Learn the lessons that your money can teach you

Are you struggling to make ends meet? Is the personal financial advice that you hear from experts making you depressed?

Suze Orman has a television show that offers you personal finance advice. People are invited to call in and ask her the proverbial question, “Can I afford to buy this item?”

Some things that people want to buy seem to make perfect sense.  They may however, be outrageous to Suze.  She’s definitely on the conservative side of spending. You need to have a gazillion dollars saved to be able to afford to purchase an item under ten thousand dollars.

Powerful, forceful, decisive and intimidating, Suze will tell you the good or bad news about whether you should make a purchase or not.  She always says, “Show me your money!” You will be asked to list your current income, your savings, your retirement savings and the amount of debt you have accumulated.

After watching a few hours of this show, you may look at your own situation and feel like a total failure and that you’ll never measure up to the standards you “should” meet. You may have been through a job loss, a divorce or a medical catastrophe and not have the assets you see other people having.

The ironic thing about this show is that a few experiences in Suze Orman’s past may actually make you feel better.  Recently on Oprah’s website, Suze revealed that as a young woman, she had been lured into the rich lifestyle and the feeling she needed to own things to impress other people. She frankly admitted, “I, Suze Orman, took money out of my 401(k) to pay for that pricey Cartier watch. And when I ran through all my money, I started using the bank’s. I eventually had more than $60,000 in credit card debt.” So she has been in trouble financially and knows what kind of misery it brings.

Dave Ramsey, popular author, radio show host and personal finance advisor had a similar brush with disaster. By the time he was 26 years old, he had a net worth of $1 million dollars. That sounds wonderful, doesn’t it?  However, he ran into some problems with borrowing money.  Soon, one of his creditors demanded that he pay his short-term notes totaling $1.2 million. On top of that he had only 90 days to do this. He was sued, foreclosed on and with a wife and baby added to the mix, the Ramsey’s were finally bankrupt.

It is just this type of experience that led him to develop his expertise on financial advice. He sought out every type of financial advice out there. He read everything he could get his hands on. Now he has helped thousands of people to achieve financial security.  He took to heart the admonitions of F. Scott Fitzgerald, considered to be one of the twentieth century’s greatest writers.

“One should … be able to see things as hopeless and yet be determined to make them otherwise.”

If you are struggling financially, become determined to make things different.  You can learn your money lessons by paying careful attention to getting out of debt, building an emergency fund, and living on a reasonable budget.

5 Tips To Prevent Identity Theft

In 2003 over 14 million Americans were victimized by scammers. A few years later, identity theft has turned into a much bigger problem. Yes compared to 2003, today, more and more people are being victimized by others who steal people’s identities for a living.

Private individuals and business are all vulnerable to identity theft. In fact these scammers have gathered about $4 billion from stealing personal information alone.

How do you prevent yourself from being a victim of identity theft? Here are a few tips:

Tip 1: Never Share Information

Do not share your personal information such as your address, your full name, your age and your birth date with people you do not know. Do not share your credit card number or your PIN to other people as well. Whatever mode of communication these scammers use, whether it’s through messenger, email or over the phone, please do not believe them. Most of the time, they are not telling you the truth.

Tip 2: Think

If you suddenly won an online lottery you never really participated in, then you probably are being contacted by scammers. Most of the time, these people try to get your vital information by telling you that you need to provide credit card details or bank details so they can send you the money you won.

Tip 3: Beware of Nigerians

This is not a case of discrimination. If you think Nigerians can’t dupe you because they’re in Nigeria, think again. Nigerians have been singled out as scammers. They are usually the ones who send you messages that you won the lottery and by the time they have your information, they’d be using your credit card to make purchases online, get your money or use it for other scams. Their English is not very good and their syntax is rather different. Try to be more observant every time you receive an email or an instant message.

Tip 4: Beware of Phone Calls

Identity theft can happen on a regular phone call but most of the time Nigerian scammers use the relay service to call your home. The relay service is a US based phone call service for deaf people, it is provided for them by the government so that they are able to make regular phone calls through an interpreter. However, some Nigerian scammers have hacked the security of the service and use the interpreters to make calls to houses in the US.

