This article is by staff writer Holly Johnson.

Your car breaks down on the side of the road … again. It’s rush hour and it won’t start. You have to have it towed and you’re not happy about it. At all.

So what do you do?

You head to the local dealership in a fury, ready to replace it with something far more reliable, but also affordable. But the dealership has a few tricks up their sleeve and, according to Paul (the salesman helping you), it must be your lucky day. Amazingly, your car died at the most opportune time in history.

“Amazing deals are on the table for today only, folks, and we are in the midst of a complete liquidation,” says Paul. “Prices are being slashed left and right, and you need to act fast.”

“This is the sale of the century!!!”

So you bite, and before you know it you’re standing in front of a shiny, new sedan covered with stickers exclaiming things like “0 PERCENT INTEREST” and “$2,500 CASH BACK.”

You slide into the plastic-covered seat and breathe in that indescribable new car smell. You play with the knobs and the radio, and you notice how little squares of plastic have been methodically placed to shelter the dashboard from the germs and fingerprints of anyone who dare touch this car. The flawless upholstery is still largely untouched, never having been exposed to the rain, the sludge of winter, or your toddler’s leaky sippy cup. You like it.

“Pick your payment and I’ll make it work,” says Paul.

And the rest is history.

The high cost of a low monthly payment

This kind of scenario happens every day of the year and all over the country. It happened to me when I was 22 years old. At the time, I had a job making something like $8 an hour but had just gotten my residential real estate license. I headed to the dealership, convinced that I needed a newer car to drive around all of the clients I would surely have. (Feel free to laugh.) Soon I was talking to a shark of a salesman — a nice guy — who used buzz words like “elegant,” “sophisticated,” and “successful” to describe how I could look in something new. And I bought it all hook, line, and sinker.

Even though I went to the dealership with something much more modest in mind, I pulled out of there with a brand new Mitsubishi Galant, a $24,000 loan, and a monthly payment somewhere close to $500. Even worse, I quickly found out that I was a terrible saleswoman and never sold a thing.

But I still had that payment.

Car payments: ‘Til death do us part

And I’m not the only one. A recent study from Experian shows that Americans continue to spend lavishly on new cars, despite the fact that wages have mostly stagnated and the median household income continues to hover at around $51,000 per year. A few of the key findings from Experian’s report:

  • The average car loan for a new vehicle climbed to $27,430 in Q4 of 2013, up from $26,691 the year before.
  • The average monthly payment for a new car loan rose to $471/month.

According to Experian, new car leases are also on the rise accounting for 28.4 percent of all new vehicles financed in Q4 2013 and with an average payment of $420 per month.

“Leasing continues to grow in popularity among car shoppers, especially those hoping to stay within a strict monthly budget,” Melinda Zabritski, senior director of automotive credit for Experian Automotive, said in a press release. “Our analysis this quarter showed that the average monthly lease payment was $51 lower than the average loan payment, which can make a big difference to consumers trying to stretch their dollar.”

But what if…

The new car industry probably loves hearing that new car loans continue to rise. But the family budget? Not so much. At nearly $500 per month, that payment is as much as some families spend on groceries or even a small mortgage.

But what if you chose to do things differently and forgo a new vehicle every five years? What if you drove something older and cheaper and paid it off? Or paid cash to begin with?

What could you do with an extra $471 per month? What would that mean to your bottom line? A few ideas:

  • You could pay down debt. No matter where you are in your financial journey, freeing up an additional $471 monthly could make a world of difference.
  • You could save it. Pocketing the average car payment for five years would mean adding another $28,260 to your savings.
  • You could invest it. Investing $471 each month into an account earning 4 percent would yield $31.837.57 after five years. Invest that amount for ten years and you could be sitting on $70,572.85.

And that’s not all. Imagine having an extra $471 each month to help your kids pay for college, or using it to beef up your dream vacation fund. You could even set it aside and use it to pay for your next car with cash. After all, whatever you’re driving won’t last forever.

And obviously, the choice isn’t just between buying a new car and keeping your old one. Some people drive considerably more than most people and need something reliable. Others want the “new car warranty” that protects them from out-of-pocket repairs and the worst-case scenario of getting stuck with a lemon. Fortunately, the average car loan can easily be cut in half on even a new car, simply by choosing an inexpensive model. Cars.com even offers a list of the cheapest 2014 models that start at considerably less than the average car loan, including three that cost around half:

  • 2014 Chevrolet Spark — $12,995
  • 2014 Mitsubishi Mirage — $13,790
  • 2014 Nissan Versa — $13,800

You can even shop around for a reliable used car. Remember, the experts say that a new car loses 20 percent of its value within a year and up to 60 percent of its value within five years. If you have to replace your car, consider buying a used model with low mileage and a warranty.

