Monthly Archives: August 2009

Weekly Roundup – Back to School Edition

Posted on by  at  6:00 am
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No, I’m not going back to school personally, but I have a couple kids who went back last week, and I know many parents are readying their kids for a new school year. Those headed off to college will also be departing soon.

It’s a scary time for both parents and incoming freshman, and one of the things that usually happens around this time is colleges send out those tuition bills that must be paid before classes start. Depending on where your kids are going to school these bills can range from a couple thousand dollars to the price of new car. If you and your kids aren’t saving for it now, better get started!

The Frugal Roundup

The Power of Resourcefulness: A Guide to Peeing in the Shower. Don’t be turned off by the title, this is actually a very thought-provoking post on the subject of resourcefulness. I happen to believe being resourceful is at the very heart of being frugal. (@Man vs. Debt)

SurvivalBlog.com. Rather than trying to pick out a specific post here, I decided to link to the great introductory section of Survival Blog. If you are into survival, preparedness, and related topics, this is THE blog for you! (@Survival Blog)

Easy Career Growth Tip: Read. I’m always amazed to learn how little people read books. Like I tell my kids, reading is a way to learn as much as you want on any topic imaginable. It’s also a great way to stay current at your job. The last company I interviewed with asked me the last couple books I read. Great question! (@Free Money Finance)

Grocery Hacks – How To Save Money on Groceries. I’m a sucker for a great post on saving money at the grocery store. This one doesn’t disappoint. Read on to learn how “Team Jabs” knocked $150 off their monthly bill. (@Debt Free Adventure)

Back to School On a Budget. Nine great tips for saving money on back to school shopping. Fortunately, we’ve wrapped up most of our back to school shopping. Before the weather gets cool we’ll be shopping for new coats and a few long sleeve shirts, but other than that we’re all set. (@Bargain Babe)

Why Study Abroad? Get Educated in a Foreign Country. I have no experience with study abroad, except that I was good friends with a guy who moved to the U.S. from Poland to fulfill his dream of becoming an American citizen, and graduating from a college in America. The funny thing is, through our friendship he wound up teaching me a lot more than I taught him – he became my early frugal mentor. (@The Digerati Life)

Case Study: High Income and Consumer Debt Free. Most case studies involve someone deep in debt and struggling to make ends meet. Not so with this profile. The featured couple here just became debt free and want to know what to do with a great income.  (@Million Dollar Journey)

Best of the Rest

And finally, a shameless plug for my own subscriber options here at Frugal Dad. Long-time readers know that my goal for 2009 is to reach 10,000 subscribers. Depending on the fickle FeedBurner service, I am around 9,000. If you are a casual reader here, please consider signing up for free. If you are already a subscriber, thanks for sticking with me!

Credit Card Overlimit Fees Taking a Hike?

Posted on by  at  6:00 am
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When I worked in a credit card customer service call center a decade ago I bet I took a dozen calls a day related to overlimit fees being charged to cardholders’ accounts. I was of course trained to toe the company line, explaining that fees were well documented in our terms and disclosures, and by using the card customers agreed to those terms. Inside I always felt a little dirty.

Ultimately, I decided to leave the industry altogether for a variety of reasons, not just because the companies I represented charged fees. But one that always got me was the overlimit fee. To me, overlimit fees were an interesting example of human behavior mixed with strange business practices.

On the surface, you would think a $39 fee would be enough of a deterrent to keep people from charging above their credit line. Unfortunately, that is not the case, but it is not the whole story either. Credit card companies are nice enough to include an “authorization pad” (usually a few hundred dollars) so charges in excess of your available credit may be approved by merchants. Nice service, huh?

It would be a nice service if they didn’t follow up their generosity with an overlimit fee. Theoretically, a $10 purchase that barely puts you over the credit limit could cost you $49 thanks to the additional fee.

Why don’t credit cards decline transactions in excess of the available credit? Their answer (spin) is usually something like, “We are saving customers the embarrassment of being declined.” Gee thanks. And what a bargain! The real truth is they allow the charge to go through so they can charge overlimit fees.

That practice may not be happening for long though. As this Consumerist post points out, Amex and Discover have already ditched overlimit fees. Before you feel too sorry for Amex or Discover (yeah right), realize that this loss of income will be made up elsewhere – probably by reducing reward program benefits, and increasing rates.

