Debt Consolidation

The Facts About Debt

Protecting Your Budget

Filed under: Budgeting, Debt, Family Finance, Saving
Tags: , , , — Written by: Lyuda
March 25, 2010

Photo by: lyudagreen (flickr)

On paper, a budget may not look like much. Just a list of income and expenses. But if you’re doing your job and following that budget, you know what a critical asset it is. Your budget is keeping your finances – and your life – on track. So why not treat your budget like the precious asset it is by protecting it as you do with jewelry, a fine watch or a family heirloom?

Protecting your budget means following it. It means remembering to make payments when they’re due. It means saving and spending and donating according to a carefully crafted plan.

You can protect your budget in several ways. Here are some suggestions for the technically inclined and the not-so-technically inclined.

I use technology myself. I put my family’s budget into my computer’s Calendar. Then I sync it up with my digital organizer, which, in my case, is my cell phone. This way, I get automatic updates right on my cell phone every month when bills are due.

There are several software programs that do this too. You don’t even need a computer because even cheap cell phones usually include calendars which allow you to input recurring events.

On my cell phone, I get 2 notifications, the first one comes two days before a bill is due and the second one comes on the day the bill must be paid. This makes it very hard to forget when expenses need to be paid.

By due date, I mean the date I need to send a payment for it to get there in time. Some payments are mailed and others I handle online through my checking account.

For those who prefer not to deal with gadgets, paper calendars can work just fine. It’s best to put in expenses at least one month in advance and to check the calendar every day. Put it someplace that you’re sure to see it. And don’t forget to schedule the day to input your expenses for the next month or the next several months right in the budget calendar.

You can also use a personal date book. The important thing is whatever helps you to remember when expenses are due with enough time to make sure the funds are available for them.

Have you got a great method for staying on track with your budget? Tell us what’s working for you!

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Cash or Credit?

Filed under: Banks, Debt, Saving
Tags: , , , — Written by: Lyuda
March 22, 2010

Photo by: mangpages (flikr)

Since living through the 1990s economic collapse back home in Russia, I have always preferred using cash instead of credit cards – or even debit cards. I think I just got used to cash.

Since there was no equivalent of the US Federal Deposit Insurance Corporation (FDIC), many people lost all their savings when banks crashed. Forget credit – almost no one could obtain that.

The result? Most of us just came to accept that cash was the only option. The upside is that using cash made it very difficult to run up excessive debt.

Without getting into a discussion about the complexities of post-Soviet banking, I’m feeling a bit of dé ja vu these days. Bank collapses and difficulty getting credit and economic hardships..it’s all so familiar. The time has come to take a closer look at the merits of using cash.

It’s not just the parallels between Russia’s collapse and the one we’re living through now. There are also timeless reasons to use cash instead of a credit or debit card.

The first advantage of using cash is that you know where you stand financially. You don’t have to look at a bank ledger or a checkbook balance or a web page. When you need money, you know right where it is and how much you have. You also don’t have to write down how much you’ve spent in order to know much is left because it’s right there to count. You don’t have to worry about any fees caused by usage, as you might with credit or debit cards. Cash is also pretty much universally accepted; you don’t have to worry what bank’s name is written on it.

The second advantage of cash is that it can help keep you out of debt. There are so many ways that credit and debit cards encourage you to rack up fees, and I’ve seen people get into trouble with too much debt or with overdraft fees. With banks seeing lower profits on their traditional services, they are coming up with new and more complicated ways to recoup those loses through some rather creative fee strategies.

You can avoid those new tricks of the trade by sticking to cash. It reduces the need to consult the fine print in the latest correspondence from your credit card company. And watch out for new rules on checking accounts and debit cards. Cash also keeps you from overdrawing your account, avoiding interest charges and possibly other hidden fees.

Another smart move is to have an emergency fund in cash. While it is not a bad idea to have an emergency credit card, keeping out of debt if you can is a better idea. In Russia, we called cash emergency money “black day’ funds.” A black day is a day when everything seems to go wrong at once. One Sunday morning, a tire blows out and the fridge breaks down. With an emergency cash fund you don’t have to reach for a credit card or worry about whether the bank is open or if you have enough money in your account. Your can pay the car mechanic and the appliance repair person from your emergency fund.

