Friday, February 29, 2008

Don’t Waste Your Money

According to a Washington Post article just this week, Americans are buying more of virtually everything these days, yet our incomes have not risen in real dollars. And it’s the major reason so many of us are in debt up to our eyeballs. Our houses are bigger, our televisions are bigger, we buy more of everything. And that’s just those of us who are normal, who don’t have heaps and heaps of stuff making our homes burst at the seams.

But maybe “normal” is the wrong word. It is becoming common to hear about people who have entire houses full of collected things, or sections like their basement or garage or a spare bedroom that are piled high with miscellany. Several television series and specials have been dedicated to helping these people pare down. Professional de-cluttering has sprung up as a career. News stories about younger people who have huge collections of science fiction or movie memorabilia are growing. Although the tone taken is often mocking, it’s clear that some people have taken a love of C3PO to extremes, trying to own every licensed product with Star Wars on it, for instance. And we already know that a lot of elderly people who lived through the Depression or the Holocaust are hoarders who keep freezers full of extra food, and garages full of things that “could come in handy someday.” These collections are not necessarily trash. They can be valuable or useful, as with the Star Wars collectibles and the frozen food. But the problem is that when a person buys too much, collects too much, the result is waste. And wasted money.

We’ll give the elderly folks a pass, even though each year many are found dead in apartments and houses that are completely choked with possessions. Elderly people are well known to be set in their ways. The sad thing is that often the mess they leave behind gets thrown away regardless of value, because sorting through it is too time-consuming a task for whoever is stuck with it. That’s how junk dealers make their living, after all.

But what about the rest of us?

Everyone probably has something they ought to go through some day and get rid of. But real hoarder/clutterers don’t just keep too much stuff around. They acquire new items irrationally. And they waste money and also the very items they possess.

I just came across an instance of a person who had stockpiled batteries, ordinary AAs, AAAs, Cs, Ds, and 9 volts. This person doesn’t have a lot of extra income, and in fact does without health coverage as do millions in our country. But what the person does have is 76 C batteries. That’s right: 76. And that 76 total was derived only after we threw out the expired ones. Among the expired and soon-to-expire batteries were lots of 9 volts, the size mostly used for smoke detectors. Would you risk a soon-to-expire battery in your first line of defense against a fire? Of course not. These batteries were literally sitting in a closet, rotting and leaching hazardous chemicals, doing no one any good. Meanwhile, very conservatively estimated, this person had $200 invested in batteries, most of which were going to go unused.

What could this person do with $200? Oh, so much. We all have a long list of things we could do with an extra $200. What could this person do with 76 C batteries? Save a reasonable number (we decided on eight, approximately $10 worth) for consumption this year, and gave the rest to a school that could use them right away. The expired ones were carefully recycled at the dump. But what a waste!

I’m not saying don’t buy anything. But don’t waste your money buying too much of everything. It’s not that big a deal to run out and get a battery if you don’t have a spare one today. It’s a waste to have so many spares that they rot before you can use them. And that goes for just about anything: buying an item of clothing in multiple colors when one would do (pick the one that’s the best color for you, and wear it out); grabbing two sale boxes of cookies at the grocery store when buying one would net you the real price advantage (one box at $2.50 costs less than two boxes for $5.00) and fewer fat calories; or, the besetting sin of so many of us, buying too many hobby items that will never recoup their value unless we ourselves take the time to sell them one by one.

Buy things because you need them. Buy them because you want them, even, but be careful about how much you want. And don’t buy things just to have them around. We all can manage nicely on far fewer things in our lives and in our homes. And I for one would prefer to have that $200 earning me some money somewhere, rather than rotting away and causing hazardous waste.

Monday, February 25, 2008

Savings Accounts, Not Just for the Rich

I promised to write about savings accounts, and I did go do some research. They’re such a good idea in theory. But that’s because we have these memories from years ago, of putting a handful of grubby bills on the high teller’s counter, or maybe a piggy bank filled with change. In exchange we received a cool little bank book showing that we had an account. The next time we went to the bank, tiny amounts of interest were printed in our bank book. Our balance had grown. It was a lesson in prudence and citizenship. But those days are pretty much gone. For many years now, most banks have reserved savings accounts for the people who don’t actually need them: people who have hundreds or even thousands of dollars they can afford to park at a poor rate of return. Sure, children are still allowed to have small dollar savings accounts. But adults have to keep a lot of money in the account, or else they get charged a fee that is far more than the interest they could have earned on that money.

