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One of the reasons that I dislike payday loans so very much is because of the terribly high interest rates that the payday loan companies get away with charging.  Couple that with the high fees, and it doesn’t take a genius to see why most people who know anything about personal finance will agree with the “parasitic lending” tag that I throw at them.  By comparison, a personal loan isn’t much better.  Or is it?

Personal loans have some of the same high interest rates, after all.  Aren’t they just another way for the dastardly financial institutions to charge high rates, and rake in the high profits?  Well, yes and no.  Yes, they do charge high interest rates for personal loans, but there’s a very valid reason for that.  And, as a generality, the rates are not as high as those charged for the payday loans.  So, why do institutions charge higher rates for personal loans?  The answer is in the guarantee.

Guarantee?  What the heck am I talking about?  In a typical consumer loan, you’re buying something.  Instead of a personal loan, you get an auto loan, a mortgage, or a recreational vehicle loan.  In exchange for the loan money, the lender gets a claim on the title of the thing being bought.  If you default on the loan, the lender can repossess the car, house, or ATV that you bought with the money.  Because they have that collateral, the risk of losing money on the loan is decreased, and they can afford to give you a lower rate because of that decrease.

A personal loan, has no such collateral.  The only guarantee that you will pay the loan back is your signature.  Coincidentally, that’s why they will sometimes be called “signature loans”.  Because the lender cannot repossess your signature, the risk of default is raised.  And, because it is raised, they charge higher interest rates.

At this point, you’re probably asking yourself, “What’s the difference between a personal loan and a payday loan, then?”  Truthfully, there is very little different.  The one difference, and it’s one that makes a big difference, is that a personal loan is usually issued by a financial institution like a bank or credit union, whereas a payday loan is issued by that shady pawn shop across the street.  And, as a general rule, banks and credit unions are a bit more upstanding than the pawn shop.  In most cases, they have a good reason to treat you fairly.  They want your business.  Not just your next loan, but your savings too.  If they treat you poorly and charge outrageous rates, you’re likely to find somewhere else to put your money.  That pawn shop could care less.

Another difference, that bears mentioning, is that banks and credit unions will usually require that you have a good to excellent credit rating before giving you a personal loan.  For obvious reasons.  The risk is already higher without collateral, so they don’t want to risk their money lending it to people who have sub-average credit scores.  The pawn shop could care less.

Have you ever borrowed a personal loan from a bank or credit union?  From the pawn shop?

photo credit: nerdcoregirl

Being a frugaler means making some sacrifices.  We sacrifice in order to save a few bucks.  Sometimes, it becomes a bit of an addiction.  We get a small high off of the act of saving.  While you can certainly have worse addictions, even an addiction to saving can be a bad thing at times.

Taking Frugal to Extremes.

Before you get any funny ideas, I really should let you off the hook.  This post isn’t really about flossing with chest hair.  (It’s a catchy title though, isn’t it?)  I don’t actually know of anyone ever having flossed with chest hair, nor would I suggest it.  But, it serves as a good example of a way that people could take saving to an extreme.  There’s a growing movement to do things in a sustainable manner, and using things that are renewable (like chest hair) is a big part of that.  But, there are extremes.  For instance, I’ve read about people who use a special kind of stick that is very fibrous, and they chew on it instead of brushing or flossing.  Some things, I’d just rather pay for.  Being frugal is good.  Being so frugal that you chew on sticks?  I’m not going to judge, but it seems a bit too extreme for me.

Finding a Happy Frugal Medium.

There is seldom a cure to any addiction.  Overcoming one usually entails years of counseling, and hard work on the part of the addicted.  Part of the treatment is usually to completely forgo whatever it is that you’re addicted to.  If you’re an alcoholic, drinking any alcohol at all is forbidden.  But, I can’t, and won’t, condone abstaining from frugality.  Overcoming an addiction to being frugal is just a matter of finding a happy medium where you can still save money, while still living in a way that doesn’t have to include extreme cutbacks.

The Cure to Extreme Frugality.

