Cutting Down The Costs Of Having People Over For Dinner
November 28th, 2006
Over at the Frugal Law Student, there’s a post on a dinner party turning into an expensive (and time consuming) effort to make pizza. His idea for keeping it from getting so expensive is to shift to a pot-luck style dinner. I’d add that you can have people over without spending too much if you cook the right foods. Try a barbeque if you’ve got a grill – hot dogs and burgers are about as cheap as you can get. It also doesn’t take any time – and it’s easier to get a student friend to bring some drinks or some buns than to get them to make a side dish. You can also stick to soups, pasta, or other stuff that doesn’t take so long to cook – or if it does, can just simmer all day without you paying attention to it. Another option: rotate. If you’ve got a solid, core group of friends who are willing to host, then you’re going to save money compared to going out. That may or may not work depending on your social group, but it would at least give you a few evenings off for every one you have to work at. Anyone else have any other ideas?
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Mismanaging A Family of Eight
November 28th, 2006
That’s what this article is all about – how a big family turned into a big financial problem. Honestly though, the number of kids wasn’t the source of the problems – it was the inability of the parents to rein in their spending. They kept buying and buying, and now the problem has reached critical mass:
But as the children grew, so did the Schenkels’ expenses. When their small 3-bedroom home became a squeeze, they built a bigger one for $325,000, raising their mortgage payments to $2,500 a month. As the four kids inherited Kelli’s passion for gymnastics, the couple began spending $1,000 a month for classes and travel to competitions. And they couldn’t resist buying extras like the 50cc Suzuki motorcycle that Nate rides around on (predictably crashing into the deck and gashing an eyebrow shortly after learning to ride).
While the Schenkels have been pretty good about keeping track of their six lively children, they haven’t been as vigilant about tracking their cash flow. The price of neglect became clear when Jay Berger, an adviser with Integrated Wealth Management in Traverse City, Mich., recently met with the Schenkels (at Money’s request) for a financial planning session.
Sitting at their kitchen table, the couple were aghast to discover that they’re spending nearly $9,000 a year more than they earn and have drained most of their $112,000 home-equity line of credit. Plus, they have almost no savings – only $23,000 in retirement funds and no college funds at all for the kids.
This struck me as willful ignorance. No one spends $9,000 more than they make every year and then suddenly realizes it after they’ve burned through $100,000. But they do refuse to admit when they’ve got a serious problem – often moreso with money than anything else. In their late thirties, this couple will barely have enough time to right the ship – and that’s assuming extreme cutbacks in their spending. I do think that although the problems here weren’t initially caused by having so many kids, the size of the family has caused the budget issues to snowball – and anyone thinking about doing that ought to think twice. It’s not an absolute no-no, but the reality is that a child is a drain on your budget. Six children are only going to magnify that – and if you can’t afford it, you shouldn’t be trying to create your dream family just because it’s something you want. Everybody wants things – for some people it’s cars or houses, for others it’s vacations, and maybe for you it’s a big, loving, Brady Bunch sized family. The only problem is that you just can’t go blowing all your money on something just because you want it – even if it is something warm and fuzzy like a big family. If you spend $100,000 on your dream wedding and you make an average income, you’re going to regret it. And if you have more kids than you can afford to take care of, you’ll regret it later on, too. Dreams are great – but you can’t decide they’re going to come true regardless of the consequences. I think this particular decision is more likely than others to get people into a bind because it often has no logical basis. No parent of six is ever going to sit down and regret having one of their children. But if they’d really thought it through beforehand, it doesn’t seem like that good an idea unless you have a pretty high income – or some of your kids are already out the door. This family tried to have it both ways – all the spending and luxuries of a smaller family, with all the expenses of a larger one. It doesn’t work that way – if you don’t make a huge income and you want more kids, you’ll have to sacrifice some of your other dreams, period. And if you try to have it all, you’re going to dig yourself a financial hole you might not be able to get out of.
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Becoming A Success By Screwing Up Your Life
November 19th, 2006
That’s about what this guy is trying to do – after messing up big time with a venture into the real estate business by trying to flip about 8 houses at a time (and buying them without seeing them), he’s turned to blogging about it, getting an effort at rehabilitation from a high profile money guru, and even got a job with a mentor in the real estate business as a result of the publicity. I guess there’s a silver lining in everything, though I wouldn’t recommend that anyone go out and try this path to success. But hey, I guess it did work for Paris Hilton…
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How Much of Your Income Can You Save?
