Money Mistakes to Avoid – Not Seeing the Big Picture
Do you ever make a money mistake that seemed really dumb in hindsight? Well, you’re not alone. Our minds can trick many of us into misusing our money in ways that seemed perfectly justifiable at the time. The field of behavioral economics studies how our financial behavior is affected by psychology.
Smart Money magazine has a great article in their July issue entitled 7 Money Mistakes to avoid. The piece covers some of the work done by two behavioral economics industry experts, Daniel Kahneman and Amos Tversky, and gives some examples of mistakes that sound all too familiar.
Money Mistake #1
The first mistake listed is “saving with the right hand and spending with the left”. By thinking of each part of your finances in individual terms and not seeing the whole picture you could be taking one step forward and two steps back.
The article gives the case of withholding too much in taxes so that you’ll get a refund come tax time. While getting a tax refund in April sounds nice, you’re actually missing out on potential interest you could be earning during the year while the government has your money.
Another example would be having enough money in your savings to cover credit card debt but not paying it off for fear of not having savings. It is wise to have rainy day savings built up but if you’re also carrying credit card debt at the same time, any financial security you build is being eroded by the high monthly interest payments.
The suggestion the article makes for overcoming this mistake is to use a software package that aggregates all your financial data and gives you an overview of where you are financially. Software such as Microsoft Money or Quicken can help you identify cases where you’re “saving with the left hand and spending with the right”.
My Money Mistakes
My failures and successes with personal finance have come mainly as a result of building habits and changing behaviors, both good and bad. Understanding behavorial economics and how it affects our decisions is an important part of getting ahead financially so I’ll cover the remaining money mistakes in the days to come.
eBay Advice Edition – Personal Finance Review
As you may already know I sell on eBay to make extra money so I always perk up when I read eBay related items. Here are several eBay references I ran across this week:
– Blueprint for Financial Prosperity gives a primer on how to sell gadgets on eBay, think iPhone.
– Flexo’s eBay account was hacked, learn from his experience.
– Lazy Man is looking for additional alternative income sources. He critiques a list of possibilities, I say go with eBay.
– Mighty Bargain Hunter suggests an alternative strategy to profiting from the iPhone. You can always sell it on eBay!
– I share my thoughts on a new program that brings network marketing to eBay.
Personal Finance
What can people do with the money they make on eBay? Here are some personal finance articles to help you keep more of what you make.
– Generation X Finance suggests that mid-year is a good time to evaluate your investments and start saving for Christmas presents.
– The Sun is making progress generating passive income with his portfolio.
– Money, Matter, & More writes about an issue that is of growing concern to the majority of people, health insurance.
– Five Cent Nickel warns us if we use the bill me later option from online retailers we’re opening a credit line
– Free Money Finance gives us signs to look for when housing market has hit the bottom and is on the way back up.
– Save youreslf some money, don’t get a pet. Don’t believe me, check out The Digerati Life’s disccusion of the money spent on pets.
How to Save Money on Services By Spying on Business Owners
Business owners are always looking to maximize the amount of money they can earn from the services they provide. Get inside their heads and you can save money on your next trip to their establishment. Here is a quick example case study on how to save money on haircuts.
Hair Cut Savings
At the top of my last receipt from Sports Clips they offered $3 off my next haircut if I called an 800 number and answered some questions about the service I received. At the end of the call they give you a four digit code you can redeem for a discount on your next visit. The $3 off will be nice but what I learned from their questions was even more valuable.
Hair Cut Espionage
Below are some of the paraphrased questions the survey asked and what I took away from each one.
Did the stylist greet you? Rate their friendliness 1 – 5.
I called a local Sports Clips to find about more this one. It turns out if your stylist doesn’t smile and shake your hand during your haircut then you get your cut for free.
Did the stylist offer you our Triple Play?
The standard men’s “Varsity” haircut runs $15. If they can talk you into getting a “Triple Play” cut they can raise the amount they earn by 20% ($18).
Did the stylist offer you our MVP?
The MVP is a step up from the Triple Play. If the stylist convinces you to shell out for an “MVP” cut their earnings go up 33% ($20).
Did the stylist recommend any products you could use?
Another Sports Clips I called quoted me $10 – $25 for American Crew and Paul Mitchell shampoos they sell in the store. They also offer a variety of styling gel, hairsprays, and mousse which I imagine aren’t cheap.
