Friday, July 31, 2015

Mistakes We Don't Make at the Supermarket

"On average, a family of four spends up to $1,300 a month on the food they consume at home. To make matters worse, most are spending more than they need to because of mistakes they are making when shopping at the supermarket."

The actual article title is "Biggest Supermarket Shopping Mistakes." This kind of story from Kiplinger's plays on our fear that we aren't as smart as we hope, that we don't know how to do our lives correctly. A vast number of so-called "helpful" articles start with the premise that we, the readers, are constantly making mistakes.
What about those mistakes at the supermarket? Apparently, we shop every week without noticing what's on sale that week and stocking up on it. We also don't compare prices, and we don't plan our meals around the perishable items on sale that week.

Uh. No. We do the due diligence. We read the store circulars and we cut out or print out the coupons for products we already use, and yes, we do know what time of the year to buy Bing cherries and sweet corn at the best prices, too. If we're really supermarket mavens, we also know that just about everything in a grocery store goes on sale every six weeks. All we have to do to never buy at full price is stock up enough during a sale to tide us over to the next sale. Works like a charm, plus this way we never run out of toilet paper.

Of late, companies have been pushing different sizes and packages of some staples, paper towels being the best example. Hardly a week does by when some version of Bounty towels isn't on sale. Mega sizes, double sizes, regular sizes, different numbers of rolls per pack, and more. We stock up and then we stock up some more, and the company's hope is that we use the paper towels more rapidly because we have so many in reserve. This is a pretty good guess about how people behave. It's the number one reason to put cash earmarked for savings into a savings account rather than keeping it in the regular checking account or as bills on top of the dresser. The less we feel we have, the more careful we are.

But paper towels are minor. Where the typical American grocery shopper makes mistakes is in buying processed foods that are full of chemical additives, including the number one evil chemical, partially hydrogenated oil. 

Partial hydrogenation keeps oil that's sitting around a factory in big drums for months on end from going rancid. It also keeps cookies soft for weeks on end on the grocery store shelf. But food items move swiftly in a grocery. The hydrogenated oils are in a vast quantity of food products merely for the convenience of the food processor. You don't need to give cheese puffs a nearly immortal shelf life. Those items are put in the store fresh nearly every day of the week, and frankly, most people who buy them consume them almost immediately. The oil is there anyway, and you can look up why it's so bad for people right on Wikipedia.

I love looking at what's in other people's shopping carts, and most of what I see are processed foods, not fresh foods. Only around major holidays do people fill their carts with fresh foods, plus the normal building blocks such as flour, sugar, and chocolate chips. This surely has to do with lack of time to prepare meals from scratch, but everybody ought to read ingredient labels and walk away from those that run long and contain many unpronounceable chemicals. It's supposed to be food we're eating, not man-made chemicals. That's our number one mistake at the grocery store. 



Wednesday, April 15, 2015

Be Happy About Your Tax Refund



At this time of year, personal finance professionals switch from chiding us about filing our taxes on time to chiding us about getting refunds. To get a tax refund is proof that we overwithhold, they say. It's proof that we can't manage our finances properly. Worse, receiving a tax refund is proof that we taxpayers are childish, incapable of saving unless Big Brother holds our money for us and only gives it back once a year, without paying any interest.

I don't think so. Federal law has allowed the IRS to behave over the years in a terrifying manner. It has seized people's property, shut down their businesses, hauled them into court, and even sent them to prison over unpaid taxes. What people fear most about the IRS is owing money. They may specifically fear an audit, but more generally, the fear is that they'll come up short on April 15, and not have any ready cash to pay what they owe. Then they'll owe interest and penalties, both of which mount up very quickly. Once a taxpayer gets into tax debt, it often takes years to clear the account.

