Being Too Frugal Can End Up Costing You Money

Written by Hank Coleman - 4 Comments

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I recently came across a coworker who was burning the midnight oil. I thought that I was the only one who had to work late that night. When I asked him what he was doing, he told me that he did not have an internet connection at home, so he was using our work internet after hours.

Setting aside the ethical implications to this scenario, I decided to delve deeper into his life and frugality. Come to find out, he does without a lot of things to cut costs — cable television, internet, phone service, and he even drives across town for cheaper gas.

There’s difference between being frugal and simply being cheap. Which side of the line is he on?

Believe it or not, you can take frugality too far, to the point of being miserly, unethical, antisocial, etc. While frugality is perhaps more socially acceptable than in the recent past, it still has its limits.

Aside from the social implications, being overly-frugal can wind up costing you money, too. Let me give you a few examples of how frugality may hurt your wallet.

Ditching cable actually kills my budget

I love having 200 cable television channels at home on my TV. I enjoy having seven different channels from providers like CNN, MTV, and others that cover the exact same things. But I will let you in on a little secret. Having 200 channels on my television actually saves me money too.

For me, it is totally worth the money I spend on having so many channels. It keeps me at home on the couch instead of out on the town looking for something to do and spending money. This isn’t true of everyone, but I know that I personally get bored and distracted easily.

I would quickly find myself inside the movie theater every weekend or buying DVDs each week if I didn’t have a lot of TV channels to choose from at home. The cost of those activities would quickly outpace the savings of not having a large cable television packages if I am not careful.

You miss out by not having internet

Do you need an internet connection at home? No, but in today’s digital age, it makes life more efficient and enjoyable. It also makes it easier to forego having 200 cable TV channels if you disagree with point #1, above. An internet connection opens up a world of possibilities with streaming content from Netflix, Hulu, Amazon, and YouTube.

While most of the premium sources charge a monthly fee, that cost pales in comparison with the cost of a premium cable or satellite packages. The primary downside is limited access to live sporting events.

Driving around wasting your savings

Have you ever driven past a gas station with a higher price at the pump in hopes of saving money on gas? Many of us get sticker shock when the price of gasoline starts to creep up in the summer, but you shouldn’t drive too far to find your next tank of gas.

You can do a simple cost-benefit analysis and determine the breakeven point to make it worth driving further down the road. At some point, you’ll find yourself eating away at any potential savings — not to mention wasting your valuable time. Eventually, the search itself becomes uneconomical, and you should just pay the few extra pennies for the higher priced gasoline.

Wasting your frugal savings

Another way that being too frugal can wind up costing you money is what you do with the savings. What is the end result that you are shooting for by saving so much money through your daily spending decisions? Are you investing that money? Are you saving the money for another financial goal like paying for a home with cash? These are all great endeavors if that is actually what you use the money for.

There is, however, a range that your frugality will enable lifestyle creep in other areas. Or maybe you’ll deprive yourself so much in one area that you’ll rebel and overspend in other areas.

Is it possible to be too frugal? I personally think that there’s a point where frugality becomes counterproductive and can wind up costing you money in the long run.

Are there ways that you can spend your free time enjoying life without spending a dime? Of course there are. But there are also times when knowing ourselves, how we behave, and knowing when to say enough is enough can actually save us money even though it involves spending a bit of money.

Have you ever taken frugality too far?

Check Fraud: Use a Shredder — and Hope Everyone Else Does, Too!

Written by Nickel - 3 Comments

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I’ve suggested in the past that you should think twice before writing a check to a complete stranger. After all, your checks contain both your account number and your banks routing number — exactly what someone would need to help themselves to your money.

This is especially troubling given the ease with which checks can be printed, as well as the fact that bank accounts don’t typically have the same level of fraud protection as credit cards do.

Well, guess what? Now that more banks are accepting remote deposits using photos of checks, you have reason to worry even if the recipient isn’t a crook. Think about it… They receive the check, shoot a photo for the deposit, and then what? Rip it up and throw it in the trash?

As evidenced by a recent story out of California, tearing checks up — or even shredding them — isn’t particularly effective when it comes to preventing fraud. According to detectives in Santa Clarita, a couple managed to steal a total of $16k from 20 victims by dumpster diving at a local self-storage facility.