They usually pretend that they are deaf and want to buy a puppy or whatever merchandise. They get your number through online ads. Even if the interpreter knows that she is facilitating a scam call, interpreters are not allowed to meddle with the calls due to FTC policies. So if you get a phone call from a supposed “deaf” person who asks you for your vital information, do not entertain the call. They will call you back but remember that the interpreter or the operator is not involved in this.

Tip 5: Shred, Shred, Shred

Shred certain items such as credit card bills you’ve already paid for. People can get your vital information from your trash or vital information in your computer. People may call the bank and pretend to be you and may even get to transfer money from your account to theirs.

Personal Finance Blog Recommendations

This is just a short post today to recommend some places to read about helping you with your personal finances. Enjoy reading.

• How to be debt free – How to be debt free is a question I get asked often via email. The process of getting of out debt is easy…but actually doing it is hard.
• Educate yourself on personal finance and money A survey done in 2006 by Entrepreneur magazine revealed that “70% of Americans say they are good or excellent at managing their finances.” Did that statistic shock you? It did me. Statistics from a 2006 government survey show …
• Weekend Personal Finance Links – Giving Congrats Edition – I opened up this month’s Money Magazine and found a surprise. On page 68, there’s a mention to two of my favorite blogs: Get Rich Slowly and Consumerism Commentary. If you’ve been reading this site for some time, it should be no surprise …
• My picks for emerging influential blogs – I’m honored to be included in such great company! I couldn’t agree more with your selections, and would include you in tha group as well. Wow Thank you! I’m really moved that you would nominate me. I never quite thought of my blog as influential.
• Personal Finance Blogs: What I Read, Link to, and Why – Here is a little background about my blog – why I write, what I read, what I link to and why: How I Got Started Reading Personal Finance Blogs: I have always had an interest in money and personal finance issues, but it wasn’t until …
• 10 Personal Finance Blogs You NEED To Subscribe To – Knowledge is power, so part of my plan to take charge of my finances is to read up on personal finance. You could read some personal finance books; unfortunately most of them suck. That’s why I get most of my personal finance info and …

Dealing With Trial Periods

Let’s face it, we live busy lives. I’m pretty sure that most companies are aware of this. I’m also pretty sure that that’s why many companies entice customers with trial periods. Think about it. How many times have you signed up for a service because it was free for 3 months, with the real intention of canceling said service at the end of the trial period, only to forget to call and actually cancel the service? Having figured out that many customers will forget to call and cancel, companies can afford these trial periods, banking on the busyness of the average consumer.

Personally, I’m very busy. So, when I’m offered a trial period, especially one that requires a phone call in order to cancel a service, I’m vary wary. In most cases, I simply decline the service. This is by far the easiest way to deal with most of these types of offers.

Once in a while, however, I’ll actually get an offer to try a service that I’m actually wanting to check out. For instance, I recently switched satellite television providers, and enjoyed three months of free premium movie channels. Just last night, I called my provider, just as the free trial period ran out, and canceled the channels. It was fun to have the channels, but I really do not need them.

If, like me, you struggle to stay organized, but you still want to take advantage of these trial periods, consider setting up a reminder system. Personally, I use the iCal program on my computer, and make a simple note, reminding myself of when to call and cancel a particular service. I also know folks who use websites like FutureMe, a website that will allow you to schedule a reminder email, and send it to yourself at a specific time in the future. Pretty rad.

Remember, before signing up for any free trial period, be sure that you know exactly how to cancel the service. This is especially true for services offered by credit card companies and credit reporting services. Taking the time once a month to take care of these pesky little phone calls can, in the long-term, save you a lot of money.

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[TheSimpleDollar] Insights into Saving Psychology from The Economist

Recently, while digging through the magazines in our magazine rack, I came across the May 16, 2009 issue of The Economist. The Economist is my primary print source for news and it almost always gives me quite a bit of food for thought.

Anyway, on page 82, I found a really interesting article entitled “Smooth Operators,” which discusses some very savvy saving techniques that have developed in nations with developing economies. First, though, is a bit on why such techniques are needed there:

Paying interest on your savings will strike most people as odd. Yet some poor people in the developing world do just that. In West Africa, for example, some people pay roving susu collectors a fee amounting to a -40% annual interest rate for looking after their deposits. [...] a similar phenomenon in India, where a female deposit collector named Jyothi looks after small savings for people in the slums of Vijayawada at an effective yearly interest rate of -30%.

