spending Archives - Smart On Money

Are You Saving So Much Money That You’re Nearly Bankrupt?

I was reading a post over at Author Thomas J Stanley's blog of “Stop Acting Rich” fame. He was talking about how the mindsets are so different for people who merely act rich – and those who truly do have a high net worth.

Those who have a “millionaire mindset” are far more often to be found at discounters and and chains like Target and Wal-Mart, only buying things that they truly need or value.

Those who want to play the part of “being rich” are more often found at high end stores, spending money that they don't have so that they can play the part of being affluent.

Shopping For Bargains Until You're Broke

Those who act rich will often justify their high spending by talking about how much money they're saving, and by talking about all the “bargains” that they've gotten.

The problem is, they find so many of these so called bargains that they're spending more than they make.

Stanley talks about one such couple.

In spite of Dave and Linda's high income, they are two paychecks away from insolvency. How can this be possible? Perhaps it has something to do with Linda's collection of nearly 200 pairs of shoes all purchased on sale from a variety of upscale retailers. She insists that she saved thousands and thousands of dollars by buying these sale-priced items. Her husband is also a clothes horse. He has a closet full of suits all purchased at fall sales, winter sales, spring sales. . . . Many people who are Income Statement affluent like this couple are bargain shopping commandos. They are saving themselves so much money on purchases that they are nearly bankrupt!
It not only requires money to take advantage of all these “bargains” it takes time to plan and shop for these super discounts. Last year this couple purchased apparel from more than 30 different sources. Admittedly some of these purchases were made online, but in most cases Dave and/or Linda made a personal visit. They are relentless in searching for new purchasing opportunities.
Contrast this couple's shopping orientation with the millionaire next door types profiled in Stop Acting Rich (see pages 18 and 19). During the year in which they first became millionaires they had 2.45 times [median] the expected level of net worth given their age and income. In a typical year, on average, these millionaires purchased apparel from only 4.7 stores. Those stores which were mentioned by at least 20% of these millionaires include: Costco, Dillard's, “favorite independent store,” J.C. Penney, Kohl's, Macy's, Nordstrom [especially men's shoes], Target, and Wal-Mart.
What are the chances that Dave and Linda can adopt the retail patronage habits of the millionaire next door types profiled?

Changing mindsets and behavior can be harder than you might think. Old habits, and ways of thinking die hard.

So are you engaging in this type of behavior – buying things because of the messages they send – instead of buying things that you actually need? Are you a “bargain shopping commando”?

9 Common Ways You Could Be Wasting Your Money

By Miranda Marquit 18 Comments

Most of us scoff at the idea of just throwing money away. However, you might actually be doing just that — every day. There are a number of practices, seemingly commonplace, that result in wasted money each month.

If you are trying to figure out what has happened to your budget, and trying to pinpoint where your money is leaking away to, here are 9 common ways that you could be wasting your money:

Credit card balances: Anytime you carry a balance on your credit card, you are paying the price in interest charges. Interest is money you pay for the privilege of borrowing. Stop carrying a balance, and you will find that you have more money in your pocket.
Interest rates and fees: Call your credit card company and ask for a lower rate on your credit card. In some cases, especially if you are a good customer, you can get a reduction of 2% to 3%. You can also call your bank to ask for fees to be waived. My bank waives one overdraft fee each calendar year — just for the asking. It never hurts to ask if you can have fees waived if you are late once or twice on a payment.
FSA mismanagement: Your Flexible Spending Account (unlike the HSA) is a use it or lose it situation. If you aren't paying attention, and if you don't use all the money in your FSA each year, you leave that money on the table, and it's wasted.
Cell phone: Rather than pay for a plan that you rarely use, consider your cell phone usage and your true needs. I have a prepaid cell phone service, and my husband uses an inexpensive pay as you go plan. Our phones aren't fancy, but they fit our needs and they cost a lot less than the smart phone and $100 a month plan my brother has — and rarely uses. Consider things like Virgin Mobile prepaid phone options as a way to save considerably on your monthly bill. Resource: Save Hundreds On Your Cell Phone Bill.
Car maintenance: The rules are changing with car maintenance. First of all, check the manufacturer's recommendations for the octane level of your fuel. There's no need to spring for the premium 93 grade when 89 will do just fine. Check the requirements, and don't pay extra. You should also look at other maintenance recommendations for your car. Some cars can go 5,000 or more without an oil change now. Don't pay extra for maintenance you don't need.
Interest free loan to the government: Instead of using your tax refund as a sort of savings account, adjust your withholding so that you aren't getting so much back. Instead, watch for a bigger paycheck and use that money to invest or improve your life another way.
Late payments: Get organized and be sure that you pay on time. Late payment fees and missed payment fees do more than just impact your wallet; the impact on your credit score can result in paying more in higher interest on auto and home loans.
Subscriptions you don't use: From superfluous cable channels to a magazine you don't read, subscriptions can cost you. Evaluate your regular subscriptions, and get rid of those you aren't using. From Gamefly to Netflix to that investment newsletter, cancel unnecessary subscriptions and save.
Failure to shop around: If you aren't shopping around for the best deal, you are wasting money. Regularly shop around for insurance rates, major purchases and more. Do a little research online, and see if you can get better prices on things you buy regularly as well as occasionally.