The couple apparently managed to piece together hundreds of “partially shredded” checks. Once they had the account and routing numbers from these checks, they were able to print and use counterfeit checks that were drawn on the victims accounts. Yikes!

I’m not sure about you, but I run everything like this through a cross-cut shredder that produces tiny particles, pretty much ensuring that nobody will be able to piece things back together. But what about the people that you write checks to? How sure are you that they’re doing something similar vs. just ripping them up (or using a strip shredder)?

As if you needed more things to worry about…

Source: CBS Los Angeles via The Consumerist

HSA Contribution Limits for 2013

Written by Nickel - 14 Comments

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It’s never too early to look ahead to next year. With that in mind, I wanted to highlight the 2013 HSA contribution limits. As many of you know, we’ve been using our health savings account as an additional retirement investment vehicle. That is, we’ve been contributing to it and saving up the documentation related to our medical expenses, but not withdrawing the funds.

The only drawback has been that my employer’s HSA custodian has horrible investment options, so I’ve been waiting for the money to reach a critical mass before transferring it to another custodian for investing. The good news is that my employer is switching custodians on July 1, so hopefully the investment options will be better (they can’t be worse!) and I won’t have to deal with transferring it myself.

Anyway… Back to the issue of contribution limits. In 2012, individuals can contribute $3,100 and families can contribute $6,250. In 2013, those limits will increase to $3,250 and $6,450 — so individuals will be able to stash an extra $150 and families will be able to stash an extra $200.

As a reminder, you can only contribute to an HSA if you have a high-deductible health plan. The current definition of “high deductible” (which will remain unchanged in 2013) is $1,200 for an individual and $2,400 for a family.

I can’t speak for anyone else, but we’ve come out way ahead by switching to an HDHP (plus HSA) from a more traditional PPO plan. What about you? Do you have an HDHP? If so, are you happy with it vs. the alternatives?

Hat tip to The Finance Buff for digging up the limits.

How to Close an Ally CD Early

Written by Nickel - 6 Comments

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I’ve talked a lot in the past about using long-term CDs to improve your short-term savings yields. In particular, I’ve talked about using five year CDs from Ally thanks to their low early withdrawal penalty.

Until now, however, much of that strategy was theoretical. Yes, I had bought the five year CDs to hold some of our short-term cash, but I hadn’t actually tried to break any of them early — until today.

The time has come to re-deploy some of the cash that was sitting in those CDs, so I contacted Ally via their online chat interface. For the record, you can close accounts via chat or on the phone, but not via e-mail.

After exchanging pleasantries, I explained what I wanted to do. The rep then asked for the account numbers, explained that I would be penalized 60 days worth of interest, and then stated the following:

We are experiencing a larger than expected delay in processing these types of requests. The request will be completed in 5-7 business days. I apologize for the delay, and we are working as quickly as possible to complete the request.

I’m not sure why that is, but I suspect it might be due to recent news about Ally’s troubled mortgage unit, Residential Capital. The latest word is that they’re preparing to package up ResCap and sell it off, which would help them pay off the emergency loans they took as part of the financial bailout.

Regardless, our money is FDIC insured so I’m not particularly worried. I did, however, ask if it was possible to expedite the request and was told that she would “escalate” it, but that it could still wind up taking 5-7 business days.

The delay doesn’t really affect us in this case, but you may want to allow some additional lead time if you anticipate needing your funds by a specific date.

Update: I just checked and was pleased to discover that my request has already been processed. What could have taken a week wound up taking just a few hours.

Seven Ways to Make Big Bucks at Your Garage Sale

Written by Ed Avis - 5 Comments

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As the weather grows warmer, many people start thinking about unloading those assorted, needless items they’ve accumulated over the last year by holding a garage sale. How many wicker baskets and bud vases does one family need, after all?

Most garage sales fail to produce the windfall the proprietors are seeking however, because they just wing the stuff out there in the lawn and hope for the best. Beat the odds by implementing some of these tips. Do things right and your garage sale will be the shopping destination of the day!

1. Planning pays off

No, don’t try to have a garage sale tomorrow if you just thought of it today! You’ll do much better if you think about your garage sale months in advance. That way you can start setting aside likely sale items — doing that is a lot easier than rummaging through the house the day before the sale, and you’ll be much more likely to have good, saleable items.

This raises another point: Don’t sell stuff that really belongs in the garbage can. Flat basketballs, clothing with holes, broken small appliances, etc. will not sell, and having them in your sale will sully the good stuff that you do have.