Without thinking about it too hard, come up with something that you spend money on that you can’t do without.  Again, I’m not going to judge.  For some, it will be their car.  For others, it will be their morning coffee.  Now, come up with something that you currently spend money on that you can do without.  For some reason, for most people, it’s harder to come up with something we can do without than it is something we can’t do without.  Why is that?  The answer is that it’s psychological.  As frugal people, we’ve thought long and hard on ways to save money and to pay off our debt.  In our minds, we’ve analyzed everything that we spend money on.  We then justified everything that we spend.  In some of those cases, we’ve created justification for ourselves so that we don’t have to get rid of something that we would rather not.  So, it’s harder to find something that we know we can do without because, in our minds, we’ve created a justification that makes it something we need.  The cure to finding a happy medium and avoiding the extreme frugal addiction is to take a close look at the things we’ve justified and find those things that we’ve created justifications for that really aren’t all that justified.  In short, stop lying to yourself.  Once you do, you’ll have found several things that you can cut back on, or remove entirely, that will save you money without going to extremes.

It’s just as hard to overcome the addiction of lying to yourself as any other addiction.  There should (and maybe is) be a 12-step program for it.  Until then, try and be truly honest wit yourself.  Understand that you’ll probably slip up once or twice.  That’s forgivable.  Just recognize that you’ve slipped, and get back on track.

photo credit: Just Add Light

I was reading a story somewhere where a person was being interviewed about their debt.  In the interview, the person was speaking about how they had this credit card debt and how they just couldn’t get out from under it because of all the interest, fees, and other ways that the credit card company throws on the heap each month.  They went on to talk about how they were in fear of having their car and house repossessed because they were falling behind.  With each new problem, they were quick to point out the things that were keeping them back and causing their slide into bankruptcy.

Something occurred to me, then.  They were taking no ownership in their finances.  No matter what the financial woe was, it was always someone elses fault.  The credit card companies were tacking on interest and fees.  The bank was adding late charges onto their car loan and mortgages.  Not once did they take any ownership of their situation.  Not once did they say, “we shouldn’t have charged so much on the credit cards”, or “we bought more house than we could afford”. The blame was always on the other guy.

If there’s one thing I’ve learned in my journey towards beating broke, it’s that it’s all my fault.  I signed that credit slip.  I signed that mortgage.  I signed the loan papers.  Yes, some of the credit card companies have interest rates and policies that border on predatory.  Yes, the banks will allow you to borrow right up to a point where you’re living paycheck to paycheck.  But, I signed on the dotted line.  Along the way, I discovered all of that, and I took financial ownership.  And, in doing so, I took control.

Through financial ownership, I have control over where my money goes.  I have control over which debt gets paid off first.  I have control of how tightly the purse-strings are held.  And, most importantly, I have control of my financial future.  A future that I plan to make as financially independent as possible.  Not at the whim and mercy of any bank, but a future where I can plan to buy things, and save money towards retirement.

My journey isn’t over, but I am beating broke.  I’m taking financial ownership and making my future one that is free from broke.

I want you be able to say the same thing.  It’s one of my goals for this site to help you beat broke.  Beating broke is the first step in your financial journey towards a life free from concerns over where next months bills are coming from.  You can do it.  But, you’ve got to take financial ownership.  You got yourself in the situation you’re in, and only you can get yourself out.  Do it today.  Accept that you are the only one that can take ownership of your financial situation, and you are the only one with the power to fix it.  Take that step.

photo credit: woodleywonderworks

Every few weeks, you see an article that goes into great detail on the costs of having children.  In these articles, they talk about how much it costs to have a child at the hospital, to buy diapers, formula, clothes, and even talk about future costs like sports, cars, and college.  But, if there’s one thing that being a father has taught me, it’s to stop adding up the cost of children.  Seriously.  Here’s why.

If you are one of those people who truly wants to have children, it won’t matter what they cost.  You’ll want them.  And, you’ll gladly find a way to pay the cost.  Sure, it might be nice to know some rough estimates so that you can prepare a little.  That’s mostly sane.  But, some people are actually using those cost estimates as a justification for not having children.  They go on to claim that it’s just not the responsible thing to do (having children) if you can’t afford them.  But, here’s the thing.  Almost every single one of them can afford children.  It will mean changing their lifestyle, sure, but they will be able to afford a child.  The folks who truly cannot afford children, aren’t off in the corner with calculators, running the numbers.  It won’t ever occur to them that they can’t afford children.  They’ll do just what you should do, if you want children.  Have them.