To us, this seems very alien. Why would you bother to put money in a savings vehicle if you’re charged such outrageous fees?

To put it simply, money security is the real reason. Keeping significant amounts of cash on hand can be dangerous, and after doing a risk assessment, it’s pretty clear that to many of these people, it’s better to pay that painful fee than risk the high likelihood of having the money taken in some method – a -100% interest rate is far worse than a -40% interest rate.

But why save at all?

Many of the subjects emphasized [that] controlling the flow of cash becomes all the more critical when income is not just low, but also unpredictable and irregular.

In other words, many of the people using these savings systems have very irregular incomes, so in order to survive during the many lean times, they need to sock money away. And without personal security, they need a service that keeps the money safe, so they utilize the susu (and other local variants).

It’s not that different than the problems that people face in America, where many people have irregular incomes (I myself am one of them). To put it simply, if your income is irregular, you have to save. You can’t spend what you earn, or else you’ll be in deep trouble during the lean times.

What gets interesting, though, is some of the tactics the savers use.

They are acutely aware, for example, of the importance of some psychological phenomena whose effects behavioural economists have only recently begun to explore. For instance, they purposefully seek out commitments to help ensure that they meet their savings goals. Many of the South African women in the study joined several monthly “savings clubs” in spite of having bank accounts. They found that the extra discipline the clubs provided was valuable in itself, because it compelled them to save no matter what.

This is a really important point, one I think is overlooked in western society. Peer pressure is a huge motivator, and using it for savings goals pushes you strongly towards saving. The idea of a “savings club” seems a bit strange, but why not? Investing clubs are quite prevalent in the United States, and they have roughly the same goal – encouraging people to invest and keeping their eyes on the prize.

If you have some friends that are also trying to save for different goals, why not start a savings club? Meet once a month or so to talk about money saving tactics and to share your progress. Knowing that you have to tell the others in the club about your progress will push you to meet the goals you’ve set, lest you look bad in their eyes.

Another solid tactic comes later in the article:

The mother of a Bangladeshi man who found himself unable to stick to his monthly saving goal found she could make him save more by taking out a loan from a microfinance company. The shared obligation of having to pay the regular loan installments meant he abandoned his spendthrift ways.

At first, this might not seem like the best idea. Taking on debt to force yourself into regular savings behaviors?

But think of it from their perspective. That microloan might have a 10% interest rate. On the other hand, the susu down the street charges you 40% interest on your savings. Seems like a good deal to me.

This is not altogether different than when people play games with 0% balance transfers on credit cards. They write a cash advance check from card A into their savings account, then do a 0% balance transfer from card B to card A to cover that check. Then they hold the cash in their savings, earning 2-3%, until they have to pay back the 0% transfer. Along the way, they can usually earn a few bucks, particularly if the amount isn’t large enough to really harm their credit.

In both cases, it’s a crafty way to use the financial tools available to you in an unexpected way to put yourself in a better financial place. Don’t just think of a credit card as a way to buy more stuff. Don’t think of a low interest or a zero interest loan as bad simply because it’s debt. Instead, look at all the tools available to you – and use them together to maximize your situation.

Personal finance lessons can come from anywhere. Always keep your eyes open.

Buying Something to Force Yourself Into a New Behavior Doesn’t Work: New Rules for a New Routine

Several people I know have a treadmill in the garage or basement of their home. They bought it with great visions in their head of walking every day, but after the newness wore off, the treadmill began to gather dust – then it was folded up and put into storage.

One reader of The Simple Dollar invested almost $1,000 in pans for her kitchen. Six months later, she’s still mostly using the microwave and the pans are gathering dust.

One of my friends bought a netbook recently, thinking she’d use it all the time to keep up with her email better for her online business. It’s still in her purse, but she claims to have only used it three times in the last month. Instead, she still uses her cell phone.

I myself have done this. Take Wii Fit, for example. When I bought it, I thought it’d be great for establishing a simple cardio exercise routine. I do use it, but instead it just comes out once a week to play mini-games on.

