Category: Money

A car? Or a truck?

Edmunds, The Automobile Research company, compiles many reports for the auto industry — best car, most researched vehicle, the car safety guide — but one of the most interesting paper they publish is, The 50 worst cars of all time, list. This is a study that looks at every car ever produced and ranks them from the bottom up and is comprised of such lemon legends as the The Edsel, the Gremlin, the Yugo and of course, the Pinto. Remember, the Pinto? The car that blew up if hit from behind at 30 mph?

Now, the Pinto has a great backstory because when Ford discovered early on that their new compact model had a potentially dangerous design flaw — the car had no reinforcement between the bumper and the gas tank which meant the tank could rupture upon impact — they decided to go ahead and roll those little beauties out anyway. In fact, there is a very famous memo where Ford amortizes the potential cost of lawsuits — it calculates the number of possible burn and death victims that could occur — and compares it to the cost of making the design change before production. And from this calculation, Ford determined that they would save 70 million dollars by not making the fix.

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And so the Pinto rolled off the assembly line and into car history.

There are other notable goof ups in the auto world — The Bricklin SV1 (Safety Vehicle, One) that had doors that couldn’t open after a crash, there was a Saturn where your foot got caught under the brake and then there are numerous 3-cylinder and even 2-cylinder disasters. But besides these noted lists of bad ideas the truth is that with current safety, emission and quality regulations, all vehicles now remain somewhere upstream of the standards. Which means that your average car or truck, is, well, your average car or truck — so they are all roughly in the same playing field and range from average to great.

So the model you choose isn’t as important as the type of vehicle you choose. Once you chose the type — car or truck — then the rest is just details. After that, it’s just a question between Coke and Pepsi.

So before you take the first step in deciding what your next vehicle will be, take one step back to determine the type.

Are you going with a car or a truck?

Now, this doesn’t seem like a difficult decision because we should know which type we want?

Maybe. But in actuality it’s very common for us to simply drive what we’ve always driven in the past — I’ve always had a car so I’ll buy another car — and few of us have actually taken the time to think about what is best suited for us; what makes the most sense or what will make our life easier.

What if a truck will save you money, better fits your lifestyle and will last longer in the type of driving you do? What if a car is a better fit for the business lunches you need to host and the type of creative parking you need to do in the city? There are myriads of sources to guide you in deciding which car to buy or which truck, but absolutely nothing to make the decision which one to start with; when that is more important and is the very first step.

Oh, and by the way, SUV’s are not in this equation. Why? Because SUV’s are cars. Meaning car buyers buy a car or an SUV. Truck buyers buy trucks. It’s true. In speaking to car and truck buyers they both consider SUV’s more of a car than a truck so we will lump them together.

Now there is no set formula, no piece of software designed to determine that Career-A is best suited for a truck and Lifestyle-B is one for a car. Nope. You need to ignore the emotional and see what makes sense.

Now the left brain emotional side says to buy something you like. Something you can be proud of and enjoy driving. Well that’s true, but here is the part you may not like.

As far as pure practical decisions, the truth is that if you don’t need a truck — meaning if you are never, or rarely, going to use the truck part of it — then don’t get one. Because if you do, then you are paying for the gas, tires and repairs for a large part of the vehicle that you’ll never use. Unless you are working on a farm, construction or you head to deer camp for four weeks out of the year, a truck is impractical — it may be cool, macho or fun, but it’s still impractical.

And on the flip side, if you have ever strapped a sheet of plywood or a chair to the roof of your Corolla, a car may not be the right type of vehicle for you either.

What do you need?

Truck owners — who’ve never owned a car — tend to think that cars are weak. Car owners — who have never owned a truck — see trucks as intimidating.

So don’t think with emotion and simply ask yourself — what do I need?

Who knows, you could have been driving the wrong type of vehicle for decades.

October 21, 2014
Managing found-money

So here’s the scenario. You decide to play the lottery. You choose your numbers, pay your dollar and stick the ticket in your pocket. The next day, just for fun, you check the winning numbers and —-. Guess what? You won! A perfect match. Yes! You jump up and down, you check the numbers again and — yes! You won. So you race to the nearest lottery office — trying not to kill yourself or anyone else along the way — and run in with the winning ticket.