Is $250, the floor amount required by Chevy Chase Savings Bank[[Update: They've raised it to $300.]], a lot of money? To many people, it is. Off the top of my head, here are some things I could do with $250: Fly from coast to coast one way. Rent a car for a week with unlimited mileage. Buy a game system or a basic laptop computer. Get an Orchestra seat for a performance at the Metropolitan Opera. Book a hotel room for a weekend in Las Vegas. Or pay tuition for two online courses at a community college. So yes, $250 lying fallow in a savings account just to keep it open is a sum of money that has value. It’s not just chump change.

But the point of savings is that we hold this money aside from our regular lives, either indefinitely, or until we need it for a specific goal. So in theory there’s nothing wrong with the $250 minimum, which is a lot less than the $100,000 minimum that Imperial Capital Bank wants, for instance, as the convenient comparison chart at Bankaholic shows.

Even so, for many of us the day when we can blithely shove $250 or more in one chunk into savings just isn’t happening. We need to find a place where we can start our savings slowly. The sad truth is that many of the best places to do this today are online. Online banks are offering fabulous interest rates, rates unheard of from physical banks. Why sad? Because the very people who need to start small are unlikely to be able to handle online banking, which often must be linked to a physical bank’s checking account. Which many people do not have. It’s a catch-22, a circular dilemma.

Why don’t people have checking accounts? James D. Scurlock in his excellent book Maxed Out says that people who pay all their bills with money orders and who use check cashing storefronts instead of conventional banks are not as dumb as they look. Yes, they pay high per item fees for these services. But because they only deal with their money per item, they are never in the position of having overdrawn their checking account. Thus they avoid being charged the enormous bounced check charges that are common. It takes a lot of money orders to add up to $30 in fees, the typical minimum bounced check charge at a bank. And when one is living on the edge financially, as a good friend once pointed out to me, that’s exactly when bounced checks happen. Hence the disincentive to start a checking account, and that leaves a lot of people out of the loop when it comes to accessing online banking.

So, how to save? I think the answer is to just find somewhere to put a few extra dollars. Employed people with access to a credit union often can start savings accounts there for very minimal amounts. But not everybody has that option. So what else? We’re not talking retirement savings, no IRA deposits. We’re talking old-fashioned rainy day savings. The cash needed to pay an unexpected car repair bill, for instance, so it doesn’t end up on a credit card, haunting us for years.

How about a piggy bank? It seems like a kid’s ploy, but many adults already have piggy banks, only they’re just jars with change. But most don’t contribute purposefully, with a goal in mind. So it’s usually mostly pennies and not so many quarters. And no dollar bills. If the change jar is recharacterized as a piggy bank, then the incentive to add to it significantly is born. Carol Keefe, author of How to Get What You Want in Life with the Money You Already Have suggests labeling and dating your piggy bank. Write the goal on the label, and you’ll encourage yourself to shove more money into it. You can look at the money as it adds up, which will encourage you to keep adding. Keep the piggy bank near where you’re emptying your purse or pockets each day, and it becomes second nature to toss in those extra coins and bills to make the savings mount. And in a real emergency, that piggy bank filled with change and random bills can come in handy if there’s a major cab fare to pay. It also will make a burglar reasonably happy, and you want burglars to be happy, so they stop ripping up mattresses looking for cash. Why do burglars look in mattresses? Because that’s where they keep their money.

You can also use your child’s bank savings account to hold the initial small dollar amounts you can afford to save, until they add up to enough to open your own account. That’s safer than a mattress. Another method is to write checks in small amounts to savings even though you won’t be cashing or depositing the checks. Then subtract those small amounts from your checkbook. Keep a tally elsewhere, so you’re not tempted to re-purpose that “saved” money for bills. When it adds up to enough to open a savings account, it’ll be easy to write a new check for the total. I don’t recommend the strongbox in the back yard routine, because access to your savings could be a problem. What if you got too ill to remember where you buried it, or to dig it up? You need access to savings, because savings are meant to be available when there is an emergency. That’s their purpose.

It used to be that the purpose of savings was to assure your future. But 401k plans have brought a huge middle class participation in the stock market, and a consequent realization that for money to grow, it needs to be invested in a financial product that stays ahead of inflation. Historically, that would be stocks, not savings. Savings banks historically were important in bridging the gap between poverty and wealth. In New York there used to be savings banks with names such as Dime Savings, for instance, because you could open an account with a dime, back when a dime would have bought dinner. But that’s 100 years ago. The principle of starting bank savings with a very small amount has been lost. But meanwhile the safety of bank accounts has improved, because they are insured. Fine, but you’re still throwing change and one dollar bills into a cookie jar to add up to the minimum initial deposit to open a savings account. Or writing tiny checks for $3.76 to mythical “savings.” It’s onerous. It’s annoying. My suggestion: Just do it. Despite all the important things you can do with $250 or even $500, most of them are not that important. Make that initial contribution to savings an important goal itself. And while you’re in the process of saving up to open a savings account, visit a batch of local banks and pick the one whose terms and access seem the best to you. Maybe it’ll be the bank that has many branches. Maybe it’ll be the bank that’s the easiest to park at. You don’t have to consider ATMs, because you aren’t going to be taking the savings out randomly. So look for other plus marks, like pleasant tellers. Banks are heavily regulated, so the terms from bank to bank may not vary dramatically. You might as well find one that you like.

