Looking to save money where ever possible, many people will spend hours or even days searching out the best deals on cell phone service, the lowest rates on credit cards or working on ways to make their homes more energy efficient. But perhaps because we’re blessed with an over abundance of food, many of the same people won’t think twice about throwing away what is often perfectly good food, giving back some of the savings they’ve achieved in other areas of their budgets.

No matter how many coupons you clip or how careful you might be to stay within a pre-set grocery budget, money goes right down the drain (or in the trash) with the food we don’t consume.

A friend of mine who grew up in Mexico but has lived in the United States for many years finds Americans treatment of food, well, appalling!. We’ll order meals at restaurants and only eat half, throw away left-overs, or toss unopened containers of “expired” products.

While we might think of this as just another part of life in the “good ole USA”, compared to the rest of the world we’re not terribly food efficient. When compared to people in poor or developing countries, we quite literally blow a substantial amount of money wasting food each and every year. That can come to thousands of dollars over a lifetime.

What are some of the reasons we might feel the need to waste or throw away food?

Overbuying to take advantage of volume discounts

Ironically, one of the primary reasons we might waste food is through our attempts to save money when buying it. It’s no secret that one of the most effective ways to save money on groceries is by buying in bulk.

We stock up on multiple items that are on sale, buy extra larges sizes, or shop in food warehouses like Costco and Sam’s Club that sell food in institutional sizes. But no matter how much we might save buying in bulk, if we buy more of anything than we can use, we’re wasting money. What we’re unable to use in a timely manner will often be discarded.

No matter how much money you might save buying in bulk, never buy more of anything than you’re likely to use in a reasonable amount of time.

Improper food storage

Food might spoil more quickly if refrigerator temperatures are set at less than optimal levels in order to save money on electricity. That’s a matter of exchanging one cost advantage for another and I’d be willing to bet that any money saved on power will be more than offset if you’re forced to dispose of a gallon or two of milk or a box of eggs and a head of lettuce.

Proper food storage is essential in order to stretch the grocery budget to maximum efficiency. This is particularly true if you do buy in bulk. There has to be an appropriate amount of freezer, refrigerator and dry goods storage space for the volume of food you typically buy, and food needs to be stored at temperatures likely to keep them fresh during the period of consumption.

An aversion to left overs

Unless you’re able to prepare food with complete precision in regard to quantity, you probably have left-overs. In many households, throwing these out is a way of life. But as convenient as that seems, it is virtually the same as throwing away money.

We do our best to keep meal quantities in line with our consumption habits, but even then we still get left-overs from time to time. Usually, we’ll use the left-overs either for tomorrow’s lunch or we’ll feed them to our dog, which saves on dog food. Very little ever ends up in the trash or down the garbage disposal.

Expiration date over kill

Are you one of those people who toss food when it reaches the expiration date indicated on the package? Believe it or not, this may be one of the most unnecessary wastes of food you can engage in.

In Food expiration dates: What do they really mean? (Yahoo! Green, August 16) Ann Pietrangelo reports that:

“Expiration dates on food products can protect consumer health, but those dates are really more about quality than safety, and if not properly understood, they can also encourage consumers to discard food that is perfectly safe to eat…On average, in the U.S. we waste about 14% of the food we buy each year. The average American family of four throws out around $600 worth of groceries every year.”

The article also points out the important difference between the “use by” date—indicating the last day that the item is at its best quality—and “sell by” date—indicating to stores that the product should be taken off the shelf because it will begin to decline in quality after that date.

This is just me, and I recognize that we all have different preferences and practices in this area, but when I see that a food item reaches it’s given expiration date, I’ll usually apply the sniff/taste test. You can usually tell when food is bad if it smells or tastes bad. If it smells OK, I’ll taste it, and if it tastes OK, I’ll make it a point to use it right away.

Obviously, if it smells bad I won’t bother to taste it, and in the trash it will go. And it goes without saying that even the sniff/taste test will only be employed on recently expired items. If the item is more than a few days past expiration, I will toss it. But because we’re careful to buy only what we need as well as to store it properly, the sniff/taste test only needs to be employed occasionally.

I’ve done this many times with different foods even including milk and eggs. I’ve come to view expiration dates as yellow alerts, meaning the stamped date becomes the “take a closer look” date. It stands to reason that there must be some leeway on store issued expiration dates—I’ve never heard of anyone getting sick from eating day old bread, or drinking milk that’s two or three days past expiration. Usually when there is some sort of illness tied to a food item it has more to do with the entire batch during production.

Do you find yourself throwing out food on a regular basis? Do you view food expiration dates as absolute throw away dates? What methods to you use to make sure you don’t waste food?

(photo credit: jbloom)

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

I’m a strong proponent of buying beneath your means when buying a home, but never more so than right now. A few days ago we were hit with the stunning news that existing housing sales plunged 27% in July, a huge hit to a market that’s been reeling from weakness for the past three years. When will the housing market improve? Who knows, but hopefully we’re all learning a few things from the fall.

One of the lessons we should be taking from this is that it’s no longer wise to overreach when it comes to buying a home. Over the past few decades it’s become customary for people to buy more house than they can afford based on the notion that they’ll make it up in tax savings, rising property values and increasing incomes.

We’re now coming face-to-face with the outcome of that thinking.

The rules that weren’t being followed

In my early days in the mortgage business, one of the most universal rules was “28/36”—the new monthly house payment couldn’t exceed 28% of your stable, monthly income, while the new payment plus all non-housing debt payments couldn’t exceed 36%.

That wasn’t a guideline, it was a rule. It could only be exceeded if the borrower had tangible compensating factors. Those factors included a down payment of at least 20%, large savings reserves after closing, a small increase in housing, exceptional credit or being engaged in a career with a predictable pattern of increasing income (doctors, lawyers, etc.). More often than not, you needed several of these in order to be allowed to exceed the ratios.

During the 1990s, the industry used automated underwriting systems, credit scoring and computer models to undermine rules that had existed for decades and the end result of that effort was the near total elimination of income restrictions of any sort.

