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Avoiding Financial Traps & Saving Money on Big-Ticket Purchases
This is a guest post written by Jason Larkins. He writes at WorkSaveLive – a blog he started to help people change the way they think about their finances, careers, and lives.
Who doesn’t like to buy stuff?
Okay…I’m sure there are a few of you out there that take pride in never buying a new “toy,” but I know personally that I LOVE stuff!
Not to the point that I make dumb financial decisions that jeopardizes my family’s financial well-being, but I do have that natural American desire to have nice things and to be able to do fun stuff!
If you’re in the market to buy a Big-Ticket item (i.e. a new car, TV, or other technology gadget), what are some of the things you should be thinking through as you contemplate making the purchase?
The first mistake people make is buying on impulse. The massive majority of Americans don’t even have a thought process when it comes to buying toys, so that’s why I decided to dedicate a post on a few things you should ponder.
3 Financial Traps You Should Avoid
1. Avoid spending extra for add-ons, or features, that you’re never going to use.
It is easy to get an appliance or technology gadget that has a ton of amazing features on it – but why pay for them if you won’t use them?
Consider buying the item that may be a step below what you’re looking at.
I know that I personally love the thought of having an Ipad 2, but am I really going to utilize it to it’s full capabilities?
Probably not!
It doesn’t mean I shouldn’t have one, but it does mean I can look at the older Ipad and save some money. Or, I can avoid the purchase altogether if I don’t think it’s going to be worth the money.
2. Be cautious with offers such as “no money down,” “90 days same as cash,” or “12 months interest free.”
Nearly 88% of the “90 days same as cash” offers are actually converted to payments because the purchaser couldn’t pay off the bill before the offer was up.
3. Don’t buy it just because it’s the cheapest.
Always be sure to do research prior to your purchase – check consumer reviews and product reviews. Saving money may not be worth it if the product breaks down quickly or doesn’t have the functionality that you’re looking for.
3 Strategies to Save Money
1. Prepare for large purchases and pay cash for them.
If you can’t pay cash for the item, then there is a good chance that you can’t afford it.
Determine how much money you will need to spend on a particular item and save up for it! This is going to help you in a couple of ways:
- It will help you avoid buying on impulse.
- If it takes awhile to save up for the item, then this will give you valuable time to really determine if it’s something you WANT badly enough to pay that kind of cash for it.
- It will allow you to ask for a DEAL. Every retailer pays a fee to run a debit/credit card. If you’re paying in cash the worst you can do is to ask for that 2-3% discount the store would be saving!
2. Buy at the end of the month, or at the end of the year!
Consumers rarely think of this, but it’s important for you to know that every store (and store manager) has monthly/yearly sales to report.
If they’re wanting to close out the month/year strong, they’re much more inclined to offer you a deal on whatever you’re buying!
3. Avoid the extended warranty!
Insurance (in general terms) is the act of transferring risk – the more people that pool money together to help mitigate risk (buy insurance), then the lower the cost of the insurance becomes.
The reason to avoid the extended warranties is because the cost you’re paying to cover your item also includes: commissions paid to the retail store, overhead for the insurance company (wages for employees, building costs, utilities, etc), and some profit for the insurance company as well.
Sure, you may be in the miniscule percentage of buyers that has their item break down on them, but the reality is that it’s unlikely.
If it was likely for your item to break down, then the insurance wouldn’t be available because it wouldn’t be a profitable endeavor for the insurance company (and they’d be out of business).
Whenever you’re buying something that has a large price tag, you should develop a process that you think through before buying it!
Always pay in cash, get a deal, and make sure you actually need everything you’re paying for.
Money Problems: 30 Days to Perfect Finances
Welcome to the series, Money Problems: 30 Days to Perfect Finances. The series consists of 30 things you can do, each in one setting, to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.
To start with, we look at 3 questions:
- What is your financial goal?
- Why?
- How can you get there?
On day 2, you’re going to find out what you are spending. For most people, this will be a bit of a surprise.
For day 3, you’re going to examine exactly how much money you bring in each month and think about how you can make more.
On day 4, you’ll build a basic budget. This doesn’t have to be intimidating.
This is the day we really dig into ways to make more money, whether that means getting a raise or finding work on the side. Nothing beats more income for balancing your budget and getting out of debt.
Second only to more income, reducing expenses is the best way to save money.
If you’ve got debt, you are in interest-slavery. Make that go away!
On day 8, you’re going to look at the insurance you have and the insurance you need.
On day 9, you’ll spend some time learning about your health insurance options and how to examine what you’ve already got.
Debt insurance is insurance you pay for that will pay your lender in the event of your death, dismemberment, disfigurement, disembowelment, or unemployment.
The rest is yet to come. Check back often!
One Year Later….