Goal-oriented behavior helps reinforce your motivation to reach the goal. So, all the small steps, the labeling the change jar, the adding larger coins and bills, the deposits to your child’s savings account, the writing tiny checks, the scoping out all the local banks, all these help you save those first crucial dollars. The day will come when you’re ready to go beyond a local bank with your larger savings. But for now, start small if you have to, but do begin saving.

Friday, February 15, 2008

Getting Rid of Money Mistakes that Haunt You

We all make mistakes about money and a lot of other things that are related to money. Many of us are stubborn about our mistakes, too. We hang onto them long after we should have closed the books on them instead. Life’s tough enough without punishing ourselves with bad decisions that haunt us every day. So here are a few things to consider regarding financial mistakes:

1. If you bought the wrong stock, sell it now. Now I’m not a stockbroker and this isn’t stock purchase advice, so do not sue me. For specific market advice, talk to a broker and try to understand what the person is telling you. And then filter it through your personal truth-o-meter. Meanwhile, here is a basic rule of thumb about the market. If you are invested in a broad spectrum of stocks and bonds whose names you do not know because they’re part of a fund, and the market is down, you’re probably going to be fine and should just ignore the market and do nothing. If you are invested in specific stocks and take an active role in buying and selling them, remember that you haven’t suffered a loss until you sell at a loss. Find out which yours is. Your broker ought to be able to help you decide if a certain stock is heading straight for the toilet and you should get out now. Or if you should hold on and wait for that stock to recover. That’s what brokers get paid to do, give you investment advice. So find an honest, knowledgeable one, and pay attention to what is recommended. Don’t refuse to listen and stubbornly stand pat on a losing situation, or run around all panicky when a few months or years will bring a natural correction upwards. Still, despite your best efforts, sometimes you’re going to make the wrong choice anyway. Once the evidence is irrefutable that you’ve got the wrong stock, sell it and don’t look back.

2. If you buy a bad car and you realize it’s a bad car, dump it immediately. Insert any other big ticket consumer item, such as “exercise machine” or “lawn tractor” or “time share” or “plasma TV.” Sometimes an item is a lemon, or it’s totally wrong for you, which is essentially the same thing. It’s bad, and it’s only going to get worse, and you’ll be kicking yourself the entire time you own it. Yes, you might possibly lose some money when you get rid of it. Maybe a lot of money. Trust me, you’ll lose more by stubbornly holding onto the bad purchase. And meanwhile there’s all the negative emotion surrounding the mistake. As long as the bad item hangs around, it keeps reminding you of your mistake. If your spirit burns at the waste involved, pass the item on to someone who can use it. Something that doesn’t work for you might be fine for someone else. The bad car I’ll never know how to repair might be a bargain investment for a mechanic. The exercise machine you don’t use might be a wonderful thrift store purchase for someone else, or a thoughtful gift to a friend. The expensive time share that’s not worth all the fees could become a nice donation to a charity, and so on. In large cities, you can just put items on the sidewalk and within hours they’ll will be gone to a new owner. In other places, you can stick them on your front lawn with a “Free” sign with the same result. Or you can sell the items by any number of methods, Craigslist, personal ads in local newspapers, eBay or similar, and more. Plus, you can recycle through Freecycle. But you know all this. The point is to get rid of your mistake and move on.

3. Don’t let unfinished business fester; it’ll cost you more later. Whatever it is that you haven’t finished and you know you should, finish it. If it’s a will you haven’t bothered to make out, then download one off the net, or make an appointment with an attorney, and get it done. You’re going to die someday, so plan for it. If it’s income taxes you haven’t filed, then file them. Don’t pretend the IRS will go away if you don’t want to deal with the problem. Things could get ugly. If it’s the deck you need to power wash, then rent the tool and have at it, or hire someone. I promise you that you will waste more time and emotion being mad at yourself for not completing your unfinished business than it takes to just do the job. However rotten or complicated a job it may be. Not only will you feel bad about avoiding your unfinished business, and have nightmares about it, but you will lose money, too. Why? Because any service or product you buy is likely to cost more in the future than it does now. Any interest you owe now will only get worse the longer you drag your feet about paying it. And an ounce of prevention really is worth a pound of cure. Or in the case of a deck needing maintenance, a pound of nails for the repairs you could have avoided.