Falling sales, declining property values, rising foreclosures and people being trapped in homes with payments they can’t afford—do you think there’s a connection between the housing crisis and the elimination of income ratio guidelines?

A house payment is the “most fixed” of all fixed expenses

Perhaps the biggest problem with a house payment is that it’s a fixture in your financial life. Once you close on your mortgage there’s no turning back, you’re in it for the long haul. The only ways out are to sell the house or to pay off the loan; one is massively disruptive while the other is prohibitively expensive!

The fact that you can (barely) afford a payment now doesn’t mean you’ll be able to afford it comfortably for the next 15 or 30 years. The possibilities of job loss or income reduction need to be factored into your loan qualification, and the best way to do this is by buying a home that is beneath your means. Being less optimistic in your planning could keep you out of major problems later.

Forget about what the “experts” say

No matter what a lender may say or allow, if you’re buying or refinancing a home, keep your income ratios at not more than 28/36. There was no foreclosure crisis when it was being followed.

I’ll take it a step farther and say that you should keep it at no more than 20-25%. Think that’s too conservative?

Consider the following:

• Your basic house payment is your PITI (principal, interest, taxes and insurance), but as every home owner knows, PITI is just the beginning. There are also utilities, maintenance, repairs and over time, replacement. When these are added your income ratios will get you well beyond 28/36. Because an expense isn’t recognized by lenders doesn’t mean it doesn’t exist.
• Higher housing values combined with a quick sale can no longer be counted on to bail you out of a tight situation.
• If the loss of your job were to force you to accept a replacement one for less money, 28/36 could turn into 42/54 or 50/65 in just a few months. If you limit your housing payment to 20%, the impact of a reduced income would be commensurately less.
• Have you noticed how energy prices have been bouncing around in the past few years? When they spike, utility costs rise quickly and that has an affect on how much of your income goes to housing expense.
• Carrying too large a payment on a home could render you house poor, with a disproportionate amount of your income going to keep up the house.

As joyous an occasion as buying a home is, never forget that after you buy it you’ll still need to live your life. Having enough money to buy food, clothing and other necessities will still exist, as will the desire to take vacations, go to the movies and buy extras for your family. While projecting a budget that will enable you to buy the home of your dreams, be sure to keep all of these other expenses and desires in mind, as well as generous room for unexpected contingencies.

In the final analysis, your dream home may need to be scaled back a bit and that may be the best financial move you ever make.

Are you among the millions who are struggling under the weight of an outsized house payment?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

Is it better to work for money or for love of craft? There was a time when I believed it was perfectly noble to pursue a career mainly for money, but life’s experience has changed that belief. Anything you’ll put in as much time as you will a career needs to be spent doing something you feel good about. After all, life is what we do and not just who we are or what we have.

One of the sad things about college is that so many students chose a major based primarily on the income potential of the career field it prepares you for. Income potential is important, don’t get me wrong, but if money is the main purpose in deciding your life’s work, will it be enough to sustain a career that needs to last a lifetime? Is it any wonder that so many people are unhappy in their careers or find themselves searching for a way out after they’ve already invested years of their lives?

Why is it so important to love your work?

You’re career will need to keep you engaged for most of your life. One of the considerations that’s almost beyond comprehension early in life when career decisions are typically made it how much time you’ll be working in that field. A career entered in your early 20s can cover four or five decades, or most of your working life.

It’s not possible to project how you’ll feel about your work in ten or twenty years, let alone forty or fifty. But if you don’t feel particularly passionate about the career you’re entering or studying for, it’s a solid bet you won’t feel better about it as the years pass. Forty or fifty years is longer than an eternity if you don’t like what you do for a living.

The years have a way of slipping by—quickly. There’s often a tendency to bargain with life by thinking “This career pays well, I’ll just stay in it until I have enough money saved up that I can do what I want, then I’ll pursue my passions”.

The reality is that you’ll get comfortable with a certain income and the lifestyle and future it affords you. The years will pass, slowly at first, but more quickly with time. Before you know it, so many years will pass until you’ll be resigning yourself to the rut you’ve dug yourself into and the dreams will fade into the oblivion of the reality you’ve built for yourself.

Working at something you don’t really like causes stress. Anytime we put a lot of time in at something we don’t like there’s stress. If your livelihood depends on the thing you don’t like, the stress will be even greater. Apart from the health risks of stress, it also leads to mental confusion. The more stressed you are, the less able you’ll be to see clearly through your circumstances to make necessary changes and improvements.

It’s not that easy to change careers. Once you’ve put a lot of years into a single career, making the jump into another is harder than you might imagine, especially if it’s a radical change. When all of your training, experience and contacts are in one field, you’ll have little to offer an employer or potential client in another. If you’ve ever tried to change careers through a recruiting firm you’ll know exactly what I mean. They’ll keep pointing you back to your current field because that’s where your career assets are.

You may need to work well into your retirement years. This is a factor that’s often dismissed, but with the disappearance of traditional pensions and concerns about the future of Social Security it should never be ignored. Depending on how much you’ve accumulated in your retirement plans as well as the future cost of living, you may need to work well past retirement age.

The only thing I can think of that’s worse than working your entire life in a career you don’t like is working at it into what should be your retirement years. My guess is that this will be the reality for millions of people so it needs to be considered in your choice of career at any stage of life.

There may be a way to do what you love even if you’re entrenched in a career you don’t like

Wouldn’t it be great to just up and leave your hum-drum career and jump into an exciting journey into the work of your dreams? Of course it would, but this is the real world and you have bills to pay, a retirement to fund and maybe a family to support. Let’s face it, making a wholesale change can so disrupt your life that the cost of doing so can easily outweigh the benefits of the change.