Bottom Line
The phone survey wanted to see how many things the stylists tried to upsell. They know that if the stylist is persuasive enough to sell an MVP cut and two hair products they can raise their income from the basic $15 to approximately $55 ($20 cut + $20 product + $15 product). A huge increase in income for them, a big dent in your wallet.
Understand before you go for any type service what it is you need and what you’re willing to pay for it. Know that the business will likely try to sell you additional products and services and be prepared to keep your hard earned money by just saying NO!
When Do Undiscovered Stocks Become Mainstream?
I had to laugh when I read the top of the cover of the latest edition of Kiplinger’s Personal Finance magazine, 7 UNDISCOVERED STOCKS. If they’re advertised on the front page of Kiplinger’s are they really undiscovered?
Undiscovered No More
Of course the reason this headline sounds so appealing is that everyone wants to uncover a hidden gem in order to buy shares at a low price before other people discover the company’s profit potential and drive up the stock price. I don’t know how many other people subscribe to Kiplinger’s and don’t know how many of them have already received their magazine in the mail but I think it’s safe to say these companies are no longer undiscovered.
Ignored by Brokerages
The article reasons there are good returns to be made by finding stocks that are “under the radar”. They define these as companies followed by two or fewer Wall Street analysts. Since they’re not covered by Wall Street the investing public may not be aware of the company’s profit potential and the fact there may be a bargain lurking in the stock. The author then goes on to list seven undiscovered stocks that fit this criteria and cite examples of why they could be poised for growth in the next several years.
Stock Analysts Cheat Sheet
In many industries, reading trade publications is a good way to keep up on the latest and greatest. I wonder how many stock analysts screen magazines like Kiplinger’s, Smart Money, or Money as a cheat sheet for stock research. Maybe not many of them do but I would think at least a few analysts would pick up on stories like these.
General Investor Effect
Even if articles like “7 Undiscovered Stocks” don’t have any effect on stock analysts I would imagine that they do have an impact on the investing public. After reading about undiscovered stocks, how many people will go out and place buy orders for these companies? All these questions leave me wondering if stories like these are a good place to find investing ideas or whether people are better off just doing research themselves and finding their own “undiscovered stocks”?
Exponent Trading Company Brings Network Marketing to eBay
I was reading Jim Cockrum’s blog last night when I ran across mention of a network marketing approach to helping people get started on eBay. A company named Exponent Trading Company has built a system that is supposed to offer personal mentorship in addition to training material for people wanting to learn how to make money on eBay.
Network Marketing Hype
I listened to a conference call where Jim Cockrum and Skip McGrath talked with some of the leaders of Exponent Trading and came away with mixed feelings. One thing I’ve never liked about network marketing is the hype that goes along with it. Everyone is always talking about “the opportunity” instead of the product or service that’s actually being sold and wants to share stories of wildly successful people. In many cases the product itself is not so great. It may be different in the case of Exponent Trading since it seems to provide a legitimate service of mentoring people on eBay selling, time will tell.
Costs of a Mentor
I do understand the point Jim makes on the call. It does take time to mentor someone through getting started on eBay and time is money. A multi-level marketing approach would make it more worth someone’s while to help someone else get setup and running a successful business. However, I’m not entirely clear on all the fees required to join and participate and those costs are what I’m wary of.
A Different Approach?
Another aspect about network marketing I’m not to fond of is the emphasis on selling your product or service to your friends & neighbors. It does seem from what I’ve heard so far that the Exponent model would be a little different. There are many people interested in learning how to make money on eBay. I have people asking me how selling on eBay works, they might benefit from the service.
Instead of pushing expensive lotions or soaps that people don’t want or need as is the case with many network marketing programs, people could be referred to the program after approaching eBay sellers asking for help. Of course, if they just want to sell their antique collection or clean out their garage would they really want to pay the signup fee and ongoing costs just to sell a few hundred dollars worth of stuff?
Marketplace Effect
One thing I wonder about is the impact the marketing of the Exponent system will have on the eBay marketplace. If the number of sellers increases dramatically but the number of buyers remains the same the flood of products may be good for consumers but bad for sellers. As a buyer this sounds good, as a seller it’s not as appealing.
Opposing Views
The fact that Jim Cockrum and Skip McGrath, two well known eBay entrepreneurs, are serving as advisors to the program does carry some weight. However, there are others, such as Terry Gibbs and Gary Hendrickson who advise against the Exponent Trading Company.