2. Band together

A neighborhood or church rummage sale attracts a lot more attention than a solo garage sale. If you can advertise a ten-family sale, for example, many more buyers will make the trip. Don’t worry about competition — everyone will have enough unique stuff that you won’t be losing sales to your neighbors. The big group sale allows you to spread the cost of advertising, too.

3. Location matters

You want people to see your sale, so set it up for maximum visibility from the street. Put good, interesting stuff up front to attract attention. If you’re doing a neighborhood sale, consider asking for permission to close the street. This may seem counterproductive, but you’ll find that buyers love the festival atmosphere of a big sale on a closed street with no auto traffic (obviously this only works if there’s enough parking on the cross streets).

4. Timing matters

Saturday is the day, and one day is usually enough. You’ll be sick of the sale by the end of the first day, and most buyers will assume the good stuff is gone if you try to stretch into a second day. Skip the holiday weekends, unless you live in a resort town that attracts lots of tourists on holidays. Start early in the morning — definitely by 8 a.m. — because serious shoppers like to roam the sales before the crowds arrive, and they’re usually prepared to buy.

5. Price it right

Everyone expects a deal at a garage sale, so put yourself in your buyers’ shoes when you’re pricing. No one cares that you paid $1,000 for that PC five years ago — it’s only worth a few bucks today, so price it that way. Obviously buyers will want to haggle — that’s part of the fun! — but that doesn’t mean you need to give your stuff away.

One strategy is to put up a sign that says everything is priced as marked (no haggling) from 8 a.m. to noon, but that offers will be entertained (or prices will be cut in half) later in the day. That way if someone really wants something, she’ll pay full price before noon rather than risk losing it altogether.

One more pricing tip: Put prices on everything. It makes it much easier on the buyer, and some people simply don’t want to get into conversations with sellers (especially if there’s a potential language barrier). If you have lots of similar items, such as books or CDs, you don’t need to price each one, but at least put a sign that says, “All Books $1″ or something.

6. Promote, promote, promote

The more people know about your sale, the more people will show up. If you can afford it, run a small ad in your local newspaper, and be sure to name a few of the choice items in the ad. Definitely take advantage of free advertising such as Craigslist and Mom Mail (or the like).

Signage is essential, too — put up lots of big, bold signs with clear directions to your sale location. Your kids can help make the signs, but make sure the results are readable! To test your signs drive past each one and imagine that you don’t know where you’re going — will the sign tell you what you need to know?

7. Refreshments make shoppers happy

You’ll be amazed how many people will cheerfully pay 50 cents for a cold drink but will haggle over the 50-cent price tag on that $25 Monopoly game still in its cellophane wrapper! Homemade cookies, lemonade, and soft drinks sell well and will keep your shoppers refreshed (meaning they may hang around longer and buy more).

You’re probably not going to get rich at your garage sale, but these tips should help make your sale worthwhile. And don’t overlook the non-financial benefits of a successful sale — you might meet some interesting people, and you’ll surely clear some of that clutter out of your basement!

What’s the Lowest Possible Credit Score?

Written by Nickel - 6 Comments

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Dave Ramsey is famous for claiming that he has a credit score of zero, by which he means he avoids credit all together. But is it actually possible to have a credit score of zero?

According to FICO spokesman Barry Paperno, the answer is “no.” FICO credit scores range from 300-850, so the lowest possible score is actually 300.

To get that low, however, you’d have to do virtually everything wrong, and have no positive credit history whatsoever. As a quick example, Main Street highlighted a guy who had accumulated nearly $300k in debt due to a string of bad investments, experienced a foreclosure, gone on a debt management plan, and ultimately filed bankruptcy.

Guess what? His credit score never even got into the 300s. Rather, it bottomed out at 471. Of course, once you get down near 600 you’re pretty much screwed when it comes to securing credit, but still… It’s actually pretty hard to completely destroy your credit score.

As I’ve mentioned before, your credit score is based on five main factors, including your payment history, amounts owed relative to your available credit, length of your credit history, number of accounts, and types of credit used. In order to achieve a lowly 300, you’d have to bottom out in all five categories at once.

Thus, according Paperno, you’d have to be a new customer (so no history) and then do something like open a ton of new accounts (just one type), max them out in rapid succession, file bankruptcy, and then immediately apply for more accounts (of the same type). But you had better act fast, because having a credit history (even a negative one) is viewed as being at least slightly positive.

