The other day my wife and I were just plain bored. We rode to the library to pick up some books, and afterward neither of us were in the mood to return home. Thanks to the household flu epidemic that had us all down the last week and a half we ran through our “medical” budget and had to adjust other categories down to compensate. This left little money for entertainment, gas or food. So movies, eating out, and a short road trip were obviously not in the budget.

It was at this point that I felt an old thought begin to creep into my head. I suddenly had a strong urge to go shopping, and just use our “emergency” credit card to cover the trip. I could think of several things we needed to pick up – some ingredients to try a recipe we read online, a new pair of tennis shoes for my daughter, and Easter basket goodies for the kids. Besides, we had been in the house all weekend, and the walls were beginning to close in a bit. It wasn’t our fault that we all got sick and required several prescriptions. Don’t illnesses technically count as emergencies?

My wife and I looked at each other as if we knew the other was having the exact same thought. We resisted the urge to spend and instead returned home to play outside with the kids. We found some old “bubble stuff” in the garage and spent the afternoon blowing bubbles and jumping on our trampoline. I was proud that we had managed to overcome the temptation to spend, and it made me acutely aware of how far we had come.

Emotional shoppers tend to spend when they are sad to make themselves feel better. Emotional shoppers tend to shop when they are happy to celebrate. Emotional shoppers tend to shop when they are bored (I definitely used to belong to this club) to give them something to do. Notice a pattern? It is no surprise people who let their emotions drive their shopping patterns frequently find themselves in debt. In fact, it contributed to my own accumulation of credit card debt, but it wasn’t the only factor. My wife and I frequently shopped because we were bored, or stressed out at my old job. I realize now that I was simply using shopping as a coping mechanism, much like an alcoholic has a drink every afternoon to “take the edge off.” Or like smokers need a cigarette to “calm their nerves.” It wasn’t until I came to this realization that I was finally able to protect myself from myself, by shredding the credit cards and forcing myself to live on a written budget.

Over the last few days I’ve been reflecting on my remaining debt and trying to inventory what that debt represents. If you are in debt, too, it can actually be a frustrating exercise. There were the somewhat justifiable portions of debt related to school expenses, illnesses, and family emergencies. However, I could barely account for 30% of the total debt from those types of expenditures. After surfing through old credit card statements and looking as far back as the online banking sites would allow it occurred to me most of the debt could be attributed to my failure to resist “financial peer pressure.”

Financial peer pressure comes in many forms, and from many sources:

• “Keeping up with the Joneses.” This is the self-imposed pressure we feel to keep up with others. If the neighbor gets a new car ours suddenly doesn’t look as pretty. If our friends upgrade to a larger house we suddenly start to feel claustrophobic.

• “Impress the in-laws.” Naturally, newly married guys have a tendency to want to impress their in-laws. We want to give the impression that their daughter has married into financial security and ease any doubts they may have about us as a provider for their little girl. I was guilty of this early on, particularly after my wife decided to stay home with our newborn in our second year of marriage. I suspected our family wondered if we could pull this off, but I was very reassuring, “Yeah…we’re doing great!” The reality was we were scraping by and failed to adjust our spending after dropping back to one income. The ensuing [tag]lifestyle debt[/tag]” accounts for a significant portion of our remaining balance.

• “Impress strangers at a red light.” I mentioned this phenomenon back when discussing the financial hole people dig themselves by buying new cars. It’s hard to justify spending hundreds of dollars a month for the right to drive something “new,” when many times a used alternative would do just fine. Somewhere along the line we Americans decided a car was a reflection of our wealth, a sort of mobile status symbol.

Now that we have identified the source of financial peer pressure, what steps can you take to resist it?

• Quit worrying what other people think about you. This might be the best advice for your financial future. Sam Walton didn’t care what people thought about him when he drove that old pickup truck to new Walmart store openings. Warren Buffet probably couldn’t care less what people think of his clothes, his shoes, or his accessories. I’m not suggesting we walk around looking like a complete slob, but if you want to get out from under [tag]financial peer pressure[/tag] a good first step is to stop wasting your time, money and energy on impressing other people.

• Quit taking advice from broke people. Ever notice that the first ones to give you financial advice are the ones leveraged to their eyeballs in debt? They always have a hot stock tip for you, or tell you to get that second mortgage to pay for a cruise that you “so deserve.” If these people also happen to be close friends or family you may feel some added pressure to take their advice. It’s perfectly acceptable to thank them for their advice and then completely ignore it!