But you don’t have to make so radical a change. If you have a passion for a certain career, business or line of work, enter it as a side venture while keeping your current occupation intact. By beginning your new career as a side venture you can accomplish the following:

• You can move into the field at your own pace, gradually at first, then picking up speed as you go
• Not only will you gain experience, but equally important are the contacts you’ll develop in the process–no one enters a new career or business without them!
• You can earn a second income that can be saved as a reserve for the day when you take that leap of faith into full time
• If you’ll be self-employed, you’ll have an opportunity to build a list of referrals and a book of business that can reap rewards for the rest of your business life
• By keeping your primary income flowing, you’ll virtually eliminate the risk that comes with any new venture
• By pursuing work you feel good about, your regular job will become temporary, and may also become more tolerable

Do you have a career that you feel so passionate about that you’d like to jump in right now and get started? Then what are you waiting for—your side venture awaits you!

Is there a career, business or line of work that you’re just itching to get into, but feel like you can’t because you’re too dependent on your current job?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(Photo credit: R Stanek)

When I was a kid, a birthday party was having friends over to your house, with cake and ice cream, balloons, hats, presents and—if you were big time—a piñata. Sometimes a sleepover followed, sometimes not. Birthday parties were simple and pretty standard so there wasn’t much concern with being behind the social curve.

But as a parent with kids of my own, I quickly discovered that a few things had changed over the years. Gone were the simple affairs that kept us so content when I was young. Now it’s paint ball, amusement parks, laser tag, race cars, live entertainment—if you can dream it, somebody’s doing it for their child’s birthday.

Kids’ birthday parties aren’t standard anymore, they’re cool. And they have to be; apparently one of the factors a child is measured by today by his or her peers is the quality of their last birthday bash. Birthday’s aren’t just cool either, they’re also something else—they’re competitive!

Let me say from the outset that this isn’t a condition I agree with or am in any way trying to promote. It is however a natural extension of an over-indulgent culture in which the same people who borrow money to pay for houses, cars and vacations they can barely afford will also borrow a little extra to throw an outsized birthday extravaganza for junior’s big day.

How do you give your kids a cool party without breaking the bank?

My wife and I investigated and tried some of the popular birthday venues for our kid’s parties, tending to stay on the lower end of the price scale. It wasn’t too hard to do so when the kids were really young, say up to age nine or ten. But as they got older the level of competition only seemed to increase. Middle school was the worst—imagine that!

I don’t have a problem having a low key party for my kids, but my kids have to go to school on Monday and face the judgment of their classmates, so we tried to keep that in mind as we looked for alternatives. And we found one that satisfied the “cool factor” for our kids without demolishing our budget.

For our kids, my wife and I chose to have sleepover parties at a hotel. We’ve done it on four occasions, two of which were combination parties for both kids at the same time, which saves even more money. It was a world above a sleepover at home, but both simpler and a whole lot less expensive than the popular birthday venues.

I don’t know what your budget for your kids’ birthdays might be, but this is definitely a consideration if you want to do something that the kids (and their friends) will enjoy and remember without spending a bunch of money.

A cost but one with real benefits

In our corner of Suburbia, the local Embassy Suites charges $109 (plus tax) per night for a two room suite with two double beds plus a double fold out sleeper in the front room. The room will accommodate up to six people.

The only other costs for the parties were pizza, soda, cake and of course, a gift for our kids, all of which we would have paid if we had the party somewhere else, or even at home.

But here are the benefits we got in exchange for $109 (plus tax):

• We didn’t have to clean our house before the party the way you would for a home party or sleepover
• We didn’t have to clean our house again after the party the way you would for a home party or sleepover
• No decorating was necessary (though my wife would decorate the hotel room(s) anyway)
• We didn’t have to worry about sleeping arrangements or kids bedding, like sleeping bags or pillows
• We didn’t have to pay the $200-$300 (or more) that many of the specialized birthday venues charge for a two hour party—and we had all night
• We didn’t have to worry about paying for souvenirs or other extras or add-ons—there weren’t any
• The hotel pool kept the kids busy as the main attraction—we never had to plan activities (though my wife added some anyhow)
• We had a choice of either the room(s) or the main dining room for pizza and cake
• The relatively long walks to and from the room(s) and the hotel pool and dining room provided something all kids need: running room
• A hot and cold breakfast buffet was available for up to six people per room the next morning and it was included in the price
• Because hotels impose limits on the number of people who can stay in a room, we had a natural ceiling on the guest list; inviting the whole class—thankfully—went right out the window
• All the kids had a good time and thought it was a COOL party—which is very important to the birthday girl or boy!

If you’re at all concerned about the six person limit, there’s no need. The limit applies to the number of people staying at the hotel overnight, not the number visiting. When we did individual parties, my wife or me, our son or daughter and four of their friends stayed over. For the two times we did combination parties, we rented two rooms. My wife and I would both be at the hotel for the night with our two kids and four friends each for the sleepover. However, for each party, they invited kids who only came for the party and not the sleepover.

This actually works well because as we discovered, not all kids who come for a party can sleep over. The kids might have had eight friends each, only half of whom would do the sleepover, so we were never confronted with an over load situation.

I’m not saying this type of party is for everybody, but it’s something to think about when you’re looking for an idea that’s a little different but won’t cost a fortune. My wife and I and our kids liked it so much that we did it four times.

What do you normally do for our children’s birthday parties? Have you ever had a party at a hotel? What did your kids think about it? How much is too much to spend on a birthday party?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(Photo courtesy of Tony Crescibene)

In an economy where people are experiencing what may be a permanent reduction in income, one of the more radical solutions is to pack up the family and the household contents and head for someplace where the living is cheap—or at least cheaper.

If an income is lost or if it becomes a matter of moving to follow a job it can make sense, but is it always the right thing to do?

I happen to have some experience with making a geographic shift, done mainly to move from a high cost area to a much lower one. During the 1990s my wife and I left New Jersey where we both grew up and where most of our families still live, to start a new life in Atlanta, a much lower cost city.

On balance, we’re certain we made the right move, however at the time it was mostly a move to find something new—which is always exciting—and to begin life in a less expensive environment. At the time, we didn’t have children and we weren’t making the move because of lost employment as many are doing today. It was, in the truest sense, a voluntary move.