Each of these purchases is essentially the same story. You have a behavior you want – a fitness routine, cooking good food at home, keeping more up-to-date with email – but you’re having some difficulty establishing it. So you make a big, splashy purchase in order to kick-start things – and then you find that didn’t do the trick either, and you’re left with a lot of money sunk into something you don’t really need.

Many people have stories like this (in fact, share yours in the comments!). Why is it so prevalent? I think there are at least three reasons.

First, we have the best of intentions. Most of us do actually strive to improve ourselves, but lives are complicated. Almost every moment is a balance of different things – the things we want to do, the things we should be doing, and so on. It’s often hard, even with the best of intentions, to push another routine in there, especially a time-intensive one.

Second, advertising appeals to those intentions. We see ads for exercise equipment, think about our goals, decide that “we could do that for twenty minutes a day,” and order the equipment. A good ad is designed to do that – prey on a notion already in our head and transform it into a purchase.

Third, a new routine is perilously hard to establish. You have to make yourself do it every day, at least for the first month or two. It doesn’t come naturally.

Add these all up, and buying a piece of equipment in order to jump-start a new routine is almost always a complete waste of money.

Instead, I propose some new rules for a new routine.

First, figure out a very simple routine – don’t dive in with a complex one. Walk for fifteen minutes a day. Practice the guitar for fifteen minutes. Cook one meal a day – and keep it a fairly simple one. Check your email three times a day. Check Twitter three times a day.

Second, try establishing the routine with minimal equipment. Don’t go buy a treadmill or new running shoes. Instead, go outside and walk every day for fifteen minutes – go around the block three times or so. Don’t go buy a netbook – instead, try checking your email on the equipment you already have. Don’t go buy $1,000 worth of pans – instead, buy one low-end pot and one low-end skillet and try making some very simple dishes every day. Don’t go spend $3,000 on an electric guitar – get an old acoustic one to practice on and see if it sticks.

Third, make room for the new routine. In other words, find an unhealthy routine and minimize it. Cut your television viewing down to an hour a day – or less. Trim down your internet usage if you use it excessively. Stop going out to eat so often – cut it down to once a week. All of these choices free up time – and that free time can easily be filled by your new routine.

Finally, make reminders. Leave your equipment out where you can’t miss it. Put your guitar in your favorite chair. Sit your jogging shoes there. Keep your pans right out on the stove. Leave recipes out where you can find them. In short, make your new routine screamingly obvious at all times, giving you the best chance possible to make the leap to maintain it.

Good luck on the new routines in your life.

[AllFinancialMatters] Question of the Day: Is There an Inheritance in Your Future?

Here’s a question I don’t think I have ever asked before:

Do you expect an inheritance sometime in the future?

My wife and I don’t for a couple of reasons:

1. My grandparents have all passed away and left what little they had to their kids (my parents and their siblings). My wife’s remaining grandparents are healthy and doing great.

2. Our remaining parents are still fairly young (they were all born in 1951) and will most likely need their savings to provide for their retirements.

I think inheritances will be limited to families who have a substantial estate or maybe a family business. I think everyone else is going to spend everything they have (and more) providing for themselves during retirement.

Thoughts?

[AllFinancialMatters] SURPRISE!!!!! Our Personal Rate of Return is 11.5% for 2009!

I logged into my wife’s 401(k) account this morning to find this:

The definition of personal rate of return (I put together a tutorial here) on Fidelity’s website is:

Your Personal Rate of Return is calculated with a time-weighted formula, widely used by financial analysts to calculate investment earnings. The calculated value reflects the result of your investment selections as well as any activity in the plan accounts shown. Other personal rate of return formulas may yield different results. Remember, past performance is no guarantee of future results.

That explains why our personal rate of return looks so good. For one, we increased our contribution amount AFTER the carnage of January and February. Two, the company’s profit-sharing contribution was also deposited in March, missing the bad months of January and February. In other words, our number could look much worse.

My point?

INVEST!

Invest regularly and forget about it! Have your allocation plan set up and STICK TO IT! Don’t worry about the news. If your 401(k) balance is going to bug you, DON’T LOOK AT IT! The worst thing you can do is allow your emotions to take control. Decisions made on emotion almost never work out.

Okay, that’s it. Carry on…

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