• Don’t follow the crowd if the crowd isn’t headed in the direction you want to be moving. When I tell people that I will not have a car payment for the rest of my life they respond with, “What? Everyone has to have a car payment.” Oh really? Not if everyone saved their money and paid for a used car with cash. Accepting such societal norms are a sure-fire way to steer yourself into unnecessary debt.

Warning: This article may appear to be a complete rant against consumerism. That is only partly true. I am not advocating a life of caveman-like existence, but I am advocating a life free from the addiction to technology’s latest over-priced, over-hyped gadgets that are oversold to a society drowning in debt. Take a deep breath, forget everything you’ve learned from Best Buy about required technology, and follow along on my journey to live without a single dollar in my “electronics upgrade envelope.” Here’s a list of the “must have” tech gadgets that I don’t have, and unless I receive as gifts, probably never will have.

1. The Nintendo Wii. I was way ahead of Nintendo on this one. I’ve been throwing remote controls around my living room for years during college football games. They make a mint off the idea and I’m stuck buying replacement universal remotes twice a season – go figure. My favorite excuse for buying a Wii is to help “kids get exercise.” I know things have changed, but when I was a kid exercise looked more like riding a bike and playing basketball with my friends, not standing in front of a game console.
2. TomTom. I keep a neatly bound collection of maps of various roads I might travel safely stowed under the backseat floor mat. It’s called a road atlas, and it set me back $8.42 at Sam’s Club. No power, subscription, or satellite up-link required. Like I would ever look up directions anyway – don’t you know guys are born with the ability to use celestial navigation to triangulate the position of any convenience store in the country.
3. The iPhone. A $600 cell phone doesn’t seem very frugal, does it? Ok, so it is more than a cell phone, but will it really replace your computer, your mp3 player and your digital camera? Probably not. Use the $600 to upgrade your home computer and you’ll be much more efficient than trying to work on a screen the size of a deck of playing cards. Besides, desktops aren’t as likely to shatter when they fall out of your pocket.
4. Voice Activated Car Stereos. Let me get this straight – I yell out the name of a song or artist and my stereo system plays it for me automatically? I could see this being a problem in my world. “Honey, I wish you were here with me – it’s a beautiful day?” Suddenly the lyrics from U2 start buzzing through the speakers. I think I’ll stick with my old-fashioned radio. It pretty much ignores everything I say, and never follows any of my instructions. It’s almost like having the kids right there in the car with me.
5. Ipods, Nanos, and their “shuffling” cousins. There are a ton of mp3 players on the market that do basically the same thing as the iPod. This is a case of people paying for a brand name. Sure, my $19.95 mp3 player from Amazon.com probably doesn’t have a digital LED readout, a shuffle feature, or a hot pink faceplate kit, but it serves up my couple dozen favorite songs reliably enough.
6. Plasma televisions. Sometimes I think I must be the last guy alive who doesn’t own a plasma television, especially after Super Bowl weekend. Now, I am not completely immune to the normal technology desires of the average American male. I’ve stood in front of my share of plasma screens on display marveling at the video quality, and picturing that 60″ behemoth hanging on my living room wall. However, I just can’t bring myself to pay for something that is three times the value of my car. Besides, with our cable cut down to basic offerings there isn’t much left worth watching. “Everybody Loves Raymond” reruns look surprisingly good on our old 32″ television.
7. Bluetooth. When these things first hit the market I had not been around them much. I flew out to Denver for a business trip, collected my luggage at the airport and headed for the rental car shuttle. I sat down on the bus with only a few other people and suddenly the woman next to me starts screaming at no one in particular. I really thought the woman was crazy, or on drugs (or both). The guy across the shuttle from us must have been amused by my reaction because he leaned over and said, “She’s on the phone.” For the remainder of our trip around the rental car lot I looked for that phone, but never found it. It wasn’t until she got off the bus that I noticed a glowing blue appendage on her ear. That was my introduction to a “bluetooth” and I swore I would never get one. The only thing more annoying are those 2-way cell phones that sounds like a walkie-talkie. Please, have some courtesy – put the phone up to your ear and have a semi-private conversation with the person on the other end.

Which cool technology gadget do you secretly covet, but refuse to purchase?

I admit to being completely out of the loop (thankfully) when it comes to designer anything. Fashionable clothing, jewelry and accessories are all lost on me. I happen to believe the only “accessories” a man should wear is a wedding ring, but I realize that is just so “1980s.”