The benefits of making a geographic move to a lower cost area

When income is down and the cost of living is up, making a move to a less expensive area can seem like a step back into financial sanity. Often, you can live as well in one place as you do in another, but for less money.

Some of the more obvious advantages:

Lower house prices. When we moved from New Jersey to Atlanta, house prices were substantially less then half the price. Rents were easily 40% lower. In that situation, you can either a) own or rent a bigger, nicer space than you did in the high cost area, or b) live in something comparable for substantially less. If you’re looking to cut living expenses, you can choose plan b until you’re in better shape financially, then go to plan a, buying a bigger home when you can afford to do so. Lower cost housing is one of the biggest reasons people make major geographic moves.

Lower taxes. Lower property values tend to come with lower property taxes. In addition, young, fast growing areas tend to have lower property taxes because as their populations grow, so does the tax base. Not only were property taxes substantially lower in Georgia than in New Jersey, but the annual increases are also much smaller. Areas with high real estate taxes also seem to follow the same pattern with income taxes. Perhaps it’s also the growth factor: a growing state or city increases tax revenue through population growth while a slow or no-growth area has to raises taxes when more revenue is needed. It’s a dynamic that never seems to change.

Lower cost of everything. When housing is cheaper, everything else tends to be cheaper. Lower property values mean lower rents, mortgages and property taxes, which mean businesses have less cost that needs to be passed on to consumers to cover operating expenses. To our delight, when we moved to Atlanta we found that gasoline, insurance, restaurant meals, clothing and recreational amenities were also noticeably less expensive. These aren’t always the big, heavy expenses that weigh you down, but being able to pay less for them gives much needed breathing room if nothing else.

Opportunity to start fresh in life. This is a non-financial factor, but it can be every bit as important as the monetary considerations. If you’ve had a bad run on the job front where you’re living now, sometimes pulling up stakes and moving to a new area to make a fresh start can provide the surge of energy that’s needed to get you going for another big push.

The darker sides of relocating

My wife and I found our move to Atlanta to be exciting, but we were younger, childless and didn’t have an economic gun to our heads. For a lot of people who have children in tow, limited resources and no solid job prospects back home, the stakes are higher.

Extended family and young children. You’d probably be leaving an area where you have extended family and long term friendships for a place where you’ll have neither. Apart from the emotional difficulties that will bring, the situation is even more complicated if you have young children. Family and friends can be available to take care of your children but if you’re moving to a new city you’ll have to make other arrangements, and those typically cost money. Factor that into the total cost of life in your new location.

Loss of cultural or recreational amenities. Very often the areas with lower price structures are either young and growing cities, or older ones experiencing population loss. Cultural or historic attractions may not have developed in the newer cities or may be in decline in the older ones. Also, many areas, new or old, may have less desirable locations. It’s a fact of life, for example, that coastal/beachfront cities (NY, Boston, Miami, LA, San Francisco, San Diego) tend to be pricier than cities that lack natural amenities. By moving to a lower cost city you may be giving up certain natural or cultural amenities that you’ve taken for granted, and that may require developing new interests after you move. How important are those amenities, and do you have a plan for what you’ll do if they aren’t available?

Lack of parallel employment opportunities. What if you move to a low cost city—one that has lower salaries as well—but do so because you’ll have a higher paying job by making the move? On the surface, the higher pay/lower cost of living combination looks like a double win. But if you lose your higher paying job in the new location, the only replacements available locally will be lower paying. In some areas, a move up, or even trying to keep the pay level you have, means moving out of the area—another move!

Over the years I’ve known several people who have followed high paying jobs to small cities (with otherwise lower pay scales) who had to move back home after losing the job, sometimes after only a few months. There were just no replacement jobs to be had in the small city. If you’re considering a move to a lower cost area for a higher paying job, consider the potential for replacement jobs in that market.

The downside of lower home prices. If you relocate to a less expensive city there’s also an almost unnoticed issue that exists in regard to housing. When housing in a region is on the lower end of the range, it usually means one of three things:

1. The housing market in the area is overbuilt and not very liquid even in good economic conditions
2. The local economy is poor relative to the rest of the country
3. The area is experiencing population loss

What ever the reason for the lower costs, the same factors that make buying so favorable in some areas will make it commensurately difficult should you need to sell, especially if you need to do shortly after relocating. For this reason, if you do decide to relocate to a less expensive area, plan on renting for the first year or two. In that way you’ll have time to get established, to know if you want to stay in the area and, most of all, to keep your options open should you need to make another move.

Making a move to a city in another region is something like getting on a rocket to outer space; once the rocket takes off, you’re along for the ride and there’s no turning back. Consider all the factors involved before you decide to go ahead with it, even if you can save thousands of dollars in the process.

Have you ever relocated for economic reasons? Not so much for a better job as much as for the prospect of a lower cost of living? Are you thinking of making a move now?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(Photo credit: Shutterstock)

Debt settlement services are all over radio, TV, the internet. They seem like a shot at redemption for many people, but often the solution to our biggest problems can be found in the little things we do every day.

Overspending is a classic cause of debt problems, but how we pay for products and services we buy can contribute as well.

All credit problems start somewhere, and I don’t think it’s much of a stretch to say that they typically start right about the time that we begin to become comfortable with debt—not so much being in debt, but when we begin using it and thinking of it as a convenient tool.

Not so long ago, when people tended to avoid debt, paying in cash was as natural as eating and sleeping. In today’s paradoxical marriage of convenience and complexity, paying in cash seems almost exotic, but for people having debt problems it could be the financial salvation they’re hoping to get from debt settlement services.

What are some of the advantages of using cash-on-the-barrel to get out of debt?

Paying cash means learning to live without credit

The first rule of getting out of debt is not to use it. Only when you stop adding to your debt can you begin seriously paying it down. Paying with cash (or checks or debit cards) is a major step in that direction. Continued use of credit is like playing with fire.

Often, the difference between people who pay their credit card balances in full each month and those who carry a constant balance is a steady paycheck. Once that paycheck is gone, the credit card habit that was mostly for convenience and cash back rewards can become an unexpected burden.