You are escorted into the lottery offices. They verify the ticket and confirm that there was only one winning lottery ticket sold, which means that the entire lottery — let’s go with, twenty-five million dollars — is all yours. Every penny of it. Congratulations.

So you are lead to a room and you try to control your heart rate as a photographer takes the standard lottery winner photographs: the ones with you smiling and holding your huge cardboard check that has your name, then a dollar sign followed by a 25 and six zeros. The caption under the photograph will read: John Q. Public, our latest 25 million dollar lottery winner.

Then there are the interviews with the lottery people asking the normal lottery questions: What will you do with your twenty-five million dollars? How does it feel to now be worth twenty-five million dollars? Did you ever dream you would someday win twenty-five million dollars?

And by the next day, the world will read about everything that you’re planning to do with your brand-new 25 million dollar pot. They will read that you are going to buy a new house for your sister and have one built for your mom. How you are going to pay your niece’s tuition to medical school and give a lot of the money to charity.

And after the photographs are taken and the interviews are over, you move on to the good part. The best part. The time when they give you all that money. When they give you all that cash; your twenty-five million dollars!

You fill out more paperwork and are escorted down the hall to a large conference room where your check is waiting. You sit while a smiling lottery man slides the check across a polished conference table. Your flip the check over to see your name and a check for — $834,000.

You look up at the lottery man.

“What’s this?” you ask.

“That? Why, that’s your lottery check, sir.”

“But,” You say confused. “I won twenty-five million dollars.”

But the lottery man is ready for this. The lottery man has dealt with this confusion before.

“Sir,” he says patiently. “You opted for the lottery payment option when you purchased the ticket. Which means that you will receive twenty-five million dollars over a twenty-year period. Which means that we have put twelve and a half million dollars in an annuity for you, which over the course of twenty years will double and will equal twenty-five million dollars. We have taken the taxes out for you and you will receive a check for this amount, on this same date, every year, for the next nineteen years. Congratulations.”

You stand there and look at your check. Well, you have to admit, $834,000 is still a lot of money. A lot of money! More money than you have ever had at one time before and besides, you will receive a check like this for nineteen more years and by the end of it you will be worth — twenty-five million dollars!

So you grab the check and head out of the office happy and excited.

And soon the world will see you with that big paper check. The world will know that you won twenty-five million dollars. And soon you will start to believe that you do have twenty-five million dollars, or at least you soon will have that much. And suddenly your house is too small for a multimillionaire like yourself. Your car is too drab, your vacations too plain. Someone of your wealth needs to live a little. To share a little; to pay back the family and friends who were with you back before you weren’t so rich. And remember, you did promise to pay for your niece’s college and to build your mother a house. And those preapproved credit cards that are clogging up your mailbox can be put to use. It’s okay to charge a few things. Hey, it’s not like you don’t have the money, right? You’re rich now.

And let’s not forget those friends and family. Friends and family that now feel—no, now believe—that they are entitled to a part of that twenty-five million. You don’t want to seem greedy. You don’t want to disappoint them.

And then — four months before the next $834,000 check is set to be cut — you notice that things are getting a little financially tight. Hey, you quit your job months ago, remember? And the minimums on those credit cards are pretty high and then there’s the taxes on the three houses you now own and Suzie’s next tuition payment is due. But hey, you’ll weather the storm, right? Borrow a little to bridge the four months until your next check comes in. It’s okay. You’re a millionaire. It’s not like you don’t have the money. It’s not like you’re not rich.

But here’s the rub. You’re not rich. You don’t have the money. You’re not even a millionaire. You’re an eight hundred thirty-four thousandaire. You’re the same as that executive who earns that same amount every year, only he has one advantage over you. He knows he’s not rich. The world knows he’s not rich. But you have been lied to and now believe that you are rich. You and your family and your friends and the strangers at restaurants who think that asking you to pick up their dinner tab is normal because you got so lucky with the lottery and all—everyone believes you are rich.

Evelyn Adams, who not only won the New Jersey lottery but won it twice for 5.5 million, now lives in a trailer.