November 17th, 2006
I’d never have guessed it, but this couple managed sixty percent – of their GROSS income. And that income is only $48,000. It sounds pretty extreme to me – I think most people ridiculously overspend, but they might be oversaving. You’ve got to have some fun while you’re younger, too – just as long as you don’t use that as a rationalization to do whatever you want, whenever you want, regardless of the consequences. What would be the ideal percentage of your income to save? My guess is that about 10% of your gross income puts you in the safe zone, 15% is a better (but more aggressive) goal. That’s assuming you start when you’re relatively young – but that couple is in their mid-thirties, and frankly don’t have to go that far unless they really want to. The one major upside is that he’ll probably be able to retire pretty early. That might be worth it, especially if you’re the kind of person who doesn’t get much pleasure out of stuff or travel or most of the other luxuries people spend money on. For most people, though, I’d recommend trying to find a happy medium rather than going overboard.
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Negotiating With Car Dealers
November 15th, 2006
There’s nothing the average consumer is more hapless about in my opinion that negotiating with a car dealer. The problem is that the car dealer is an expert at it, and you’re a novice. They do it dozens of times a day, and you come in once every few years at the most. I’ve seen some nasty tricks, and I know some people have to fall for them or they wouldn’t try it. So here’s a list of tips to help you get the upper hand:
1) Know how much your car costs based on different interest rates BEFORE you go into the dealer. This is important because car dealers like to take advantage of your inability to calculate interest in your head. They figure that they can negotiate around the monthly payment, which is what most people care about – and you won’t notice if you end up paying a lot more than you should. For example, going into one dealer I had figured out that if I paid 6% interest on the full MSRP of that car, I would pay around $250 a month. Want to guess the first offer the salesman opened with? Me paying $3000 down and $350 a month. That’s about a 25% interest rate, and I had good credit – but I couldn’t calculate that in my head. I just knew that it was way out of whack with the numbers I had figured out beforehand. You don’t have to be a math major to figure it out. Just go to this online calculator and plug in the numbers.
2) Don’t get your financing from the car dealer – go in with a preapproved loan. This is something most people don’t do, but it’s a good way to get rid of most of the tricks the dealer can use. The idea is to have your financing ready so that you’re only negotiating the PRICE of the car – instead of focusing on the monthly payment, where it’s easier to obscure what you’re really paying and easy to tack on financing charges of various kinds. Talk to your bank or go to a site like LendingTree. Also, you need to keep in mind that car salesmen don’t like this, and some have even resorted to scams to try to keep customers from doing it. One popular one is to claim that online lenders (or whatever local lender you have if it’s not well known) bounce checks and aren’t reliable enough for them to work with. If they start into this, tell them that if they can’t accept your loan, you won’t make a deal, and head for the door. They’ll turn around their attitude pretty quick – and if they don’t, you don’t want to deal with them anyway.
3) Figure out a maximum price you’re willing to pay. You’re going to have to negotiate on this at the minimum. But you shouldn’t go into a dealership blind. This isn’t a shopping trip. You’re not going there to decide what you want – you should already know, or at least have it narrowed down to a few choices. So before you go in, you should have a max price you’re willing to pay – and you should research it beforehand. I’ve looked at a lot of sites researching blog posts here, and looked through a lot for this post. But I’ve really never found a more useful site for what it was trying to do than this one: Car Buying Tips. Seriously, I was blown away by it. There is no way this post is going to be adequate to teach you everything beyond some basic tips. So before you actually buy your car, you need to go there and spend at least a few hours reading the site. And as far as getting your research together, it’s got several great resources as well. One is a tip they call making “The Folder,” which is a gathered set of reference materials you carry into the car dealership with you. Don’t be shy about it, because this is a great idea. Specifically, they have a list on there of various sites where you can get quotes of the MSRP and dealer invoice prices – so you know exactly what the dealer is paying the factory. They’ve also got a section where readers submit the deals they actually got on their car.
So in essence, what you do is go get the information from the various sites listed on “The Folder” page. They’ll give you both the listed MSRP (just to make sure it’s accurate when they tell you it at the dealer) and the invoice. You should make up an offer beforehand – which should be more than the cost to the dealer, but less than the MSRP. The dealer needs to make some profit, so if you go in and offer them $100 more than the cost, you’re not going to get a deal. 4-5% over the actual cost seems to be about standard for what they’ll accept (for the math impaired – 1.05 times the dealer’s cost). You can go lower if you want to push for a good deal, but be advised that you might have to go around to more car dealers to find one to take it.
How do you figure out the cost? Again, I’m going to refer to that site – which has a spreadsheet that will calculate it for you based on information available online. Figure this out, and tack on five percent. Go in, make a flat offer on a car, and make it clear that this is all you’re paying – no extra charges, no bells and whistles. If they want to make a deal at that price, fine. If not, you walk out – rinse and repeat.
