Beating Broke

The Slippery Slope of Float

October 14, 2011 By Shane Ede 12 Comments

In the financial sector, there is a term that you have likely heard before. That term is Float. I’ll try to define it as it pertains to this article.

Float – To use known time delays in processing of financial transactions to allow for extended time to cover cost of transaction.

Much like any other financial term, there are some good and bad ways to use float. One bad way, is actually illegal in some places. That’s the “check float”. In a “check float” a person writes a check to themselves from an account they have at one institution and deposits it in an account they have at another institution in order to inflate the balance at the second institution and cover any outgoing transactions that would have otherwise been returned. They then write a check from the second institution to themselves and deposit it in the first institution a day or so later to cover the first check. It’s usually illegal because the person is technically writing bad checks. Eventually, it will catch up to them, and they’ll get caught. It should also be noted that with recent Check 21 regulations, checks process much quicker than they used to and have cut back on this practice.

There are less criminal ways to take advantage of float, however. For instance, at my institution, I know that there is a delay between when I tell the bill pay service to send a payment and when it actually is deducted from my account. Because I know that, I can sometimes send a payment a day or two before I am paid in order to make sure the payment gets where it’s going on time. People who get paid on the 1st and the 15th will sometimes get paid earlier when the payday lands on a weekend. That’s a kind of float as well. In some ways, a payday loan is a type of float (legal, but should be criminal in my opinion). People go to a payday loan institution and get a short term loan (float) to gain access to funds before they are paid. When they are paid, they pay off the balance of the loan along with some high-interest and fees.

Using float can be a very slippery slope. In some cases, it’s just illegal and should be avoided. In others, like payday loans, it should be illegal, or heavily reformed. Other uses, like my bill pay example, are more innocent. But, all of them can lead to trouble if the user isn’t careful. Using float once in a while can be fairly safe, but repeated use can often find you in a hole that you dug for yourself. In almost all cases, the necessity of float can often mean your spending has outstripped your earning. Use float sparingly, and legally, and you can avoid the slippery slope.

photo credit: marktristan

A Simple Technique to Help Parents Meet Their Savings Goals

October 12, 2011 By MelissaB 15 Comments

Having kids is not cheap. There are many expenses that are associated with small children that are hard to get around no matter how frugal you are. For instance, if you are a dual income family, you must pay for daycare and disposable diapers as most daycare centers will not accept cloth diapers. In our area, daycare for an infant can run a family $1000 a month. You may rejoice when your child enters preschool because you will find an extra $1000 a month in your pocket. Instead of just absorbing that money back into your budget, why not earmark it for something else?

Imagine if you took that $1000 a month and invested it? That is $12,000 a year! You could continue to pay it to yourself, perhaps setting up a college fund for your child with the money you used to pay in daycare. In five years, you would have $60,000. After that, just let it sit and earn interest for the next eight years, and your child’s college education would be largely paid for.

What if one of the parents decides to stay home to care for the children, in part to avoid expensive daycare? They may not have the $1000 a month to put away. While this is true, there are still plenty of other expenses associated with young children that you eventually won’t have to pay. For instance, we are paying roughly $75 a month to diaper our two girls, and I anticipate within the next 6 to 8 months, both girls will be out of diapers. It would be very easy to just absorb that $75 back into the budget, but that isn’t what I plan to do. Instead, I plan to set up a college education fund for my kids and invest that $75 a month. Yes, $75 a month will not add up very quickly, and it certainly won’t put even one of my children through college. But it is a start, and it is more than we are putting away right now.

Likewise, if you have a monthly car payment, when the car is paid off, use that money to pay yourself a car payment so you can pay for your next car in cash. If you bought a car 7 years ago, and had a monthly payment of $475, and you paid off the loan in four years and continued to make that monthly payment, you would now have $17,100 set aside for a new car, which would be enough to buy a nice, one to two year old car for cash.

You may argue that the car payment or the daycare payment was a hardship and that now that you no longer need to pay those payments, you need the money to pay for other things. This might be true, but if your child was still younger than preschool age, you would find a way to make the payments because you would have to. Or, if you now have other expenses for your child such as after school care for $300 a month, deduct that from the $1000 you used to pay for daycare and save the remainder. If you can maintain that mindset, you will find yourself reaching your financial goals quicker than you imagined, simply by not seeing that money as “free money” to now spend as you will but rather as money to continue to invest in your and your child’s future.

photo credit: Pink Sherbet Photography

Flossing with Chest Hair

October 10, 2011 By Shane Ede 12 Comments

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