A letter from the IRS is scarier than a cease-and-desist letter from a lawyer threatening a lawsuit. Those at least are clear about what the perceived offense is and how to stop further action. The IRS often sends letters people don't even understand, demanding money according to tax schedules the taxpayers never used, about taxes filed years in the past. The IRS also has a well-deserved reputation for bullying taxpayers over very small dollar amounts, in order to terrify the rest of us. It works.

How do taxpayers protect themselves from the threat the IRS represents? We overwithhold. It's a simple yet winning strategy. Maybe when banks were paying 5% interest on savings accounts, we might have been tempted to underwithhold, and just pay up on tax day. But that strategy doesn't help us sleep at night, and banks these days don't pay interest worth talking about.

Laughably, several of the articles I've read that sanctimoniously say we're fools to get refunds also say that we should have put that refund money, month by month, into the stock market and made a killing. Right. We also could have lost it all. This is not brilliant advice, and it's not even a sane comparison. Comparing a speculative, uninsured stock investment to the dependability of receiving a tax refund from our stable federal government is nuts.   

There's also the little matter that Congress changes tax rules every year, but drags its heels and often does it on the last day of December. How are taxpayers to plan in January for not-yet-enacted new tax rules? We can't.

Overwithholding gives the government free use of our money, the critics say. But we the people are the government, so we're saving ourselves the interest the government would have to pay to borrow the money we're lending it for free. Our patriotic gesture, in fact. Meanwhile, we're also arranging for forced savings that can result in a large chunk of cash that we'd never see in one place otherwise. Could we obtain that chunk of cash by mere savings? Not easily, because there are so many daily demands on our money.

By overwithholding, we create a happy tax time scenario: We're getting a refund! Hurray!

The financial critics should lay off.

Friday, February 13, 2015

Can You Afford It?


A lot of us make more than enough money to take care of life's essentials. It's when we consider other possible purchases that we tend to screw up. We don't seem to know what we can afford and what we can't. That is when we turn to credit to fund our extravagances, and we get into trouble.

Have you ever noticed that most books on personal finance do not discuss what we can and can't afford? Most personal finance TV segments don't discuss limits on spending, either. Suze Orman is the rare exception, with her "Can I Afford It?" segment on her television show. But even Suze has only lately come up with a formula to help children--not adults, but children--determine how much of their savings to spend on something they're lusting after. Suze says spend no more than 10% of savings on any item you want but don't need. It's a great concept, but hard to put into practice as an adult because we'd have to look at it in reverse to determine where to draw the line.

During the Cold War, a very long time ago, magazines sometimes ran cute little features comparing how many hours a U.S. citizen had to work in order to afford to buy a suit or a dress, versus how many more hours a Soviet Union (Russian) citizen had to work. Of course the U.S. always came out better in these comparisons, because we had and still have superior access to a wide range of consumer goods, many of them at cheap prices. People in the U.S. were paid well back then, too. The situation has changed. We now are paid badly compared to the inflation since the Cold War, but the price of clothing has dramatically reduced, to the point where people feel they can buy items and never wear them, or wear them only once, and then ignore them. Determining what is too much in this scenario is complicated because you'd have to add up every dime you spent on clothing and then compare it to your income. Few people do that.

Let's consider something simple, a Coach bag. Coach makes leather handbags, purses, and other accessories. These are good quality items in solid leather that usually will wear well for decades. Thus a Coach bag, which can easily run $300, can be viewed as an "investment" whose cost will amortize over the long time it can be used. If you're the kind of person who is willing to carry the same bag for decades, buying one that costs 6 times your usual $50-on-sale bag might make a kind of daft sense. Except that most people who become fixated on a designer handbag don't use it exclusively, or that long, because they will be captivated by some newer design or designer. An Hermes Birkin bag can run you $10,000. That's 33 times what the Coach bag costs. If you bought a house that was 33 times the price of a house you could afford, and your bank approved you to buy a $500,000 house, you'd be spending $16.5 million dollars on a house. That's how out of whack buying a Birkin bag is for anyone who is not rich. But what about the Coach bag? How do you discover whether you can afford it, or whether you ought to buy a less expensive brand at a discount store or on sale somewhere?

