Beating Broke

Personal Finance from the Broke Perspective

Beating Broke Rules: Cars

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One of the tenet that I am trying to live by financially is to pay cash for as much as possible.  There are certain things that I won’t be able to do that for.  A house is the most likely example there.  Many people would lump a car in with that category as well.  Not here.

Beating Broke Rule: You should strive to pay cash for your cars

This rule accomplishes a few things for you.  By paying cash, you don’t have any monthly payments.  By paying cash, you are also forced to buy a car that you can actually afford.  No more $45,000 cars on a $70,000 salary.

Beating Broke Rule: Buy Used.

A new car depreciates in value more in the first few minutes of ownership than it does in the next year.  The second that you sign the paperwork and the dealer hands you the keys, a new car loses a large percentage of it’s value.  In some cases, this can be 10-15%.  By buying used cars, someone else has already paid for that depreciation and now you can enjoy the lower depreciation of the car through the years.  And if you go with a car that’s only a few years old, it’s almost like a new one anyways.

Beating Broke Rule: Don’t Lease.

Why would you want to pay someone several hundred dollars a month to drive their car only to give it back to them in the end with no value back?  And if you think you need to lease so you can have the smaller payment, you should be looking at a cheaper car in the first place.

Beating Broke Rules: Budget

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If you’ve ever been involved with a company’s financials or been an investor researching a company, you likely know that they all have budgets.  In fact, they would have a pretty big problem if they didn’t have budgets.  And even with budgets, they still have problems when those budgets are unbalanced at the end of the quarter.  An unbalanced budget that is in the red can cause a paper loss of millions (or billions) in stock price.  That makes for a lot of unhappy investors (read owners).

Why shouldn’t those same rules apply for your personal finances?

Beating Broke Rule: A budget is a must.

Let’s face it.  Only the Government gets away with an unbalanced budget.  If you or I were to take up similar fiscal actions, we’d be declaring bankruptcy every year.  The bottom line is this; If you want to be fiscally responsible and be in control of your finances, you’ve got to have a budget.  And it must balance.  Must!

Let me finish by finishing the analogy.  Think of your personal finance situation as a “business”.  You and your Wife (or partner and any children you may have) are the shareholders.  When the “business” does poorly (i.e. runs in the red) the shareholders lose value.  Only, instead of being able to sell the stock and find a better performing “business”, you have preferred stock that is non-saleable.  What’s more, you’re the CEO, CFO, CIO, and mail room attendant.  There is nobody you can fire for poor performance and you can’t trim your labor costs with layoffs.

The only way for your “business” to perform well is to have a budget that balances.  If you really want to make your “shareholders” happy, you’ll find a line item in there for savings as well.

Analogies aside, a budget can really help you see where your money goes and helps you get in control of your money.  Instead of trying to find a few dollars at the end of the month to pay bills, you might just find a few extra for an ice cream cone or two.  If you’re curious how to create a budget, read my article on building a simple budget to learn how we created our first budget.

Beating Broke Rules: Payday Loans

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This one is simple.  Or should be in any case.  And yet, the industry keeps getting stronger and more prolific.  But let me be clear on this one.  Do not touch Payday Loans!

Payday loans are something that I and other financial folks like to call Parasitic Lending.  They tout their convenience and ease all the while (like a parasite) putting you further and further behind with their high fees.  That money that you thought you needed so badly becomes about 25% lighter before you even leave the office and if by some chance the check you wrote them is bad?  You could easily rack up enough fees for that to exceed over 50% of the “loan”.

I cannot say this enough.  Debt is BAD!  And Payday loans are the worst of the bunch.  The only thing that I can think of that is worse would be bookies that take broken fingers and knees as fees rather than money.  Yes, they are that bad.

Do yourself the favor.  If you’re even thinking about using a payday loan service, don’t.  Things will be tight for a while, but if you truly work at it, you can get by without them and you will be much more financially sound without them.

Beating Broke Rule: Don’t touch PayDay Loans

There are plenty of alternatives around.  You can get a pretty good rate on a shorter term loan through a peer-to-peer lender like Lending Club.  You can sell off some of the junk you don’t need for some quick cash.  You can ask your bank or credit union.  You might be surprised by what they say.  Especially if you’ve got a relationship with them.