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.

Post by Frugal Dad

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?

Post by Frugal Dad

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.

Post by Frugal Dad

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!

Post by Frugal Dad

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.

Post by Frugal Dad

My wife and I are already Sam’s Club members, and shop there roughly once a month to stock up on a few things.  You have to be a little careful when shopping at wholesale clubs – you can wind up spending a lot more money on things you don’t necessarily need.  I’ve been known to buy the occasional box of 100 hot and spicy frozen chicken wings – not a very frugal purchase.  Still, if you have some restraint, you can find a few great deals over grocery chains.

Five Best Things to Buy at Sam’s Club

Gasoline.  A lot of people forget about Sam’s Club when it comes time to fill up their tank.  In our area, Sam’s consistently beats the price of most of other gas stations.  We try to take advantage by planning our monthly shopping trip around time to fill up.

Digital Photo Prints.  Upload digital 4×6 prints over the Web and have them printed at your local Sam’s Club for about $0.13 a copy.  Considering the cost of photo paper and ink, this is not a bad deal for printing a handful of your favorite vacation photos!

Furniture.  We bought our current mattress at Sam’s Club a couple years ago, and have been eying a kitchen table set (ours badly needs replacing).  When our “furniture” sinking fund has enough we plan to shop Sam’s Club versus an expensive furniture store. One note, you do typically have to put the table legs, chair legs and backs on yourself, but a little sweat is worth the savings.

Tires. I always shop the prices at Sam’s Club before buying new tires. Unless I am looking for a specific brand, or a unique tire size (I’m usually not very picky), I can find a good deal at the local Sam’s Club automotive area.

Jewelry.  Sam’s frequently has excellent deals on jewelry, particularly if you are in the market for a ring.  Why pay jewelry store prices if you don’t have to?

Chances are, you can easily make back the $15 summer membership fee by Labor Day, particularly if you just happen to be in the market for a big purchase or would like to stock up before next fall.

Post by Frugal Dad

When I was a freshman in college I worked a variety of retail jobs at the local mall.  I worked at GNC Nutrition for a while, and then a shoe store, and then an athletic apparel store.  At all three jobs I had to report the local weather back to the home office at closing.

At the time, it didn’t really occur to me that there was a correlation between the weather and sales.  Now I realize that weather does in fact have an effect on spending, both on a personal level and on a larger regional level.  Weather impacts both shopping patterns and the types of products that we buy.

Of course, businesses are well aware of these pattens and that is why home improvement stores push things like generators, batteries and flashlights in South Florida during the peak of the hurricane season. Stores in the northeast might carry similar items to prepare for winter storms.

How Does Weather Affect Our Personal Shopping Habits?

Are you a die hard shopper – the kind that would brave the elements to catch a great sale, or risk life and limb to pick up an iPhone the day it comes out?  I suspect many of you are not, but you probably know someone that fits the description. It doesn’t take much to discourage me shopping because I generally hate to shop. I don’t like crowds, I don’t like lines, and I especially don’t like wandering the aisles while falling prey to every well-placed, eye-catching display promoting a new product.

I have noticed that stores seem a little less crowded on both particularly nice days, and particularly bad days.  Maybe most people reserve shopping for those ho-hum days.  You know, overcast with a threat of sprinkles and an almost bothersome cool breeze.

Maybe our shopping patterns have more to do with our overall mood rather than the weather, but since the weather impacts our mood I guess there is still a correlation.   I know some people who are absolutely morose if the sun isn’t shining.  Me? I actually prefer cool, rainy days (should have been born in Seattle).  And when people feel gloomy they often go shopping to lift their spirits.  When they are happy they go shopping to celebrate. And when they are bored they go shopping to give them something to do to hopefully make them happy.  All symptoms of being an emotional shopper.

Not sure where I’m going with all this, but it started as a random thought on a recent lunch break when I watched people scurrying into a Target store, dodging heavy raindrops all the way.  Those same people reappeared in a few minutes with a tiny bag and soaked clothes, and spent the next several minutes adjusting their hair in the rear-view mirror.

I couldn’t help but wonder what they had purchased, and why it couldn’t wait until after the severe thunderstorm rolled through that day.  Hey, at least they were stimulating the economy!  Meanwhile, I was camped out in my truck listening to Dave Ramsey and eating a sack lunch.  Just the way I like it.

Post by Frugal Dad

Off-Price Retailers

First, a little history on the industry straight from the T.J. Maxx website:

Off-price retailing grew in the recession of the mid-’70s when consumers had limited discretionary income.  Consumers wanted to save money without sacrificing quality and fashion.  Shopping “off-price” provided the perfect solution.  Through the years, the off-price industry has continued to grow.  The recession of the early ’90s reinforced consumers’ value-oriented; mentality and heightened the demand for quality fashions at reasonable prices.