No doubt, it’s scary.  The numbers run from the low 5 digits to the low 7 digits over a childs lifetime.  And, don’t even begin to total up the added “cost” of the time spent at t-ball games, birthday parties, and other childrens events. (Shhh! Don’t tell anyone, but most of those are really good excuses to have a bit of fun yourself.) And it’s absolute torture to try and figure out and estimate what college will cost in 18 years.  But, that’s the root of my advice to you.  Just don’t.  Don’t add up the costs.  The truth of it is that it just doesn’t matter.

Children are an incredible blessing.  The experience is invaluable and without a price tag.  It’s not for everyone.  But, if you want to have children, just do it.  You’ll be glad you did, regardless of cost.

photo credit: JD | Photography

That’s right.  Bull.  All these experts go on and on about calculating the opportunity cost of something and adding that in to your cost analysis when deciding whether you should do something yourself, or hire it out.  Heck, even I have used it before.  But, we’ve all taken it way too far.

Let me ask you this; What is your opportunity cost of reading this post?  Of eating your breakfast this morning?  Not relevant?  Bull, again.  We use it to determine if we should keep cable T.V.  We use it to determine the added cost of our daily commute.  Personally, I’ve used it to validate paying people to do all sorts of things.  Mechanics?  The cost of doing it myself is too great, let them replace those brakes!  Plumbers? I hate doing plumbing.  Let them fix that leak!  We’ve become so obsessed with being frugal and pinching our pennies that we figure out the cost of everything that we do.  If the cost is too high, we should avoid doing it, or do it ourselves, our mantra goes.  But, that isn’t always true! Sometimes, it’s just straight up bull.

We all want to improve our finances.  That’s why we do those calculations.  It’s simple mathematics.  The problem with opportunity cost, however, is that most people assume a 100% efficiency.  I hate to be the one to break it to you, but there is nothing that is 100% efficient.  Not you, me, or anything ever created.  There’s gonna be some loss.  So, yes, I can figure the opportunity cost of my time.  But, it depends on my using that time to be efficiently working on something that will make me money.  The opportunity cost of my time at work is about $25/hour.  But, that doesn’t mean that every hour I sit at home watching T.V. has an opportunity cost of $25/hour.  I can’t stop watching T.V. and replace that time with paid time for work.  They don’t like paying overtime.  Plus, I’m paid on salary, so every extra hour I work at work, reduces the effective hourly pay.  Did you catch that?  Every hour over 40 hours a week that I work reduces my efficiency to earn money.  If I were paid hourly, that might be slightly different.  But, I’d be willing to bet, my employer would still have an aversion to paying overtime and would not allow me to work many more hours over 40.

If you’ve got side projects, like I do, there is a opportunity cost for every hour that I’m not working on them.  Some side projects are extremely easy to figure the cost of.  If I contract out my work on an hourly basis, my cost (for every hour I’m not working that project) is that hourly rate.  But, just like my job, I can’t be 100% efficient at my side project either.  I’ve got to sleep sometime.  (Egads!!!  The opportunity cost of sleep!!!)

The point is this; If you’re going to try and figure the opportunity cost in order to validate a decision, don’t do it blindly.  Realize that you won’t be 100% efficient.  Just because you disconnect the cable T.V. doesn’t mean you’re going to replace all that T.V. watching time with efficient money making time.  Some of it might be spent reading a book.  Or playing with kids.  Or napping.   Each of those may have some benefit to you, but they really don’t have much place in a financial cost analysis.  Sorry, you can’t bill your kids for playtime!

The personal finance world is full of stuff like this.  Mantras and rules-of-thumb that we use like crutches to validate and justify why we do what we do.  It’s like an addiction.  If you truly want to take control of your finances and live a better life, you’ve got to discard those addictions like you would a pack of smokes and begin to analyze what you do with a critical view.  Nothing is worth using in your finances until you’ve tested and proven that it is.

photo credit: zogh

When you think of the 1950s, do you think of an idyllic happy time?  Or do you think of it as an unexciting period in our country’s history?  There have been numerous changes in our society over the last 50+ years.  Many believe these changes have led to an easier and overall better way of life for each of us.