In April of 2009, I told my wife we were either going to straighten out our finances or file bankruptcy. At that time, we had $90,394 in total debt, including $30,000 in credit card debt. It hasn’t been easy, but we are working out way out of that hole. Since then, we have paid down more than $30,000. That’s not $30,000 in payments, but $30,000 less debt. We are now less than $60,000 in debt. We have entirely stopped accumulating more and I don’t remember the last time we carried a new balance on a card or had to use our overdraft protection. Next month, my car will be paid off, 10 months early.
Given my new-found fanaticism, I spent the next 6 months or so evangelizing about our debt repayment. Eventually, I decided to share my thoughts and progress with the world and launched this site on December 1, 2009. Today is my anniversary.
Here we are, 234 posts, 695 comments, and 17, 661 spam later. You all rock. Except the spammers.
To say thank you, I’m giving away a $100 Amazon gift card to some lucky reader. Yes, I rock, too.
There are several ways you can enter the drawing:
1. Subscribe to Live Real, Now, either by RSS or email. If you are already subscribed by email, you are automatically entered. To show me you have subscribed by RSS, there is a contest code in the feed. Just post that in the comments. (1 entry)
2. Follow me on twitter and tweet the following: “@LiveRealNow is giving away $100. Come get some! Follow and RT to enter! http://bit.ly/f1roKM #Giveaway #Yakezie” (1 entry possible per day. Every day you retweet this is another entry!)
3. “Like” LRN on Facebook. This is easy, just click the little ‘like’ button on the left. If you’ve already done that, you have already entered once.(1 entry)
4. Send me an email at Jason <AT> LiveRealNow <DOT> net telling me what you would like to see me write about more (or less!). You can also use the contact form. (1 entry)
I’m closing this down on the 15th. That’s 18 possible entries for $100 you may win early enough to help with some last-minute Christmas shopping.
UPDATE:
And the winner is…Claudia! Congratulations. Email sent.
Save Your Family
I don’t attach much importance to dreams. They are just there to make sleepy-time less boring. Last night, I had a dream where I spent most of my time trying to prepare my wife to run our finances before telling my son that I wouldn’t be around to watch him grow up. That’s an unpleasant thought to wake up with. Lying there, trying to digest this dream, I started thinking about the transition from “I deal with the bills” to “I’m not there to deal with it”. We aren’t prepared for that transition. Last year, we started putting together our “In case of death” file, but that project fell short. The highest priorities are done. We have wills and health directives, but how would my wife pay the bills? Everything is electronic. Does she know how to log in to the bank’s billpay system? Which bills are only in my name, and will go away if I die? Is there a list of our life insurance policies?
I checked the incomplete file that contains this information. It hasn’t been updated since September. It’s time to get that finished. Procrastinating is inappropriate and denial is futile. Here’s a news flash: You are going to die. Hopefully, it won’t happen soon, but it will happen. Is your family prepared for that?
The questions are “What do I need?” and “What do I have?”
First and foremost, you need a will. If you have children and do not have a will, take a moment–right now– to slap yourself. A judge is not the best person to determine where your children should go if you die. The rest of it is minor, if you’re married. Let your next-of-kin, your spouse keep it. I don’t care. Just take care of your kids! Set up a trust to pay for the care of your children. Their new guardians will appreciate it. How hard is it to set up? I use Quicken Willmaker and have been very pleased. Of course, the true test is in probate court, and I won’t be there for it. If you are more comfortable getting an attorney, then do so. I’ve done it each way. You can cut some costs by using Willmaker, then taking it to an attorney for review.
It’s a sad fact that often, before you die, you spend some time dying. Do you have a health care directive? Does your family know, in writing, if and when you want the plug pulled? Who gets to make that decision? Have you set up a medical power of attorney, so someone can make medical decisions on your behalf if you aren’t able? Do you want, and if so, do you have a Do-Not-Resuscitate order? Willmaker will handle all of this, too.
What’s going to happen to your bank accounts? I’m personally a fan of keeping both of our names on all of our accounts. I share my life and my heart, I’d better be able to trust her with our money. If that’s not an option, for whatever reason, fill out the “Payable on Death” information for your accounts, establishing a beneficiary who can get access to your money if you die. Do you want your spouse to lose the house or the car if you die? Should your kids have to miss meals? Make sure necessary access to your money exists.
Does anybody know what you have for life insurance? Get a copy of the policy and make sure your spouse and someone else knows what company holds it and how much it is worth.
Now, it’s time to make some lists. You need to gather account numbers and contact information for everything.
- Bank accounts. List every bank and account you own. Checking, savings, CDs.
- Investment accounts. Again, every company, every account.
- Mortgage and car payment information.
- Life insurance. Get your policy numbers, contact information, beneficiaries, and amount of coverage all in one place.
