Debt Free You

So you got the membership to the big shopping club and now you are ready to start saving money. Better yet, you have been shopping there for years and your pantry and garage are packed with boxes of pudding and gargantuan jugs of pickles and mayonnaise bought at discount to what those chumps pay in the regular stores.
Well you might be paying less pound per pound for some things but you might be surprised to learn that you are probably spending more than you should and in fact more than you would if you shopped at a regular grocery store. There are three factors, spoilage, over-consumption and finally price confusion.

Spoilage is the fact that food, as a rule, is meant to be consumed within a relatively short time period. A 3 gallon jug of mayonaiise is not going to last once you open the lid. That case of lettuce might have been a steal but you can only eat so much lettuce. Some food does not readilly spoil but this tends to be food that should not form a staple of your diet.

There is a funny reaction to a large supply of food. We tend to over consume it. They have shown that you will tend to eat more if you buy more. Not a savings at all, just a health risk.

When you wander the aisles of those big stores and see the cases or large containers of products you are used to seeing in smaller quantities, you can become confused about it’t relative value. You might actually find that the price is no less than what you would pay for a much smaller amount at the smaller grocers.  Do you know what a can of tomato soup costs? I don’t and you probably don’t either. Don’t assume it’s cheaper before you buy a case lot of it.

Save your money.

There is a rule of thumb concerning pay raises. Once an individual recieves an increase in pay, be it from a pay raise or some new source of income, after about three months that person has about the same amount of disposable income as they had before the increase in income. In other words, we quickly find things to absorb the additional income and we are left about where we were but perhaps with some additional stuff.

The next time you do receive additional income, rather than looking at it as an opportunity to consume, consider saving the money or paying off debts. If you were able to survive prior to getting the increase in pay or additional income then you should be able to survive just fine without spending it.

Michael

If you needed an ice cream make and the price was at discount to what you would have paid elsewhere then darn straight that is a bargain. Of course if you didn’t need it then it is not a bargain at all. In fact you are out money that could have been saved or applied to debt and in return you have an item that you might use once or twice and then bury it in the pantry or cupboard.
So an ice cream maker is usually a no-brainer. Most of us realize that we don’t really need one. Now if you have no debt and money in the bank, by all means get yourself an ice cream maker. If not not however be careful of this. If you don’t need any item at the grocery store or department store then even 99% off is not enough. You don’t need it and in the end it is just another bit of consumer waste.

Interestingly enough, you will find that the things you really need are rarely on sale, and when they are typically not at the discount that non essential consumer goods often are sold at. This tells you the margins on these items are considerably higher and you are proabably still paying too much even at a discounted price.

So the next time you see that waffle maker on sale be sure that you really need it before you buy. It’s not really a sale if you hadn’t planned on buying one to before seeing it on sale.

Michael

For some time I associated entertainment with some form of paid entertainment. I think the reason was because I had forgotten how to entertain myself. When you pay to see a show, a play or even go to retaraunt you are really engaging in passive entertainment. You pay your money and sit back while others do the entertaining. Ultimately, if you forget how to have engaging time with yourself or others you need some form of “stand-in” to fill the role. When I first started living on a budget this was something that I found a difficult adjustment. After a short while I discovered that not only was it not really all that hard but was in fact even more entertaining.

There are plenty of things you can do that are plenty of fun and will save you money. Board games and card games are lots of fun and actually involves active engagement of everyone playing. You can vounteer at your church or in the community. This is actually a great way to interact with people and frankly that is what most entertainment is about. If you have kids, a trip to the park with a ball or a frisbee is completely free too.

Michael

The Fort Worth Star-Telegram had a story yesterday on the harship some people are enduring due their mounting debts. The young lady in the story was a student who was caught in a cycle of working to pay off punitive charges on her credit card debt but nit making any progress. This is a terrible spot to be in especially as a student.

There is never a valid reason for carrying credit card debt. This is particularily true if you are a student and have little or no income to pay it back until you start working. If you need to borrow money, the appropriate way to pay for your education is with a student loan. Credit cards will apply punitive rates and charges unless you make your regular payment. The young lady in the story referenced above was paying 26% on her debt. You can easily get yourself in a desperate situation with this type of debt.

Do not go under the assumption that once you graduate you will be making so much income that you will easily be able to pay it off. The reality for most graduates is that they walk into the world a little green and spend the first few years a little low on the ladder. Over the long term you will rise faster and further however you still have a few lean years ahead of you. Don’t make it an even greater burden by starting off with a huge debt to service.

Michael

So are you keeping up with the Jones’? The sentiment behind this old expression plays on common fears of not being accepted. Somehow we have come to accept the notion that the accumulation of more stuff will make us more acceptable to others. There is some truth behind it. The fact is, someone who does not take care of their appearance or lacks cleanliness and order in their lives does indicate a lack of self respect and frankly respect of others. I am not setting out to label those who walk around in filthy old t-shirts as superior in any particular way. To the contrary, an element of self respect is necessary for civil sciety to exist.
The issue today however is that excessive credit has made it possible for good people, trying to better themselves, to get caught in a trap of credit card debt. The average american spends more than they earn. About 1.08 for every dollar earned. I do not believe that all this spending is for necessities. Here is where the Jones’ come in. With credit expanding, people are able to purchase more things, clothes, flat screen tv’s, expensive cars since lenders are happy to lend. Now if you live near the Jones’ or you are friends with Jones’ there is a sense of stature that they achieve in by possessing these expensive new toys. In your mind, and other for that matter, this lessens your own stature and so you feel compelled to purchase something to elevate your stature in the community. This has the same affect to those around you and on it goes.
Our desparate need for acceptance has driven this consumer binge and credit card debt up. Eventually the credit party is going to run out. Foriegners will stop buying US debt and those left holding a bunch of depreciating assets and enourmous debt will be in trouble. Hey, while credit was cheap, it was not a bad idea to borrow a bit  to buy things. The problem comes in when it gets out of hand and the amount borrowed becomes a lifetime burden. Rates will go up eventually and you do not want to ride a hamter wheel the rest of your life paying for a bunch of stuff whose value has long since past.

The party may be ending now. Many feel that we are approaching a crisis in housing and consumer debt. When it does end, it will not end well. Personally I think it has a little longer to run. If I am right then you still have some time to put your financial house in order. Stop admiring the Jones’. Start budgeting your money, paying off your debt and saving your money. This does mean you will need to accept that you cannot have everything the Jones’ seem to have. It does not mean you cannot live with self respect, within your means.

Michael

If you are going to start saving your money you need to find somewhere to put it. I would suggest not keeping you savings in your regular checking account or any account that you have ready access to. There are a couple of reasons, if you do not distinguish between your savings and bill money you can easily blur the lines and start spending money that you had previousley saved. Additionally, if you can access your money from an ATM card or check book it becomes easy to spend that money.

Look for an account that pays a good rate and allows you to set up an automatic deposit from your regular account. If you open the account at your current bank, do not include it on your ATM card. Be sure that if you need the money, you will be forced to walk up to the teller to get it. Personally I use ING direct for my savings.

Michael

A growing business in the US today is the lending of money on credit in advance of an individuals paycheck. This is now a $40 billion dollar a year industry. These payday loan shops are popping up all over the place. The advertisements on the television make them seem like a perfectly normal thing for someone to do if they are short of cash before the weekend or payday. So I will tell you now, this is never, under any circumstances an ok or normal thing to do.

The rates charged by these outfits range from around 400% to 2000%. The daily rate tends to be around 1% compounded daily. The idea is that given the exhorbitant rate, you will be compelled to pay it fast. Of course if you are already unable to meet you monthly obligations you could easily fall into a spiralling debt that you cannot get out of.

Before you borrow any money, you should assess wether you really need what it is you are going to do with that money. If it is to take a vacation or fun money for the weekend, stop, forget the idea and do something else. Now if you say, I need it to pay the mortgage or a car payment then the second question you should answer is there anything else I am spending my money on that I don’t need. In other words, if the reason you do not have enough for your mortgage payment or rent is because of the new shoes and outfit you bought try to take those things back for a refund. In this case you are living beyond your means and you are simply not confronting the issue.

If you have had an emergency, say medical bills, automotive repairs and the like. Before you borrow money, see if there is something else you can cut back on to cover or at least defray the amount you will borrow. If you cannot get any credit and this really is necessary, then you need to make a top priority paying down this type of loan and avoiding needing it in the first place. Take a look at an earlier post Learning to Budget to get yourself started.

Michael

There is a biblical imperative that we should not have false idols. Now the false idol that many of us are not aware of is the belief that the acquisiton of things will bring us happiness. Indeed, this notion is the fundamental driver of this consumer society. This economy is driven largely by the fact that you and I are caught on a hamster wheel constantly grasping for more but never really satisfied… and so we go on, buying more. Don’t believe me? The economy is 75% consumer spending. It is not the pursuit of any greater good, just more stuff.

The game is played like this. You are made to feel insufficient as compared to the media darlings, models and celebrities of the world. Maybe you’re not as good looking, wealthy or popular. Maybe the people in the advertisement just look generally happier, more competant and satisfied with things. At some level everyone harbors these insecurities so they are easy to play on. The marketing world trots this image out and tries to build an association in your mind between the things they are selling and these apparently happy  and satisfied people.

You buy the thing but once you have possession of it you realize that it really doesn’t change anything about you. This is often called “buyer’s remorse”. Rather than realizing that the possession of stuff is not the measure of a man you think the problem is with you. Now even more fully convinced that a measure of happiness can be bought you jump on the treadmill and keep looking for it. This is an easy trap to get into. If you ever notice that when you feel down and depressed that you have an urge to buy something to compensate you should be concerned. If when you are bored you go to the mall you should also be concerned.
Now I’m not opposed to the business of selling goods and services, even consumer items. In fact, historically this has added to the economy, provides jobs and security for people. The problem I see is that we are going further into debt in order to support an unhealthy consumption of things. Things we largely don’t need. When it comes right down to it, the basic necessities are not what get most of us into credit card debt. Sure they might appear there but look carefully and you’ll see a television you didn’t need, or an ipod,  a vacation you couldn’t afford.

Sometimes you need to get control over your emotions and what is driving your spending before you can start to plan how to save your money and pay off your debts. Trying to find meaning and happiness through the possion of things is a dead end. There will be no end to your consumption as you will never be satisified.

Michael

But not as high as in June. Consumer credit rose 2.8% in July. This does not include morgtgage debt or debt secured by Real Estate so basically we are talking about car loans and credit card purchases. The total amount of credit card debt added was about 2.4 billion or about 40% of the total. I suspect that this number will be much higher when the August numbers come out with the back to school season being put on credit.

Americans have been spending more than they earn for over a year now. This is clearly not sustainable. The last time American consumers were in this spot was during the depression. We all need to get a handle on our debt and start to save money.

Michael