Beating Broke

In every purchase we make, we should ask ourselves how much is it worth to me?  It’s a very simple question, but in many cases, the answer may surprise you.  And it applies to much more than items.

Let’s try a few examples.

I’ve been keeping my eye on LCD HD receiver televisions.  With the big switchover in Februrary and all the fear marketing going on about the loss of signals, my family may need a new television.  We don’t currently subscribe to a cable service, so we get our tv over the airwaves and will need a HD tv or a subscription to cable.  The tv’s that I’ve been looking at are in the $500 range.  Not a huge amount for tv’s nowadays, but quite a bit for my debt averse family.  Each time I look at them, I have to ask myself if having television is worth $500 to me.  We currently don’t have cable and we only receive one channel over the air.  And to be honest, it wouldn’t be a huge loss to us.  Except.  Except that I like to watch Football in the fall.  Except that my wife is addicted to COPS.  Except.  Except.  Except.  With each exception, the TV or cable subscription becomes more and more worth it to me.  I become more willing to spend the money to get the TV or Cable because of them.

Much like cable, there are some services that demand the question too.  In my hometown, there is only one full service gas station.  All the rest are self service.  The full service station charges $0.02/gallon more for their gas.  This is a non-question for me.  I don’t mind filling my tank up.  I only end up filling up about once a month, so it isn’t a big deal if I have to stand and pump gas for a few minutes.  However, with temperatures falling (it’s about 30 here today) I can certainly see why there might be some people who are asking themselves if the extra $0.02 per gallon is worth staying in the warmth of their car while someone else fills the tank.

The more my wife and I budget and track our money, the more often I find myself asking this question.  Is this service or that item worth the extra money?  Is the convienence worth paying more for or am I just being lazy?  More and more, I find that the answer is No.  In many cases, the convienence isn’t worth a little more slavery to debt.  Each penny that I spend on that convienence is another penny that I cannot use to pay down debt.  Maybe my answers will change when we get rid of our debt, but I think by then our lifestyles and attitudes will have changed significantly enough that the answer will often still be no.

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Up until now, we’ve all heard about the various ramifications of one Presidential candidate over the other.  We’ve heard about what differences will be made to the tax system and how it will affect you.  And sometime after midnight tonight, we’ll know which set of changes might take effect.

So, now what?  Regardless of who wins, if you put yourself in a position for it to not make a huge difference to you, you won’t have to worry.

Following a few principles we call the Beating Broke rules, we can set ourselves up financially such that changes to the tax code and other programs like Social Security and Medicade have a very minimal impact on us.

Begin by paying off all of your debt.  Most debt is bad debt anyways.  Pay it off and you can afford to pay a little extra in taxes if you have to.  Nobody likes taxes, but the law is the law and there is very little that you can do about that.  Having fewer bills to pay frees up some money to compensate without having to take the money from another place like food or rent.  While we’re at it.  Stop aquiring more debt.  Get debt free and stay that way.

Start Saving.  Begin with an emergency fund and go from there.  Once you have an emergency fund set up, start saving for retirement, college, and that new car and house.  If you can pay cash for all those things, you don’t need to care whether social security or welfare or medicare or any other social program they put in place will still be available to you when you need it.  Financial independence from those programs frees you to worry less about those policies and worry more about where you’re going to vacation this year.

With those two steps, you can make yourself nearly financially independent from the policies of our political leaders.  They won’t help you much with their policies on foreign war, foreign relations, immigration, or many of the other policies.  You’ve still got to decide on a candidate for those things.  But if you can relieve yourself of worrying about their fiscal policies, you can focus more intently on their other policies.

Start now.  The next election is in only 4 years.

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Beating Broke is in the Carnival of Personal Finance again this week.  It’s always such a great carnival.  It’s on it’s 177th edition, which makes it a little over 3 years old now.  Quite the accomplishment for a Carnival.

Take a visit over to The Sun’s Financial Diary and read a few of the other entries in the 177th edition of the Carnival of Personal Finance!

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The number one, single most effective way to increase your credit score is to pay your bills on time.  Followed closely by not missing any payments.  But if you’re following the first rule, you shouldn’t have any problems with the second rule.

To begin with, you should know what area your credit score resides.  Lenders decide what rate you will get by your score.  Ever heard the term “A+ Paper”?  It’s not just a school essay grade.  Lenders use the term to indicate a loan that was lent to someone with a credit score in the highest rank range.  Typically, this is about a 730 or higher.

Before you go into despair, that is very attainable.  And it could save you hundreds if not thousands on your next loan.  But you’ve got to get there first.  So, go get your credit score.  Visit the annualcreditreport.com site and get your credit report from one bureau.  I say only one, because it works our fairly convienently to get one from each of the three at about one per quarter.  Then you’ve got a running tally and they usually are pretty close.