Adults have many responsibilities. We make lots of decisions. Some of them turn out to be mistakes. The best thing to do is own up to the mistakes quickly, deal with the situation, and cut your losses. At any given time we’re probably in the middle of at least one mistake that we’re riding out, waiting to see if it’s going to make us take the big fall. Why wait for it? Why not dump that mistake now, and sleep better at night? You can spend a lot of time and effort denying your mistakes, paying too high a price for them, or trying to run away from them. But guess what? It’s easier to do what needs to be done. Not pleasant, maybe. But easier. Whatever it is, however difficult you think it may be, in most cases facing up to your mistakes will be less expensive, less aggravating, and even less complicated than letting them hang around and haunt you day and night.

Tuesday, February 12, 2008

Financial Advice for the Dark Days of February

My purpose in inaugurating this blog is to talk about personal finance. I have plenty to say, but so do you. Use whatever pseudonym you want, but talk truth about money. The more you contribute, the more you help yourself and others achieve financial sanity. And financial sanity is my goal for all of us, at a price we all can afford: Free.

Let me start by listing a few tips that might help you right away, in the next 30 days:

1. Spend less than you earn. I know what you're thinking. Of course we've all heard this before. But we need to hear it again. We need to put it at the top of every list of financial dos and don'ts. If the check hasn't arrived, then don't spend the money. It's that simple.

2. Save a part of any tax refund you're about to receive. It's high season for tax refunds, and for people who live hand-to-mouth. I've been preparing taxes pro bono for individuals whose yearly earnings are less than what you probably spent on a vacation last year. These people are hoping to buy a cheap car or a trailer, or rent an apartment, or just get back on their feet financially with whatever refund plus earned income credit or poverty level credit they receive. Even if that's your financial situation, take some small percentage of your refund and sock it away. I don't care if it's $5. Or $1. Save something. You'll feel a whole lot better if you do. And it can be the beginning of being good to yourself financially. A person who has $5 saved is not broke.

If your financial situation is better than that, take a larger percentage of the refund you receive and save it. Maybe you think you can't afford a savings account or checking account. Yes, you can. I'll research a batch and get back to you. You do the same and let me know what you learn. If there's a free savings account out there, then we'll find it and you should be contributing to it.

Maybe you think you need every dollar just to live. Doubtful. And strangely, from meeting these people who live on almost nothing, I now understand how that can be. If your income was only $2,000 in 2007, you surely received financial help from someone. Because there's no way you could pay for your own lodgings and food and everything else--even if you just sat in your room all year--on $2,000. (If you disagree with me, send me a detailed breakdown of how this is possible. Even ramen noodles add up.) So since you had help, you aren't likely to be living on the pitiful refund you're about to receive on that income, are you? Of course not. So take some of that refund and save it. I don't care where. Just try to put it where it can't be stolen from you, okay? If you get a $30 refund, save $2. That's 6%, far higher than the national savings rate. Feeling rich? Save $5.

Let's say you don't need every dollar to live. What's your excuse not to save? Have you actually thought through every expense you're sure is a necessity? Tell me your story and I'll look for some area where you can find the beginning of your savings plan.

3. Give something to charity. No, it's not all about you all the time. It's about other people too. No matter how little you have or how bad you feel about your financial situation, if you rouse yourself to give something, anything, you will feel better. I'm not going to get all touchy-feely about it, but if you've got something you do not need, including time on your hands because you don't have a job, then share with others. Help somebody else out. You will feel as if your days on this earth are not wasted, you will have contributed to society, and you might just meet someone with whom you make a significant connection. This could be a lead for a job, a beginning of a friendship, or whatever. My point is that as little as you may think you have, there is always something you can give to someone else.

4. Give something to yourself. In addition to saving actual cash money, you should also look for ways to improve your store of useful knowledge. This can be on any topic that interests you, but the point is to learn something new. You deserve to know something more relevant than what your high school classes taught you, and more important than the headlines you read on the gossip magazine covers at the grocery store checkout.

Now, don't tell me that you hate to read. I didn't say you had to read a book, although that's not a bad idea and our public libraries have thousands of books with plenty of useful knowledge in them. If you've got access to a TV or even a radio or a CD or tape player, you can find or borrow programs that are full of interesting facts about topics you might never have thought about before. And of course, there's the Internet and about a zillion sites and blogs and whatever also chock full of information. Enrich yourself by looking for something new. Don't know how to fix a blocked drain? Find out. Don't know how many countries there are in Africa? Find out. Have no idea how an indemnity medical plan works? Find out. Knowledge is power, it's said. Add to your knowledge and you will be adding to your power. Eventually, that's going to translate to more money in your pocket.

That's it for right now. I'll be back with more ideas as the mood strikes, and you do the same.