Have you ever noticed how stores take all those nice things we can’t really afford and make it available for purchase in “affordable” monthly payments? It’s psychological marketing really, we see a new couch for nine hundred dollars and think “whoa, I can’t afford that”, but a new couch for a low buy it today price of forty dollars a month we instinctively say “I can afford forty dollars a month. I deserve this.”

For many years this was my Achilles heel, probably one of the biggest reasons why I ran us into so much debt.  For a long time we lived beyond our means, pretending we could afford a “better” life than we could afford.  It all started with needing a new car in college.  I thought I was being frugal and bought a 3 year old vehicle thinking I could easily afford the three hundred and fifty dollar a month payment (not the best idea on a part time income in college).  Soon after that we needed broadband at fifty bucks a month and on top of that all the credit card debt was running a couple hundred a month.

No worries, it’s just a few low monthly payments, right?  Well, the problem really starts to compound after a while when this psychological marketing has you thinking you can still afford more and that you deserve better.

So, fast forward another 5 years… oddly enough my income had more than doubled since finishing college yet I was poorer than before college. Why? Adding up the low monthly payments of two vehicles, furniture and all the things I thought I needed pretty much ate up my entire month’s salary.

Those “low monthly payments” weren’t so affordable anymore.  To make matters worse, all the debt… the real cost of these items… had taken a toll on my credit rating.  This not only made my interest rates go up but then my insurance rates went up too. What a nightmare, all these low monthly payments were making me dirt poor.

This psychological marketing is just that, psychological.  They advertise and hook you into thinking you need better material items than you do, that you need to keep up with the Jones’s.  They show you the price tag and then convince you that you can easily afford the low monthly payments.  The real tragedy here is what you end up paying in total with all your payments. You couldn’t afford a nine hundred dollar couch so you take the low monthly payments and end up paying two thousand for the same couch.  Doesn’t sound so affordable now, does it?

So the next time you think you need material items you can’t afford, tally up those monthly payments and ask yourself if you can afford to pay that amount. See for yourself, the next time you see one of those pay by the week rent to own furniture ads… add up the payments and see how affordable it really is.

Turns out psychological marketing is just putting lipstick on a pig.  Grandpa was right, if you can’t afford it, don’t buy it.

Credit Karma recently released its U.S. Credit Score Climate Report reflecting data for July 2009. It revealed a few interesting trends, the most interesting being the continued decline of consumer debt for those currently holding a credit card. This means that, overall, Americans are paying off more than we are spending.

Of course, this is bad news for retailers, and bad news for the overall debt-driven economy. However, our personal economies seem to be improving (assuming you have avoided a layoff or similar household emergency). I’m encouraged to find out people are paying off debt, particularly credit card debt.

In our own household we have reduced outstanding credit card debt by about 30% since May of this year. We have been 100% sold out, gazelle intense about being credit card debt free, and if it weren’t for a few family emergencies we would have closer to 50% paid off by now. The bright side is we did not accumulate any new debts during these mini-crises.

How are others doing? Here’s a look at the Credit Karma survey results from last month.

Average consumers had:

• $6,818 in credit card debt
• $193,036 in home mortgage loans
• $52,559 in home equity loans
• $14,449 in auto loans
• $26,368 in student loans

$26,000 in student loan debt? Yikes! That figure and the home equity loans stood out to me. Combined, those two categories alone represent nearly $80,000. Wonder how many people took out those loans for the tax deduction on interest, or to pay off other debt, and just ran it back up again. I also can’t help but feel bad for new graduates who racked up thousands in student loans to find one of the worst job markets in recent history. While the outstanding debt balances still seem high, I’m hopeful that the downward trend continues.

Another nugget from the survey is that Midwesterners seem to have the lowest amount of debt. Wonder what lessons from the Midwest we could learn throughout the rest of the country? I know in many Midwestern states there is a thread of self-sufficiency running through many households not felt in other parts of the country. Homes are probably more reasonably priced than in other areas of the country, too.

I’m curious to hear from you on this one. Have you also paid down debts during the recession? Do you think you would have done it otherwise, or was the negative economy a motivating factor?

Can you feel the excitement in the air? It is almost time for many kids to head back to school. Okay, so maybe it is us parents who are most excited! As a kid I remember feeling equal parts excitement and dread about the upcoming school year. One of my least favorite parts of this time of year was the back to school shopping. I guess some things never change, but I have managed to compile a lost of back to school tips and shopping strategies.

