Be Romanced by the Library

libraryIn my original post about why you should visit the library, I argued that no matter who you are, the library has something for you. Aside from the obvious books, you have newspapers, magazines, movies, internet access, classes and activities for kids. The best part? It’s all free.

We know the library can save us money. But could it make us rich?

I came across a post by Mr. Money Mustache I thought was both entertaining and informative in its description of how libraries can make us rich. In his tongue-in-cheek style, MMM starts off:

A few years ago, I learned the most shocking fact about public libraries:

Not everybody uses them!

“No!”, you may say, “That’s impossible – how else do people get their books?”

The scary answer that I discovered is that some people have developed a habit of regularly buying books which cost them $10 – $30 each, reading them, and then collecting them on an ever-growing series of bookshelves.

The post talks about the excuses people give for collecting books, and the author admits to feeling great when walking past a large collection of books. His collection is large too. But the difference, in his words:

…I have several hundred thousand of them, and a paid staff who roams through my modern curved-glass 20,000 square foot book storage facility, automatically maintaining them and buying more for me constantly. I have so many books that I share them with everyone in my entire city, and we’ve even come to an agreement where we ALL pay just a few dollars per year each for the facility, and yet any one of us can borrow any of the books.

If you haven’t figured it out, they call the facility the “Public Library”. It wasn’t until recently that I started thinking of the library in this way. Instead of each of us maintaining an individual collection of books, why not pool our money to create and maintain something far larger than any of us could achieve alone?

The post ends with a description of all the awesome things his family does in the library. Each family member can indulge his or her interests without taking on extra debt or expense. His family has 30 books checked out at any given time, which is ambitious. But that’s the thing – it doesn’t matter if you don’t finish everything. You didn’t pay for the book, so nothing is lost.

Now that we’re aware of what the library has to offer, think about your current buying habits. How many times a month do you walk into a bookstore just to take a peek, only to walk out with a new title or two? Do you enjoy adding to your DVD collection that never seems to be complete? These things cost real money. Money you’re earning from that dead-end desk job or retail job you hate, day after day, week after week with no end in sight. Have you considered that maybe the reason you’re chained to that job is you’re not visiting the library often enough?

Let’s say each month you buy 4 books at $20 a pop, 2 DVDs at $15 each, and 4 magazines at $4 each. In one year you’ve spent $1,512 and have that much less space in your home. After a decade, that’s over $26,920 compounded at 8%.

Even after 10 years, your collection will be no match for the library. So why compete?

Mr. Money Mustache sums up well the library’s role in our lives:

It romances all of us and sucks us in by catering to every one of our interests.

Be romanced by the library and watch your riches grow.

Photo by www.gomdl.com

Your Credit Affects More Than Just Your Finances

Isn’t this recession supposed to be over?

Millions of Americans continue to have their credit trashed as this unofficial recession drags on. According to FICO, a quarter of Americans now have a credit score below 600. Late payments, foreclosures and even mistakes on our credit reports have taken their toll.

Use this as an excuse to check your credit report and dispute any errors.

If you’re not buying a house or applying for a credit card anytime soon, you may think you’re in the clear. The truth is, your credit affects more than just your ability to get a loan or credit card.

Here are six areas of your life that are affected by bad credit:

1. Relationships First, and perhaps most surprising, having bad credit might affect your relationship with your spouse. To all you guys out there listening to your wives complain about how dingy your apartment is and how much she wants a house, you need to get your (financial) lives together. Do it for your marriage, your sanity, whatever. Your credit needs to be in good shape so you can get her that house someday.

Maybe those who need to worry most are the ones who aren’t married yet. I’ve heard stories about one person calling off the engagement after finding out the other’s debt level.

Whether you like it or not, debt attaches to you like a parasite. It is part of who you are. If you owe big bucks, you have a greater chance of falling behind on payments. And when that happens, your credit is trashed. That may make you look unattractive to your future mate. Don’t say I didn’t warn you.

2. Career It’s now common knowledge that having bad credit affects your ability to get a job. The most recent report I saw said that 47% of employers use credit checks to screen potential employees.

Personally I think this is a terrible idea. Credit reports are not good indicators of character or ability to do the job. The only reason employers should be checking your credit is when the job specifically deals with money.

3. Renting an Apartment Every apartment complex I’ve ever applied to live at has checked my credit. For good reason – you’re signing up to pay them over $10,000 a year in many cases. Your landlord wants an idea of how you’ve handled bills in the past.

An extra perk: I once had a landlord waive the security deposit because I had good credit. So make sure to negotiate when signing the lease.