Suddenly, the cards that were faithfully paid each month, slide into next month, then another and still another. Now you’re carrying a balance that you can’t payoff out of a shrunken paycheck and you join the ranks of the revolving debtor class.

No bill to pay next month

Do you know anyone who enjoys paying bills? I’ve never met anyone who does and I suspect that’s because the majority of people have to do at least some stretching in order to balance their finances each month. Bills mean stress, and the more bills you have, the more stress in your life.

We have enough bills to pay without adding last months’ excesses to the pile, and that’s the position credit puts us into. How much fun is it to open up your credit card statement from the previous month only to find out that there’s a discrepancy or a complete mystery charge appearing on the statement? Now you have to play detective, and initiate a series of phone calls to the credit card company and the vendor to get it straightened out.

One of the unheralded advantages of paying by cash is that if you use it faithfully, you also reduce stress in your life. Paying by cash represents a series of small financial transactions that we deal with one at a time. Credit represents the accumulation of many transactions into a small number of larger payments, and that can create stress in a hurry.

The smaller your pile of bills when you pay them, the more control you’ll feel and the less stress you have to deal with.

No chance of debt if you can’t pay your credit card in full next month

Even if your custom is to pay your credit card balances in full each month, the potential for a windfall of bills in any given month is always there. When it hits, and funds to pay the credit card in full aren’t there, you’ll be tempted to roll the balance forward to the following month. Do that once and there’s more than a remote chance you’ll do it again.

If you’re using credit for regular expenses, you’re courting the potential to run up debt at some point in the future. Credit becomes a habit, and whether they’re good or bad, all habits are little more than comfortable traveling companions that we come to develop a benign view of.

If you pay by cash, there won’t be any excess debt to carry into the next month.

No chance of identity theft

One of the unsung advantages of paying with cash is the complete absence of the potential for identity theft. Cash leaves no paper trail, no personal information on file, and no opportunity for manipulation of charges after the fact.

The counter argument is that credit cards limit the loss on fraudulent charges, usually to $50, thus insulating the card holder from financial disaster. While that may be true in a strict financial sense, there’s far more at risk than just money.

When a thief has access to your personal information, the far greater risk is that it could be used to hijack your identity to gain more credit or some other negative purpose. Information is often more valuable to a thief than money, and often the real target of the theft. When we use credit, our information is laid out on the table and we’re completely at the mercy of those we provide it to.

When you pay with cash you have none of that concern and can leave each and every merchant you frequent with complete confidence that your identity was safe when you left the establishment—safe because it was never provided.

No bargaining with the Devil to see if you can afford something

Most of us know whether or not we can afford to buy something. When the plastic comes out, it’s usually an unconscious admission that we can’t.

When you’re on a cash-only spending diet, either you can afford to buy something or you can’t—there’s no inner conflict. Credit is a form of financial scheming that puts us in negotiations with ourselves or our spouses in order to come up with a way to pay for something we know we can’t afford. Plastic makes it too easy.

If we only pay with cash, we’re limited by the amount of cash in our wallets, forcing us to acknowledge that we can’t afford something. In a way, admitting that to ourselves is a form of liberation; there’s no agonizing over trying to come up with a way to twist reality so we can buy it. We can’t afford it, so we move on…

Paying Cash = Spending with No Strings Attached

This one is really a summary of all the others above. Paying with cash is virtually the simplest way to transact business. You drop down your money for payment, take your merchandise, walk away and forget about it. Every transaction has a period on it.

No bill will come in next months mail, no debt will accumulate, your identity won’t be compromised and the debts you do have will gradually melt away if you do nothing more than make the scheduled monthly payments and don’t add any fresh charges.

Paying with cash is simplicity at its best, in a world where simplicity itself is something of a revolutionary act.

Do you try to pay with cash? Have you ever thought about making the switch? If you didn’t, what stopped you?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(photo credit: stopnlook)

Can a phrase influence a person or even an entire society into destructive behavior?

The analysis of debt woes is often presented as if it’s a math problem, as though people got too far in debt merely as a result of spending too much money over an extended period of time, and all that’s needed to correct the situation and set it right is to reverse the dynamic.

Mechanically that may be true, but in order to get to that point there first needs to be an epiphany of the mind that moves debt away from the status of a useful tool and back to that of a necessary evil undertaken only under very limited circumstances and always with due caution. Debt is less a friend and more an enabler than anything else.

The lack of any such inhibition has had a significant impact on the debt situations of too many people.

The power of a single phrase

It’s often argued that bankruptcy and foreclosure have become common because they no longer carry the stigma they once did. But can’t we say with at least equal justification that part of the reason bankruptcy and foreclosure are so easily accepted today is because credit was first accepted just as easily? After all, before you can have a debt problem you first have to have debt. How did that happen?

By social acceptance.

Now there are a multitude of ways a person justifies adding more debt to his life and during the years leading up to the credit crisis some of the more common ones were “it’s the American way”, “everybody’s doing it”, “that’s the way (zero down) people buy houses today”, and some even pulled out an adaptation from a treasured children’s movie jingle: “I owe, I owe, so off to work I go”.

I don’t know about anyone else, but I never found the bumper stickers with that last one to be of any comfort. If anything it conveyed…resignation. If that’s how you see your life, you’re pretty much licked!

But the one that I think may have been the most destructive was OPM—other people’s money.

Making a wealth building strategy out of a bad habit

The power of a term like OPM is in the fact that that it converts debt into an opportunity to make money. Most people will at least give pause in using credit to pay for luxuries they can’t otherwise afford, but when there’s an investment angle—a chance to use money to make money—not only do inhibitions drop, but it can make borrowing money seem like an economic benefit, maybe even a wise choice.

No doubt that in the right hands, borrowed money has a multiplier affect. Unfortunately, most people have their hands full making money using their own money, let alone someone else’s.

A person who makes money using OPM is most likely a professional at what ever he or she does, has a proven track record of success and at least some ability to mitigate downside risk. Even at that, if we’re completely honest, “Lady Luck” probably plays heavily in the success stories.