Incomes are up!  But, so is spending.  According to the Bureau of Labor Statistics, spending in America has increased tenfold since 1950.  That increased spending means that not only are Americans saving less, in many cases they are over-extending themselves and living on credit (aka, living in debt).

So, if we are making more money than ever before, why does life suddenly seem so expensive?

Let’s compare….

According to data released by the U.S. Census in 2007, there are three key areas that are draining our wallets.  And each of these four categories has changed dramatically in the last 50+ years.

HOUSING (up 21% since 1950) – In 1950, housing accounted for 22% of a family’s spending.  In 2007, housing costs had risen to 43% of spending.  Why?  Since 1950, the average house size has doubled, now standing around 2,200-2,400 square feet.  In 1950, it was common for houses to have one bathroom, for kids to share bedrooms, and for closets to be rather small (and since people had less ‘stuff’ the small closets seemed ample at the time).  Now, houses have more bathrooms than bedrooms and walk-in closets that are the size of many smaller bedrooms in a 1950’s house!  Many families of today could not imagine raising a family in the house their parents grew up in.  But the truth is, millions of families lived in those houses and survived!

TRANSPORTATION (up 3% since 1950) – In 1950, transportation accounted for 15% of spending.  In 2007, it was up to 18%.  In 1950, it was common for a family to have just one car.  And while cars have actually come down in price (when adjusted for inflation), families now have multiple cars.  And although cars are much more fuel efficient today than they were 50 years ago, Americans are driving many more miles in a year than ever before.

RECREATION, COMMUNICATION AND EDUCATION (up 10% since 1950) – In 1950, this category accounted for 2% of spending.  In 2007, it accounted for 12% of spending.  And while increased educational opportunities are partially responsible for this increase, the bulk of the increase can be attributed to cable, Internet, and phone fees.  Items that we consider a necessarily part of life – cell phones (with data plans!), cable, Internet – were non-existent in 1950.  How much does your house spend each month on cell phones, cable, and Internet?  We think we need those services, but the truth is people have lived without them in the past.  These pricey ‘wants’ have, over time, become perceived ‘needs’ in our society.

As these figures show, the little conveniences that we think make our lives so much improved from our 1950s counterparts are actually making us poorer!  Some say all these pricey improvements mean we are better off.  But are we really better off if we are saving less and going into debt?  You decide!

About The Single Saver…

The Single Saver offers practical, money-saving advice in a fun and interactive format. Who is this website for? Singles people. Smaller-sized families. Empty nesters. Single parents. And anyone who wants to save money. We have a TIP OF THE DAY, a BLOG featuring writings from a variety of authors, and a fun and interactive DISCUSSION FORUM.

About me…

The Single Saver is written by Denise, a single woman herself who grew up in a small family. A reformed spend-a-holic, she now enjoys the challenge of finding new ways to live a frugal yet very comfortable lifestyle. When not saving money, she is usually spending it on food for her two greyhounds and two cats.

The following is a guest post from Squirrelers, as a part of the 2nd Yakezie Blog Swap. The topic is “What is your best day-to-day money saving tip”

Most of us who are personal finance bloggers and/or blog readers are interested in finding ways to save money. Over the years, we have been given advice on how to do so, and have probably come up with our own strategies as well. These money saving approaches are often geared toward bigger picture expenses such as a mortgage, education, or even a vehicle. However, the day-to-day expenses are more than worthy of being looked at as well.

For me, there are different ways to save on day-to-day expenses. The best overall money saving tip I have for such expenses is:

Have as few bad, unnecessary day-to-day habits as possible

What, were you expecting something about bringing lunch from home, walking to work, etc? Well, those are good specific tips for saving money.  I’m talking about daily habits that are not necessary, harmful, and are truly wants rather than needs.

One example of an unnecessary habit is cigarette smoking. Thankfully, the rate of smoking in the U.S. has declined, and it has become harder for people to smoke in public places. In the state in which I live, Illinois, smoking became banned in restaurants/bars a few years ago.  Public buildings don’t allow smoking. So there are plenty of economic disincentives to stop, not to mention the incredibly greater importance of the health reasons. But when you do look at the cost of that habit, it’s clearly staggering, both in today’s costs (cigarette purchases) and tomorrow’s costs (health care expenses).