First you look for descriptions that suggest what percentage of income can or should be spent on clothing. A shopping site that seems to push expensive clothing says 5% of your net pay, your take-home pay, is the limit. Let's assume for giggles that you only bought one clothing item, that Birkin bag, all year. Your net pay after taxes would have to be $200,000 a year. Yikes. What about the Coach bag at only $300? There it begins to get complicated again. Three hundred dollars is 5% of a $6,000 a year income, but $6,000 a year is below the poverty level. The 5% figure doesn't help us here because it's not a reasonable purchase with such a low income.

A personal blog that isn't trying to flog expensive clothing cites the Bureau of Labor Statistics information that the average family spent $1,700 on clothes in 2010, on after-tax income of $60k. That's 2.8%. Assuming there are four people in the family, that's only $425 a year per person. On the face of it, then, a $60k take-home income does not justify spending nearly 71% of your annual personal clothing budget on one Coach handbag. What happens if you go ahead and do it, and then you need new running shoes, a couple of t-shirts, and a pair of sweatpants? Even buying them all at discount stores, you'll be over budget in the wink of an eye. If there are only two people in the family, each person has $850 to spend all year, and the Coach bag represents 35% of it. Still too expensive.

Typically, women are pressured by our society to spend more on clothing than men do, which often pushes the percentage higher. On a $60k net income, that's $3,000 a year, and the Coach bag is 10%. We're back to Suze Orman's standard number.

It's so tempting. That Coach bag would look good on the custom-built shelf in our walk-in closet--except that with a take-home pay of $60k, we don't have a walk-in closet or a custom-built shelf for designer handbags. Too many of us want to pretend we can afford the appurtenances of the wealthy, when we can't.

Friday, January 2, 2015

New Year's Resolution: Save More Money


You think don't have enough money, yet I want you to save more? Yes. Here's how. We all have a tendency to forget about the money we don't see directly in front of us. Our paychecks typically deduct for a wide variety of taxes and insurance, and once the shock of how little we get to take home wears off, we simply do not pay attention to whatever comes off the top. If we add an automatic deduction directly to a savings account, we won't notice it.  

Retirement savings should go directly into your 401k. Do this first, before you work on the other savings. You will grow old someday, if all goes well. When that happens, either you won't want to work anymore, or you won't be in good enough health to work. Your future self will be very grateful you saved to make all those years of being a geezer more bearable. Max out your contributions at work first, because the dollar amount you can put in a 401(k) is significantly larger than the maximum you're allowed to contribute to a regular IRA or Roth IRA—almost four times as much, in fact. Only the SEP-IRA, meant for business owners and self-employed sole proprietors who earn a profit, has a feature that allows individuals to pile up significant retirement cash. Of course you're not looking forward to growing old. You're sure it'll never happen to you. Save for retirement anyway.

Having set up retirement savings on automatic, it's now time to organize the other savings accounts. Some employers offer the option of making a direct deposit to a savings account as well as a checking account, which makes the automatic savings very easy. If yours doesn't, see if your bank will set up an automatic withdrawal from your checking to your savings. There's also the method of treating regular savings like the first bill you pay once you receive your paycheck, and writing that check to savings, or transferring the money from one bank to another, before you pay for anything else.

How hard is it to save a little more money? If you eat out four times a week as The Simple Dollar and other sources say is average, you're spending around $230 a month on commercially prepared meals.
If all you do is save the equivalent of one night out, $25 for two people (and find something fun to do that night that does not involve spending money, so you don't feel deprived) you will have approximately $100 extra for savings per month. At this time of New Year's resolutions, I've already seen a lot of people resolving to eat out less. Make the goal specific by signing up for automatic savings in the amount you intend to save per week, and you're done.

