Pay Now or Pay Later?

Decisions, decisions.

Notice the title of this post isn’t “Buy Now or Buy Later.” That’s because you’ve long ago made the decision to buy. Now, you’re trying to decide how long you should wait to pay for it.

Should we pay now or later?

Recently my wife and I were doing a little furniture shopping. We had been saving for a new couch and recliner for our living room for a while, and we had finally reached our goal.

Strolling through the store, I saw a couple talking to a salesman. He was putting their information into a computer, getting ready to process an application for credit. I realized that these people had no intention of actually paying for their furniture that day – they had decided to buy and charge it to a store account.

Then I saw another such couple. It occurred to me that maybe saving up for a purchase puts me in the minority of customers at this little furniture store.

You mean I have to pay for it?

You see, when buying an item, you have to pay for it. The money has to come from somewhere. I don’t think some people get this simple truth. Your credit card company or the store where you’re shopping will gladly give it to you today, but you’ll pay dearly for this money in the form of interest.

Paying later ensures that you’ll always pay more than the asking price. It also means your obligations will increase every month. Essentially, you’re relying on your future self to consistently make on-time payments until the debt is paid off. The problem is, our future selves aren’t very reliable.

The alternative to paying later is paying now. But this is tough. It requires you to sit out of the game for a while until you’ve saved up enough to make the purchase. Who wants to do that? It’s not the glamorous thing to do, and it certainly won’t win you any awards.

But it does offer you some benefits

First, it allows you to remain debt-free. We all know the benefits of being debt-free.

Next, it allows you to earn interest on your savings instead of paying interest to someone else. Your decision to pay now completely transforms the equation. You go from paying more than the asking price and being a slave to your paycheck, to having control of where your money goes. From the back seat to the driver’s seat.

It allows you time to shop around, compare features and prices, and make sure you’re getting the best deal. Do you really need the $300 blender, or will the $60 one do the job just as well? Could you find a discount code to get it down to $50? What’s the price on Amazon? Take time to think about which features you really need.

Finally, paying now gives you time to practice good old-fashioned delayed gratification (DG). As you approach your savings goal, you’re constantly denying yourself the pleasure of having the item. The more you flex your DG muscle the stronger it gets.

Either way you’ll have your item. Paying now, with your own money, sets you free from debt and ultimately puts you in control of your finances.

Photo by smithfurniturestore.com

Ripoff Alert #13 – Facebook Photo Tagging

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Facebook Photo Tagging Virus

Everybody and their 8 year-old kid is on Facebook. In August, the site is expected to reach 1 billion active users a month. These users upload 300 million photos each day.

So naturally, Facebook and its users are ripe targets for scam attempts. Several technology blogs are reporting a new, widespread attempt by scammers to load a virus onto your computer via the photo-tagging notification system.

Here’s how it works: You receive an email saying you’ve been tagged in a photo. You open the email, and it looks very similar to notification emails you’ve always received from Facebook. You click the link and BAM – a virus is loaded onto your computer in just 4 seconds. Then you’re redirected to a real-looking Facebook page. It’s quick, seamless, and you probably didn’t notice a thing.

But before you click on any links, look closely at the sender’s email address. You’ll notice it’s spelled “Faceboook” with three Os. Another way you can tell it’s a ruse is to hover your mouse pointer over any links in the email. Without clicking, you should be able to see they won’t take you to Facebook.

The scamsters know we’ve all received so many of these notification emails in the past that we don’t even think about it anymore. They are using our trust against us. Or maybe just our habits.

Make it a habit to be suspicious of any emails you receive that have links in them. Before you click, make sure you really recognize the email address. In this case, it’s probably best to just delete the email, log into your Facebook account using a new tab, and look at the new photos on your profile page.

Think before you click and you’ll stay out of trouble.

Student Loan Debt is Crushing Dreams

For our parents and grandparents, going to college wasn’t necessarily a step in gaining a good job and earning a decent living. Fast forward a few decades and everyone assumes that after high school our formal education continues at least four more years.