Suzanne Mullins won 4 million and is now broke and in debt. Abraham Shakespeare won 30 million and was murdered. Michael Carroll won 14 million and spent it on call girls. ‪Jack Whittaker won 314 million, was robbed, had a murder attempt against him and ended up bankrupt. Billie Bob Harrell won 31 million, was broke in less than two years and committed suicide. And you can go on and on and on.

The National Endowment for Financial Education estimates that 70 percent of people who suddenly receive a large sum of money, will lose it within two years.

And that’s the depressing news. The good news is that at some time in your life — through hard work, good timing or simple dumb luck — you will experience at least one financial windfall. Maybe not a lottery win, but a windfall.

As you are moving along in life, as the pace is steady and calm, pow, an unexpected lever will be turned and money will fall into your lap. This could be through an inheritance, your industry could be poised on a temporary position in the market, you could be the beneficiary of a life insurance policy or a law suit, whatever. It’s an absolute certainty that at some unknown time an unforeseen spike will occur and you will be sitting on an unexpected fat check.

And depending on your station in life, this could be for a few thousand dollars or one of those with many zeros. But it is a certainty that at least once, you will experience found money.

Now the bad news is that because this money occurs quickly, because found money has a different value in our psyche than earned income, because of the emotions attached and because of the pressure put on you from others, you will make a lot of mistakes. Many, many, many, mistakes. And it’s of very higher probability — 70% — that you will blow that money. In fact, it’s entirely possible that when the money is gone you could be financially worse off than before you received it.

The main reason for this is that we believe that that money can solve most of our problems. If we just had more money, the troubles would be over and when that money comes in suddenly it’s easy to ignore other issues.

RULES FOR FOUND MONEY

1. Don’t do anything for one year. Money is a very emotional entity and it’s extremely difficult to make clear decisions when there is so much excitement involved. So don’t do anything with it for a year — one solid year. Stick the money in a savings account, hide the bank book and let it sit for twelve months. Now, the only exception to this is paying off some debt but even that is questionable. You need to allow time pass to think — and this will give you an out later on when you need it because …

2. Your friends and family are not financial advisors. You are going to need some sound advice, absolutely, and that means professionals. Depending on the amount of money you receive will determine how many of your friends and family are willing to help you make decisions. And because you trust them as people you can trust them with your money, right? No. You need to have advice from professionals who have no emotional ties to you. And — if family and friends put apply pressure on you for loans, you can state that the money is all locked up and you can’t do anything with it for a year. And then give them your advisors name to contact.

3. Don’t buy a house. Yeah, we covered this in the first area, but I’ll say it again. Don’t do anything for a year. People who come into a windfall will typically buy a new house quickly. And you really don’t want to do that before taking the time to think about the consequences — and then there is everything that comes with a new house; taxes, fees, decorators, furniture, taxes, insurance, even utility costs are greater. So don’t do it.

4. No loans. And don’t be so quick to make new friends. Once you make money, everyone will approach you about new investments, ways to triple that money quickly, or sad stories of funds needed quickly.

5. Stay healthy. Since money is so important to us — especially to those who didn’t have it before — we tend to think it can fix anything. Many people that come into money neglect their health. You need to stay healthy and strong.

6. Keep moving on. As much as possible keep your life as close to it was before the windfall. Stay the course, keep plodding ahead and keep moving forward.

September 27, 2014
Debt Think

At one time, it went like this:

Something catastrophic occurred — a crop failed, there was a fire, a death, a flood or some unplanned event took place in a person’s life that they were not prepared for. So new priorities would arise. How will this person put food on the table? How will they repair that building, replace that income, or even have a roof over their head?

This individual would go through all their many options — what can be sold, what can they do without, what extra work can be found, what sacrifices can be made? And after painstakingly going through every single possibility, every potential solution, they may arrive at the very end of the list. The last resort. And with heavy heart and humbled head, they would go to a person that lent money and they would borrow. They would agree to go into debt bondage until the money was paid back, and with interest.

And once a loan was taken, this person would work hard, they would sometimes go without basic life necessities, perhaps not even eating if it meant the difference between paying this loan back or not. If it meant being free again. If it meant getting back to the way life should be.