4) WALK OUT. It’s amazing how many people aren’t willing to do this – either because of social conventions or because they don’t want to waste the time they’ve already spent. The single best negotiating tactic you have is to stand up and start leaving. Why? They’ll be desparate to keep you on the lot, and as long as you’re not being completely unreasonable, they’ll cave on something. And if they don’t? Who cares? What is the consequence to you of walking out? Absolutely nothing. The car dealer is not going to blacklist you. You can walk right back in to the same dealership tomorrow and they’ll start right back where you were. If they really can’t do your offer on the invoice and let you leave – then try another dealer in town with a slightly higher offer. If that doesn’t work, go back to the first one with an even higher one. Start low and move up, because it can save you several thousand dollars.
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Black Friday – Getting The Best Shopping Deals
November 14th, 2006
For those of you who enjoy getting a jump on the Christmas shopping season, you may have heard of “Black Friday” – the day after Thanksgiving, and the first day of the Christmas shopping season. It’s also a day where stores offer huge discounts on a few items to draw customers in – and often don’t have enough in stock for everyone who wants one. Those who prepare get the best rewards – and over at Personal Finance Advice, the tricks of the trade are revealed. You’ll have to check the fine print, but using a couple of technicalities you can run rings around the other shoppers you’re competing with. And it turns out there are a lot of web sites keeping track of the deals so you don’t have to. Rather than look in the newspaper, you can get your information a lot faster and more efficiently online. Try Black Friday Ads, a site that collects all the different promotions in one place. There’s a set of forums dedicated to tipping each other off to the deals in advance here. And there’s another site with about 2500 different sales that you can see here. Do your homework and you should be able to be the one who goes out of the store with the best bargain. And remember that if you’re spending money on something you weren’t going to buy anyway – you haven’t saved money, you’ve wasted it.
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Tricking Loved Ones Into Saving
November 13th, 2006
Here’s a nice little post from 2 Million Blog on how he “tricked” his fiancee into doubling her IRA contributions each month. The best part is that it’s likely to be permanent, because once you get it automatically coming out of the paycheck each month, it’s easy not to notice it anymore. The only problem? She’s still got it set at a pretty low savings rate. Then again, most people don’t jump right into full savings mode unless they have some kind of crisis. What’s most important is gradually getting to a rate that will lead to a happy retirement.
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Should You Save To Pay For Your Kid’s College Expenses?
November 10th, 2006
It’s a pretty standard accepted practice for parents to sock away money to pay for their children’s college expenses. But Suze Orman raises a good point in a mostly unrelated article:
Instead, a good financial advisor will assess whether you should be saving for college at all. If you aren’t already maxing out on all your own retirement savings options, or you have a big chunk of high-interest credit card debt, you have no business putting your kids’ college costs ahead of getting your own finances in good shape.
A financial advisor who has your best interests at heart — and your kids’ for that matter — will explain that if you retire without sufficient income to live on, or in serious debt, you’re going to be a financial burden to your children.
This is kind of an obvious point, but it’s become pretty much the standard for all parents to try to save money for their children’s college expenses. My suggestion is that there are a lot of other reasons why you might not want to, and you should think through this instead of assuming it’s your duty:
1) Student loans are easy to get. True, college is more and more expensive. But it’s gotten to the point where unless you’re making a ton of money, it’s a big sacrifice for a normal family to save the hundred thousand or so that it takes to get through a four-year private school. But consider the alternative – these days you can get student loans for almost the full amount at low interest rates.
2) Multiple children make it a lot harder. Are you really going to save $100,000 for each kid? They’re going to expect roughly equal assistance, and you may not be able to give it.
3) There are cheaper options. In my experience, in going to graduate school you should pick the most prestigious school, even if it’s more expensive. That’s assuming you are going into a career where you can pay back the loans – if you’re getting an art history PhD, it’s not a good idea. But for your undergraduate degree, I don’t think it matters all that much if you went to a state school versus an elite private university. Admission to graduate school will weigh your test scores a lot more heavily than the brand name. There’s some benefit to it – but I’m not sure it’s worth the cost in the long run if you really can’t afford the more expensive school. The state version may be a few thousand a year versus $30,000.
4) They don’t have to go for four years. Graduating in three is easy. That cuts down on the expected expenses by 25%, immediately.
5) You may genuinely not be able to afford it. If you aren’t saving 10% of your money for your own retirement, minimum, you shouldn’t be saving to pay for your kid’s college. Sounds harsh, but think about the ways the world is changing. The traditional safety net in old age was having your kids take care of you. You saved no money, you had fourteen kids, and a few of them lived and were successful enough that you could live with them when you got older (if you got older). That doesn’t work anymore. You may only have one or two kids – and they may not WANT to take care of you in old age. It’s not as normal to have a random grandparent living in the house. Your kids may die, or get sick or disabled, or be shiftless bums who can’t even take care of themselves, let alone you. With only two shots at it, your retirement just isn’t safe that way. You have to be prepared to pay your own way. And if you’re on an average income, it will be very hard to do that when saving for college for multiple children.