In each case, you’ll probably have to pay a little extra to find out the actual credit score.  Be careful of the “trial offers” that are meant to trap you into a monthly fee.  If you have to sign up for one, make sure you remind yourself as often as possible that it needs to be cancelled before the monthly fee kicks in.

Now that you have your credit report and credit score, we can keep an eye on it to see how the changes you make will improve it.

Start paying everything early.  That means that if the bill is due on the 15th, you send it so that it’s there no later than the 12th.  In no way do we want the USPS to screw this up for us.  There can be forgotten holidays, weather delays, and even union strike delays, so we want to make sure that we can have a 2-3 day delay and still make it on time.  It’s the on time that is important.

So, why paying on time?  It accounts for nearly 40% of your credit score.  If you’ve been paying bills late, changing to paying them on time could increase your credit score by as much as 20%.  It’ll take a few months up to a few years to really kick in, but you should see a few points increase within a month or two.  And you can probably expect double digit increases if you’ve been regularly late.  It’ll just take some time for the on time payments to override the late ones.

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If you’re a customer of ING Direct, you’ve likely received an email about this, but for those of you who aren’t or haven’t, I thought I’d share it.  They’ve put together a Declaration of Financial Independence that they suggest we read and, if we like, sign on.  It’s a pretty good document really.

1. We will spend less than we earn. Saving a little out of every dollar we bring home is the
foundation of independence. Without it, we can’t build equity in our home, we can’t invest for the future, and we can’t be ready for challenging times. We promise to pay ourselves first, always.
2. We will use our home as a savings account. Besides shelter and comfort for our family,
the role of a house in our financial life is to build equity. We will have a healthy down payment when we buy. We’ll choose the mortgage that lets us pay down the principal fastest. And then we’ll leave that equity safe where it is instead of spending it on things that don’t last.
3. We will take care of our money. It’s not enough to have money in a bank. We will put it where it will grow. We’ll keep track of it. And we’ll check every account we have every year to protect ourselves against fraud or escheatment.
4. We will defend our credit worthiness. Good credit is going to be precious in the years to come. We will pay our bills on time. We’ll borrow only when we need to and in amounts we can comfortably pay back. And then we’ll do just that.
5. We will ignore unsolicited credit card marketing. We decide when we need a credit
card, not some marketer. And mostly, we probably don’t need another one at all. We won’t even open those solicitations. We’ll shred them.
6. We will know the cost of borrowing. The interest lenders charge us is real money, too.
When we buy a mortgage or finance a purchase, we’ll figure out what that interest is really going to cost in dollars, add it to the purchase price, and ask ourselves if it’s still worth it.
7. We will invest for the long term. Futures are built out of patience and prudence, not luck. We will not put off being a saver because we think there’s a lottery win in our future, in Vegas or on Wall Street.
8. We will take care of the things we have. We work hard for our money, and it’s disrespectful to waste it – or the planet – by treating our possessions as disposable.
9. We will remember what matters. We are not the things we own. If we have to spend and
spend on bigger, more impressive things to keep up with our friends, then they are not our friends at all.
10. We will be heard. Our representatives in government and the corporations we deal with need to know that we are paying attention. If we’re silent, we’re accepting the status quo, and the business practices that got our country into this situation will continue. We are not going to accept that.

Some very sound advice and a declaration that I can get behind.  Take the time to read it through and consider trying to hold yourself to it.

ING Direct has been surprising me a little lately.  Instead of doing what many of the other national banks are doing and tucking their heads in the sand, they’ve openly come out with encouragement to continue to save and build personal wealth.  I like that and that is partially why I won’t be moving my money elsewhere for a higher rate.

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With all the major online banks lowering the rates on their online savings accounts, there are still a few that have pretty good yields.  Shorebank Direct is one that I hadn’t heard of.

It looks like they started offering an online savings account in the latter part of 2007 and from what I can tell they started at 3.5% and have stayed there ever since.  And only a $1 minimum.

One of the unique things that I found about Shorebank is that they are a little bit different from your typical bank.  From their Mission page:

Since its inception in 1973, ShoreBank has been a pioneer in demonstrating that a regulated bank could be instrumental in revitalizing those communities that had been avoided by other financial institutions. We have since expanded our focus to include environmental issues, as it is our belief that environmental well-being is an essential component of any community’s prosperity.

They are a bank with a social conscience.  They build all of their branches with as much recycled content as possible, give higher priority to green projects, and make special efforts to improve each community that they touch.  Does it work?  I would guess that it does, but I’m not a customer so I can’t say for sure.