Today my wife told me about visiting a Neiman Marcus store with a friend and seeing a $150 Marc Jacobs coin wallet on a sale table. My first reaction was, “Who the heck is Marc Jacobs, and why would anyone care to buy his coin wallet?” Apparently he is some high-fa-luting “designer.”

I began to ponder what would motivate a person to buy a $150 coin wallet to transport metal currency in denominations no greater than $0.25 each – I mean, am I the only one who sees the irony in that? The story did remind me of the three questions I ask myself before making a major purchase:

1. Is there a cheaper alternative? Sure, you may have to give up brand loyalties or favorite designers, but chances are you could find a suitable, cheaper product or service that meets your needs. In the case of our coin wallet there are thousands of alternatives to Mr. Jacobs’ accessory. A quick search of Amazon.com lists hundreds of similar products for a lot less money. In fact, a comparable leather coin wallet lists on Amazon.com for $14.00. Of course, far be it from me to advise others on fashion accessories. When it comes to carrying change anything from a Ziploc bag to a warm pocket suits my needs just fine.

2. Will my life really be improved by this purchase? In this case, it’s hard to make the argument that this purchase does anything to improve our place in this world. I guess a few of your friends may be impressed, depending on the type of friends you keep. My friends would probably think I’ve lost my mind to spend a week’s worth of gas and groceries on a change purse, errr…”coin wallet.”

3. What is my motivation for buying this item? When I am about to make a major purchase I always attempt to identify my true motivation for the purchase. Now that I am devoted to frugal living I try to only buy things that are an absolute necessity. If I was in the market for a “coin wallet” I might ask myself why I had to have a Marc Jacobs coin wallet, instead of a $14.00 Fossil change purse from Amazon.com. Both serve the same function, both are made of high-quality materials, and both are reputable brands. In the end it comes down to opportunity cost. The money spent on more high-priced items uses up the opportunities for putting those funds to better use in the future. In the end, that lost opportunity could be much more costly than the $150 price tag.

A couple days ago I wrote about the possibility of an upcoming tax rebate as part of a broader [tag]economic stimulus package[/tag]. After learning more about the stimulus package, and the state of the U.S. economy I am more convinced than ever that the [tag]tax rebate checks[/tag] will be monumental failure. The money spent on tax rebates could be better spent providing a backstop for the market where it really needs it, the [tag]mortgage insurance industry[/tag].

Mortgage insurers are in a precarious position, and their downfall will be our own. The proposed $250 billion tax rebate will do little to spur the economy because of the overburdened position of the American consumer. People have borrowed up to their eyeballs (and beyond) on [tag]credit cards[/tag], mortgages and home equity lines of credit for the last several years. Many of these people could ill-afford such debt load, so lending companies loosened the requirements, allowing hundreds of thousands of otherwise financial deadbeats to assume much more than they could afford. Mortgage insurers underwrote those mortgages and enjoyed several years of growth in their own industry thanks to these relaxed lending requirements and an overall boom in the residential real estate market.

For the same reasons mortgage lenders enjoyed such success, they may now become their downfall. It appears our government is doing little to prevent their inevitable demise. Tax rebate checks sent to a financially irresponsible constituency will likely be wasted on frivolous purchases such as Ipods and plasma televisions. The more frugal of us may use the rebate to boost our emergency savings or whittle away some credit card debt. Neither scenario provides any relief for the mortgage insurance industry, or Wall Street as a whole.

A run on the insurance companies will lead to a trickle down effect ultimately creating depression. Just as life insurance companies don’t expect hundreds of thousands to file a claim on the same day, mortgage insurers were not prepared for such a monumental decline in the housing market. Declining home values combined with historic foreclosure rates have left banks holding the bag and looking to mortgage insurers to cover the gap. If these insurers go belly-up banks could be stuck with astronomical losses in their mortgage divisions, creating a ripple effect through the entire financial sector. The negative sentiment would gain momentum leading to massive withdrawals from financial institutions. With a lack of significant amounts on deposit, many small, regional banks would no longer be able to offset their lending write-offs, causing many to close the door leading to massive layoffs, decreased spending, decreased production and manufacturing, and increases in inventories. Sound familiar? It does if you were alive in 1929.