6) You can make smaller investments that will pay off down the line by reducing college expenses. That $400 SAT prep course could get your kid a scholarship, and then you’re saving tons of money. Those Advanced Placement courses? $50 to take the test – and eliminate $5,000 worth of college expenses by not having to take another course at full price. Making the cheap investments down the line will help hold down costs to a level where your children can manage it on their own.
7) Some kids treat college as if it’s just a four-year party. You won’t know until it happens, and you may not even know then. If your kid isn’t assuming some of the responsibility themselves, they may not worry too much about partying on your dime. If they’re paying for some of it, or taking out loans, it’s a different story. Why pay a ton of money for someone to get drunk every weekend and get a credential at the end?
What about the reasons why you might want to save for your kids? There are some situations where I think that hands-down it’s a good idea. Here are some of those:
1) You make so much money that you wouldn’t even notice it missing. If you CAN pay for your kid’s college expenses, why not? It’s not a bad thing to do it. Making sure they get a good education and a head start on life is something all parents want – which is why so many pony up. If you’re not going to miss the money, then I’d go ahead and do it. If you’re worried about personal responsibility, then condition the checks on good grades (or more realistically, condition any money given for “fun”).
2) You make enough money that it hurts your kid’s ability to get financial aid. This is true to some extent – parental salary can reduce eligibility for student loans if it’s too high. You’re damaging your child’s ability to get these loans, and if you’ve got enough income that your kid can’t qualify for financial aid, you probably can figure out a way to pay for at least some of their expenses.
3) It’s so cheap that you can afford it easily. If little Susie goes to the $2500 a year state school, then why not pay for it? You don’t have to make a big savings effort, you just have to cut back a little.
4) You save for part of the costs, but not all of them. I think this is ultimately the best approach. Most people just can’t save the full amount it would take at the most expensive college. And in reality you’re making a rough guess when you make this decision. You may have a four year old, and you have to decide whether they need enough money to go to Harvard or junior college. You just don’t know. I would try to save a smaller fund that would help them get started. $10,000 or $15,000 in today’s money seems about right. It won’t pay for everything – but it will give them a guaranteed minimum that if they pick a cheap school, they’ll be able to go. If they want something more, then they can borrow, get a scholarship, or work. Those aren’t bad options – they may not all be viable for any particular person. But there will be a lot of ways out there to supplement the money you’ve put aside – and in the end, most people are going to have to bear at least some of the responsibility themselves. All you can do is try to put your kids on a steady footing when they first go out on their own.
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Don’t Forget to Deduct Your Sales Taxes
November 8th, 2006
Don’t Mess With Taxes has a post that you’ll be interested if you live in a state without an income tax (Texas, Washington, Alaska, Florida, South Dakota, Wyoming, and Nevada). It points out that the IRS is reviving an old deduction for people who pay sales tax, so it will apply to your 2006 returns. You get a choice between deducting state income tax or state sales tax – so you’ll probably only want to use it if you’re in a state without an income tax (then again, if you bought a giant yacht, you may come out better this way, too). The downside? You have to itemize, and can’t take the standard deduction. But many people do that anyway, especially if they own a home. And as Don’t Mess With Taxes points out, a big chunk of residents of those states simply forget to do it. That’s free money that you’re wasting, and the couple of extra lines you fill out on your tax return are well worth it.
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How To Get A Better Raise
November 7th, 2006
This article is on the secrets you may not know about how your boss is making a decision about whether you should get a raise – and if so, how much. I’d take it with a grain of salt just because the decisions vary so greatly from company to company, and even boss to boss. But there are a few good points in there, namely that your boss may be allowed a pretty broad range of potential raises to give you, and that if you’re proactive about it (pointing out bumps in market salary and getting up the courage to ask for a bigger raise) you’ll often get a higher one than everyone else.
The idea of selling yourself year round is a good one, too. In fact, I don’t even think you have to approach it as a sleazy, car-salesman style self promotion. You don’t have to be constantly dropping hints to your boss about how you really nailed the Smith account. I’d ask for a periodic meeting with the boss to discuss your progress and ask your boss for suggestions for improvement. The first part lets you tout all your accomplishments to the boss – and the second makes them feel like they’re doing something, actively helping your progress. If you take their suggestions into account from meeting to meeting, they’re going to naturally think better of your performance. After all, you’re doing what they want – and it was their idea. And in a one-on-one environment, you’re not dealing with other employees who might want to take credit for what you’ve done. Finally, you just seem like you’re interested in doing your job better, which is generally a good idea.
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