Interestingly, while you can’t actually reach zero (or even 300, for all practical purposes), you can fail to qualify for a credit score. More specifically, FICO requires that you’ve had (and used) an account within the past six months in order to assign a score.

$250 Signup Bonus from Citi ThankYou Preferred

Written by Nickel - One Comment

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It’s time for another bonus offer from Citi… This time it’s 25,000 bonus points from the Citi ThankYou Preferred card — enough for $250 in store gift cards through the ThankYou network. Here’s the deal…

Simply apply for the card, get approved, and spend $2,000 within the first four months to get the bonus. There’s no annual fee, and you’ll also receive 1 point per dollar spent on all purchases going forward.

So… The bonus structure isn’t nearly as good as something like the Citi Forward card, which offers 5% cash back (technically, 5 points per dollar spent) for purchases at bookstores (including Amazon!), record stores, restaurants, movie theaters, and video stores. But that bonus is pretty nice.

If you’re interested…

How to Help Your Family Financially – and Stay Sane

Written by Sarah Gilbert - 5 Comments

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This is a guest post from Sarah Gilbert.

My husband and I both grew up in large families, and both of them were poor throughout our childhoods; my parents for beliefs (my dad was a Baptist missionary and a part-time minister for many years) and his because of a fractured family and substance abuse.

In both cases, most of the now-adult children have followed in the paths of their parents. Three of my siblings are engaged in Christian ministry work or some other kind of values-based careers that pay little. Three of his siblings have struggled to maintain a solid financial footing thanks to a fractured family structure or substance problems.

This means that our siblings have needed help, a lot. Sometimes that help is easy to give and pays both ways — I’ve hired my younger sisters to provide very capable and loving child care. We both win. Other times, one of my brothers-in-law comes up with a questionable business idea or one of our siblings runs out of good living arrangements and asks to stay with us “temporarily.” This has almost never worked out financially and has always been very hard to give.

If you haven’t ever had to consider whether or not to help out a family member or friend, you’re either a member of a very small family or so blessed with good people in your life, you’re probably not looking for advice on the internet. In other words: most of us get these questions. Thanks to a lot of my bad experience, I’m ready to help you navigate these questions.

Family financial help typically falls along one of three lines:

• I have a desperate terrible emergency and I need money now!
• I am kind of broke and I would like to live with you (borrow your car, have you give me a line on your cell plan, etc.)
• I need you to loan me money / invest in my venture / help me with school.

Rule 1. Don’t think of it as a loan.

For situation 1, my advice is very succinct: only help if you can afford to never get the money back. Those family members suffering desperate, terrible emergencies are often suffering such emergencies on a regular basis. I have no wish to impugn the character of such folk; they are often lovely people who make bad choices, or perhaps have been dealt a bad hand in life.

An in-law who I will refer to as “Eleanor” seems to have a habit of getting into close relationships (as landlord, employer, or both) with people who turn out to have been not entirely trustworthy, or mentally disturbed, or criminal, or all of them. I do not expect that she will somehow rid herself of this tendency and enter a period of financial stability.

Also, if your dear friend or sibling or parent is in such a deep problem — and especially if you think of it as a one-time problem — what a load off their stresses and your future relationship it will be for them not to owe you. Make it clear it’s one-time, and make it clear that you don’t expect it to be repaid.

Rule 2. There is no such thing as “free help” and there is also no such thing as “you’ll never know I was here”.

Let’s say your sibling moves in to your basement with his significant other. Let’s say you have been promised that they will help with babysitting and housecleaning and pay you a little rent. “You won’t even know we’re here!” they’ll say. Fantastic! But…

You’ll know they were here. And the babysitting will be free, so it will be on their terms (enter Rated R movies and trips around the block to pick flowers from your neighbor’s garden “for you”). The housecleaning will be up to their standards and, as you’re not married to them, you’ll feel less comfortable specifying that you NEVER want them to use bleach, because you’re allergic, or that you really don’t like the smell of their preferred air freshener.

Maybe you’re better at setting limits and having confrontations than I am. But trust me that either your budget or your relationship will suffer. Last time an in-law lived with us, the first month’s power bill was more than twice our normal bill (when theoretically our power needs hadn’t increased much). Even though I subsequently confronted them, I was torn between asking they pay back the $120 and preferring they save money to get into a new living arrangement ASAP.