What are some common ways that you or people you know are wasting money?

What Things Motivate Your Spending?

By Miranda Marquit 1 Comment

Introspection is not something many of us apply when spending money. Unfortunately, too many of us just buy mindlessly, without really think about why we buy the things that we do.

A little self-knowledge, though, can go a long way. If you are unhappy with your financial situation, maybe it's time to look at your spending habits, and figure out if they match with your spending priorities. Part of that is looking at your money motivations, and examining why you buy the things that you do.

Necessity

One of the main motivations for spending is need. If you need something, you are going to spend money on it. For most of us, money is a means to an end. We need food to nourish our bodies, so we spend money on food. We need a place to live/shelter, so we buy a home. Necessity is all about survival. If you are spending money so that you can survive, it's clear that you need to keep spending money on those things.

But make sure you know where the line is. Don't call things needs when they are really wants. You might be spending on something that you think is a need, when it really isn't. Another issue is trying to move out of survival mode. It's not fun to see all your money go to survival. If everything is a struggle, you might need to figure out how you can earn more money, perhaps with a second job or a side hustle.

Enjoyment

Another money motivator is enjoyment. Do you enjoy the things you spend your money on? I stopped buying trinkets because I realized that I didn't enjoy them. I had got in the habit of buying them, but I don't really have a good time with them. I am happier with a good book, or going out to dinner, than I am looking at a trinket. My husband likes collecting action figures. He enjoys looking for them on eBay, and getting a good deal (or sniping them out from under someone else). He also enjoys looking at them and arranging them for display.

That's fine. Having a hobby — one that you can afford — or buying things or experiences that you enjoy, is fine. But make sure that is what you really want to spend your money on. If you spend money on things and experiences that you don't actually enjoy, your money is wasted, and you are unhappy. Evaluate your spending, and make sure you are happy with where your money is going.

Impress Others

Sometimes, we spend money on things we don't enjoy in an effort to impress others. Look at your motivation there. If you are buying things because you are “supposed” to have them. Or because you think that it will add to your status in the neighborhood, you probably aren't very happy with the outcome. It's nice to feel as though you are on top of things, and that you are a major player in the neighborhood, but it's not true enjoyment. And it's certainly not need.

Examining your money motivations can help you figure out where you could change your spending, and maybe start using your resources for things that matter to you, rather than wasting money and racking up debt for things you don't actually need or even want.

Why I’m Not A Big Penny Pincher

By Miranda Marquit 9 Comments

Anyone who really knows me, is well aware that I'm a spender. Penny pinching isn't my thing. That isn't to say that I'm flinging money about like water. What it does mean, though, is that I don't go out of my way to save a few cents — or even to save a few dollars. While I think that saving money, setting funds aside for the future and emergencies, is important, I don't really think that I'm going to achieve financial freedom by clipping coupons and denying myself a weekly meal in a restaurant.

Sometimes It's Worth It To Pay More

One of the biggest reasons that I'm not a penny pincher is because I honestly believe that sometimes it's worth it to spend more money. Yes, I can go to the buffet chain restaurant and load up on mediocre food. I can save a lot of money doing that, too. But I don't enjoy it as much as I would a meal from the best restaurant in town. Since I enjoy food, and good food is a priority for me, I am willing to pay a little bit more for it.

This is true of some conveniences, such as flying at a time that I consider saner than taking a red-eye, and that allows me to see my son off to school before I leave. It's worth the extra $50 to me. Of course, there are things that I wouldn't spend as much money on. I'm not big into trinkets; buying a postcard or a cheap magnet to commemorate a trip is sufficient for me.

I'd Rather Make More Money

While I believe that it's important to get good value for my money, I don't like taking the time that it takes to be really successful at some of the techniques that are often used to pinch pennies. Yes, I look for bargains. But I'm not nitpicking over a couple bucks. And I don't enjoy the coupon game. While it works for some people, and I don't think there's anything wrong with being frugal and pinching pennies, it's not my preferred method of paying for what I want.

Instead, I prefer to make more money. I have to admit, though, that I am lucky and blessed in that it isn't usually very hard for me to make a little more. I can write an extra article or two, or take on an extra project. If I want a pedicure, I can write an extra article — there's no need for me to pinch pennies for three weeks with coupons, or skip my trip to the restaurant.

Bottom Line

We all have different priorities, and we all prefer to spend our money on different things. Perhaps I'm not being as disciplined as I could be, but as long as I have a general plan for the future, and I'm taking care of what needs to happen, I don't see any reason to pinch pennies if I don't have to. What do you think? Are you a penny pincher? Why or why not?

Will The U.S. Default On Its Debt?

