My friend Lisa is something of an eBay addict. I'll be at her house admiring something or other and she'll smile confidentially and whisper, "I got it off eBay."
She recently showed up at a dinner party wearing a smart cocktail dress. When the other women admired it she smiled confidentially and whispered, "I got it off eBay." At Christmas she made some crafty little things that amazed and delighted the recipients. When we asked how she came up with the idea she smiled confidentially and whispered, "I got it off eBay."
I opened my first checking account on the day I entered college. During registration, local banks set up tables at one end of the room. They all seemed the same to me. I chose the bank that gave me a free Frisbee. I did business with that bank for seventeen miserable years. I loathed that bank. They were constantly finding new and interesting ways to charge me money. If I hated it so much, why didn't I change? Because I never felt like I had the time. Besides, I had no idea where else to go.
Eventually the bank went too far. Because of some obscure procedural policy, I was charged three $30 overdraft fees in a single day. This kicked my ass into gear. I took an afternoon off from work, closed my account, and started fresh at a local credit union. It was one of the best financial decisions I've ever made.
If I could solve one financial problem in a few hours, just imagine what I could do with an entire day. If you, too, have grand financial plans that you never seem to have time to fulfill, consider taking a personal Money Day. Choose a normal weekday (when banks and business are open), take time off work, and get things done. Don't worry that you're using a vacation day for "nothing" — this vacation day will repay you many times over, not just now but for years to come. Continue reading...
During the 1990s, I used credit cards to fund my every whim. I bought books and games and computers and gadgets. Now, ten years later, I'm still carrying a lot of that debt in the form of a home equity loan (into which I rolled all my credit cards several years ago). I also still have a lot of the crap I bought.
I have a plan for getting rid of the debt by next spring, but until recently I had no intention of getting rid of the things I had bought with the money. Instead, I let them take up space in the garage, in the workshop, in the basement. Physical reminders of my foolish purchases were all around me. The clutter was as much a mental burden as the debt!
Then a reader recommended Clutter's Last Stand: It's Time to De-Junk Your Life. Author Don Aslett is a cleaning zealot — reading this book opened my eyes. In a chapter called "The Economy of Clutter", Aslett lists the costs of clutter: Continue reading...
Sabino sent me an MSNBC article about the unfolding subprime lending crisis. The piece provides a glimpse at the deceptive practices used to prey on people like Kerrie Russo, who chose to refinance her mortgage on a promise of lower payments. When she failed to read her loan documents closely, she found herself deep in expanding debt. Though the mortgage broker lured her into this loan, she signed the papers. Because she didn't know how to protect herself, she faces a financial crisis.
Learning to avoid problems like this is an essential component of financial literacy. It is your responsibility to protect your money. Here are seven skills that can keep you safe from hucksters:
- Ignore anything that sounds too good to be true. There are no short-cuts to wealth. If the son of a deposed Nigerian bureaucrat e-mails you offering to pay $100,000 for a few hours work, you know you're being scammed. Beware of similar deals on a smaller scale. If a mortgage broker tells you that you qualify for a more expensive home than you expected, double-check her figures with another broker, or with an on-line calculator.
- Seek recommendations from people you trust. Referrals increase the odds of finding a quality professional. There's rarely a need to flip blindly through the yellow pages (or google) to find a mortgage broker or a roofing contractor. Ask your friends, your family, your co-workers. Kris and I seek recommendations whenever we make big money decisions; we're rarely disappointed. (With one notable exception.)
- Refuse transactions you do not initiate. Many people are suckered by door-to-door salesmen and telemarketers. I used to be like this. I couldn't say no. Now I know that if I didn't initiate the transaction, then it's something I don't need. (I'll never be able to unload the $500 set of encyclopedias I bought in 1996. Seriously.)
- Don't allow yourself to be pressured. Salesmen will urge you to make a quick decision. Your natural response may be to say "yes" because you're afraid of missing a good deal. You're not going to miss a good deal. Learn to say "no".
- Read everything you sign. This is vital. Read all the policy changes that you get in the mail from banks, insurance agents, and credit card companies. At the very least, read the documents on your major purchases, especially cars and homes. Especially homes. Let me be blunt: you're a fool if you don't read your mortgage papers before you sign them. It can be daunting when you get to the title company and see the huge stack of documents. The title officer may try to rush you. Take your time. Read everything. Ask questions. Failure to do this can bring you years of misery. Sound absurd? Tell that to the woman in the MSNBC article I mentioned earlier. Or check out Luneray's homebuying tale from last fall.
- Don't invest in things you do not understand. If you don't understand the mortgage your broker offers, don't take it. If you don't understand buying stocks on margin, don't do it. If you don't understand that awesome new investment opportunity that your friend keeps pimping, then don't buy into it.