Once money has gone to a savings account, it should be subdivided and transferred into other savings accounts. Here's the rundown of what you need:
1. Rainy day savings of eight to ten months of living expenses. Do I have to tell you why this is a really, really good idea? Have you forgotten 2008 already? Build up this savings account as fast as you can.
2. Savings for large purchases, usually a car. Unless you live a strictly urban life, you need a car to get to work, to shop, to socialize, and more. Cars fall apart and have to be replaced. The moment your monthly payment ends on your current car, you should divert the same dollar figure (okay, rounded to an even number) to a savings account for the next vehicle. You can divert less if you imagine that the next car you buy will costs thousands of dollars less. Not likely, is it? If you're still paying on a vehicle, put a few token dollars into the fund for the next one, anyway. Your refrigerator might break down.    
3. Savings for vacations, toys, life's pleasures, etc. Everyone should have some savings that are not allocated to the business of life. Each person in a relationship should have a separate savings account, even if you funnel the regular paycheck deposits into a joint checking account. If I want to give my spouse a present, I don't want to do it through a joint account. It spoils the fun.


At first, the dollar amounts that go into your savings accounts may not amount to much. Be patient. Increase the amounts as you can. Getting into the habit of saving regularly is more important than the immediate total. You'll have more confidence to face life's ups and downs when you know you have savings.

Monday, December 29, 2014

Employee Assistance Plans Are For Real

Does your company have an Employee Assistance Plan (EAP)? Have you avoided making use of it because you're sure your HR department will tell your boss you're getting therapy? Are you convinced the EAP will directly rat you out to your boss about the exact problem for which you are seeking help?

That's not how EAPs work. They are completely, 100% private. The way you contact them is private. The provider does not even put your name on a file folder. You don't necessarily have to give your name to the provider. Even in these days of medical offices computerizing their files, the EAP provider is prohibited from listing your name anywhere. Therefore there are no records that can get hacked, or that can accidentally or on purpose be sent to your employer.

The other great thing about EAPs is that they are free. In the past, your medical insurance might have stingy about the number of mental health therapy visits you're allowed and reimbursed those visits at a lower percentage than other medical services. Although the ACA is changing this, the trend is for people to pay more and more in co-pays. Not EAP counseling. It's free. If you obtain therapy through an Employee Assistance Plan, you pay nothing. Want to quit smoking? Access your company's EAP. Want to cut down on your drinking, or your legal or illegal drug use? Use the company EAP. Want a shoulder to cry on, or someone who'll listen calmly as you recite your fears? The EAP provider is your answer.

Of course you don't want to ask HR about the details of the company EAP when you need it, so make a point of asking when you first start working there. Learn enough about how their Employee Assistance Plan operates to be absolutely sure it is fully confidential.

I never knew the full range of benefits available in an EAP until after I didn't have access to one. Free services I could have used! Free as in free. Think about it.

 


Wednesday, December 17, 2014

Freeze Your Credit, So It Can't Be Stolen

Recently, someone I do not know blogged the sad story of losing her wallet out of her purse and then having to deal with repeated attacks on her credit. Yes, she was really stupid not to keep her purse on her; evidently it has been her casual habit to leave it unguarded in grocery stores and even hang it on the cart the bellhop uses at hotels. So of course we can smugly say she was asking for it. No question, the identity thieves pick the low-hanging fruit first. If you have visitors to your home frequently, find a good place to secrete your purse, too. People you know will steal your identity, too.

Let's not be smug, though. Unfortunately, credit thieves are coming for all of us, and it's just a matter of time when they get to you or me. It's very hard to protect ourselves completely because everybody wants our personal information. Facebook keeps trying to get details of my life--the very items that credit companies want as the answers to questions as backup to the basic password. And certain people I do not know have found my date of birth (a matter of public record) and celebrated it on Facebook, totally without my cooperation or permission. My address and phone number are easily found through a free ZabaSearch, too, so forget that cute "give us your zip code" at the gas pump. Dead easy to obtain. Some things are matters of public record, including addresses.

