or zero cars if I had a choice, much cheaper.

I know one day my son will decide he wants his own car.  As a teenager, the costs of car ownership will be the furthest thing from his mind.  Having the freedom of his own ride will trump all common sense and all his hard earned money will be sunk into one of the most expensive pieces of machinery he’ll likely ever buy.  Sure it will be a good lesson in responsibility but who needs one of those; he’ll have plenty in life, why rush into it?

For now, I’m just happy that the little guy is starting to talk and look forward to all the new words he’ll start to say.  I’ll just have to make it clear someday that all the money we’re putting away for him now is intended for paying college bills, starting a business, or some other productive endeavor, NOT for buying a car!

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