This move to get rid of overlimit fees can be credited mostly to the CARD Act passed in the spring. When enacted, the CARD Act will require issuers to “opt in” to the feature of being able to exceed their credit limit, and be subject to a fee. That involves a lot of maintenance to cardholders’ accounts, so Amex and Discover decided it wasn’t worth the hassle. I’d expect other issuers to follow suit, except the subprime credit card issuers who would tack on a fee for being charged a fee if they could.

Any worries over credit card overlimit fees can be ignored if you simply decide not to spend on a credit card, particularly one that is nearing its credit limit. Charging in excess of your credit limit is the financial equivalent of spending more than is available in your checking account, and both actions may result in nasty fees.

Create a “Dream Budget” for Extra Motivation

Posted on by  at  6:00 am
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One of the reasons the idea of budgeting is depressing for many of us is because it is the point in time each month where we realize we don’t have a lot of breathing room. There is simply no disposable income after the mortgage, the car payment, the credit card bills and the rest of our spending categories. What if you could take a magic eraser and wipe out all those debt payments?

Unfortunately, no magic debt eraser exists, but like I tell my son, “let’s pretend.” Let’s pretend for a moment that you do not have any debt. How much different might your budget look?

That’s the idea behind creating a dream budget, an exercise I have toyed with informally a few times, but was sold on after reading a post at Enemy of Debt. Here’s how I created our “Dream Budget.”

  1. Grab a copy of your most recent budget. Highlight the amount of total expenses, total income and any savings contributions you are making.
  2. Make a second budget minus any payments related to debt. Leave the mortgage payment for now, but remove credit cards, student loans and car payments.
  3. Using this new “dream budget,” calculate the difference between total income and total expenditures. This difference is the amount you are spending each month to service debt.
  4. Find a new home for the difference. What will you do with this new excess? If you are like most families with a $400 car payment, and several thousand in credit card debt, you could easily free up $700-$800  a month by paying off debts.
  5. Break out “savings” category into more targeted goals. Finally, there is enough money to invest in a Roth IRA, save for the kids’ college tuition, put a little away towards a replacement car, and maybe even a little towards a down payment on a new home.

What’s standing between you and your dream budget? Debt. Debt is like a soul-sucking black hole in your financial world. Being in debt is worse than the worst job you’ve ever had, and the worst relationship you’ve ever been in, combined. To put it bluntly, being in debt sucks.

Most of us are aware of this fact, at least intellectually, but by creating a dream budget you finally have evidence of the things debt is robbing from you with each required payment, and it has a way of getting you fired up, emotionally.

Consider just the interest accumulation on your debts. How would you react if your bank was reaching in and grabbing $148 a month out of your checking account? You would be outraged, and rightfully so! Well, that’s the equivalent of allowing credit card companies and other loans to tack on interest each month on a large balance of debt. Get rid of it once and for all, and free your budget up to do bigger and better things.

Keep this dream budget handy if you feel motivation for your get out of debt plan waning. It might just be the kick in the pants you need to get back on track and make your dream budget a reality.

When the time comes to set up your debt free budget, consider using Mvelopes to create a virtual envelope budget.

Spend Cash, But Don’t Forget Opportunity Costs

Posted on by  at  2:00 pm
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Over the last couple years I have written many posts extolling the virtues of paying for things with cash. Shopping with cash causes transactional pain - that little twinge you feel when Uncle Benjamin leaves your wallet to be replaced by a few George Washingtons in change. That hurts.

When you swipe plastic, especially plastic representing money that doesn’t belong to you (credit cards), it hurts much less. This is why spending with credit cards is so dangerous. But spending cash can be dangerous, too, for an entirely different reason.

We are a couple months into saving for a Disney vacation in the upcoming year. While we are determined to cash flow the entire trip we also want it to be memorable for our kids. Neither child has been to Disney, and none of us have been on vacation for a couple years. You can probably see where this is headed.

Just because we plan to use cash, there are still plenty of opportunities to be separated from our money, and fast, especially at Disney World! It’s a trap many others have fallen into with big expenditures. The fact you are paying with cash doesn’t necessarily mean it makes sense, financially.

Cash does not equal affordability. I used credit cards for much of my twenties, racking up debt while away at school and again after returning home. I recognized that I could not afford many of the things I charged, but justified their purchase for a variety of reasons. It was school tuition, books, baby expenses, medical expenses, new clothes, and much-needed vacation, etc. Since I was charging these items and not paying off the full balances each month the financial sins were rather obvious each time the credit card bills arrived, and I was greeted with an even higher balance than the month before.