So what can you do? You can freeze your credit with all three credit reporting agencies for a few dollars. You can tell each credit company with which you do business, and those that simply mail to you, not to send you credit offers (I haven't gotten them in many years). It's a little harder, but you can also demand that your credit card company not send you "convenience checks." We did this when our parent was high up in dementia, so no hired nurse could grab the checks and take her credit for a ride. It's also a good idea to cancel excess credit for elderly folks, and keep a remaining card in a safe place.

You can give false dates of birth when registering for websites (as long as you're 18, they're happy). You can remove excess credit cards from your wallet before you travel. You can make sure you never, ever give anyone your debit card number, or that your bank account from the debit card only has a few dollars over the price of what you are purchasing right now. You also can call your credit card companies whenever you plan to travel, and tell them the dates and locations. Without that prior call, I have found that credit has been denied for large purchases--even on a card that I routinely use for large purchases--and for small purchases, too, such as at a grocery store while visiting relatives out of state.


Of course do not carry your Social Security or Medicare card on a daily basis. Carry photocopies with the numbers blanked out; you know the number by heart, anyway. Change your online passwords, and use two-step verifications whenever possible. Use only one credit card online, not all of them (I know you have more than one). Check your bank accounts regularly, and look at your credit card statements to make sure no unusual charges have slipped in. Use your middle initial, so your name is more distinctive. If you name is Kathy Jones or the like, have it legally changed to something less generic, even if the change is only to add the middle initial Q. Proving you are the innocent Kathy Jones can be a nightmare otherwise.

The lock on your credit with the reporting agencies is probably the cheapest and easiest preventative measure, and you do not need to buy a commercial plan to do this.

Sunday, September 14, 2014

Pay Your Bills on Time


Lots of people have the money to pay their bills, but they are lazy and sloppy. They figure no one is calling demanding the cash, so what's the hurry? I hope that's not you. If it's a loan from a friend, you're likely to lose that friend. If it's a loan from a relative, you're storing up long-term resentment that can bite you in the future. And if it's a credit card bill or utility bill, you're looking for trouble when attempting to get more credit to buy a house or a car, or obtain any kind of loan on low-interest terms.

My latest credit card bill devoted two pages to what it called "Useful Tips." Here they are:

1. Pay on time.
2. Pay at least the monthly minimum.
3.When you can, pay in full.

Pay on time? What's that? If your attitude about paying promptly is lax, do not be surprised when your credit scores go down, and the cost of credit to you goes up. Entities that loan money take regular on-time payments as a mark of your financial responsibility. The credit card companies do not need to know how much money you have in a bank account or the stock market. The companies want to know if you will pay on time. If you do pay on time, you will always get better treatment from your creditors than if you don't.

If you are too disorganized to pay your bills on time, simplify them. Many bills can be put on autopay, or you can set an alarm on your phone or computer to remind you to pay them all the day you receive your paycheck. You also can charge only to one credit card each month (rotate through them to keep them active). You don't need to use store charge accounts when they accept major credit cards, another way of reducing the number of bills you receive. If you want to take advantage of a store card benefit such as a discount, use the card, but then walk over to the store's service desk and write a check then and there to pay the amount you just charged. Done.

Pay at least the monthly minimum. This is another no-brainer, since your creditors will tell you exactly what the minimum is. If you really want to pay their exorbitant finance charges, go right ahead, but at least avoid late payment and low payment fees. The minimums due are very low.

When you can, pay in full. We now have consumer laws in place to require our creditors to remind us that stretching payments over many months or years results in paying two or three or more times the purchase price. It's not a bargain buy if you end up paying three times the price. Think twice about buying anything you can't pay for in full by the end of the first billing cycle.

There is no "secret they don't want you to know" when it comes to paying your bills. There is nothing fancy or mysterious about maintaining good credit. Pay on time.