During the first week of July, I had the privilege to chat with financial author Scott Burns. What was intended to be a brief interview about his new book, Spend 'til the End [my review] lasted for nearly two hours. Burns was fascinating.
It has taken weeks to edit this conversation into something digestible for the web. It's still quite long, but I hope it's as interesting to you as it is to me.
Can you give my readers a brief history of your background?
I got very curious about money just in the course of my childhood. The first ten years of my life, I lived and shared a rented room — at one point in a house without plumbing — with my single mother. By the time I graduated from high school, I was a millionaire's stepson. My economic experience runs the gamut.
I started writing about personal finance because one night my first wife and I were going to a dinner party, and she said, “Scott, I've heard you explain the economics of buying a house as many times as I want to. Could you just write it up so you can hand it out?” We were all in our twenties — it was a time of real mobility. Everybody was buying a house and doing all kinds of things that were brand new.
I started writing about people and money then, and it was just a wonderful, natural event. I thought, "Wow. I was meant to do this."
You've been writing about personal finance for a long time now. I'm curious if you've noticed things that have changed since you've started. Is the advice that you were giving in the late 1960s still relevant today? And what sorts of changes have you seen over the past 40 years?
On Friday I visited Office Depot for school backpacks at the killer price of $2.99. Along with other loss-leader school supplies, they'll be donated to a local social services agency. At the checkout, I handed over a "20% off all backpacks" coupon from an Office Depot mailer. The cash register wouldn't accept the coupon. "These are already on sale so the coupon won't work," the sales clerk said.
I noted, politely, that the coupon did not say "not good on sale-priced items." The cashier tried again. No dice. "It's not letting it go through," she said, and waited. I got the distinct impression she wanted me to say, "Oh, that's OK." But I wasn't going to say that, because my belief is that a store should honor its published offers.
She called a manager, who told me the coupon wasn't intended for sale items. I again pointed out that nowhere on the coupon did it say that. This started off a 10-minute dance between manager and consumer over what would have been a $3 discount.
Last week I wrote about the Consumer Action Handbook. This freely-available guide from the U.S. government is packed with useful information. I was leafing through the book again this morning before I put it away, and I noticed that the good stuff starts on page one with a list of thirteen quick consumer tips.
I've transcribed these tips below, quoting verbatim from various sections of the book (which is in the public domain), as well as adding my own experiences and advice.
- A deal that sounds too good to be true usually is. Offers that often fall into this category are promises to fix your credit problems, low-interest credit cards, deals that let you skip credit card payments, business/job opportunities, risk-free investments, and free travel.
- Extended warranties or service contracts are rarely worth what you pay for them. This has been documented repeatedly from many sources, including Consumer Reports, yet people still pay for them. They're not always a bad deal (I always take them out for laptop computers), but most of the time, you're better off self-insuring. Instead of paying for service contracts, put the money you would have spent into a separate savings account. When something goes wrong, pay for the repairs out of this fund. Here's how one Get Rich Slowly reader does it.
- Say no to credit insurance offers. Often offered with credit cards, car loans, and home mortgages, it is almost always better to purchase regular property, life, or disability insurance.
- There is no universal three-day cooling-off period. Don't be misled into thinking that you have an automatic three days to cancel a purchase. Only a few types of contracts give you a right to cancel. For example, when you buy something at a store and later change your mind, your ability to return the merchandise depends upon store policy. If you buy an item in your home, you might have three days to cancel.
- Think twice before sharing personal information. Guard your Social Security number and credit card information. Learn how to prevent identity theft through deterrence, detection, and defense. (Just yesterday my doctor's office asked for my Social Security number. Maybe I shouldn't have done so.)
- Beware of payday and tax refund loans. Avoid the payday loan trap. If you are short of cash, avoid both of these loans by asking for more time to pay a bill or seeking a traditional loan. Even a cash advance on your credit card may cost less.
- Not all plastic cards offer the same protections. Understand how your credit and debit cards work. When you sign up for an account, read the fine print. Your liability for the unauthorized use of a gift card or debit card may be much higher than the $50 maximum on your credit card.
- Real estate agents represent the seller, not the buyer. When buying, consider hiring an agent or lawyer who represents you.
- Home improvement and auto repairs are the subject of frequent complaints. Don't just go with the first company you speak with. Get multiple estimates. Ask friends and family for recommendations. From my own experience, I'd rather pay more for a company that I know does quality work instead of gamble on a cheap unknown.
- Think twice before you rent-to-own. Interest rates on rent-to-own purchases can be very high. If you miss a payment, you could end up with nothing. Consider other options such as buying second-hand at a thrift shop or through ads in your local newspaper.
- Don't buy under stress. Research suggests senior citizens, people in crisis (e.g., coping with a death or debt), college students, small business owners, minorities, and immigrants are especially at risk of being victimized. Avoid making big-ticket purchases during times of duress. This point cannot be emphasized enough. Salespeople will often attempt to create artificial stress because they know it makes you more likely to buy. That guy who knocks on your door offering to sell you the last frozen chicken in his truck at a discount? He's creating artificial pressure to get you to buy.
- Be cautious of Buy Here, Pay Here lots. If you decide to buy a car from a used car lot, be sure to read all of the papers before you sign. Don't sign contracts that allow the dealership to change the finance rate after you leave the lot.
- Work-at-home ads usually don't pay off. Be especially wary of ads that promise huge annual salaries; they often require expensive upfront fees with no guarantee. You risk losing your money and wasting a lot of time and energy.