There are some drawbacks to cash. Recovering stolen cash is very difficult so you have to worry a lot more about security. You also can’t do much shopping over the internet. And you need to budget your expenditures well as the only amount you have is the amount that’s in your pocket. If you can’t cover the groceries with what you have, you need to make another trip to the bank and then to the store. But these are obstacles that be overcome. After all, people used cash for centuries, when there was no such thing as a credit or debit card. And, as I said, I’ve gotten used to it myself. And the benefits of using cash for most transactions, having an emergency cash fund, and tossing out the credit or debit card except in case of emergencies.

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Should I Pool My Finances?

Filed under: Debt, Family Finance, Saving
Tags: , , — Written by: Lyuda
March 16, 2010

Teamwork
Photo By Scott Maxwell (Flickr)

Recently I was discussing with a gentleman who had a bad experience with his former spouse involving pooling their finances. Specifically his spouse quit her job ran up a bunch of credit card bills on his credit and left. He was obviously unhappy about this situation but still committed to what I’d call financial teamwork. Even as a single parent now, he was absolutely convinced that pooling finances is responsible and did not blame his misfortune on having done so.

The root of any financial relationship is trust. The financial industry often uses the word fiduciary. This word is derived from a Latin word meaning trust. While it is true that trust is at the root of any relationship it’s especially true with regard to finances. Many people are rightfully concerned when considering pooling finances with a spouse or partner because of the huge impact this could have on a person’s credit rating. I think the real way to consider this is a sober look at trust not only between individuals but also within themselves.

One of the biggest issues I have seen with finances is that sometimes one cannot trust themselves to always make the right decision. There are tons of options in finance designed specifically to protect an individual from poor decisions they might inadvertently make. One of the options I have seen used is not pooling finances because either person involved may not simply be concerned how the other handles theirs but also concern about their ability to handle their own. I truly believe that teamwork is involved in any situation in which the finances of multiple individuals is at stake but this can be a good first step to being more aware of a partners habits and engaging any concerns before committing to tying ones financial future with that of another individual.

Sometimes the best solution CAN be to simply not pool finances at all, but I do believe this is an extreme. With respect, transparency, and a team minded approach that is respectful of all involved, or impacted by any negatives, pooling finances can be a useful financial strategy, and an expression of trust. That said this should take place when all involved are not simply doing so out of a perceived obligation but rather taking a rational step forward. To take this step it really helps if both parties are aware both of the others spending habits as well as their budgeting weaknesses. One of the leading causes of divorce is financial concerns. Many times this does not involve any sort of intentional deception but really a failure to communicate ones financial strengths and weaknesses.

In general handling of finances comes down to understanding one’s ability for self-restraint and protecting their finances from the potential downfalls of a lack thereof. When more than one person becomes involved this is double important. If you are considering pooling finances what is critical is to make sure you are honest about your own strengths and weaknesses when it comes to money, and to ensure the others involved are as well. This is the true measure of fiduciary responsibility but it is the only way to answer the question of whether mixing ones financial situation with others is justified, appropriate, and beneficial to all parties.

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Is it time to throw out your debit card?

Filed under: Banks, Debt, Debt Consolidation
Tags: , , , — Written by: Lyuda
March 12, 2010

Chip on Debit Card
Photo by: Declan Jewell (Flickr)

The only thing about as bad as fees you can’t afford to pay due to economic hard times is fees that you don’t even realize you’re paying. Thanks to declining returns on services customers do opt for however that’s exactly the kind of fees banks are starting to love. An easy way to rope you into fees is bank debit cards, and even if you have never had a problem with one you may want to take a look now.

The first way these lock you into fees is you pretty much require overdraft protection to use one. Many argue that if you manage your account well and treat a debit card transaction like a check you won’t get into trouble. Unfortunately this is not true at all. Banks use a number of tricks in how they process transactions that make it impossible to be certain when a charge will take place, or for what amount. One bank manager I talked to said he was frustrated because he honestly couldn’t understand how they process these transactions; he said he always leaves a couple hundred dollars just in case, even though he is very sure of what money comes out of his account. These cards are seriously designed to encourage Non-sufficient funds fees with balances that do not consistently update and a ‘courtesy’ of letting you overdraw your account by hundreds of dollars before they decline a charge. A courtesy that can result in hundreds of dollars worth of fees; a postage stamp could cost you more than forty dollars!

Another hidden debit card fee is annual membership to some ‘rewards’ program. Typically the rewards aren’t amazing, and the ‘points’ earned are no more consistent than the order in which debit card transactions are processed. In almost any situation you’d see a lot more rewards by opting out of this program and just saving the money in a savings account. A similar ‘rewards’ program is to acquire points for ‘being green’. In reality this one is more about saving the bank from paper costs than it is about the environment, but it can also keep you less informed about your account balances.