I’d be willing to venture a guess that the number and consistency of successful ventures using OPM even by professionals are most likely exaggerated which at least in part explains why people lose money in business deals and companies are forced to close their doors. Both rewards and risks are magnified when leverage is applied to the mix.

Converting desires into investments

In my early adult life I had a friend and mentor who often told me, “it’s not the truth, but what people believe that matters”. If we hear something spoken enough times we begin to believe it and often it becomes part of the body of conventional wisdom—those ideas we accept to be true without much thought or question.

If we believe that obtaining and using other people’s money is critical to our financial success, getting too far into debt is an easy process. All we need to do is to convert our desires into “investments” and borrowing to obtain them become logical and even necessary.

For example:

• If a $200,000 house is a good investment, a $300,000 house will be an even better one. “It’ll be tight, but in the long run, it’ll be worth it.”
• ”I need a Mercedes for my career; it’s important to my image and it’s my image that makes money for me”.
• Joining a pricey, upscale country club under the guise of getting close to the “right people”.
• Borrowing an amount of money comparable in size to a home mortgage in order to put your child through college at a school you can’t remotely afford.
• Buying high end clothing in compliance with another favorite, the “dress-for-success” doctrine.
• Paying for expensive toys, gadgets, camps, and activities for kids as an “investment” in their self esteem.
• Adding a built-in swimming pool in the backyard because it will raise the value of the house (in many neighborhoods it actually does the opposite).
• Buying investment real estate with a minimum down payment, even though you have no experience managing rental properties (OK, you might have help here since TV infomercials make this sound SO easy!).

Do you see the seeds of the many personal debt problems in any of that thinking? Every one of these—and a bunch more—can be justified with the notion that we’re borrowing to pay for something that can be framed as an investment.

And this is only a small sampling of the ways the acceptance of a term like OPM tempts us to take on more debt than we can reasonably handle. I’m not saying that there may not be some investment value in some of these for some people under certain circumstances, but in recent decades they’ve largely become a blanket justification with little basis in reality. Even if there is an investment value, borrowing heavily to pay for them also raises the risk and that’s the part that gets dicey when the numbers get too big.

It’s not an exaggeration to suggest that OPM becomes the financial manifestation of another popular fallacy,

“You’ve gotta fake it til you can make it!”

If we’re borrowing because we don’t have the money to pay for what we want, aren’t we really just…faking???

Spending money is spending money—it’s almost never a true investment. And other people’s money is OTHER people’s money. A saying—or the rejection of it—can make all the difference.

Have you ever used the investment label to justify going into debt to pay for something you couldn’t otherwise afford? Do you know others who have? How much impact do you think OPM has had on the credit meltdown?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(Photo credit: alternatePhotography)

Though I don’t spend much time watching TV game shows, Deal or No Deal is one that I pay attention to when it’s on. Watching people make big financial decisions under pressure and in a short time frame is an interesting study in human psychology that’s way bigger than game shows themselves. They all involve similar formats, but on this show the numbers are, well, bigger—which adds to the drama.

On an episode last week a lady was offered a $198,000 deal from the banker if she quit the game at that moment. Even with her husband cheering her on to take the deal, she confidently declared “NO DEAL!”, clapping her hands and smiling merrily as she did.

Now, this is a scenario I’ve seen again and again on this show: a substantial amount of money—often in six figures–is offered to the participant to exit the game. Almost invariably, the participant refuses the deal and opts instead to go for the all the marbles–$2 million.

It often makes me believe that participants are prescreened on this question, and if they indicate any course other than playing the game all the way through to the grand prize they’re disqualified (it’s just a theory based on observation; I have no evidence to support this claim).

Little pigs become fat pigs and—you know what happens to fat pigs

I don’t know about anyone else, but as attractive as $2 million might be, a six figure prize could plug a lot of holes in my financial life, and that’s the route I’d take without much thought.

Now I know that a lot of people faced with the choice of the banker deal versus the grand prize go for the $2 million under the reasoning that “I came in here with nothing so I have nothing to lose—I’m going for the $2 million!” On that point I’m not speculating; I’ve heard many of them say that in exchanges with family members on the side.

As much as I might want to respect that thinking, what happens to the vast majority of the people on the show that opt to go all the way is that they leave the show with far less than the sweet deal the banker offered them when they were at a more opportune position in the game. The lady on the show last week ended up walking away with $60,000, which is actually much better than most participants do. Most come away with only a few thousand dollars after refusing the bankers best deal.

Here’s my thinking on having nothing to lose…True, when you came in, you had nothing to lose; but the banker just offered you $198,000 (or what ever the figure is) and now the dynamics of the situation have changed. Now you do have something to lose–$198,000.

That’s obvious to me sitting at home, so I have to wonder if so many of these people are possessed when they’re on the show and on a roll.

Bringing it home to everyday life

No, I’m not here on a personal finance blog writing about a favorite game show. But I actually think there are lessons from this simple game show that carry over to the real world and perhaps affect our own financial decisions.

When we’re “on a roll”, do we have a tendency to believe that we’re somehow unstoppable? Or that our thinking is incorruptible? Or maybe that we have a “once in a lifetime opportunity” that we want to play to the hilt? Or even that karma has taken over and will guide us to bigger and better things?

Curiously, it’s often when everything looks good, when it looks as if the stars are aligned in our favor that we’re most vulnerable to making poor decisions.

Where can this happen in real life?

The Stock Market. After a run up of greater than 50% from March of 2009 through the spring of 2010, the Dow Jones Industrial Average has given up more than a thousand points.

If you were in the ride up, did you sell near the top? After all, a run of greater than 50% in the space of a single year is quite spectacular—cashing in on those gains would seem to be almost instinctive. How about the market runs of the 1990s, and then during the rally that followed the post dot-com crash that brought the market up to the 14,000 level—how many people cashed out near the top of those runs? Do we believe that rising markets can rise forever? Would we be better served by taking our gains, then sitting on the sidelines until the next market slide, or do we even have the discipline to do so?