Same thing goes for just about anything: a borrowed car may be returned without an accident, but with the stereo turned all the way up and the seat adjusted funny and the distinct smell of someone else’s hygiene decisions lingering in the air. Or maybe (as another family member discovered last month) you’ll have a red-light-camera ticket in the mail. Loan if you must, help if you can’t say ‘no,’ but loan with the knowledge that it will not be invisible and will never be easy.

Oh, and regarding cell phone plans: very dangerous.

Rule 3. Personal loans for businesses or education should be assessed like any other lending decision.

I have seen this work. I have seen parents or uncles give money to an adult child and seen the business thrive and the loan paid back. But I think we all know that this also a good way to lose money. As they say, “the best way to make a small fortune in the restaurant business is to start with a big fortune.”

If your family member wants to start a small business and doesn’t have credit to get a business loan (few do, with restrictions banks have these days), have them write a business plan.

If you don’t have the knowledge to assess their plan, have someone else you trust do so. Put severe restrictions on how the money can be used and make sure you trust the business partners involved. Don’t be the only funder if it’s a large amount of money — make sure others, too, have some stake in the business.

Every time I think of parent investment in business I think of my boss at a sweet little basement pub in my junior year at college. His dad financed it, and he did a lot right, but he hired an alcoholic chef and spent a bunch of his revenues on cocaine. My $23 wages check (with the early 90s $2.13-an-hour waitress wages and taxes) bounced. Twice. The sweet pub was something else my senior year.

Which brings me to my final point:

Rule 4. Give love and support but don’t send good money after bad.

Lots of us have friends and family members who struggle with addiction, or are simply the victims of criminally bad judgment, and we know this. And lots of us have probably already given money to these dear people. We’ve certainly been asked.

But once we’ve determined that our money is, indeed, going down the black hole of addiction or terrible decisions, don’t give more. If the choice is bankruptcy or more money, bankruptcy is probably the right choice. If the choice is foreclosure or more money, let it be foreclosure, and help them get set up in a very low-cost new apartment.

I am not advising to never help people who are alcoholic or predisposed to buying homes they can’t afford or who are perennially falling for people who swindle them. But do not help them again because you helped them the first time and they’re now in the same exact problem again and you don’t want your previous help to be a complete loss. You know what will happen.

Average Price of a New Car?

Written by Nickel - 9 Comments

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Having just bought two cars in the past month, I was interested to read a handful of interesting car-related tidbits this weekend. For starters, the average price of a new car or light truck in April was just a shade over $30k. $30,303 to be exact, which represents a $1200 increase over last year.

Needless to say, we’re below average, having paid less than $30k for both cars (but not less than $30k total — do we get extra credit for having bought two cars?).

This overall price increase is being made possible, in part, by pent up demand. In fact, the average age of passenger vehicles in the United States has steadily crept up in recent years, reaching 10.8 years (overall; cars are 11.1 years old on average vs. light trucks & SUVs at 10.4 years) in 2011.

Another factor that is reportedly driving demand is high gas prices. Thanks to stringent federal standards, average fuel economy reached an all-time high in 2012. At the same time, gas prices have moved steadily upward (though they’ve dipped a bit over the past month or so), meaning that many people are in the market for more fuel-efficient vehicles.

Interestingly, used car prices have also increased as supplies of late model used cars have dwindled (thanks to drivers keeping their old cars longer; see above). I would imagine that higher new car prices have also (probably — I’m just speculating) helped to nudge used car prices up as more people are looking to the used car market to save a few bucks.

So I guess this is sort of a good news/bad news thing if you’re looking to buy a new car. While you’ll likely wind up paying more than in years past, your may be able to get a better than usual price for your old car.

Lending Club Recovered Funds from Defaulted Loans

Written by Nickel - 8 Comments

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While updating our investment portfolio last month, I discovered that Lending Club had actually recovered some funds from previously defaulted loans. We’re not talking about a huge amount here — around $18 minus ca. $5 in collection fees — but it was still a welcome occurrence.

The total amount recovered was mostly from a single loan, though I also picked up a few cents here and there from a dozen or so other loans. Clearly, they were only able to get back a small portion of the missing money in these cases, but it’s better than nothing.

As things currently stand, I’m trucking along with a net annualized return of a bit over 7.30%. What about you?