4. Getting Insurance Car insurance companies think that those with bad credit are more likely to cause an accident. Baloney. In some cases they may outright deny you coverage, but it’s more likely that good credit will earn you the best rates. I’m not sure why, that’s just the way they play.

Homeowner’s and renter’s insurance works the same way. These companies believe that you’re more likely to set your house on fire if you have bad credit. You need good credit to play their game and get the best rates.

5. Setting up Utilities If you think about it, utility companies (water, electric, gas, etc.) extend you credit every month. They provide you service then bill you after the fact. If you have bad credit you may be required to pay them a larger deposit to open your account.

6. Cell Phone Service In today’s world it’s difficult to function without a cell phone. Similar to utility companies, cell phone providers bill you for service you’ve already used. Before they let you sign up for an account, they pull your credit. They just want to know if they’ll get their money each month.

Photo by about.com/careers

Your Wallet’s 3 Biggest Enemies

We’re in a heap of trouble.

We’ve bought too many nice things and borrowed up to our eyeballs to pay for them. We watch commercials for the latest overpriced creations from chain restaurants, and all of a sudden we find ourselves at one trying it out. We look at our neighbor’s driveway and notice the shiny new car sitting there, and all of a sudden our car is old and needs to be replaced. And just when you’re starting to make progress paying off all this debt, your kid gets sick and you can’t afford to pay the hospital bills.

One

There are so many little things in life that try to pull us off track, it’s no wonder our best-laid plans and intentions so often don’t work out. Your car needs an expensive repair to pass inspection. The air conditioner in your house breaks and has to be replaced. I could go on and on. These things happen, almost always unexpectedly, to all of us. And they cost money. Money that we’ve already allocated elsewhere in our budgets.

That’s why the lack of an emergency fund is the first of your wallet’s three biggest enemies.

If things are going well right now, great. You’ve probably worked hard to get to this point. When it comes to your wallet though, you have to consider the what-ifs. What if you lost your job next week? Would you have enough savings to carry you until you found work again?

An emergency fund is your best friend because it provides a safety net when the unexpected happens. The idea is to sacrifice the surplus today so that when the chips are down tomorrow you’ll have something to fall back on. Start with $1,000. Save just $20 a week and you’ll be there in a year.

Two

Bad habits are the second of your wallet’s three biggest enemies. Daily coffee stops are singled out most often by financial people. Let me throw my voice in with theirs: If you have a habit of stopping for coffee every morning before work, you need to find a different route. Smoking is an another obvious habit that kills your wallet and your health.

But other habits are just as detrimental. Look at cell phone contracts. Yes, renewing that stinking contract every two years with one of the overpriced Big 4 providers is a bad habit. I’ve been guilty of this one too. Since I’m part of a family plan, I’ve assumed that it’s cheaper to stay with them. After looking at the numbers, it would actually be cheaper to go with a non-contract provider that offers month to month service.  Do you still have cable? Eliminate it, stop watching all those commercials, get outside for some fresh air and save over a grand a year.

Wanting everything to be convenient is a bad habit that costs you potentially thousands a year. If you think the dealership is a one-stop shop for buying a new car, you need to realize a few things. First, car salespeople are very good at what they do. They’ll dangle a low monthly price in front of you while loading all kinds of fees on the back end. They’ll upsell you every way you can imagine. Second, many dealers engage in disgusting tactics like car spotting, and prey on the feeble or those with bad credit. And last, you need to do some research. Look at reliability, features, crash test scores, and prices of the models you are considering. Being informed helps you fight back against slimy car salesmen. Lesson: Inconvenience yourself a little by arranging the financing at a credit union, negotiating through email, and researching before even setting foot on the lot for a test drive.

Three

The third and final of your wallet’s three biggest enemies is your insistence on keeping up with the Joneses. Free Money Finance says that out of his 52 best ways to save money, this is the #1 way, and I have to agree.

I would go further and say that avoiding competitive consumption is the #1 predictor of financial success. You don’t need to keep up with friends, neighbors or anyone else. The truth is, there will always be someone out there with a newer car, whiter teeth, or a bigger paycheck.

Of the three, this is probably the most difficult to master. Our world is driven by an affinity for stuff. Not only do we need things, we need them yesterday and we need them to be nicer than the neighbor’s. So often we’re driven by envy that we’ll settle at nothing to show off our wealth (or in most cases our lack of it) to others.

Your challenge: Think about everything you already own. You probably have more than you realized. More than most people on this planet actually. You have access to a computer as you read this, which most don’t have. Be content with what you have and spend time enjoying it.

Do you disagree with any of these three? What would you add?