And if something even worse happened so that they could not pay this debt back — if something occurred where they could not earn the money to repay the lender — then they would be imprisoned. After all, they had gone into debt bondage and they now belonged to the debtor — and they would remain there until their family and friends could repay the loan. Until their debt could be paid back in full. Until they would no longer remain the collateral for that debt.

That’s how debt used to be seen.

Here is a modern day example:

Let’s say you take out a car loan and are about to make your last payment. This last $350 means that the car is now yours. You make the payment and the loan is fulfilled. The car is now completely paid for.

The next month you are excited because you now have an extra $350. You have found money. It’s like getting a raise. And for the first few months you enjoy the found money and just blow it, until it quickly gets absorbed into something else, or your decide it’s time to trade in the car for something newer.

That’s debt think. In reality, you don’t have an extra $350. You have the same $350 that no longer has to be turned over towards your debt bondage.

Debt think is when it becomes normal to have debt, and it’s strange when you don’t.

And when you first bought the car and friends and family asked what you paid for it, what was the answer? $30,000? That’s debt think too, because when the loan is completely paid for you will have actually forked over $50,000 for the car. That’s the real cost.

Debt think is when we celebrate because we got a boat loan — not a boat. We get to revel in the debt bondage of something we hope to someday own and get high on the temporary illusion of owning something. We didn’t work for it yet. We didn’t sacrifice for it — we may not even really want it. We just agreed to go into bondage for it.

Debt think is signing that student loan agreement and being so excited because you don’t have to make a single payment until 6 months after you graduate. What you didn’t realize, because you didn’t read the fine print, is that the interest starts the minute we sign the paper — actually, most student loans take decades to pay just the interest off before the principle is even touched. Debt think let’s us see only the small, $50 monthly payment, without thinking about what the loan actually costs us.

Debt think sees in monthly payments. Debt think sees how fast something can be turned around. Debt think sees the power of borrowing and not the slavery of it. It’s buying into the sexy, slick way that stuff is supposed to makes us feel about ourselves and our lives.

Hey, not that credit is bad. It’s not. Using other people’s money can be the smartest thing you can do, if done right.

But debt think is a lie. It is a trick and an illusion.

If you have to go into bondage, do it. But don’t celebrate the bondage. Get free, and celebrate that.

September 9, 2014
How to Live a Cash Life In a Non-Cash World
When we were kids, money was a much simpler entity to manage; in fact it was downright easy back then. The process went like this: if our pockets were empty, and they often were, we went without. And if our pockets had something in it, we could spend what we had. And, here comes the stress-free part, how much we spent was determined by how much we had. Simple.

So, the decision process went like this. Can I buy a soda? Let’s see, do I have any money? No, I don’t have any money. Then the answer is no. I cannot buy a soda. Done.

Now, it’s a little more complicated.

Now our buying decisions are not based on how much we have in our pockets, or how much money we have in the bank, or how much money we can afford to spend, or how much we earn, or how much money is left in our budget, or is the thing that we wish to purchase priced correctly. Nope. It’s only based on — do we want it and do we want it now?

So, do I want a soda? Well, of course I want a soda. And I’m a grown man and I work hard so I’ll buy whatever I want. Because this is America. And I have three credit cards and a debit card in my wallet that says it’s America. So yes. Yes I can buy a soda.

And we buy. And it’s easy because we don’t really spend money, we spend numbers. Think about it: with little exceptions, it’s possibly to go a very long time spending, buying, and earning and never seeing the actual money that is flowing in and out. We just see numbers on a screen.

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Using a cash system is the only way to spend only what you have. Because with our credit cards we can spend until we hit our credit limit and with our debit we can clean out our account and push the overdraft limit dry before the red light comes on.

And the irony is that we’ve been conditioned to not think of these swipes of a card as real money. Yet, take actual cash from our wallet and we feel that psychological loss.