One thing to keep in mind is that Jim and Skip do stand to gain a lot of money from signing others up underneath them so there could potentially be some bias there. You could also argue that Terry might downplay Exponent since potential customers of his information products might go with the Exponent solution instead. All these guys have proved themselves on eBay and have a good track record of helping others do the same so deciding who to listen to is a tricky thing.
Time Will Tell
I’m sure there will be a lot of discussion on the web about network marketing coming to eBay over the next few weeks, it will be interesting to hear the reaction of people that sign up for Exponent and to learn more about the details of who actually benefits from the program. I’ll give updates on how it progresses, if you’re interested you can sign up for the updates in your feed reader or your email inbox. I’m also working on a resource about selling on eBay, if you have any questions I could address in the eBook just let me know and I’ll send you a copy when it’s ready.
Are Employers Doing Enough to Promote Retirement Plans?
Does your employer encourage you to participate in a retirement plan? It took my wife’s employer 6 years to actively promote their retirement plan.
A Tale of Two Retirement Plans
Today’s young workers won’t be able to rely on company pensions or Social Security when they’re old and gray so starting to invest right away in a retirement plan is vitally important. Unfortunately not all employers are doing their part to get this point across.
The human resources department at my company does a good job informing employees of the features and importance of our 401k plan via email, postal mail, and seminars. My wife’s employer on the other hand has done a horrible job.
After working for a local school district for 6 years, my wife just received her first promotional item, touting the benefits of the 403b plan available to her. They do mention it during district meetings at the beginning of every school year but until now that’s all the coverage the plan received.
Promoting Retirement Plans
The letter she received today shows her contributions for the last year and contains a hypothetical scenario of how much she could save for retirement with the 403b. It also answers generic questions such as:
– When a person can begin participating in the plan.
– How much someone can contribute.
– The available investment options.
– Where to call for more information.
I’m glad her school district finally decided to get the word out about the 403b plan and encourage teachers to participate, I just don’t think its right they waited 6 years to do it.
Employer Effectiveness
I’ve attended several seminars on our 401k options over the 7 years I’ve worked for my company. Everyone knows what a 401k plan is and most people are contributing.
In contrast my wife has discovered through numerous conversations that many of her co-workers don’t know what a 403b plan is and only a few of them are participating in it.
To be fair, her plan doesn’t offer an employer match while mine does. In addition, corporate jobs in my industry tend to pay better than school teachers so her co-workers may not have as much money to work with. However, I imagine that if you compared two corporations, one that promoted its 401k plan and another that did not you would find a higher participation rate in the company that encourages its employees to save for retirement.
With the days of pensions in the past and shrinking employer health benefits on the way it seems irresponsible for employers not to promote their retirement plans to their workers. How does your human resources department rate? Do they do a good job getting the word out or are they retirement plan slackers?
Credit Card Strategies For A Stress Free Vacation
How can you enjoy your vacation when you have no money to spend? It’s kind of hard to do since most trips involve spending money on food, lodging, travel, gifts, etc. On most vacations, no money means no fun!
Credit Instead of Cash
On the second day of our recent trip I had a panic attack when I couldn’t find my wallet. Luckily, I wasn’t carrying much cash because I had brought along credit cards to cover our expenses. If you lose cash its money down the drain but if you lose your credit card you’re not out any money. Even if someone else finds your card goes on a spending spree the credit card company won’t hold you responsible for the charges if you report the card lost or stolen.
One thing to keep in mind for an international trip is that some credit card companies charge extra fees if you use your credit card in a country outside of the US. For example American Express charges a 2% fee of the purchase price of anything you buy internationally.
Carry a Backup Card
If you do lose your credit card you’ll feel much better if you have a backup. Don’t keep both cards in the same place, I gave our Chase Visa to my wife and kept the American Express Blue Cash in my wallet so if one of us lost our bag we’d still have the other card as backup.
Another reason to carry a backup is in case one of your cards reaches its limit. On our honeymoon, the hotel put a hold for almost $1000 on our primary card as a deposit, even though we’d already paid for the room. I didn’t know about the charge until one night at dinner when my card was declined because the dinner bill would put us over our credit limit. Luckily we had a backup card otherwise we’d have been washing dishes to pay for dinner, not very romantic.