Fortunately, I never engaged in this habit – nor did I ever have any temptation to do so. It probably saved a ton of totally unnecessary expense.

A second example is caffeinated drinks.  Actually, it could be any unnecessary drink, but let’s stick to those with caffeine. This is one that I have battled in recent years. Last year, I gave up caffeine for a few months, only to be drawn back into it….then I gave it up again, which is where I’m at today.

I really liked Diet Coke.  Each day would include a diet coke in the morning, and one in the afternoon – either with lunch or during the home stretch at work.  Often, one of those drinks would be of the 32 ounce variety. I probably averaged 40 ounces or so per day during some stretches – or the equivalent of 3-plus regular cans.  Each day.  It was a habit.

The thing is, it wasn’t necessary. It was a habit, and one that involved getting hooked on these drinks.  I would say each working day involved spending at least $2 on such drinks.  If you annualize, using 250 working days, that’s $500 per year. Instead of going to all water, I might have a decaf coffee or other drink twice a week.  Projected forward, this comes to about 100 days a year of purchased drinks, at $1 per drink, totaling $100. Just by eliminating a bad habit, and substituting some occasional non-habit forming beverages on occasion, that cuts expenses by $400. Just for that habit.

This can go on and on, to cutting a vending machine habit, and yes – eating meals out. Either way, it’s about cutting bad habits and living a healthier, less complicated existence. Being able to make good habits a part of daily life instead of bad, unnecessary habits is my best tip for saving money day-to-day.

photo of smoker credit: JavierPsilocybin

photo of Diet Coke credit: roitberg

Everybody is familiar with the story of Peter Pan, right?  That old tale about the boy who refused to grow up and spent all his time flying around neverland with his friends?

Well, you may not realize it, but you probably know a few Peter Pans yourself.

I Don’t Want to Grow Up!

What makes a Peter Pan spender?  If you think about it, it’s pretty simple really.  A Peter Pan spender is someone who spends like a child.  Always buying the new flashy thingy that catches their eye.  Someone who spends their money with little regard for the future, because, if you stay young forever, you don’t need to retire.  And it goes without saying that a Peter Pan spender doesn’t save for the future.  After all, if you plan on living in neverland all your life, the future is full of pixie dust and pirate tales.

The Fall of Pan

So, where does all that fun an frivolity get you?  Eventually, it gets you from neverland to nowhere.  Sure, you had fun, but what are you going to do when the fun is over?  The hard truth, like a ticking clock in the belly of a crocodile, is that you’ll end up trying to live on social security alone.  Or worse.

Return to Neverland (Recently remodeled and renamed to Sometimeland)

Growing up doesn’t mean you can’t have fun.  It just means you have to have fun with responsibility.  When all the bills are paid and you’ve socked away a bit for the future, have all the fun you want.  Just like Peter Pan finds out, growing up doesn’t mean that all the fun is over.  It just means that the fun changes somewhat.  It’s not all pain and torture, and there are some bright spots that come with the added responsibilities.  Learn how to save and invest for the future and to responsibly pay your debts and the fun will be readily available too.

Save! Be Frugal! A penny saved is a penny earned. There’s a plethora of maxims meant to encourage us all to save our money for a rainy day. To hoard our excess funds so that we can spend them at a later date and enjoy their usage. But, is saving our money a waste of our money?

The most obvious way that saving money could be a waste of money is in lost opportunity cost.  If your money is tied up in some CD or savings account that you don’t have ready access to, what opportunity are you going to miss out on that could make you even more money.  If you can’t take advantage of an opportunity to make money, your savings is wasting those potential profits.

But, that isn’t the real issue.  Potential profits don’t necessarily mean lost profits.  Maybe that opportunity doesn’t perform as expected and you earn less than you would have in the CD or savings accounts?  No, I don’t think that theory holds up.  Sure, you might miss out on a potential profit boon, but I wouldn’t encourage not saving for that purpose.  In fact, having a readily accessible savings could make it easier to take advantage of an opportunity like that.