It’s understood among Gen Y and the Millennials that anyone who wants a well-paying job needs at least an undergraduate degree. But this isn’t an invitation to spend gobs of money to attend any school that accepts you. Likewise, the party scene and the caliber of the football team should have no bearing on your decision.

Instead, take a good look at tuition, fees, room and board, and what level of scholarships and grants are available.  In fact, total cost should be a primary consideration for students in their college selection process.

This graph shows college tuition compared with home prices and the overall CPI from 1978 to 2010. (The CPI, or Consumer Price Index, is an overall measure of the cost of a set of goods and services paid by consumers over time.) Since 1978, college tuition has increased by a factor of more than 10x from its base of 100, compared with housing at 4x and the overall CPI at about 3.5x. It’s clear as day that college tuition is quickly becoming our next bubble.

This is the reason grads are in a heap of trouble today. Students simply enrolled in colleges regardless of the cost. They filled out some forms, took a quiz and the money just showed up. Now that they’re graduating and faced with dim job prospects, they’re wondering whether that private school tuition was such a good investment.

What many prospective college students fail to do today is think about the total, long-term cost of going to college. When taking out a car loan or mortgage, there are certain terms laid out by the lender that force us to look at the long-term costs, how long we’ll be in debt, and whether we can afford to make the payments each month going forward. Student loans are much more open-ended because of the various repayment and deferment options, which makes it much harder to assess the total costs beforehand. Plus, high school seniors often have no idea what their salaries will be after graduation, so repayment is far from their minds.

My youngest sister is going to college in the fall, which got me thinking about all of this. She’s going into psychology, but isn’t sure what she wants to do with it. Over the past year we’ve talked about student loans occasionally. I remind her of the financial newspapers and blogs, which go to great lengths to document the effects of crushing debt levels on the lives of grads and their young families.

Some couples are putting off marriage, buying a home or having a baby because of their student loan debt. As an example, my wife and I are putting off saving for a house down payment until we pay off more of our debt.

If you have a child or other family member in high school, talk to them about these issues. Help them understand that they’ll eventually have to pay back all those loans. Let them know about other options like scholarships, grants and even going to community college for a year or two.

A college education is an investment, just like stocks or starting your own business. Therefore, students need to think about whether the benefits outweigh the costs for their chosen school and what their likely salary will be based on their major. This will give them motivation to limit their borrowing and think ahead to the repayment process after graduation.

Photo by businessinsider.com

Ripoff Alert #12 – Microsoft Tech Support Edition

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Microsoft Tech Support Scam

How do you know if your computer really is vulnerable?

Fraudsters are looking up publicly available names and phone numbers and calling people, claiming to be from Microsoft Tech Support or Windows Helpdesk. They try to convince you that unless you give them access to your laptop or PC, your computer is at risk of crashing or getting a virus.

Their tactics vary. Some try to gain remote access to your machine, while others ask you to install malicious software that will capture your usernames and passwords. After they’ve “fixed” the issue, they send you a bill for hundreds of dollars. There have been a few unsuspecting victims who have lost over $1,000 in this scam.

Others will try to get your credit card information out of you over the phone and charge you for phony services. Still others send you to a fake website and ask you to enter your credit card information there.

You might think the caller is legitimate because he’s able to correctly guess which operating system you are using. In reality, this isn’t too hard because there are only a few mainstream operating systems out there.

All of this isn’t Microsoft’s fault. Microsoft says on their website they will never call you and ask for money to fix a computer problem. They say it in bold type: Do not trust unsolicited calls.

Here’s what you need to know to protect yourself. Never give a third party control of your computer unless you can confirm they’re from a legitimate tech support organization you have reached out to. Again, don’t trust an unsolicited caller who claims he will solve your computer problems.

Also, don’t buy any software or services from anyone who claims to be from a helpdesk, tech support or service center.

If you suspect your PC is infected by a virus or malware, download and run free software from Avast and MalwareBytes. Spybot Search & Destroy is also an excellent tool. For the best protection, make sure to keep these up to date.