By Miranda Marquit 4 Comments

President Obama and lawmakers are in discussions right now, trying to come to an agreement about what to do about the debt ceiling. If the debt ceiling isn't raised, the United States begins defaulting on its debt.

Of course, we won't default on it all at once, and there are ways that the debt could, perhaps, be restructured. As August 2, the date that has been designated as the point at which we begin defaulting, approaches, many wonder what could happen if the U.S. cannot meet its obligations.

Should The U.S. Declare Bankruptcy?

US Debt Default

Some think that the best course of action is to just announce that we're bankrupt, default on everything, and start over — hopefully with better money habits as a nation going forward. Others, though, point out that such a course of action would result in difficulties for us getting the revenue to start over. Borrowing at least some of our capital has been a reality since before the U.S. was a country. Our Founders didn't pay for the Revolutionary War entirely with money they had in hand; some of the funds were borrowed. Just like businesses rely on borrowing to get immediate capital for immediate needs, and then pay it back, the government operates on a similar principle. If we default now, we would pay a much higher interest rate on future debt. Our credit rating as a nation would tank.

However, just as a person — or an individual — can get in too deep, the U.S. government has done just that; we have spent beyond our means, and the current deficit level is unsustainable. Avoiding a default by raising the debt ceiling is probably necessary right now, to avoid default. Once that is done, though, it's time for America to wake up and realize that the same money habits cannot be followed in the future. Serious, and painful, changes have to be made.

Cutting Spending AND Raising Taxes

No one wants to be the bearer of bad news, least of all politicians. No politician wants to say that spending cuts need to be made, and that taxes will need to be raised. Some would like to think that doing one thing or the other will result in fixing the deficit. Sadly, we're far beyond that point at this juncture.

Someone who is badly in debt, and who is serious about getting out of debt, knows that there is a point at which only so many cuts can be made. The U.S. is probably at this point. The deficit problem is so big that no amount of cutting can fix the problem. We need to figure out our spending priorities as a nation, and make cuts to various budget items that don't fit the priorities.

But we also need to raise revenue. An individual serious about paying down debt will find ways to raise more money, including taking on a distasteful second job. The U.S. is in that position. More money needs to be raised, and that means that taxes need to be raised. Fixing our current debt problem as quickly as possible means combining expense cutting with revenue raising — even if no one wants to acknowledge that with an election year coming up.

If we do manage to get out of this mess, we will have to hope that, as a nation, we have learned a valuable lesson.

What Constitutes A Worthwhile Expenditure?

By Miranda Marquit 9 Comments

My husband is finishing up his Ph.D. this month. His defense is scheduled, and everything should be wrapped up by the beginning of May. This means, of course, that he will be looking for a job. He has already applied for a few jobs, and has been looking for openings, but many potential employers (mostly universities) want to see that he already has the Ph.D. Even though reports are that the job market is improving, things are still tough out there. Which is why we're looking for advantages. One of these advantages is going to conferences.

Projects my husband has been involved in have been accepted for presentation and exhibition at various conferences, although he doesn't always present it himself. Conferences add something to your CV, and they offer chances to network. One of these conferences is taking place in less than two months, in Madison, Wisconsin. My husband isn't sure he wants to go, since it will cost about $600. He's already been accepted to present, but he's thinking that if he doesn't go, he can use that money to buy an iPad. Here's how our conversation on the subject went:

Him: “I want to buy a nice laptop and iPad more than going to that stuff.” (His current laptop actually belongs to the school and he has to give it back at the end of the month. He can't use mine for personal reasons because it has already been deducted as a business expense.)

Me: “We've already budgeted in a laptop for you. We've been saving up for it.”

Him: “It would be nice to have an iPad. I doubt I'll get a job by going to the conference.”

Me: “Well, a presentation at ISSRM looks better on your resume than an iPad.”

Him: “True.”

Me: “If we're going to spend $600 on something, I'd rather have it be something that could potentially advance your career, rather than something we're pretty sure won't.”

Does Your Spending Help You Reach Your Goals?

When deciding whether an expenditure is worthwhile, I like to consider whether or not it will help our family reach a goal. It's true that one of our goals is to have a tablet computer with a low-end data plan so that we can access the Internet from anywhere, comparing prices while shopping, or looking for restaurants while traveling. However, this goal has a lower priority than helping my husband get a job.

At the conference, he will have the chance to meet other people and network. This could, potentially, help him find a job. On top of that, the date of the presentation shows that he was doing something after finishing his degree. In a world where you are practically unemployable if you have been out of school and jobless for more than six months, an international conference presentation can buy you a little time. In my mind, the chance that something will help my husband's career is more important than a fun gadget. After our conversation, my husband admitted that my argument had merit. So he's going to Wisconsin.

When you are making similar decisions, it's important to weigh the pros and cons. Consider what is more likely to help you in the long term. Consider your financial priorities and goals, and choose to use your money in a way that helps you move forward on the path to financial freedom.

What process do you go through when trying to make spending decisions? Tell us about it in the comments!

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