Frequently also these days there is a charge just to have a debit card, or to use one. If you receive an updated notice in the mail regarding your card make sure to see if there is a new annual or monthly fee, or even a new transaction fee. Careful management of funds can only happen when you know for sure what fees may post to your account. A new 35-cent fee for a specific type of transaction could have you literally seeing a bright red 35-dollar insufficient funds charge!

Many people, especially younger people who have grown up with debit cards, find it hard to manage without them. It does take getting used to but it’s worth the cash saved, and avoiding disastrous NSF fees. Keeping enough money on hand, and keeping a low fee credit card ONLY for emergencies makes a lot more sense then letting the bank borrow your money while you essentially pay THEM interest on it in subtle fees. If you really can’t live without the convince of a card then make sure you always know what fees are charged, opt out of high interest overdraft protection, and keep a safety net of at least a couple hundred dollars in your account in case an unsuspected fee posts to your account.

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Three Little Piggy Banks

Filed under: Banks, Children, Debt, Saving
Tags: , , — Written by: Lyuda
March 9, 2010

Piggy BankPhoto by: Marcelo Moura (Stock Exchange)

Piggy Bank #1: The Three Little Piggy Banks

Piggy Bank is a UWSA blog series discussing ways to save small amounts on a regular basis and how the savings add up surprisingly quickly. Please feel free to share your ideas and your stories about how saving “pocket change” added up and helped you and your family reach a meaningful financial goal.

In the grocery store check-out line the other day, I watched a mom struggling to say “no” to her two sons who were begging her to buy them each a little car that the store had strategically placed at their eye level. There were a whole bunch of toys and trinkets there – meant to encourage impulse purchasing in kids – and in parents who instantly decide that a couple of extra bucks is an easy way to make their child happy. Parents beware! These are NOT cheap toys; impulse purchases add up to big bucks very quickly, especially for parents on a budget. Worse, they encourage terrible spending habits in children from the very earliest of ages. We want to teach our kids how to save, not just spend.

The approach I took with my son, who’s two, is the “three piggy banks” system.” The idea is simple and you can make your “three little pigs” system easier or more complex, depending on your child’s age.

The first step is to get three piggy banks for each child. You can purchase inexpensive ones or make your own out of jars or plastic containers. Perhaps you want to let your child pick out the piggy banks or do a craft with them to turn used containers into piggies.

Next, label the piggy banks as follows: “Savings,” “Spending,” and “Sharing.”

The “Savings” piggy bank is for collecting money that your child will keep on adding to over time. One idea is to have the child periodically deposit the money from the “Savings” piggy bank into their very own passbook savings account. This lets them get used to going to the bank and watching the total in their account go up and up — and they’ll see how their money earns interest.

The “Spending” piggy bank is to help your child save for a long-term goal. This depends on age, but with prices nowadays, it’s probably not hard to imagine that even a younger child wants something that will require accumulating enough money. If they choose to purchase something else with this money, like an impulse toy, it means you have a chance to remind them of their other goal and that it will take longer for them to get “the big thing” they’re saving for. This helps children begin to understand the concept of “cost” as opposed to “price.” Their decisions will have real consequences for them – positive and negative. To reach the long-term goal, they will learn to be more patient and not give in to impulse buying and other diversions.

The “Sharing” piggy bank is for donations to a charity that is important to the child or to your family. The satisfaction of helping those in need it is a wonderful feeling to experience at any age. Charitable giving is as American as apple pie. We have the highest level of individual donations in the world year after year after year.

Once the piggy banks are set up, whenever your child receives money, whether it’s allowance, a birthday gift, payment for shoveling the neighbor’s driveway etc., it gets divided evenly among the three piggy banks.

The three piggy banks can teach children to see money in many ways, not just in terms of what it can buy them. They also see that money can grow into more money and that it can help them help other people. It’s never too soon to start.

The three piggy banks is also a way to encourage your child to spend from the “Spending” piggy bank, rather than your wallet. It might not stop a child from asking you to buy them a trinket they spot at the check out counter, but it will give them an understanding of why you say “no” and a true sense of appreciation on the rare occasion that you say “yes.”

Got a great story about saving money? Please share your inspiration! Write to me at: staff@uwsa.com

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