But, let’s think for a moment about what we do to save money.  The easiest way to do that is to just have it taken directly from your paycheck and into a 401(k) or to set up an automatic transfer from your paycheck to a savings account.  Easy.  A little bit of set up involved, but very little effort thereafter.  That’s hardly a waste of money!  But, let’s look at the opposite side of the spectrum.  You’re pinching your pennies, saving as much as you possibly can and then some.  You don’t want to miss out on an opportunity, or you want to pay your debt off super fast!  You go so far as to start collecting pop cans.  (assuming you live in a state that has a deposit.)  You walk down the street and throw the cans you find into a bag.  Maybe you even hit the parks and poke through the trash cans there.  Every week, you spend several hours looking for cans.

How much is your time worth?  If you’re spending several hours a week for a few bucks worth of cans, are you making a good use of your time?  Isn’t your effort to save a few bucks a waste of potential money doing something else?  Heck, you could deliver pizzas for a few hours a week and make much more than that.  Not to mention the other ways to make extra money.  You can make money selling ebooks, or working some overtime, or consulting, or just about any second job, or make money on twitter, or even *ahem* blogging.  Sure, the cans are an extreme example.  But, one used to put a spotlight on my point.  What saving practices are you employing that are a waste of money?  Which of them are worth your time, effort, and resources?  And which aren’t?

If we are going to attempt to create a super financial situation, we have to make our saving machine as efficient as possible. It doesn’t hurt to question your tactics.  Find the ones that are causing you to waste your money and find a better use of your time.  Not only will it make your money saving efforts more efficient, but I think it will free up some time to do things that you want to do.  Like spend time with your kids, or walk through the park and not look for cans!

When I entered college, I had no debt. Well, I guess I had some as I’d already signed the papers, but hadn’t received the money, for the loans I was going to be using to partially finance my education. When I finally graduated, 7 and a half years later, I had mountains of the stuff. Nearly 30k in college loans, close to 10k in credit card debt, a car loan, and a mortgage.

For the high school graduates: If you learn nothing in college, learn to avoid debt.  That single thing will make the rest of your life so much easier.  It allows you to start ahead of every single one of your college peers, and will make it so much easier to achieve the goals that you want in life.

If you’re reading this, and you’re a college graduate that never got the above bit of advice, you’ve likely ended up like I did.  Lots of debt.  Here’s my advice to you (and roundabouts to my past self).

1. Learn how to budget.  Creating and maintaining a budget opened my eyes to the ways that I was spending (and wasting) my money.  Create a budget for yourself and stick to it.
2. Learn how to avoid debt.  Very few of you will be able to completely avoid debt.  Minimize it.  Pretend it’s your leprous uncle.  Instill an aversion to debt.
3. Learn the meaning of appreciation.  If you’re going to add debt, only do so to buy something that you expect to appreciate.  New furniture doesn’t count. Houses sorta count.  Cars absolutely, positively, do not count.
4. Learn the value of shared costs.  Just because you’re a big boy (or girl) now with a fancy diploma (with fancy calligraphy), does not mean that you’re above having a roommate.   In fact, I would encourage it (unless you’re married, because that’s just a bit weird).  It doesn’t even take a calculator to figure out that rent/2 is better than rent/1.
5. Learn the value of patience.  Just because you can get a mortgage or a car loan, or whatever, does not mean you should.  Statistically speaking, you’ll change jobs several times over the first 5 years of  your career.  Do you really want to be tied down to a house if you need to move to another city?  Slow down and ease yourself into your adult life.  It’s not all that it’s cracked up to be anyways.
6. Learn the word Retirement.  Sure, your all excited about your newly earned earning potential and your fancy new career, but, if you’re like every other person on the planet, you’ll want to retire at some point.  Start saving now to make that dream come true later.
7. Remember to have fun.  Just because you’re all grown up and joining the “real world” doesn’t mean you can’t still have fun.  Your hobbies and activities are what make the “real world” worthwhile.
8. Wear sunscreen.  None of you will get this reference as you were probably 8 at the time.  The rest us do and it’s not that important. (in case you’re curious: http://en.wikipedia.org/wiki/Wear_Sunscreen)

The preceding is, by no means, an exhaustive list.  In fact, it can’t even really be considered a quick and dirty list.  It is, merely, a list of a few things that I have come to think of as some tenets for post college life.  Some, I have learned, others I wish I had.

Congratulations on your graduation, and best wishes as you join the rest of us in the real world.