Break up with your car payment … for good

The new car smell, the way your friends ooohhhh and ahhhhh as you pull into your driveway, the sense of pride you feel when you pick your kids up at school, all of that is an illusion – a fantasy -- perpetuated by an industry that desperately wants you to see your new car as a symbol of your status and a sign of success.

We’re paying dearly for the privilege and giving up far more than what we get in return. Next time you are in the market for reliable transportation, don’t forget to run the numbers. Calculate the real cost of a new car and ask yourself, “Is it worth what I’m giving up?”

Chances are, the answer will be no.

This article is about Debt

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This article is by staff writer Kristin Wong.

I’ll admit it. I’m a sucker for money psychology studies. And it’s not just because I write about money. On a sheer curiosity level, they’re fascinating.

But they also serve as a great reminder that money is more about mind than it is about math.

It’s interesting to see exactly how our brains work when it comes to habits like spending and saving. And not only is it interesting, it can be helpful too. Understanding how we’re wired helps us have a better understanding of our own individual money habits. This is why articles on sneaky marketing tactics are so popular — they’re helpful! It helps to know how our subconscious is manipulated to spend more so we can consciously do something about it.

I was impressed when April Dykman wrote about Keith Chen last year. He’s the behavioral economist who studies the link between language and savings rates. Basically, Chen’s findings were enough for him to assert:

If you speak a language that doesn’t distinguish strongly between the present and the future, you save a lot more because the future feels closer. If you speak a language that separates present and future events, the future feels more distant, which makes it harder to do things to care for your future self like save money, exercise, and eat better.”

Obviously, this isn’t to say we should all change the languages we speak to get rid of our concept of the future. We’ve talked about linking our present and future selves before, and it does help to be aware that our language can be yet another barrier in doing this. But it doesn’t stop there. I’ve come across quite a few seemingly “weird” ways our financial habits are affected. Here are three more that I came across recently.

Disorganization leads to impulse spending

Here’s one advantage to being a neat freak, I guess.

Researchers from the University of British Columbia and the Cheung Kong Graduate School of Business found that a disorganized environment can lead to impulse spending. According to the Chicago Tribune:

“…in experiments the authors found that people in a cluttered room were more likely to pay higher prices for products, such as a TV or movie tickets, compared with people in an organized room, according to the study, ‘Environmental Disorder Leads to Self-Regulatory Failure.’ Researchers predicted that if a person was responsible for his or her own messy environment — rather than ones created by researchers in the experiments — the effect would be even more depleting to their self-control.”

The idea is that organization makes you feel more in control. And when you have more self-control, you’re less likely to give in to impulsive shopping decisions. You wouldn’t typically think cleanliness and spending affect each other, but your environment can have a subtle impact on your feelings of self-control.

We’re more likely to spend dirty money

A study from a couple of years ago found that our spending is also affected by, simply, the way our money looks.

Researchers from the University of Guelph found that we’re more likely to spend dirty, crumpled up bills and hold onto our new bills — except in social situations. When we’re trying to impress someone, we usually reach for those new, good-looking bills. According to the University:

“In five different studies, the researchers gave subjects new or old bills and asked them to shop and spend. In all the studies, people spent more and took more chances with older worn money…’Basically, the physical appearance of money matters more than traditionally thought,’ said Theodore Noseworthy, a professor in Guelph’s Department of Marketing and Consumer Studies…”

They go on about how we tend to think of money as symbolic rather than a product itself. But this study shows that we do see some intrinsic value in money, in and of itself. And this is weird, because a dirty $10 bill will buy you the same amount as a clean $10 bill. We know that, and, somehow, we still value the clean bill.

We can use this knowledge to our advantage when it comes to paying with cash. You might try to only keep new, crisp bills in your pocket, for example. It might seem impractical and silly, but if these studies are any indication, human behavior often is impractical and silly.

We’re less likely to spend larger bills

Similarly, we’re less likely to spend larger bills. Researchers Priya Raghubir and Joydeep Srivastava conducted a series of studies that found when people had larger bills, they were less likely to spend it than people with smaller bills or coins.

But there was an interesting twist: When the subjects did decide to spend money, those who made purchases with large bills spent more, overall, than those with small bills.

It’s actually been coined “denomination effect.” In their paper, the researchers conclude:

“The results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones, allowing them to be used as a strategic device to control and regulate spending.”

In an article for Psychology Today, researcher and author Art Markman explains that this happens because of how we associate different values of currency. Simply put, small bills remind us of small purchases — like buying a cup of coffee; large bills are associated with large purchases. Our brains make these associations, and the associations affect our spending.