The Secret to (Financial) Success

To lose weight, you eat less, eat well and exercise regularly. To become a better basketball player, you watch videos of pros and practice a lot.

But how do you achieve financial success?

Improvement in any area of life requires focused attention and a definition of success. If the goal is weight loss, you must be conscious of what’s going in your mouth and how much you’re exercising. You must also define how much weight you want to lose. In basketball or any other sport, you must practice (some experts say 10,000 hours is how long it takes to become an expert). You must also watch and play against those who are better than you.

To achieve success, you first need a definition of success. What does financial success mean to you? It’s different for every person. Does it mean being debt free? Financial independence? Retiring at 55? As long as it’s specific and attainable, there’s no wrong answer.

With success defined, you’re ready to make a plan. In it you’ll lay out your vision for the future, how you’ll get there and how long it will take. Your values should drive the plan. Do you tithe? Do you like having new things? Do you have other financial commitments to meet before you start the plan? Just like the old saying, “If you fail to plan, you plan to fail.”

A key piece of the plan should be creating separate savings accounts for your goals. Mint and SmartyPig are two excellent resources that help you visualize progress. I have a different method though. I use simple savings accounts with an online bank. Right now I have five accounts, one for each of my goals. My accounts are all together on the same page, so I can see at a glance how I’m doing. I’ve found that if it all sits in my checking account I’ll spend it quicker than Speedy Gonzales.

Control Your Cash

When you’re deep in debt creditors demand your money each month. When you don’t have values, anybody can come along and tell you what to do with your money because you shift with the tides. When you don’t have a vision and a plan, your money is at the mercy of spontaneous whims, spur of the moment decisions and unbridled emotion.

Do you want these to be controlling factors in your life? Not if you’re living with purpose! The secret to financial success is to define success and then direct your money there. 

Don’t let whims, flavors of the week or financial salespeople dictate what you do with your money. Define success and have a vision of what you want the future to look like. Then you’ll be in control of your cash and on the way to financial success.

Photo by garmaonhealth.com

Take Control of Your Finances: Don’t Let Inertia Rule the Day

We tend to think that history repeats itself. I believe that’s because we have no idea how to predict the future. Or maybe we’re lazy. Whatever the reason, we think that because things have happened one way in the past they will continue that way in the future. Psychologists call this inertia bias.

This assumption of continuity might be convenient, but I’ll show you why it’s poison for your wallet.

Financial success relies on knowing when to change and when to stay the course. For example, how do you know whether to stay with your auto insurance company or switch to a new one? How do you know your cable company isn’t ripping you off? Do you still use that land line or is it there out of habit?

Just because you found a great deal today doesn’t mean it’ll still be a deal a year or 5 years from now. Your goal is to save and be more efficient, so you have to put in some effort. You can’t afford to assume things will always stay the same.

Auto Insurance

I’ll admit – it’s a pain to shop around and get several quotes. The internet hasn’t provided an easy way to compare prices between companies, so we’re forced to call each one separately. Calling to get three quotes could easily take an hour. This is well worth your time though, because yearly premiums can vary by $1,000 or more.

Insurance companies differ in how they assess risk and how much of that risk they’re willing to take on. To one company you might be a moderate-risk driver, but to another you could represent a low risk. In addition, companies often raise and lower their premiums based on which area of the country they’re targeting. If they’re trying to rid themselves of customers from your zip code, you may find your premiums increasing quite a bit.

Those who remain with their auto insurance provider year after year are probably paying more than they should for coverage. The same goes with home and renters insurance, so shop around at least every two years.

Cell Phone Providers

I’ve covered how to save on your cell phone bill several times in the past. Most people remain with the same old provider they’ve always used – most likely one of the Big Four (Verizon, AT&T, Sprint and T-mobile). If you’ve been reading the news recently you know that these behemoths are passing through large price increases whenever they think they can get away with it. They’re doing away with unlimited data, which is ironic because that’s where we’re headed with cell phone usage in America.

What does this mean for your wallet? You’re probably paying 50% more for cell phone service than when you signed up a decade ago. You’re also stuck in one of those nasty two-year contracts, where they lock you in and provide inferior customer service. Instead, switch to one of the low-cost, no-contract providers like Straight Talk, Virgin Mobile or Metro PCS. With Straight Talk for example, you’ll get unlimited across the board for $45 a month, no contract.

Here, remaining in an overpriced contract with one of the Big Four will cost you about $500 a year, or more if you have additional lines. Just because it may have made sense before doesn’t mean it does now. There are better options out there.

Buying a Home

Since the start of the crisis people have moved out of houses based on economic necessity and have moved in with parents or other family members. Some have become renters. Housing prices have tumbled the past five years as a result.