Using a Cash System
1. Establish a budget.
2. Create an envelope system. Create a physical envelope for each budget category. Now there will be budget items that won’t fit in the envelopes — automatic payments, etc. — so you keep those automatic and make categories for all that you normally use your credit and debit card for. These should include: Gas, Entertainment, Groceries, Clothing, Car Maintenance, etc.
3. After you’ve categorized your cash expenses, fill each envelope with the money allotted for it in your budget — if you allow $100 for clothing, put $100 in cash in your clothing envelope for the month.
4. Determine what is a weekly or bi-weekly (depending on how you get paid) expense and which is ongoing. So if you allot $50 a week for entertainment, then that will fill each pay period, whereas $25 a week for car maintenance will build until needed.
5. Tweak. During the first three months or so your system is in beta-test mode. There will be items you forgot, over budgeted for, or simply got wrong. Keep adjusting.
6. Once you’ve spent all the money in a given envelope, you’re done spending for that category. If you go on a shopping spree and spend the $100 in your clothing envelope, you can’t spend any more on clothes until you budget for that category again. That means no visits to the ATM to withdraw more.
7. When it’s gone, it’s gone. Don’t be tempted.
8. Blow money. There’s also no problem in adding a “blow money “category — money to have a little fun with! As long as you and your spouse have agreed on it, you are fine. There should be no lying. Agree on your budget, agree on your fun money, and be open. Fun money can be anything you want it to be. There are no rules on that envelope.
9. Keep the change. Tossing your spare change in a jar is almost a mini savings account. It’s there for small emergencies and at the end of the year it’s not unusual for your change to equal $400 or more.
July 25, 2014
Take the 30-day, buy used, challenge

actually

Okay, here is an exercise.

Let’s say that something bad happens — some financial catastrophe — and you need to come up with an enormous amount of money quickly. And for the sake of this exercise let’s also say that you have already tapped into your savings, your 401K, your lines of credit, cash advances and anything else you can think of. All the traditional methods are exhausted and you still need cash. A lot more. So now all that is left are your things. Your stuff; the things you own. All that you have to sell are those very items you see and use everyday.

But how much are those things worth? — not how much did they cost, but how much are they really worth? — because a baseball card might have a value of a thousand dollars but until someone puts that amount in your hand, its value is undetermined.

In this financial scenario, if you had to sell all the things you own, outside of owning a box of gold coins or having a few Corvette’s in your garage, the true value of what we have — meaning what someone else would pay us for them — is actually very small.

Our flat screen TV may have cost three grand, but if no one is going to give us three grand for it — especially if it’s a few years old and is no longer the hot technology — it’s probably worth a hundred or less.

Outside of owning luxury items or precious stones and metal, the contents of an average four bedroom home would sell in an estate sale for $6,000.

Not bad. Except that the replacement cost of those same items would be $20,000. Meaning what we pay $20,000 for items that have a street value of $6,000.

Here’s an example. A few years ago I splurged and bought my wife a very nice gold chain — a jewelry store near our home was having a big sale and a 14 carrot gold chain that would normally be $1,200 was now $800.00. So I bought it. And just out of curiosity — just because I wanted to gloat on what a bargain I had gotten — I stopped at a pawn shop on my way home. I said that I might be interested in pawning the piece and wanted to know how much I would get for it. The gold was tested and weighed and an offer was made.

$140

My $800 purchase had a true value of $140.

Now, I might have found a slightly higher offer at another pawn shop. Maybe. But the highest offer someone had given me was $140 so that was the current value.

I still gave my wife the necklace — it was a gift and it was not about the money — but it did get me thinking.

Now this discussion is not about how to get the highest dollar for your things when you sell them. It is demonstrating that anything we buy new — and I mean anything —- the value depreciates just like a car. A $200 microwave has a resale value of around $50. A $100 vacuum cleaner would sell for $30 and a $600 lawn mower would get you about $75. That is the true value of those items.

So here is the challenge. Take a month and be resolved to be on the other side of this curve. For one month. For thirty days. Vow to buy all the items you need — every coffee maker, every shirt, every book — used.

Instead of running to Wal Mart on your way home — stop at The Good Will instead. And when you need to swing by Radio Shack, hit the local Pawn Shop. Instead of Target, pick up a few things at The Thrift Store or scan Craigslist.

Just do it for thirty days — it won’t be as convenient and it may take some patience — but vow to do it for one month.

And let me know what happens.