Fortunately, my wife is an excellent back to school shopper, and over the years we have improved on our bargain hunting prowess while managing to fully equip our kids for the next school year. It takes a little planning, but the savings make it well worth it to work out a strategy before blindly walking into the mall with store credit cards primed.

Frugal Tips For Back to School Shopping

1. Shop consignment stores in your area. Over the years, many quality consignment stores have cropped up that offer cash or store credits in exchange for gently used clothing. Not only are these great places to generate some quick cash for cleaning out a closet before school starts, they are also a good place to look for deals on designer clothing, if that is something you’re after. Think of it as shopping for a used car – someone else paid for most of the depreciation.

2. Buy articles of clothing that go with (almost) anything. Unless you have an unlimited supply of money, you will discover quickly that coordinating outfits do not have a lot of room in the average kids’ closet. Instead of buying a coordinating shirt, pants, and shoes that go with nothing else, opt for versatile articles of clothing that work well with each other, multiplying the number of potential “outfits” available.

3. Shop for off-season, clearance items. When it is 97 degrees outside it is hard to think about shopping for long-sleeve shirts and coats. However, it’s a great time to pick up clearance deals on these winter items as stores will practically give them away to make room for fall arrivals.

4. Look for bargains on Thursday nights. Many department store sales run Thursday thru Sunday. Most of us who work Monday thru Friday save shopping for the weekends, meaning a Thursday night trip to a department store could yield big savings and plenty of options. By Sunday night all that remains are leftovers, as popular sizes and styles are the first to go.

5. Watch the Sunday paper for store sales and coupons. This past weekend, a department store in our area offered two coupons–one flat percentage off your total bill, and the other offering $15 off if you bought $75 worth of merchandise. My wife and I split our transactions so that each of us could use a coupon to realize maximum savings.

6. Forget about designer labels. Most stores now have their own label that competes with larger, name-brand designer labels. I have found that in most cases the quality of clothing is comparable, and the premium for designer labels just isn’t worth it. That’s especially true when you consider how quickly kids outgrow, or wear out, their clothing.

7. Buy school supplies in 3’s. My wife is a master at shopping for back-to-school supplies. One strategy she uses is when she finds a great deal on basic supplies such as paper, pencils, crayons, binders, etc, she stocks up with at least three of each item. The kids are well-stocked for the first day of school, and we can restock at least twice later in the school year.

8. Shop on sales tax holidays, if you dare. Many states offer sales tax holidays, usually lasting an entire weekend near the end of July or early August. On these days a number of items are exempt from sales tax. The list varies from state to state, but if you have large-ticket items (such as computers) that are included, it might be worth it to fight the crowds.

9. Start a “Back To School” fund. Much like we’ve done for other once-a-year-expenses, we recently started a back-to-school shopping fund. Consider your most recent school shopping experience to set a budget for next year. Divide that number by 12 (monthly), or by the number of paychecks you expect next year. Deposit that amount each month (or payday) into a designated back-to-school at an online savings account. When next summer arrives you’ll have the cash available and a pre-determined budget to limit your spending.

Back to school shopping can be a stressful time for both kids and parents. Make it a happier experience (or at least less painful) by implementing a few of the tips above. Since we have a little shopping left to do, I’m interested to hear your favorite back to school shopping tips in the comments below.

The same day I posted my ideas for a debt repayment rewards system we stumbled on a yard sale in our neighborhood with an sofa sale offer that was too good to refuse. For the last several months we’ve been casually keeping an eye out for a new (used) sofa. Nothing elaborate, but something in better condition than the hand-me-down sofa we inherited after a family member moved several years ago.

Hard to turn down a free piece of furniture, particularly when you are just starting out, but our family has outgrown the three small seats on that old couch. When we got it a few years back one of the legs was broken, so I propped up one end with a few pieces of wood. Over time, the stress on the remaining three legs began to take its toll, and I found myself turning it over and adjusting the legs on a weekly basis.

Two weeks ago, we discussed saving for a new sofa as a reward for paying off all but one credit card. At the time we decided we would save and pay cash for a new sofa and loveseat, or sectional, to increase seating space on the occasion family or friends dropped by.

Simmons Paris Wine Leather Sofa Overstock.com

Then it happened. We rounded the corner Saturday morning and saw a sign “For Sale: Sofa and Loveseat.” Across the street was a large yard sale, and I suspected the owners of the sofa were hoping to piggyback on the attention it drew. In our case, it worked!