Now it looks like housing prices have finally hit bottom, and interest rates hover around 3.5% for a 30-year loan. That’s the lowest rate on record. If buying a home makes sense in your life, this is the time to act. Prices don’t have anywhere to go but up.

If you’re looking at the gloom of the past five years you might assume prices will continue to drop indefinitely. You may be sitting on the sidelines, waiting for the economy to pick up again. When it does you will have missed your chance.

So Much “Normal”

With inertia bias such a large part of our lives, is it any wonder we have so many words in the English language to describe how things are always done? Typically. Usually. Normally. Generally. Ordinarily. Regularly. Characteristically. Did I miss any?

Like bad habits, inertia is tough to break. But your financial health depends on your ability to know when to change and when to stay the course. Shatter those molds and watch the savings add up!

Can you think of a time when inertia caused you to spend more than you should have?

Photo by thestrategyguysite.com

Ripoff Alert #9 – Credit Repair 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.

Credit Repair

It seems like every time I watch late night TV, the ads for these outfits appear in droves.

You’ve heard the pitch: In exchange for a fee, they promise to remove the black marks from your credit report.

There are several variations: “We can raise your score 200 points in just weeks!” or “We can settle your credit card debt for pennies on the dollar!” There’s also the one about reducing the amount you owe to the IRS.

There are hundreds of organizations making promises like this, but they all have one thing in common: They’re just trying to rip you off.

The Federal Trade Commission is actively trying to shut down these criminals. But their efforts are mostly in vain because as soon as one is taken down another one pops up to replace it.

The truth is, repairing your credit takes time. Not weeks, but months and often years depending on what you have going on.

Don’t be fooled by these scam artists who try to get you to believe your credit can be repaired in the snap of a finger.

Here are three things you can do yourself to raise your credit score:

1. Pay every bill on time (35% of your score)

2. Don’t use more than 30% of your available credit (30% of your score)

3. Keep accounts open after you’ve paid them off (15% of your score)

Consistently doing these things will start improving your score in as little as 6 months.

Bonus tip: Use Credit Karma to watch your progress and monitor your credit score as often as once a day.

Avoiding Lifestyle Inflation

Late last year my wife graduated from nursing school, and soon after we became a dual income family. This was certainly a blessing because it meant we could start repaying some of our student loans. But one of our biggest challenges lately has been avoiding the temptation to spend the extra paycheck.

This is something I considered even before my wife started working. We were accustomed to living off my income, so I wondered what it would feel like to have an extra paycheck every two weeks. I’ve always been pretty disciplined with money, but I wasn’t confident we would be able to avoid unnecessary spending.

When a family goes from earning one paycheck to two, one or both partners are often tempted to spend all the extra money. They might rationalize their behavior by saying that they deserve more after scrimping and saving for so long. This is known as lifestyle inflation, and is extremely hazardous to your financial health.

This past weekend I went to Costco for few things. I was strolling through the store as I often do, checking out the offerings, when I walked past some pillows. They looked really soft, so I walked up to touch them. “Yep, these would look great on our bed,” I said to myself. They might even help me sleep better. I did everything to convince myself that I needed these pillows, including telling myself that we could afford them now that we have extra money coming in.

In the end though, I walked away. Sure, I could have easily afforded them. The price was right too – $16 for two king size pillows. I thought about the pillows we currently have. Although they’re a year or two old, they work just fine. At this point they’re a want, not a need.

Recognizing the difference between wants and needs is a big step in avoiding lifestyle inflation. Just because you have extra income now doesn’t mean your list of needs has to expand.

What are some better things we could be doing with the extra income? Here’s where our focus is:

1. Paying off student loans. This is where the majority of my wife’s paycheck goes. Watching the balance fall month by month is very satisfying.

2. Increase our giving. We feel that it’s important to give to those who are less fortunate than we are. Even though we aren’t bringing in tons of money, the extra paycheck allows us to be more generous.

I heard a quote once that’s always stuck with me: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.

3. Start saving for retirement. Before my wife started working she had zero retirement savings. We’ve since opened up a Roth IRA for her and contribute a little from each paycheck. When she becomes eligible to contribute to her 401(k) at work we’ll start contributing to that as well.

Extra money might come into your life from ways other than an additional paycheck – it might come through an inheritance, a raise, or from reducing expenses. Whatever the source, don’t squander it by buying things you don’t need. Instead, consider your goals and the needs of your family, and ask yourself how you might use it to better your life and the lives of those around you.

What are your tips for avoiding lifestyle inflation?

Photos by capetownstore.com and fastcompany.com