Markman suggests a pretty simple way to use this information to your advantage:

“If you are the sort of person who tends to blow through a lot of money making lots of small purchases, then you should probably avoid carrying lots of small bills with you…If you are the sort of person who tends to make large purchases on impulse (that is, you are penny wise and pound foolish), then you may want to avoid carrying around large bills… Instead, you should probably carry around a small amount of money in small bills to keep yourself from over-reaching.”

A lot of this seems ridiculous, right? Our brains should think practically and logically. We should understand that five $20 bills are the same as one $100 bill.

But again, money is more about mind than it is about math. This is why, as silly as it might seem, the envelope method works. It’s why the debt snowball method works.

Often, our brains aren’t practical. They’re weird. Rather than try to deny that fact, it might make more sense to understand it. These studies are always debatable, but a little awareness about human nature can help you work with your habits and develop better ones.


This article is by staff writer William Cowie.

Have you considered how your life would freeze to a standstill if a general outage cut electric power for more than two or three days? As every summer dawns, it’s a question more and more people ask, because demand for electric power is growing inexorably, and summertime is when the grid always gets strained to the max. Many experts say all it will take is one unusually bad heat wave and a single computer glitch. The last major outage happened in the summer of 2003, and it affected over 55 million people.

Our lives depend on electricity more than just about anything else, but there are few things we take so for granted. (You couldn’t read this post without it.) Environmentalists have effectively put a stop to all new construction of traditional power stations, and a growing portion of new construction is for clean energy sources. Clean energy may sound sexy, but it’s still unreliable: Wind turbines generate electricity only when the wind blows, which might not be when you need it. Likewise, solar energy generation fluctuates with weather conditions. All it takes is one confluence of circumstances to shut down your power.

That’s a mess. Once your cell phone’s battery runs down, how will you recharge it? Think you can run down to the local Starbucks to get some coffee (your coffeemaker is dead, remember) and recharge your laptop, cell phone, tablet, iPod, toothbrush and shaver? Think again. All your neighbors will have descended on that little coffee shop en masse because they’ll be without power too.

Here’s a list of but a few things that go away in the event of a general power outage:

  • Lights (obviously)
  • Heat and cooling — even gas heating requires electricity to pump the air
  • Baths and showers — no heat means cold washing (assuming you can get running water)
  • Medical support systems
  • Food storage — refrigerators and freezers
  • Food preparation — microwaves, stoves and ovens (even gas ovens use electricity)
  • Food availability — stores need electricity too
  • Entertainment — television and radio (not to mention video games)
  • Communication — cell towers and Plain Old Telephone Service (POTS) exchanges require electricity
  • Gas for your automobile — gas pumps run on electricity

The majority of power outages come in times of temperature stress, i.e., winter or summer, when heating or cooling are drains on the system. They impact you in many ways, some of which are hard to foresee. For instance, opening your garage door suddenly becomes a project requiring effort and planning.

It’s true that the big things like water pumping stations and telephone exchanges often have redundant backup power generators, but those sometimes get overloaded when panic strikes and everyone becomes desperate to make calls and fill old milk containers with drinking water.

That’s the bad news. The good news is there is a lot you can do to prepare yourself and do when a massive outage strikes unexpectedly.

Preparation

Food: Have at least a week’s worth of dry food rations stored away, especially high-energy foods, like peanut butter, jelly, crackers, granola bars, and trail mix. Also include some comfort/stress foods: cookies, hard candy, sweetened cereals, lollipops, instant (or pre-ground) coffee, tea bags, and a supply of things like salt, pepper, sugar, etc. Keep a good supply of paper or plastic plates and silverware, as well as a roll or two of paper towels. Oh, and don’t forget a manual can opener.

Water: Store at least 1 gallon of bottled water per day per person, plus more for pets, and powdered foods. When power goes out, water purification systems may not be functioning fully, so don’t rely on tap water until the crisis has passed.

Gas: Make it a habit never to let your vehicles’ gas tanks get below half. When a general power outage strikes, gas pumps die because they run on electricity.

Cash: Keep at least a couple hundred dollars in hard cash handy. Everyone selling you something will not have power for cash registers, scanners, and that type of thing. You’ll be dead in the water if all you have is plastic.

Grill: If you have a patio grill, get a stovetop kettle if you don’t have one. That will allow you to boil water outside. Never use a generator, grill, camp stove or other gasoline, propane, natural gas or charcoal ­burning devices inside a home, garage, basement, crawlspace or any partially enclosed area. We usually keep a spare full propane tank (although, to be honest, its main purpose is to keep the party going if the previous one runs out while the burgers are on the grill).