- Surround yourself with a team of experts. This takes time. Cultivate relationships with people you trust, people who can help you with financial matters. If you can, develop friendships with an accountant, a lawyer, a real estate agent, an insurance agent, a stockbroker. Rely on their advice.
There are a lot of people out there eager to separate you from your fortune. It is your responsibility to keep your money safe. The great thing is that it's easy to defend against scammers: by default, you are protected. You can't be suckered if you don't do anything.
I've made great progress with my personal finances over the past year. I am paying off debt. I established an emergency fund. I even opened a Roth IRA. But I'm not out of the woods yet — I still do stupid things from time-to-time.
Spending for the sake of spending
For example, I just returned from a trip to the bank. I deposited a couple of checks which caused my balance to increase to what, for me, is an enormous sum. (Next week I'll share my dilemma over what to do with this money.)
Rather than come directly home, I had to stop at the comic book store. This isn't necessarily bad. I've been training myself to buy only comics I genuinely want, not to buy for the sake of buying. Today there wasn't anything that I had to have. I should have left empty-handed. I didn't. Instead I found a couple of books that looked mildly interesting. I spent $50.
Cap at Stop Buying Crap recently asked: "When did you start caring about your finances?" This is an interesting question. I've always believed that my finances were important to me, but I never actually acted on this belief until a few years ago.
My parents set poor examples for managing money. In high school, I ignored the mandatory personal finance class. When I was offered credit cards in college, I signed up, and I used them, and began a lifestyle of debt. For the first few months after college, I was in a lousy job, and felt lucky to have a credit card with a $10,000 limit. I maxed it out buying clothes and paying for hotels and taking cash advances for living expenses. I bought a new car.
By the mid-nineties I was deep in debt, but I didn't have the discipline to stop myself. I paid minimum payments. When my credit limits were raised (always a joyous day), I viewed it as a license to spend. In 1995 I got a $5,000 windfall. Rather than pay off my credit card debt — which had swelled to $20,000 — I bought a new Macintosh Performa 640CD DOS-compatible personal computer and loads of games to go along with it. I bought new clothes.
At the grocery store yesterday, I passed a man and his daughter in the snack aisle. She was maybe ten or eleven, a little overweight, and begging for cookies. He was tall and muscular, a blue-collar type, clearly exasperated with her. "You have no conception of how hard your mother and I work to earn money, do you?" he said. There was desperation in his voice.
This brief encounter has been in my mind ever since. It reminds me of something I read over at the Seeds of Wisdom forum. Jim Anthony shared a story about how he is teaching his six-year-old the value of money. Anthony doesn't like the idea of just giving his son money — he thought it created an "entitlement mentality" — but he doesn't like the idea of tying the allowance to chores, either.
The big problem I see with either of these methods is that most parents don't teach any lessons beyond this and their kids learn that money is for spending on stuff, period. There are no lessons about making money earn more money. There are no lessons about the actual value of money.
I am not a financial expert. I'm just an average guy who wants to improve his personal finances while helping others to improve theirs. I feel comfortable giving general advice, but sometimes people write with specific questions that can only be answered by a qualified financial professional. Some questions are best answered by a lawyer, an accountant, or a financial planner.
What do I mean by that? How does one find professional help?
To find an answer, I polled three CPAs: my own accountant, my wife's aunt Jenefer, and fellow blogger Brian Brown. The all said the same thing: The best way to find an accountant is by referrals. Don't pick someone blindly from a search engine or via the phonebook. Ask your family and friends for recommendations.
I'm sometimes asked, "Which do you think is more important: saving money or making money?" They're both important, equal factors in the wealth equation:
[WEALTH] = [WHAT YOU EARN] - [WHAT YOU SPEND]
Which is most important to you depends on your current financial situation.
Thrift, frugality, and investing are pursuits that cross political, religious, and social boundaries. Regardless of your ideology, sound personal finance habits can help you live a better life.
There seem to be three distinct classes of personal finance books:
- Those with an overt religious-based foundation for thrift. Dave Ramsey bases the ideas in The Total Money Makeover on his Christian faith. Miserly Moms takes its cues from Christianity, too.
- Those espousing a "reactionary" back-to-the-earth philosophy. I'm currently reading Living Simply with Children, which is a great book, but clearly written from a more "liberal" perspective.
- Those that fall somewhere between, or which straddle both camps. This group comprises the bulk of personal finance books. Some, like Your Money or Your Life, manage to simultaneously promote Christian beliefs and a sort of "New Age" philosophy. Others studiously avoid any sort of dogma.
There's nothing wrong with any of these perspectives. They're all good. And they allow authors to bring new ideas and new techniques to the realm of personal finance. In Living Simply with Children, for example, Marie Sherlock talks about raising children with no concept of Christmas. But in Miserly Moms, the Joni McCoy argues that there's a Biblical basis for mothers staying home with their children.