Sound familiar?  If the blurb on their website had not reference the recessionary times of the mid-’70s and early-’90s I would have though they were describing the consumer sentiment of today.  After all, many folks are hunting bargains without sacrificing quality.  To me, that is the mantra of the frugal shopper.

Our Finds

The hardest part of spending money with a gift card is trying to decide what to buy and stay within your budgeted amount.  Our gift card was for $25.00, which normally wouldn’t buy much, but as we shopped the items at our local T.J. Maxx store we were able to find three much-needed household items to toss in our shopping cart.

19-piece ultimate measuring set.  Just like the label says, this is the “ultimate measuring set.”  Up to now we’ve collected a mix-matched set of measuring spoons and cups of various sizes, colors and brands.  Now we have a complete, matching set and can retire our current measuring devices to back-up duty.

Shower curtain 3-pack.  My son loves to play “splash the parent” in the bath tub, so we’ve employed a plastic shower curtain liner for some time to protect us (and the bathroom floor). Unfortunately, these things tend to collect mildew pretty quickly, and there are only so many times you can clean with vinegar before they need replacing.

8-piece prep bowls with lids.  My wife enjoys watching the occasional cooking show, and is always envious of the little glass prep bowls everyone uses to separate their spices and various ingredients.  Well, now she has her own!  We have also discovered these are the perfect size for pouring up a little homemade honey mustard or similar sauce for dipping meats and veggies.

We took home all three items for just over $25.00 (the difference was less than a dollar). It felt good to pick up three things we needed, but had put off purchasing because of their expense, even in discount stores.  We didn’t even make it to the racks of discounted, name brand clothing, but plan to as the seasons change and the kids need spring and summer clothing.  From now on, we’ll check off-price retailers before stepping foot in a mall!

Post by Frugal Dad

Deals at dillyeo.com are typically some of the lowest prices anywhere on the internet.  I like that there is only one item per day, so I can’t visit the site and go nuts ordering fifteen things in one sitting.  If I like the deal of the day, I can order it.  If I am not interested, I pass.

Dillyeo.com offers a wide variety of products–everything from electronic gadgets, such as iPods, cameras, and GPS devices, to deals on clothing and household appliances.  Here’s a sampling of deals from the past several days:

Recent Dillyeos:

• 9 in 1 Sports Combo Kit For Nintendo Wii
• Hamilton Beach Wave Station 12 speed Blender
• Jockey – 3 Pack Tagless Crewneck T-shirts
• Advent 4″ Touch Screen Gps W/Mp3 & Fm Modulator
• Travel Concepts Destiny 6 Piece Luggage Set
• Soyo 22″ LCD HDTV
• Samsung S1070 10.2 Megapixel Digital Camera

If you have a little Christmas cash to spend I encourage you to check out dillyeo.com (after you save a good portion of that cash, first!).  I plan to bookmark the site myself in the hopes that I can catch a few good deals here and there.

Use coupon code dillyeo09 between now and January 11th to save 10% off any Dillyeo.com purchase!

What’s the deal of the day today?  Click Here to See!

Post by Frugal Dad

Put a freeze on your lifestyle, but not completely.  I like the idea of holding expenses after getting a raise and pocketing the entire amount into a savings account at ING Direct.  However, that isn’t very realistic.  Besides, you likely earned that raise through hard work, and should enjoy at least a portion of it.  I recommend increasing your savings contributions to various savings vehicles (see below) by about half of the amount of your new raise.  With the remaining half, go ahead and sign up for that Netflix account, or gym membership, or buy that new golf putter you’ve been eying.  Success with personal finances is about finding balance.

Where to save half of the new raise.  The first place to start is your 401(k) plan at work.  Chances are you are contributing a percentage of your income, so this boost in annual salary will automatically boost your 401(k) contributions.  Still, if you aren’t contributing through a match, I consider boosting another percentage point or two using proceeds from your new raise to obtain the match.

If you are already contributing enough to receive a match in your 401(k), consider adding the remaining 50% of your raise amount to a Roth IRA.  The earnings here grow tax-free, and you can withdraw your contributions any time without penalty.  If you have already maxed out IRA contributions for the current tax year then simply dump half that raise in your taxable savings account, such as a high yield online savings account or brokerage account.  The idea is to get the money out of your primary checking account, where it will just be frittered away in DVDs and extra stops at Starbucks (at least that’s where mine would probably go!).

Should I accept a raise, or a bonus? Some companies are offering bonuses in lieu of raises this year to lessen the increased salary budget for next year.  If given the option, take a raise over a bonus, even though the lump sum from a bonus looks appealing.  Raises are permanent (well, as permanent as anything in the job market can be these days).  Things like matching retirement funds, life insurance proceeds, etc. are based on your annual salary, and with some creative accounting companies are often able to avoid these increased expenses by offering year end bonuses instead of increasing your salary with a raise.

Post by Frugal Dad