Cooler: Get a cheap, large-capacity cooler to store the food caught in the freezer and refrigerator. It’s a good idea to keep a few two-liter bottles filled with water in your freezer — they will keep food cold in a cooler for a long time.

Light: Get a flashlight, candles and lighter (or matches). And be sure to add a supply of batteries. A good option is keeping a half-dozen cheap solar garden stake lights lying around. They’ll charge every day and have enough light to last most of the night. At about $2 per, that’s a cheap, reliable light source.

Trash: Something many people forget is a supply of trash bags and moist towelettes for sanitation needs. If the power outage affects the water supply, you may not have the use of your toilets.

Medication: Ask your pharmacist to keep you a month ahead on your prescriptions for this emergency. If someone in your home is dependent on electric-powered, life-sustaining equipment, remember to include backup power in your evacuation plan. If you are on electrically operated life support systems or special equipment for heart or kidney problems, be sure to notify your utility now, in advance of any outages. They will put you on a list and make sure your power needs are provided for first. Oh, and don’t forget the first-aid kit.

People: Set up an agreement with people about two to three hundred miles away that you can go and stay with. It’s infinitely less stressful to simply get in your car and drive somewhere else where there’s still power so you can wait out the crisis. It will be difficult to call around when the power is out, so it’s best to set up two or three families with whom you have an arrangement where if anyone has a major crisis, they know they’re welcome somewhere else for the duration of the emergency.

Documents: It’s wise to get copies of things like deeds, wills, titles, medication lists, insurance policies, birth certificates, etc. Keep them in the same place as your emergency cash. People who provide aid may require some form of identification, and if the insurance company comes to help, it speeds things up if you have a copy of your policy right there. It’s not a bad idea to keep your computer backups on a portable hard drive and leave it with the emergency supplies.

Chargers: In the event that you go and stay with someone, it’s nice to have a basic set of chargers for your phones, computers and other gadgets together in one place, so you can just grab them and go. Also add a long extension cord with multiple outlets to plug all of those chargers in at the same time. We have a power inverter. Plug it into your car and you have 110V to power just about anything, including a coffee maker. (This of course makes it even more important to not be too low on gas.) :)

POTS phone: Keep a non-cordless, old-school telephone around. The plain old telephone service is usually the last to go out. It allows you make phone calls, but it also allows the authorities to get hold of you with reverse 911 calls. Tape the following phone numbers to the bottom of your land-line telephone or inside a telephone book:

  • Fire department
  • Telephone companies
  • Utility companies
  • Police department

Shutoffs: Find out where each utility shut off is — electricity, water and gas. Know how to turn each off. Have the proper tools to do so, and know where they are located. If you have an automatic garage door, check the instructions or with the manufacturer to learn how to open the door manually (without power). Most automatic garage door openers have a red or yellow knob hanging from a string which disengages the garage door from the track of the opener.

And, finally, don’t forget to include a few board games. You’ll have a lot of time with little else to do, so you may as well turn the crisis into a fun, bonding experience.

When the outage strikes

First thing is go to a grocery store right away to buy anything you need. Be armed with cash, because their registers and scanners won’t work. They won’t have lights, and they probably will want to sell perishable produce as quickly as possible. Be prepared for crowds, and also be prepared to let others have something too — don’t hog everything for yourself.

If you have a plan in place to go and stay with people who are out of the outage area, pack and go. Expect roads to be congested and traffic lights not to work. Be sure to unplug or shut off everything, because when the power comes back on, there may be surges which can cause damage. Turning off all breakers is usually a quick and easy way to do this.

If you’re staying, unplug/turn off everything, but leave a single light turned on, so you can see when power is restored.

To maintain the refrigerated and frozen foods, keep fridge and freezer openings to a minimum.

Practice living without connected utilities. Do it periodically. You will discover what your real needs are and you’ll learn how to meet them in an emergency.

In winter, allow a small stream of water to run from faucets in order to prevent water pipes from freezing. The American Red Cross advises this action and says, “Running water through the pipe — even at a trickle — helps prevent pipes from freezing.” In frigid weather, if your power is likely to be out for more than a few days, you may want to call your plumber and ask about draining your home’s water pipes so they don’t freeze and burst.

An extended power outage, be it from overloading or terrorist action, will be a major emergency, and will cause damage in many ways. However, with some basic and inexpensive preparation, you can keep that damage to a minimum.

What else can you think of to prepare for a power outage? Feel free to add them in the comment section below.


This post is by staff writer Honey Smith.