Some of these probably seem obvious — others less so. It's all good advice, though. When I look at the list, I recognize several of these "commandments" that I've violated, particularly buying under stress. I've finally learned to just say "no" to anyone who wants me to make a decision now (especially if it's a transaction that I did not initiate), but it hasn't always been this way. Continue reading...
We had dinner last weekend with our friends Pierre and Marcela. The food was fabulous. The conversation was good, too. Much of the time, we talked about money.
If I were a rich man
"If we were rich, I wouldn't change a thing in my life," Marcela said. "Except the food. If we made ten times what we make now, I'd keep everything else the same, but I'd eat like this every night." The rest of us murmured our agreement over mouths full of bread, cheese, and olives.
"If I made ten times what I do now, I don't think I'd change anything, either," I said, and saying it made me realize just how fulfilling my life has become.
Last summer, as a part of my quest to get rid of clutter, I began to move toward paperless personal finance. I had planned to share my system only once I'd perfected it, but yesterday Daniel e-mailed to ask for a glimpse of its current state.
To go paperless, you might need a scanner (or some other way to convert your documents to digital files). I also recommend using a shredder to dispose of paperwork. (A shredder is one of the best defenses against identity theft.) Here's how my current paperless personal finance system works after nine months of trial-and-error.
Having your employer electronically deposit your paycheck for you is the first step in going paperless. This wasn't an option for me at the box factory. Now, however, I have each of my sources of blog income automatically deposited to my business checking account. This reduces the risk of mail and identity theft, and saves me the hassle of running to the bank.
Over the weekend I posted a flippant note about saving money on milk. I hoped to spur conversation about unit pricing, but it led instead to a comparison of milk prices around the U.S. and Canada. This discussion was more interesting than the one I had intended.
"Wow," I said to Kris after reading some of the comments. "Can you believe anybody would pay $6 a gallon for milk."
"But it's organic milk," Kris said.
Sometimes a few simple actions can save you money year after year. The negotiation process is definitely one of those times.
Negotiating works especially well when you deal with a salesperson who is paid by commission. These salespeople often have the ability to give you a better deal (and thus earn a lower commission) in order to earn your business. Situations where you can successfully negotiate a better rate include:
Nearly three years ago, in the original Get Rich Slowly post, I compared smart personal finance to building a house. This is the first part in a series that will explore that analogy.
In his excellent Weinberg on Writing: The Fieldstone Method, Gerald Weinberg describes a simple metaphor for the writing process. Writers, he says, gather fieldstones (ideas) and use them to construct walls or buildings (finished stories). But each stone is different, and so is each project. To produce something useful and lasting, the builder (author) must pick the appropriate stones for his situation.
The same is true with personal finance.
Earlier this month, Julie warned us that Macy's had flipped her store card and sold her data to Citibank. I recently experienced something similar.
A few months ago, I received some "advance checks" in the mail from Bank of America. You know the ones — the kind of checks your credit card uses to entice you so take a cash advance. The problem was, I don't have an account with Bank of America. I did once, but I closed it in December of 1998
I shredded the checks and didn't think much about it.
I'm swamped with paper. This is partly because I'm a packrat, but mostly it's due to the never-ending bills, statements, receipts, policies, and special offers that flood my desk. The paperless office once seemed like a silly goal to me, but lately it's become a holy grail. Spurred by Leo's adventures in minimalism and my own desire to get rid of clutter, I've begun to explore ways to move my money into the 21st century.
Here are eight ways to begin moving toward paperless personal finance:
- Reclaim your mailbox. Use OptOutPrescreen.com to stop credit card and insurance offers. Stem the tide of junk mail with the Direct Marketing Association's mail preference service. Cancel unwanted magazine subscriptions.
- Consolidate accounts and close those you no longer use. Reduce the number of credit cards you carry. If you have bank accounts at multiple locations, combine them at a single bank. The fewer accounts you have to track, the less paper you have to deal with. (Be aware that closing unused credit card accounts will cause a temporary ding to your credit score.)
- Use electronic billing. If you have a choice between paper and paperless, opt for the latter. Not only will this reduce clutter, but it can also save you money. I save $2/month through electronic billing for my auto insurance. Now I'm considering whether it's worth the $5/month cost to sign up for electronic billpay through my credit union. When I calculate how much I'd save on stamps, and count the $2 I've already saved with my insurance company, I could move to completely electronic bill payments for a net cost of $1/month.
- Computerize your checkbook. For years, I've used Quicken to balance my checkbook. This is probably normal for young adults, but many of my middle-aged friends still balance their checkbook by hand. One couple I know began using Quicken to track their finances this summer, and are blown away by how easy it is to use. Even a simple spreadsheet can reduce the amount of paper you're shuffling.
- Photocopy documents. I have a friend who, at the end of each month, photocopies his financial documents and places them in a three-ring binder. He's been doing this for years. While not quite paperless, this is a great option if you don't have access to a scanner. It sure beats my stack of shoeboxes!
- Scan receipts. My accountant uses a $900 scanner that automatically converts documents to PDF files. You don't need anything so fancy. My sister-in-law scans her receipts and bills and saves them to her hard drive as jpegs, vastly reducing the amount of paper she keeps on hand.
- Use the web. Online apps offer smart ways to track your finances while reducing clutter. Due.com is a web-based personal finance program with a community element. Shoeboxed lets you scan or photograph your receipts and organize them online.
- Know which financial records to keep (and how long to keep them). Purge your archives. For years, I've kept every financial document that comes into my life. I literally have dozens of shoeboxes in storage filled with financial documents, most of which I no longer need. By learning which documents you need to keep, you can be sure that you're not storing useless paper.
Paperless personal finance isn't without its pitfalls, of course. Keep the following best practices in mind if you decide to pursue this route: