Monthly Archives: March 2009

Weekly Roundup: Frugal Home Office Edition

Posted on by  at  6:00 am
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I’ve been spending some time looking for a secret hideaway where I can get more writing done. I’ve accepted a couple freelance opportunities, in addition to my writing here at Frugal Dad, in an attempt to sprint to the finish of this debt snowball plan.  In doing so, I’m finding myself needing more and more quiet time in front of the computer.

My requirements were pretty simple.  I basically needed a small room with a door somewhere in the house.  All the bedrooms are occupied, and in the summer our garage is too hot to sit in any length of time.  I decided to squeeze into our utility/laundry room, working from a laptop on a four foot folding table.  Have computer, have pen, have scratch pad, will write for food!  I’m enjoying the bit of solitude, even if it is a bit cramped.

The Fab Five

Oversaving Does Not Lead To Happiness.  This post reminded me of my mantra to live frugal, but still have a life.  While saving money is an important part of being frugal, it is also important to find balance and spend some of your hard-earned money on a few things that bring you joy.

Frugal Ways To Get A Good Night’s Sleep.  As an insomniac (and a frugal one at that), I appreciated the tips here.  No Mt. Dews after 2:00pm? No late-night snacking?  No wonder I can’t sleep!

The Dave Ramsey Budget: Budgeting TIps for Successful Savers.  An excellent overview of the process of creating and maintaining a budget (with a Dave Ramsey spin).

When “Free” Things Aren’t Free: Beware the Hidden and Indirect Costs.  Let’s face it; nothing is really 100% free in this world.  There is inevitably some exchange for “free” goods and service, whether it be time or even future dollars.

Are You Emotionally Invested In Your Credit Card? I suspect this is why so many people rush to the defense of credit cards.  They got their first card in college.  It has a picture of their beloved dog on it.  They charged their anniversary cruise on it three years ago (and are still paying for it).  Just remember, if you are starting to feel attached to your card read through the stories (including my own) of companies dropping ten-year members for no apparent reason.  In the credit card world, loyalty is definitely not a two-way street.  (Bonus, an interesting “plasectomy” video here).

The Best Of The Rest

March Madness Money Lessons

Internet Job Boards – Wasted Effort?

Getting Off the Debt Treadmill – Stop Running In Place and Start Making Progress

Emergency Funds For Losing Your Job

How To Save Money On Camping

The Purpose Of Money

How To Manage Money In Your Marriage

What You Need To Know About Early Withdrawal From Retirement Accounts

Teen Credit Cards

Posted on by  at  6:00 am
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Stacey from familylifebydesign.com gave me a heads up last week on a new product being peddled by Discover. While I like the Discover More card for grown-ups, I am not fond of the new product aimed at teens, and here’s why.

The new Discover Current card is being sold as a debit card alternative for teenagers. Parents can load money on to the plastic via their own credit card (wonder if this counts as a cash advance), and can place limits on how much can be spent and where it can be spent, all the way down to individual merchants. All this for a $5.00 monthly fee.

According to the Discover website you can even “browse Teen Card designs that are way cooler than cash.” It makes for great marketing speak, but it made me stop and reflect back on my own years as a teenager and wonder, when did cash stop being cool? I can distinctly remember how it felt to get my first $20 bill. I thought I was rich!

As an early teen I spent a summer day at my great aunt’s house installing a mailbox and post, and doing general yard cleanup on her property. At the end of the day she gave me $20, and I felt like a million bucks! I resisted spending that $20 bill for quite a while simply because I liked seeing it in my wallet. She could have given me a piece of plastic with a fancy design on it and the feelings of excitement would have turned to, “What am I supposed to do with this?”

Thanks to years of Visa and Mastercard (and Discover) pushing their products down to our youth, and our youth watching their parents use and abuse the same products, kids know exactly what to do with plastic these days – swipe it! The problem is, they don’t see Mom and Dad opening the bills and the end of the month in tears wondering how they are going to come up with the minimum payment. It is a one-sided view, an incomplete picture into the world of credit.

No, I would rather my kids grow up thinking cash was still cool. I pay my kids allowance and commissions for extra jobs in cash, and will resist giving them plastic as long as paper currency is still a legal tender. Call me old-fashioned. I just don’t think kids are able to fully grasp the transactional differences in swiping plastic and watching that $20 leave their hand and receiving $0.70 in change back.

It hurts to spend cash. It is supposed to hurt. We are exchanging our money for some good or service. That is money we worked for, or saved for, or could spend on something in the future. Instead, we are trading it in for something we feel is of equal value today. These concepts are difficult for many adults to understand, and something I didn’t really “get” until my late twenties. Why do we expect young teenagers to get it before we did?

Some will make the argument that giving teens a product like the Discover Current card will help them learn budgeting concepts, and how to use plastic wisely. Maybe. But I’m not convinced. Besides, how can teens learn these concepts when parents have restricted purchases to certain merchants, or blocked ATM transactions, or only allow them to spend a certain amount each day.

One could make the argument that normalizing the use of plastic too early could be dangerous.  I would tend to agree with this argument. I read a great analogy once (I think it was from Trent at TheSimpleDollar.com) that compared credit cards to power tools.  Sure, they make things convenient, but they can be dangerous in untrained hands.

If my son wanted to cut a piece of wood at eight years old I wouldn’t mind helping him guide a handsaw, but I wouldn’t fire up the skill saw and hand it over to him, even though he will use it when he gets older and it is more convenient and “cool.”  I know, I know, kids aren’t going to lose any fingers over swiping a Discover Current card, but they just might grow up with bad habits that cost them their financial future.

I believe it is good for kids to go through a few cycles of earning money, blowing it all in an afternoon at the mall, and being broke until the next Friday when they get their allowance. Eventually, they just might learn not to blow all their money on “payday,” and will hold some back for the next week. But if parents artificially manage this for them using the card’s technology, how will kids ever learn to budget their money?

For now the only Discover credit card in our household will be the one I use to buy gas. When my kids are old enough to apply for their own card, and they are earning their own money, then maybe they can have one, too. But for now they will stick to cash for spending and handsaws for cutting.

Self Employed Health Insurance Options

Posted on by  at  6:00 am
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I received the following question about self employed health insurance, and because I know many of you are business owners, or blog full time, I hoped you could provide some real world help for a fellow reader looking for health insurance.

Robert writes in with the following question:

I was wondering if you knew any ways self employed individuals could buy health insurance?  I have been taking your advice on building a “side hustle,” and luckily enough it is now bringing in more than my full time job.  I am eager to quit my regular job and take this side hustle full time, but worry about affordable health insurance for me, my wife and my young son.  Any ideas?

Robert, first of all, congratulations on building a second income substantial enough to replace your full-time job.  You may remember from my New Year’s goals post, that is something I hope to one day achieve as well. Also like you, I have questions about how to provide health insurance for my family, outside of the traditional group policy where I work. I have a few ideas to get you started, but will rely on readers to fill in the gaps by sharing their expertise on the subject.

1. Continue current coverage under COBRA.  According to the Department of Labor website, you, your spouse, and your son may continue health insurance coverage based on your “voluntary or involuntary termination of employment for reasons other than gross misconduct.”  COBRA is expensive because you’ll have to pay both sides of the insurance premium (your employer probably used to pay the majority of the costs), and you may only be eligible for up to 18 months, so it is not a long-term solution.

2. Apply for a health insurance policy at eHealthInsurance.com.  eHealthInsurance.com is one of the leading sites for providing quotes on personal and family health insurance coverage, coverage for small businesses, and short-term policies. I highly recommend you get a free instant quote there first.

3. One spouse continues to work and receive benefits.  Something my wife and I have discussed is the idea that she could return to work to receive family health insurance coverage if I ever branch out on my own.  This might be a tough sell, particularly if there are child care issues to consider.

4. Work part time for an employer that offers benefits.  They are few and far between, but there are a few employers out there that offer health coverage to part-time employees.  Starbucks and UPS come to mind.  It might be possible to do your “side hustle” during the day, sling a few boxes at night, let mom stay at home and still get benefits. This one may be a long shot.

5. Consider membership in trade associations, unions, etc.  When investigating this option for myself a few months ago someone recommended joining various freelance associations (such as the “Freelancers Union,” and various groups for writers), which offers group health care options for its members.  I also noticed places like Sam’s Club offer group policies to their members through providers such as Blue Cross Blue shield, etc.  You will probably pay more than you did as an employee, but less than you would for COBRA.

6. Consider a high-deductible plan along with a Health Savings Account (HSA).  If you and your family are relatively healthy, you might investigate an HSA with a high-deductible, or catastrophic, health insurance plan.  Basically, a catastrophic plan has low premiums because it only pays for things over several thousand dollars (think heart attacks, accidents, etc.).  The health savings account is established to help pay anything and everything up to that high deductible.  This option requires a good chunk of cash to fully fund the HSA up front.  It’s also a risky plan, but a lot cheaper alternative to traditional health insurance, and a lot safer than having no insurance at all.

freequoteeHealthInsurance

Financial Impact Of Having Kids Early

Posted on by  at  6:00 am
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When my wife and I had our first child we made the decision she would stay home with her until school age, and then possibly rejoin the workforce. We were young parents, and had only been married about a year when we found out my wife was expecting.

Of course we were elated to be starting a family together, but I couldn’t help but worry a little. At the time I was working an entry-level job and floundering a bit when it came to finishing my degree.  Around the same time we had two sets of friends who recently had their first child. In fact, our kids were around the same age and as both moms became friends through various “mothers of preschoolers” (MOPS) events at our church, so did our kids. But there was one big difference in both cases – the couples were about ten years older than us.

Both sets of friends had completed college degrees, and enjoyed nearly a decade of career success.  With no kids during that time they also managed to build some serious wealth. They drove new vehicles, lived in a huge (compared to ours) house, and their kids wore handmade dresses and such from the trendiest shops in town.  Unfortunately, we made the mistake of trying to keep up appearances with these friends, probably because we were a little insecure about our own finances, even though our situations were entirely different.

The first mistake I made was leasing a new SUV because we just had to have a bigger vehicle with a baby.  And of course, leasing made sense to the younger me because I could simply turn it in a couple years and get another one.  Of course, now I realize this method of “renting” something to drive is not a wise financial move in most cases.

We also made the mistake of charging a bunch of junk on credit cards when my wife quit work because we did not gear down spending once we were living on one income.  From talking with other couples in similar circumstances, I understand this is a common problem.  But unfortunately that didn’t make it any easier to swallow when the bills came due.

I share these mistakes in the hopes that other young couples don’t repeat them.  And by mistakes, I’m not referring to having children while still young.  I am referring to falling into the financial trap of keeping up with older couples who chose to build a more secure financial foundation before having kids.  That method probably makes the most sense from a financial perspective, but there are many other factors to consider when having children.  And I would argue finances, though important, is not the top consideration, despite what others wondering if they should pay off debt before having kids might think.

Make no mistake; the decision to start a family has a significant impact on your finances.  However, it is the decisions we make that ultimately lead to success or failure.  In our case, it was the poor financial decisions we made early on that caused trouble, not the fact we had kids.  We could have easily made those screw-ups when it was just the two of us!

Having kids magnified those issues because it intensified the pressure I felt to provide a solid foundation for my wife and kids.  In hindsight, it probably would have made sense to wait a few years to finish my degree, work my way up the corporate ladder (in other words, beyond the first rung), pay off our debts and build some savings.  But, I wouldn’t have it any other way!

The “But Everyone Has A” Mentality

Posted on by  at  6:00 am
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A few days ago a stranger stopped me outside The Home Depot and asked how old my van was.  Apparently, it reminded him of a work van his father drove. “1990,” I replied. “Wow, 19 years?” he said with a surprised look on his face. “Does it still run good?” I could see him checking out my homemade Rustoleum paint job on the top, and the faded paint on all sides.  I said, “She runs good, minus a few flaws here and there.  I don’t drive it for the sex appeal though; I drive it because the payment is right!”

Now he looked insulted. “Yeah, but everyone has a car payment, man.” We parted ways with him glancing back at my old van with an eye of jealousy, which I found amusing since he was driving a fully loaded, late model Toyota Tundra pickup.  What could he possibly be jealous of?  Maybe the fact that I was paying $500 less per month to get from point A to point B?  I could understand that.

“But Everyone Has A…”

Think about how many times we hear that statement used in the world of personal finance.  Everyone has a credit card.  Everyone has debt.  Everyone has a mortgage.  Everyone has student loans.  And from my personal example, everyone has a car payment.

I used to believe these statements, too, but one day I realized that it was possible to live a frugal lifestyle contrary to these long-held assumptions.  No, everyone does not have a car payment.  Some managed to pay off their car debts and continue driving debt free for many years. Others chose to pay cash for more inexpensive cars rather than borrowing money to finance the operation.

Believe it or not there are some people out there who have paid cash for a house, and almost more shocking these days, graduated college without debt.  It can be done, and it is being done.  The problem is that those whose livelihood depends on your buying into the idea borrowing money is the only way are out to perpetuate the myth.  And in a way, that even extends to the upper-most reaches of government.

Throughout this economic downturn we (consumers) have been reminded at every turn that borrowing is what fuels this economy. It is sad, in a way, but true. We’ve seen what happens in industries like automobiles and houses when people stop borrowing money to buy things, but I can’t help but wonder if this would merely be a short-term pain, assuming we were really in it for the long-term gain.  Unfortunately, I don’t really believe we are.

Soon enough credit will be flowing again, and I guess if that leads to the return of job growth, that’s a good thing.  However, in our own personal economies let’s make a fundamental shift in the way we acquire things.  Let’s get back to basics. If we don’t have the money for something, we save for it. If we must resort to financing, let’s buy cheaper so we can put that debt on shorter terms, and agree to a lower monthly obligation.  Ultimately, we’ll all still be in the market for that new car, or that cruise, but not until we have the cash. After all, everyone has a dream of being financially independent.  At least I do.