Use a Rewards Card
Why not earn cash back, airline miles, or hotel points for your next vacation while you’re enjoying this one? There are specific hotel cards for Hilton & Marriott and airline cards for United, Delta, American Airlines, and US Airways. Or there are more generic cards such as American Express Blue Sky, Chase Travel Plus Platinum, and Citi Premier Pass whose rewards points you can use on a variety of hotels, airlines, and car rentals. Using a rewards card can help you prepare financially for your next trip while you’re relaxing on the current one.
Be Card Smart
Of course credit cards do bring the temptation to spend more on your trip because it’s easy to charge it now and worry about the payments later. If you can avoid this mental trap then using these credit card strategies can help you spend less time worrying about paying for your fun and more time enjoying it!
Personal Finance Review – Back To Reality Edition
The vacation is over and it’s time to get back to reality. Adjusting to a new routine is never easy; especially when it involves less sleep, more stress, and no more Pina Coladas! I had a lot of reading to do when I got back to catch up on everything I missed in the personal finance world on the Web. Here were some articles I enjoyed in my readings.
– The Sun is juggling card balances for some credit card arbitrage
– Mighty Bargain Hunter found an article on a neat eBay strategy
– The Digerati Life discusses how credit scores affect loan rates
– Five Cent Nickel tells us why we should care about our FICO score
– Money, Matter, & More asks what we have against Wal-Mart
– Blueprint for Financial Prosperity talks about credit & mortgage triggers
– Generation X has a mid-year checkup on his taxes
– Free Money Finance shares some ways to cut vacation costs
– Lazy Man is giving away $200 in prizes
– Binary Dollar has a simple strategy for saving on gas
Who Else Is Interested in Making Extra Income?
While I was away the Woolys from Clawing Our Way awarded this site a “Thinking Blogger Award” for suggesting new ideas to make extra income. I’m glad I was the inspiration behind their recent eBay adventure!
Guide to Selling on eBay
I’ve been working on an eBook about selling on eBay for a while now and was wondering what questions people have about how to make money on eBay. Let me know your questions, if it’s one I can address in my eBook, I’ll send you a copy once it’s ready. You can leave your question as a comment on this post or send it to me directly. I look forward to reading your questions!
Lower Your Vacation Costs By Planning Ahead
Our vacation is over and as usual we returned with less money in our wallets than we left with. Most of the money we spent was well worth it but there were a few things we spent way too much on that could have been avoided.
Expensive Accessories
The first night there I discovered I had forgotten my toothbrush. A trip to the hotel shop for a new one left me $55 poorer. What, $55! That’s what I thought when I first looked at the bill. When the lady explained the price was actually in Mexican pesos, a little over $5 US, I felt a little better. However, $5 is still a lot for a toothbrush!
Later in the week we realized we needed some baby safe bug spray for an excursion we were taking. Once again the trusty hotel shop came through with a hefty price tag, 115 pesos ($10.60 USD). A quick web search shows the same bottle for less than half the price here in the US.
A little better planning just for these two items would have saved us some money from our vacation budget. These were small costs compared to the overall cost of the trip but I hate paying twice as much for something I know I could have bought for less.
Travel Food
As we waited in the airport in Mexico for our return flight, I was horrified to learn a simple fast food lunch would cost at least $10 USD per person. We had baby food for our son, my wife was still full from breakfast, and I’m too cheap to pay $10 for an airport lunch so luckily we were able to avoid the expensive food. Had I thought ahead, I could have stored in my backpack some travel worthy food like bagels, rolls, and fruit while at breakfast that morning and enjoyed a free lunch at the airport.
Planning Ahead Saves Money
When you’re on the road everything costs more. Vendors are able to charge more for their wares because you’re in need of what they’re selling and don’t have another way to get it. The way to avoid paying higher prices is to plan ahead so you can buy things before you need them. A good way to do this is to run a few appropriate web searches, in our case “travel packing list”, “packing list Mexico”, “packing list beach”, or “travel Tulum” would have helped. Of course we didn’t do this and paid the price. Don’t make the same mistake we did!
Thanks to Guest Writers
A special thanks to the people that helped keep this site updated with new posts while I was away!
– Plonkee
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I'm Ben Edwards and I've been addicted to personal finance since I was 12 years old.
That passion for money has paid off for my family - so in 2006 I founded Money Smart Life to help you afford the life that you want. Read My Story...