Oh, and they have a blog.  And unlike some corporations, they aren’t just putting up fluff to sell their products, they have actual content that is worth reading.

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If you’ve been reading Mark Cuban’s blog lately, you’ve likely noticed that he’s been talking alot about the current economic situation and also about how a person should handle his/her money.

Today is no different.  In a post entitled “Where to Put your Money Right Now“, Mr. Cuban gives some advice in a manner that only he can.

So in a nutshell, while the interest rate on your credit cards is going up, the return on your investments has been going down. You know what they call someone who keeps on giving money to their stockbroker, mutual fund or 401k, but doesn’t pay off their credit card balance in full every month, BROKE AND STUPID !

The first thing you do with your money is if you have money market funds, you take the money out and pay down your credit card debt.

A little brutal and not even close to politically correct.  I love it!  I think it’s statements like this that have drawn me to people like Mr. Cuban and Dave Ramsey.  They aren’t afraid to tell you when you’ve made a complete buffoon of yourself.

I would strongly encourage you to read the rest of Cuban’s article.  It’s a little long, but it is most certainly not short on good advice and sound instruction.

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Just as Lending Club announced that they had emerged from their quiet period, Prosper announced that they will be entering one.  A SEC “quiet period” is the period of time between the filing of the SEC paperwork and when the SEC officially accepts and marks the paperwork effective.   I can’t say that I completely understand it, but you can read the same explanation I did at the SEC website.

I’ve been a user at Prosper very nearly since they opened.  I’ve been a lender at Prosper for a shorter period of time, but have been extremely happy with my results and with the user experience at Prosper.  It would appear that they are still accepting Borrowers and making loans to borrowers during the quiet period, but that the Lending side will be nearly shut down.

Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.

If you’re a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.

They go on to state that a quiet period can last several months.  Lending Club entered theirs in April.  All told, it took them 6 months to come out of the quiet period.  That’s a long time if you’re a lender.  Especially if you’re an active lender.

Perhaps it’s time that I branch out a little and see what else there is to offer.  Maybe over at Lending Club?  Has anyone used Lending Club?  How do you like it?  What do you like/dislike about it?

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My brother is currently scheduled to get himself married in the middle part of next month.  As a result, I’ve spent an ungodly amount of money on plane tickets, hotel and rental cars for the event.  Added to that will be food for a few days for all three of us (Me, My Wife and Our Son), a Tux rental, and who knows what other stuff.  My brother lives in Anaheim, and apparently, there is a mutant giant mouse that runs rampant around those parts and must be seen by anyone under the age of about 100.

In any case, despite the rampant fiscal spending of the trip, I thought I might pass along a few of the personal finance books that I’ve found usefull in our married life.  That is a pretty short list, but a distinguished one.  Dave Ramsey’s Total Money Makeover, Is top of the list. I might throw inThe Millionaire Next Door as well. But those are about the limit of the books that both my wife and I found to be useful. I’ve read a few others that were somewhat informative to me, but I’m trying to find books that are specific to couples.

A quick search of Amazon finds a few others like one by David Bach called Smart Couples Finish Rich: 9 Steps to Creating a Rich Future for You and Your Partner, and Larry Burkett’s Complete Financial Guide for Young Couples: A Lifetime Approach to Spending, Saving and Investing. I’ve never read either, so don’t know if they are worth the time or not.  That’s where you all come in.

Do you and your partner have a book that was important to your finances?  Something that made the transition to couples money management a little bit easier?  Let us all know in the comments.  I’ll try and get a list together and share it all with everyone a little later this month.

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Yesterday, WaMu lowered their interest rates on their high yield interest bearing savings.  Today, ING Direct announced a similar move.

WaMu dropped their rate from 4.0% down to 3.0%.  Not entirely unexpected given their recent troubles and their buyout by JP Morgan Chase.  ING lowered their rate a little less drastically from 3.0% to 2.75%.

With the FED lowering rates again yesterday as well, I’m looking for the rest of the online savings rates to drop a little as well.  ING is usually the first to react to moving rates at the FED with the others close to follow.  I would expect that most of the rates will drop somewhere between 2.5% and 3.5% before too awful long.

Even at rates that low, it beats the heck out of my local banks and credit unions rates.  My Credit Union currently pays 0.25% on my savings there.  Need I tell why I don’t keep much of a balance in there?  With access to my ING or eTrade accounts just a few days away, unless there’s an immediate emergency, I don’t feel the need to waste my money on a quarter percent rate.

Finally, at this point, I don’t think it would be smart to start moving money around to take advantage of higher rates elsewhere.  Give it a week or so and then re-evaluate the landscape.  That should be long enough for the banks to react to yesterdays FED move.

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