How could the government save the financial sector? By taking the $250 billion it is prepared to send taxpayers and use that money to guarantee the solvency of the large, private mortgage insurers. Similar to previous bailouts (airline industry, etc.) the government could essentially guarantee these insurers ability to make good on their policies by infusing the $250 billion “rebate money.” The mechanics of such a plan are debatable, but would probably center around the government “buying the books” from these insurers and in turn issuing government bonds to offset the loss in capital as these policies are made good. The confidence gained on Wall Street from such a move would likely preserve existing capital in investments in financial companies. Coupled with a full basis point cut in interest rates (these are long overdue) the market would roar, and could be pulled back by modest increases to interest rates at a later time.

Politics will probably win out, at great costs. Lawmakers on both sides of the aisle will see to it that the tax rebate program is pushed through, and any attempt to use the funds for more long-term benefits will be scuttled. Why? Because politicians are interested in one thing – staying in office. How many members of Congress would actually have the guts to tell their constituents that they are voting down the tax rebate plan so an alternative stimulus package centered around protecting the solvency of mortgage insurers could be put in place? Zero. The average American is only interested in one thing, a short term rebate they can use to replace that old sofa with a leather couch, or that old tube television with a shiny plasma model. The short term gains to their bottom line could soon be wiped out from a financial market meltdown that erodes their retirement savings to next to nothing. Seems like a high price to pay for a new television.

Rebuild.org can provide a great quote on mortgages, visit today for a no obligation quote.

The latest news on the economy is bad. Apparently, the housing debacle, years of negative savings rates, and a credit crunch thanks to our insatiable appetite for something bigger and better was too much for the bull market. This economic “perfect storm” has effectively wiped out gains earned since March 2007, and has driven the U.S. economy into a recession. Government officials are preparing to infuse the economy with various forms of economic incentives.

Will history repeat itself? After September 11th, and the Bush tax cuts, taxpayers were treated to a mid-summer tax rebate check as a prepayment for the tax decrease implemented by new tax laws. Some are predicting a similar tax rebate check as part of this economic stimulus package. Economists hope this infusion of cash in consumers’ pockets will lead to increased spending that will pull us out of a recession.

Put your tax rebate check to good use by paying down debts. Don’t worry, there will be enough consumers out there spending their rebate checks on frivolous needs. I don’t consider it unpatriotic to use your tax rebate for paying down your debts. In 2001, tax rebates for married, joint income tax filers was $600. Sure, that money could buy a new Xbox 360, or a new recliner for your living room, but knocking out some high-interest credit card debt has more long-term payoff for your personal financial situation. If you are already debt free, consider starting an emergency fund, or investing in a few shares of a discounted stock for your children. How will I know if I’m getting a tax rebate check? While the details haven’t yet been announced, the 2001 tax rebate checks were sent to people who filed taxes in the year 2000, and claimed a minimum amount of earned income ($6,000). In 2001 the checks represented an advanced refund on your 2001 taxes thanks to reduced tax rates. With no additional tax cuts on the immediate horizon it will be interesting to see how this solution can be financed. When and if it is, be prepared to put the money to work for you and resist the temptation to spend it all.

Like this article? Subscribe to Frugal Dad’s RSS feed here, or if you prefer receiving notifications via email you may subscribe to email delivery here.

Yesterday on the way home from work I was listening to talk radio and ran across an interesting phrase. In the context of the call the phrase did not refer to money, but I thought the term could be applied to living the frugal lifestyle. So what is this phrase that made me pull over to write it down on a legal pad?

Hyperbolic discounting, in behavioral economic terms, refers to the fact that people tend to prefer sooner payoffs to later payoffs, even if the later payoff is much larger. In English, people are willing to hock their future for today’s wants. This phenomenon explains why people are willing to trade a decent retirement for a $500 a month car payment. Hyperbolic discounting explains why people are unwilling to give up the famous $4 daily latte for a $50,000 college fund ($20 a week at 10% growth for 18 years). In the book, Your Money or Your Life, author Joe Dominguez touches on this phenomenon while explaining the roots of consumerism. He explains that as Americans it has been ingrained into our culture to work hard so we can afford to consume the latest hot product delivered to us by a wave of advertising. It is almost as if it is our predetermined destiny to buy all we can now, and wind up broke later.

Going about our day-to-day activities with a frugal mindset helps us think long-term, financially. Being frugal means sacrificing a little bit of fun or extravagance today and investing that sacrifice for a reward to come many years later. Dave Ramsey, the popular financial talk show host, sums it nicely with, “Live like no one else, so later you can live like no one else.” In other words, make the sacrifices now when no one else is willing to make them, and later you can live at a standard no one else can afford because they didn’t make the same trade-offs.