Since we stopped using credit cards a couple years ago, choosing instead to live on a cash basis, I have found that measuring affordability is a little more difficult to do. After all, just having the cash in hand doesn’t guarantee smart spending decisions. There are always opportunity costs associated with spending.

By not spending $100 on a new pair of shoes, or a new tool, or whatever strikes your fancy, you’ll have $100 to do something else such as save and invest that money. That investment will likely grow your original $100 over time, so the money you are giving up in growth represents the opportunity cost of spending that $100 on a new cordless drill today.

In our case, the cash saved for our Disney vacation could be used to pay down our remaining debt, or build our emergency fund, or to invest for retirement. We are giving up plenty of opportunity to spend that money on vacation, but it is a sacrifice we are willing to make for a memorable family vacation. Saving and paying cash does not make the trip any cheaper, but at least we won’t be dragging credit card debt back with us from Orlando.

Frugality And The Sexes

Posted on by  at  6:00 am
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Are men and women really that different when it comes to their approach to frugality? It appears so, in certain areas. Take the thermostat for instance. Most men prefer to keep things cool in the summer, while women like a higher temperature setting. Me? I compromise for the sake of being frugal – if money was not a consideration I would prefer to see my breath when I walk in the door.

But preferred temperature settings could be blamed more on biology than bad frugal habits. A recent article, The Thermostat War, And 6 More Silly Compromises, quotes the Georgetown University Center for the Study of Sex Differences in Health, Aging and Disease as saying, “We have lots of data showing that women generally are far more sensitive to feelings of cold.” That’s certainly the case in the Frugal household.

What are the areas where men and women share differing ideas on frugality?

Clipping coupons. This one may be more a gender stereotype, but I used to get some strange looks when I pulled out the coupon binder at the checkout. Maybe because couponing has traditional been an activity headed up by the woman of the house, in the capacity of CFO of the household. These days, more men are sharing these duties and I say that’s a good thing.

Water usage. Water usage rolls several fringe frugal topics up into a potential marriage squabble. I know men who brag about 2-minute showers and their refusal to run the water while shaving or brushing their teeth to “conserve water.” The same men run their sprinklers twice a day for half an hour per zone because they want the greenest lawn on the block. Go figure.

Toilet paper. Entering dangerous territory here. Since the number of males and females are even in my house, I feel fairly confident making the statement women use more toilet paper than men. However, it is a battle that should simply be conceded by men. And whatever you do, never remind your significant other that Sheryl Crowe can get by with one square per “incident.” Trust me; it’s not pretty.

Shopping. I love my wife dearly, but we have agreed to disagree on shopping strategies. I’m more of a get in and get out kind of shopper. What can I say, I don’t like stores. I don’t like window shopping, “just browsing,” or any other unproductive forms of shopping. On 99% of my trips to a store I’m armed with a list (mental or otherwise) of the few things I need. My mission is to enter the store, roundup the few things I need, and exit as quickly as possible. I’ve made it sort of a game. My wife, on the other hand, snakes in and out of every single aisle in case she sees something she forgot to put on the list.

Money. Finally, something men and women can agree on. Then why so many money fights? The differences in men and women and their handling of money are well-documented, so I won’t rehash it all here. However, from the perspective of living frugal, I have to concede that most women are far better at living the frugal life than men. Sorry guys.

Women as generally less impulsive with major buying decisions (think appliances, not shoes and purses). Women prefer larger amounts of emergency savings, and less risky investments. Dave Ramsey often credits a “security gland,” only found in women, for this desire to minimize risk. Personal experience leads me to agree.

Just about every bone-headed move I’ve made with money followed a “I’m not sure that’s a good idea” statement from my wife. When I ignored her, I crashed and burned – from stock picks to business ideas to financing that Chevy Silverado.

You think I would have learned my lesson, but men are equipped with an equally strong, equally empowering “stubborn gland,” which causes us to ignore all reasonable objections, throw caution to the wind and “just go for it.” Sometimes it pays off, but most times it doesn’t.

My wife and I make a good team. I’ve encouraged her to take a few more risks, and she’s encouraged me to be more conservative. I don’t mention toilet paper, and she ignores the sprinklers. We both clip coupons, but we usually spend them in separate shopping trips.