In my last post, I talked about motivation and money. Motivation is a huge yet under-discussed concept in personal finance, I think. While big wins may be the quickest way to wealth, that doesn’t mean you’ll reach your goals overnight. Even if you have become wealthy, you still need motivation to manage your money and prioritize your spending. After all, if you want to stay wealthy, then you can have anything you want but not everything you want. And if (like most of us) you’re not wealthy yet, you may have to be even more ruthless in your prioritization.

I’ve been chronicling my debt payoff journey here on GRS for two years now. (Whoa!) In that time, I’ve learned quite a bit — not just about personal finance, but about myself. And as I pointed out in my last post, self-knowledge is an important component of motivation. So here’s a rundown of some motivations that I’ve discovered work especially well for me.

I’m motivated by balance

I’ve written before about work-life balance. It’s something that I place a high value on and, as a result, I’m willing to make compromises to achieve it. One of those compromises is taking somewhat longer to pay off my debt. This compromise manifests itself in a couple of ways. The first is time. While I do have a full-time job and a not-insignificant side gig, I make sure that I leave myself time to pursue hobbies. I like to cook — yesterday I made fresh salsa, chickpea “tuna” sandwich filling, and two loaves of zucchini bread. I also like to read science fiction and fantasy novels — the longer, the better.

The second way I compromise in the name of balance is by not allocating every spare cent toward debt payoff. While I have consistently made extra payments toward my student loans, I have also taken vacations, gone to happy hours, and (most recently) bought a house. Now that I am a homeowner, I want to furnish it with items I love. I will of course be looking for the best deals and saving until I can afford to pay for the things I want in cash. However, I’ll be spending some money that would otherwise be allocated toward my student loans. And I’m OK with that.

I’m motivated by forgiveness

Yes, I have a significant amount of student loan debt. Yes, I could have gotten the same education with far less debt, or not gotten the degree at all. However, I did get the degree, and I did accrue the debt. It’s a sunk cost at this point. What does that mean exactly? It means the money’s been spent whether I beat myself up about it or not. I don’t gain any financial advantage now by being miserable about the situation.

So I choose to forgive myself. A big part of that forgiveness means allowing myself to have work-life balance instead of working 80+ hours a week. It means allowing myself to spend some money on things other than debt payoff. However, it also means not engaging in negative self-talk. It means refusing to believe that I’m stupid or worthless or a bad person because of my debt. Part of my motivation in writing for GRS is to encourage those who might otherwise have taken out student loans to think twice about it. I think that’s a good deed. Another motivation is to help those who have significant student loans (or consumer debt or whatever it may be) understand that taking financial responsibility doesn’t have to include self-flagellation. I think that’s another good deed.

I’m motivated by what I’ve achieved so far

In my last post on motivation, I talked about celebrating your successes. While I obviously think that’s important, it’s not exactly what I mean by being motivated by your achievements. Rewarding yourself with anything from the afternoon off to a Caribbean cruise can be fun. However, equally fun (at least for me) is keeping a running list of your achievements to refer to when the going gets tough or the road seems too long.

Those achievements can be financial, like a tally of the amount of debt you’ve paid off or the size of your emergency fund. However, if there are other achievements that you’re proud of, by all means include them on the list! I am proud of my degrees and think that they show I’m capable of achieving difficult things even if they take years to accomplish. In other words, many of the skills necessary to earn my degrees are applicable to my debt situation. That knowledge is tremendously motivating to me. Maybe you ran a marathon or learned a new language or raised a child. I bet you also picked up some transferable skills that can be applied to your finances!

I’m motivated by the finish line

As a result of the foreclosure of the condo Jake and I were renting followed by purchasing our home, we have gone six months without making a housing payment. Prior to this, I never imagined what that would be like. Now that I’ve experienced it, however, my eyes have been opened! Every debt that you can pay off decreases the amount of money you need to earn in order to live well. And since my student loan is practically mortgage-sized in and of itself, being free of those two debts is just about the most exciting thing I can imagine.

Being motivated by the finish line, of course, only works if there is a finish line for which to shoot! One of the core tenets of Get Rich Slowly is that goals are the gateway to financial success. (Actually, goals are probably the gateway to any type of success.) While you may have to meet monetary milestones to accomplish your goals, however, you’ll probably be a lot more motivated if you can imagine how success will change your lifestyle for the better.

In other words, money’s only a tool to help you live the life you want. So start by imagining that life and work backward from there. The monetary milestones necessary for me to achieve my goals and for you to achieve yours may be the same. However, our finish lines might be quite different. That’s why they call it “personal” finance!

What kind of life do you want for yourself? How do you balance your current quality of life against your future needs and goals? How do you forgive yourself and move on from setbacks? What achievements make you feel the most proud?


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