The same applies to individual stocks. How many times have you held onto a stock, watching it double, triple, quadruple in price—then watch helplessly as it comes back down to earth?

Selling your home. It’s often said that the first offer you get on your home will usually be the best. But people routinely refuse early offers, only to accept less generous ones a few months down the road.

No one is more confident than a person who has just listed his house for sale, and the memory of bidding wars for properties just a few years ago still sit pleasantly in the recesses of many people’s minds. But reality usually goes in a different direction, as offers tend to get lower as the months pass. Selling prices usually don’t get better with age!

Mortgage rates. In my tenure in the mortgage business, I got to experience “rate greed” first hand. That’s a phenomenon that occurs when rates hit record lows, but people decide to wait to refinance with the expectation of still lower rates.

That may sound absurd on the face of it, after all if rates are at record lows how much better can they get? Yet people would say (with rates at 4.75%) I read on the web the other day that rates are going down to 4.00% so I think we’ll wait. Or, let’s lock WHEN rates hit 4.50%? Do they know something the rest of the financial world doesn’t?

They have something good right in front of them, but they want to keep playing the game waiting for something even better! Here’s the reality of the rate universe: rates that tend to drop ever so slowly will rise in a matter of days or weeks, and rise dramatically at that. Once that happens, today’s rates will be gone and there will be no turning back.

Is the bird in the bush so attractive that we’ll ignore the one that’s sitting right in our hand?

Have you ever been way up on an investment or in a transaction, but greed took over and you ended up walking away with something less—maybe a lot less—than what you could have had? Why do we believe that a good deal will get even better?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(Photo courtesy of \!/_PeacePlusOne’s )

Creative avoidance. It’s an uncommon term used to describe an extremely common practice that most all of us engage in to one degree or another. It’s the time and effort we put into activities that will keep us from doing the ones that are really, really important—the kind that may even change our lives for the better.

If you’re in sales, that could mean that you keep yourself busy at other tasks rather than making income producing sales calls. As a self employed business person, it might mean rearranging your shop or engaging in maintenance emails, rather than working on revenue generating marketing programs. For a manager, it might mean working and reworking budget numbers, rather than developing more cost effective work flows that can improve your budget and maybe get you promoted or hired into at another company for more pay.

No matter what occupation you hold, there are always a multitude of tasks that can keep you away from doing the truly transforming ones.

The “tools” we use to keep us from doing what we know we should

In today’s world we can find an endless stream of activities that might feel productive on some level but are really mostly for entertainment.

Email. A couple of decades ago when you wanted to send a written communication to someone you did it via snail mail, and because it took time to compose, type and mail a letter, doing so was usually reserved for only the most important correspondence. By contrast, email is easy so we use it often. This tends to glorify trivial messages, and we can easily get bogged down responding to messages of little consequence.

Phone calls. Phone calls can be a real time waster and cell phones only magnify the problem by making us accessible where ever we are. Constant phone calls are a real concentration buster.

Texting. If texting is really easy for you, getting addicted isn’t hard. A good texter is rich game for other would-be texters, and you could easily find yourself in social circles with other proficient texters for whom texting is a way of life.

TV. This is the ultimate time filler—there’s always SOMETHING on that we feel compelled to watch. And even if we don’t, we can always find something if we’re truly motivated to avoid doing what’s truly important.

Web surfing. Mitchell Kapor said, “Getting information off the Internet is like taking a drink from a fire hydrant.” The web is a fantastic information resource, but the enormity of it has the potential to swallow us up—and our time with it.

Computer and video games. These have grown in popularity over the years, and while they aren’t necessarily bad in themselves, when stacked on top of other non-essential time consuming activities, they can finish off what’s left of our limited schedules.

Busy work. We busy ourselves with an endless stream of small jobs that are never the type that improve our station in life. Polishing a tea set, trying to fix a gadget that broke years ago, working to have the best lawn on the street—they can feel like real work, but they can soak up valuable time as well as energy, which could be spent on ventures that actually make a real difference in our lives. Busy work is a sand box saturated with creative avoidance!

Busy work at work

Without much effort we can normally think of time wasting activities we engage in during our off work hours, but with a few substitutions the same possibilities hold true at the office. Phone calls, web surfing, email and texting are typical at work, and while TV and computer and video games may not be, they can easily be replaced by gossip and extended lunches and coffee breaks.

But busy work at work represents a special discussion. If creative avoidance is a problem in our personal lives it can be a career killer on the job. Busy work can easily become that refuge from the real thing.

We all go into our work to, well—work! But all work is not created equal. In most jobs and business capacities, there are a small number of tasks we have that are crucial to the success of the job or business, and a multitude of ones that need to be done but if the truth were told, the ship wouldn’t sink if they weren’t.

Unfortunately, it’s often the latter that gets the lions’ share of our work time. The tasks we need to invest most of our time in are the important-but-not-urgent jobs, the ones that will produce the long term improvement that will lift our careers or businesses.

The electronic media has reconditioned our collective expectations toward instant response, and because of this we often give in to the tyranny of the urgent-but-not-important tasks. Someone always needs us to take care of something, and while it may seem noble to work at solving everyone else’s problems—real or imagined—we create a bigger problem for ourselves by not working on the tasks that will enable us to fully complete our own missions.

Sometimes it can seem as if helping everyone else IS our mission—then we wonder why it’s us getting the pink slip when layoffs hit. Or why it’s our business that fails when others survive.

Hockey legend Bobby Hull was sometimes criticized as being a “floater”, a player who seemed to drift aimlessly through many of his games when he clearly had enormous potential to do more. He brushed off that criticism by saying that he was goal scorer whose time and energy was best reserved for doing what he did best. Chasing pucks in the corners or playing back on defense would not have improved his game, and history records him as one of the best hockey players ever.

I suspect most people who are great at anything have learned this secret. Do what you do best and let others do the rest!

What are we running away from?