Uncommon Ways to Save on Medical Expenses

For some families, health insurance costs and other medical expenses make up a significant part of the budget. We’re all aware of some common ways to save on medical expenses. These include using generic medications and reviewing your bill for errors. While these are important, you’re probably already using some or all of these tactics to save money.

What I want to talk about are some ways to save that you might not have considered. Did you know that by not using your health insurance at all you might get a much better price? The LA Times did a story about people who were charged one price if they allowed the hospital to bill their insurance company, and a much lower one if they agreed to pay in cash.

One woman was charged $6,700 for a CT scan through her insurance company, and later found out that if she hadn’t used insurance the price would have been just over $1,000. This is the insurance industry’s dirty little secret: as one doctor who is quoted in the article says, “The last thing the insurance companies want you to know is how inexpensive this stuff really is.”

If you use your insurance to pay for care, you’re forced to pay that insurance plan’s negotiated rate with the hospital. So before you give up your insurance info to the hospital, try to get the cash price out of them. You may be surprised how low it is.

Having health insurance is a good thing for two reasons: it gives you free access to preventive care such as flu shots and health screenings, and it prevents you from becoming bankrupt should you experience a catastrophic health issue. For relatively low-cost services like outpatient surgery and x-rays, it might make sense to pay the cash price if you can.

One health plan that’s growing in popularity is the Health Savings Account. HSAs consist of two parts – a high-deductible health insurance policy and an investment account. The idea is that you act as your own insurer, setting aside money each month in the investment account. You decide which claims get submitted to the insurer. The high-deductible part means that you have to pay a significant amount before the insurer will start paying. But with low premiums, more of your money stays in your pocket.

These plans are meant to insure you against huge medical bills, and are superior to the Flex Spending accounts because you don’t lose any funds at the end of each year. These plans make sense for the relatively healthy who don’t visit the doctor more than a few times a year.

Another option is to buy your health insurance from Costco. Yes, you saw that right. Costco is partnering with Aetna to sell individual policies. So far it’s available in 8 states: Arizona, Connecticut, Georgia, Illinois, Michigan, Nevada, Pennsylvania, Texas and Virginia.

If you’ve received an inflated bill and have tried negotiating with the hospital billing department, you’ve probably realized that you’re not going to get any sympathy. The sole purpose of the billing dept. is to collect as much money from patients as humanly possible. They don’t keep their jobs by cutting you slack. Instead, you want to meet with the hospital social worker or patient advocate.

These people are given more leeway to hear your cause and help you reduce your bills. At the very least, they should be able to set up a payment plan with you. Ultimately, you want to avoid being turned over to collections because that damages your credit.

Next, I have two options for care that you may not have considered. First, see if you have access to a university hospital system near you. University hospitals tend to be less expensive than for-profit and even nonprofit hospitals. When I was growing up my parents routinely took me to the local college for teeth cleanings and other dental work. And while in college I used a doctor in the university health system as my primary care physician.

For non-emergency care, there’s a second (more exotic) option: medical tourism. As you know, healthcare costs in the United States are much higher than the rest of the world. In India and other parts of Asia and the Middle East, you have access to top-quality surgeons and specialists and even 24-hour private nursing care, all for less than the cost of one procedure in the U.S. This is true even when the flight costs are factored in. Plus, you get a free trip overseas out of it! Check with the Joint Commission International to see which facilities are accredited.

Get cash to seek out cheaper care

I believe that a big part of the problem with healthcare is we’re not consumers in the marketplace. Instead, we’re simply bystanders paying the mysterious fees billed to us by the hospitals and insurance providers. There’s an experiment going on in the states of New Hampshire, Connecticut and Indiana, where insurers pay you cash to seek out less expensive care. This puts consumers back in the driver’s seat and gives them an incentive to reduce their cost of care.

If consumers felt more empowered to limit their costs, we’d be well on our way to reducing the country’s medical expenses.

What are some ways you have saved on medical expenses?

Photo by worldofdtcmarketing.com