- Credit card accounts. Every card, every company. If it’s just your name on the account, your spouse will need to send certified death certificates to stop collections. Otherwise, she’ll need to pay the bills.
- Utilities. Get the account number for the electric bill, the gas bill, water/sewer/garbage, cable and phones.
- Other bills. These include car/home insurance, Netflix, memberships and anything else you pay.
- I’ve included the account information for my web host, registrars and websites. Some of it is salable, some of it is income-generating.
- Car titles. Put the actual titles in the pile of lists.
- Property deeds. Keep these here, too.
Non-financial information to list:
- Online accounts. Any financial sites that would be useful, or any community sites you would like to have informed about your death. Your online presence is a part of who you are.
- Email accounts. Will your survivors need to interact with anybody potentially contacting you? They will need your username and password, or most big providers won’t let them in.
- Social media. How many networks do you participate in? Do you want to disappear, or should all of your Facebook friends know your dead?
- Blogs. Do you have a blog that needs an announcement? Does it generate income? Could it be sold?
- Contact list. Who else needs to be informed of your demise? Don’t make your loved ones hunt for the information.
Now, take all of this information and put it in a nice, fat envelope and lock it in the fireproof safe you have bolted to the floor. Make a copy and give it to someone you trust absolutely. Make sure someone knows the combination to the safe or where to find the key.
Your loved ones will appreciate it.
Credit Cards: How to Pick a Winner
We live in a decidedly credit-centric culture. Whip out cash to pay for $200 in groceries and watch the funny looks from the other customers and the disgust from the clerk. It’s almost like they are upset they have to know how to count to run a cash register.
If someone doesn’t have a credit card, everyone wonders what’s wrong, and assumes they have terrible credit. That’s a lousy assumption to make, but it happens. For most of the last two years, I shunned credit cards as much as possible, preferring cash for my daily spending. Spending two years changing my spending habits has made me comfortable enough to use my cards again, both for the convenience and the rewards.
Having a decent card brings some advantages.
Credit cards legally provide fraud protection to consumers. Under U.S. federal law, you are not responsible for more than $50 of fraudulent charges. many card issuers have extended this to $0 liability, meaning you don’t pay a cent if your card is stolen. Trying getting that protection with a wallet full of cash.
The fraud protection makes it easier to shop online, which more people are doing every day. At this point, there is no product you can buy in person that you can’t get online, often cheaper. How would you order something without a credit card? Even the prepaid cards you can buy and fill at a store will often fail during an online transaction because there is no actual person or account associated with the card. The “name as it appears on the card” is a protective feature for the credit card processors and they dislike accepting cards without it.
If you’re going to use a credit card, you need to make a good choice on which credit card to get. There are a few things to check before you apply for a card.
Annual fee. Generally, I am opposed to getting any card with an annual fee, but sometimes, it’s worth it. If, for example, a card provides travel discounts and roadside assistance with its $65 annual fee, you can cancel AAA and save $75 per year. A good rewards plan can balance out the fee, too. I’m using a travel rewards card that has a 2% rewards plan. That’s 2% on every dollar spent, plus discounts on some travel purchases. In a few months, I’ve accumulated $500 of travel rewards for the $65 fee that was waived for the first year. The math works. A card that charges an annual fee without providing services worth several times that fee isn’t worth getting.
Interest rate. This should be a non-issue. You should be paying off you card completely every month. In a perfect world. In the real world, sometimes things come up. In my case, I was surprised with a medical bill for my son that was 4 times larger than my emergency fund. It went on the card. So far, I’ve only had to pay one month’s interest, and I don’t see the balance surviving another month, but it’s nice that I’m not paying a 20% interest rate. Unfortunately, as a response the CARD Act, the days of fixed rate 9.9% cards seems to be over.
Grace period. This is the amount of time you have when the credit card company isn’t charging you interest. Most cards offer a 20-25 day grace period, but still bill monthly. That means that you’ll be paying interest, even if you pay your bill on time. To be safe, you’ll need to either find a card that has a 30 day grace period, or pay your balance off every 15-20 days. Some of the horrible cards don’t offer a grace period of any length. Avoid those.
Activation fees. Avoid these. Always. There’s no card that charges an activation fee that’s worth getting. An activation fee is an early warning sign that you’ll be paying a $200 annual fee and 30% interest in addition to the $150 activation fee.
Other fees. What else does the card charge for? International transactions? ATM fees? Know what you’ll be paying.
Service. Some cards provide some stellar services, include concierge service, roadside assistance, and free travel services. Some of that can more than balance out the fees they charge. My card adds a year to the warranty of any electronics I buy with it, which is great.
Credit cards aren’t always evil, if you use them responsibly. Just be sure you know what you’re paying and what you’re getting.
What’s in your wallet?