Wasting time could be an unconscious way of dealing with a fear of failure, a desire to establish and preserve a low stress routine, a desire to fit in or even just a failure to establish a routine that properly establishes our core purpose as a PRIORITY.

There’s no way to escape the fact that we live in an over-stimulated, fast moving and highly demanding world. If the electronic media have done anything to simplify and improve our lives, they’ve also sped up the pace of everything, forcing us to do more and to do it more quickly. The only ways to counter this and to be effective in the middle of it is to be aware of the magnitude of the interference, to allocate our time jealously, and to be purposeful in our focus on the few but most important tasks we need to complete each day.

Career success, money management, goals and even happiness itself all hang on the time—and the quality of it—that we give to the highest priority tasks we need to accomplish.

It’s been said that we all have the same amount of time in each day—what are you using yours to accomplish? We worry about wasting money, energy and food, but do we worry enough about the time we waste—enough to do something about it? If you could get back a big chunk of the time you’ve wasted in your life, what would you spend it on?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

( Photo courtesy of HikingArtist )

An article appeared on Bloomberg last week that sounded the alarm on the very real prospect that millions of people will outlive their retirement savings. Lawmakers Seek to Prevent Americans Outliving Savings (Bloomberg, June 11, 2010) had this to say:

“In 1983, 62 percent of workers had only company-funded pensions, while 12 percent had 401(k)s, the center said. In 2007, those numbers were 17 percent and 63 percent, respectively”¦ Most American households at or near retirement “are consumed by fear,” said Anthony Webb, associate director of research at the research nonprofit. “Instead of walking on the beach hand-in-hand in retirement, the reality is that they’re sitting around the kitchen table cutting coupons”¦Nearly half, or 47 percent, of those on the verge of retirement are predicted to run out of money”¦”

The article went on to say that the average 401(k) account has $66,900, and the average monthly Social Security benefit is $1,067—both numbers as of the spring of this year, and neither consistent with the TV version of retirement.

Those numbers are averages and we can and should plan to be above average. But even if we are, even if we’re successful in achieving the hallowed million dollar 401k, will it be enough to cover us for decades of retirement living and the inflation, recessions and stock market reversals that will be inevitable over such a time span?

What should we be doing now

We need to begin thinking of building a retirement plan in the same way we would an investment portfolio—we must diversify. And that doesn’t mean merely diversifying between investments, but diversifying our life’s plan for retirement.

The foundation for retirement needs to be built on much more than just a pile of money sitting in a tax sheltered retirement plan. In fact, some of that planning won’t even have anything to do with money.

How do we diversify our life’s plan for retirement?

Maximize 401k contributions. This is the most obvious course of action and the one that gets the most attention—for that reason, I won’t spend too much time on it. Fund your account to the greatest extent you’re able—at least high enough to maximize the company match.

Also, seek true diversification in the account; a 401k is long term money and it needs to be managed with that time horizon in mind. A 100% allocation in stocks might look pretty smart in a big market run up, but it could easily leave you in a financial ditch if the market crashes, which it’s done twice in the past ten years.

Build non-tax sheltered savings. It’s important to understand that tax deferred is not the same thing as tax exempt. Tax sheltered retirement plans are deferred, not exempt, so you will pay taxes on the money at some point. Current tax rates are low by the standards of the post World War II era, and given the size of government deficits, betting on continued low rates could prove to be a strategic error.

The possibility that you could be in a higher tax bracket after retirement can’t and shouldn’t be dismissed. For this reason, a decent percentage of your financial assets should be invested in non-tax sheltered accounts. At a minimum, this will provide you with money that won’t be restricted by tax considerations. Think of it as tax diversification.

Plan on a retirement career. Despite all of our planning, saving and (hopefully) intelligent investing, we may not be able to accumulate all that we need to keep us living in comfort for the 20 or 30 years we should expect to live past age 65. Plan on supplementing investment income and what ever you might receive from pensions and social security with at least some employment income.

Begin now to plan for a second career—hopefully a less taxing one—that you can do in your golden years. A part time business or job in the early years of retirement can lessen reliance on investment income and enable you to stretch your savings far longer than if you begin tapping them immediately.

Be debt free. Most of us take on debt early in life to buy houses and cars that we can’t possibly afford to pay for in cash. Pay those debts steadily and faithfully until they’re all gone, then don’t incur any new debt. You will need to lower your cost of living in the retirement years and perhaps the single best way to do this is to make sure you aren’t paying for yesterday’s debts.

Prepare your body for retirement. Improving and maintaining your health is another aspect of cost of living reduction. Healthcare is a major cost in households today, but nowhere more than for the elderly for whom it’s often the largest single expense.

One of the best “investments” you can make in your retirement future will be taking care of your health while you’re still young. Picking up chronic health conditions is a part of the aging process, but the fewer we have the better, and the less of our financial resources will be needed to deal with them. Medicare is already strained and future predictions aren’t comforting so we may be on the hook for what ever it won’t cover. The investments of time and effort we make in better health can be worth hundreds of thousands of dollars later.

Keep your friends close, and your family closer. This has obvious emotional benefits, but there are a few financial ones as well. When we’re socially disconnected, we need to pay to find entertainment and to have others help us when we need assistance. But the more connected we are with family, friends and community, the less we’ll have to pay to find enjoyment and aid. Also, we often rely on work to provide community and companionship—once we’re retired, we’ll need to look elsewhere.

Get comfortable with reality! We all tend to have a vision of retirement as a care free world in which we’ll have plenty of time and money to do what we couldn’t do in our working years, and all our troubles will magically fade into the past. After all, we’re virtually bombarded with images of that kind of retirement from the institutions who are selling us the programs that will allegedly get us there.

But an expectation like this can only lead to disappointment. Other than the fact that you won’t be working at your current occupation, life in retirement will pretty much be what it’s been all of your life. Accept and prepare your mind for that reality, rather than the fantasy. Once you do, you’ll realize that retirement planning really isn’t all about money.

What are some other ways you can think of to broaden retirement planning beyond a 401k to encompass a complete life plan for retirement?

This post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

( Photo courtesy of epSos.de )