In the driveway we saw two wine-colored pieces (I’m not good at describing colors, but it looks very much like the one shown above) – a reclining leather sofa and loveseat. The owner told us one of the reclining sections was broken and “would not stay in.” Fine with us; I’d figure out a way to “lock” it in the closed position. We could live without one seat reclining for a good price.

We offered $50 less than the asking price and it was ours. After some struggle getting the pieces in my van, and out at our house, we managed to get everything in place, and the old sofa out. We’ll probably offer it to a family member, and if they aren’t interested, we’ll donate it to a local shelter or Goodwill. With a little work the legs could be repaired or replaced and it might suit a smaller family, or single person, just fine.

After making a relatively large purchase I tend to suffer from buyer’s remorse. Before I could even sit on the new sofa I started thinking I had made a mistake. Had I fallen for the trap of an impulse purchase? Couldn’t our old sofa last a little longer? Should we have waited until we were completely debt free? But then I reminded myself of the positive aspects of our purchase.

• We paid for the sofa and loveseat with cash (unlike our bedroom furniture purchase a few years ago).
• We bought it used and saved several hundred dollars off the price of new, retail furniture.
• Though there was some spontaneity to our purchase, it was something we had decided we would like to buy for a long, long time.

My wife and I both agreed that this was not a purchase to lament. We should be proud of our purchase because we finally did it the right way. We could make the argument that it was a little too soon, but sometimes you have to take advantage of these types of deals and make adjustments accordingly. With our schedules compressed we’ve decided to postpone a mini-vacation until the Fall, leaving us plenty of room to save up for the trip.

Between now and then we’ll enjoy more comfortable seating. In fact, I’m off to renew a Sunday afternoon tradition – time to catch a quick nap. I’m getting in shape for football season!

Back to school shopping is just around the corner.  That means upcoming sales tax holidays for many states. It is mostly a non-event in our household, as I despise large crowds packed into malls, and would gladly pay 7% more in sales tax to shop on another weekend.

Still, for many of you sales tax holidays are second only to Black Friday in their opportunities to spend money. Funny the things that suddenly look affordable minus sales tax, when just a month or two ago they were way out of reach. Just imagine the number of people out there charging up balances on store credit cards at 24% interest rates to save 7% on sales tax.

Don’t get me wrong; I’m not totally against the idea of a sales tax holiday. Quite the opposite. I look forward to just about every opportunity to eliminate a tax from our lives. However, I consider it a spending trap because days like this often lead normally frugal people to lose their frugal minds and shop like crazy just to “save on taxes.” Spending $100 to save $7.00 rarely makes sense, unless you were going to spend the $100 anyway, and then it might.

Of course, it would be unfair for me to pick on sales tax holidays. There are plenty of spending traps put down for us these days. Many first-time homebuyers feel compelled to run out and a buy a home before they are financially ready because of the first-time homebuyers tax credit being offered. Others feel the tug of car fever driving them to car lots to trade in their clunkers for cash when their clunkers were getting them from A to B just fine.

All of these traps are designed with one purpose in mind: to increase spending. In some cases these programs offer excellent ways to save money. However, if you are not prepared to spend the money wisely you should not be tempted to spend it at all, regardless of the incentives to do so.

Since most states are offering sales tax holidays towards the end of this month and early August you still have a little time to prepare, assuming you are brave enough to fight the crowds. Start planning a back-to-school budget and set aside a little from each paycheck between now and your state’s tax holiday in a cash envelope. When the sales tax holiday is in effect you’ll have a cash budget to shop with, minimizing the risk of going over budget or resorting to credit cards to fund the shopping spree.

Will we participate in the sales tax holiday? Probably not. The only thing I might be interested in buying around that time would be a new computer, as ours is over eight years-old now. I’ve upgraded a few components over the years, but the processor and hard drive space is laughable compared to current models. Computers are the one thing that don’t usually fit into my, “if it ain’t broke, why replace it” mantra. If you want to stay fairly current, you have to upgrade every couple years at a minimum. As you can see, we are far from “current.”

By waiting until sales tax holiday weekend I could save up to $70 on a $1,000 computer purchase (I won’t spend that much, but to keep the math simple I rounded up). Retailers also typically plan sales around such holidays which could mean even higher savings.

It’s worth noting that this year’s recession, combined with severe budget shortfalls, have caused many states to cancel or postpone sales tax holidays. Be sure to check a current 2009 Sales Tax Holiday Schedule for your state before shopping.