May 24, 2014
The payday loan trap

A few weeks ago, a reader e-mailed me — let’s call him Leopold, because that’s not his real name — with some financial and debt questions. I emailed him back. Leopold responded with some additional questions and before the end of that first day, Leopold and I had spoken on the phone for what would not be the last time. There were many financial conversations that followed and I can now say that I now know more about Leopold’s finances than anyone other than Leopold.

Now, in case you are wondering, yes. He does know that I am writing this and he actually encouraged me to do so. But be warned. What is written here is not gentle of censored or even necessarily nice. In fact, you may find the depiction of Leopold to be harsh —- even cruel — at times. And it is.

Because I’m pissed off. I’m pissed off at Leopold and the stupid decisions he made. But I’m also pissed off at the parasitic institutions that have preyed upon him.

Leopold’s financial story is not one of bad luck or of extenuating circumstances. Leopold didn’t lose his job. He didn’t have his house burn down and he wasn’t hospitalized and left with huge medical bills. Leopold made bad decisions and those bad decisions were born from allowing himself to fall into the worse, the absolutely most dangerous, state that a man — or a woman — can fall into. Because once we step into this state, once we cross this line, our thinking, our options, or future —- change. And they changes quickly. And they change for the worse.

And that state is, the state of desperation.

Because once we get desperate, we get stupid.

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I’m going to say that again.

Once we get desperate, we get stupid.

Whether it’s financial, emotional, social, or whatever. The decisions we make when desperate are not our decisions. They are not made by us. They are made by new forces that drive and limit us.

All of this is being written now because there may not be time to write it later. Because in three days, on Friday, August 31st — or more accurately after midnight Thursday, August 30th — Leopold’s life will go from bad to worse.

He may lose everything.

It will not be a good day for Leopold.

THE BACKGROUND.

Leopold is in his early forties. He has been married for eighteen years and has two daughters and a son. He owns a nice home. He coaches his daughter’s soccer teams and for the last nine years he has made a comfortable living selling advertising. Leopold has been enjoying the middle class American dream. However, as the economy softened so did Leopold’s earning potential.

As a commissioned salesman, four years ago Leopold had the best year he ever had and earned $153,000.

Three years ago he earned $104,000.

Two years ago he earned $82,000

And this year Leopold will earn about $52,000.

And as his income went down with his shrinking commissions, his debt went up to cover it. And for three years Leopold denied that his income was decreasing. He loved his job and refused to look elsewhere and simply wished the missing money would come back. The debt continued to pile up and when there was not enough to cover expenses, a credit card could fill in. Then a personal loan — he even took out a loan on his 401K and a home equity loan but that’s okay, soon the good times will return and he’ll earn the big bucks again. And when all outside sources were drained, when he couldn’t borrow another dime with traditional credit, he took the next step.

There are many variations of payday loans each are very creative in the way they exploit loopholes in the law.

Here is how they work.

You walk into a storefront payday loan facility — you know where they are, you see them all the time — and ask for a loan. You fill out some forms and you present your last three paystubs and your bank statement — this is important because these places do not check credit.

Why? Why would a financial institution that loans money, not care about your credit? Why would they risk losing their money?

Because they have a better way of ensuring they’ll get paid.

So, when your employment is verified, when your bank statement is confirmed, a quick calculation determines what your loan will be. Often it is between $500 and $1,000, but sometimes it can be up to $2,500 and more.

So, let’s say you qualify for $1,000.00. You agree to pay a mere $25.00 per $100 borrowed, or pay $1,200.00 next week when you get paid, for the $1,000 you borrowed this week — a mere 300% interest. And in return, you write a personal check for $1,200; the total of which you borrowed. The next week you come in and pay it all off, $1,200, or just the fee $200. If you pay just the fee, then the amount owed does not change, you write another check for $1,200.00 and you come in next week.

In this manner, you can pay $10,400 a year and still never pay down the original $1,000 you borrowed.

But why stop there? $1,000 may not make a difference in the money you need. So, once you have your first loan for $1,000, not only is there no governing group that monitors how many payday loans you take out, you are actually encouraged to take out more loans from others. In fact, many loan company’s have relationships with other loan companies — hey, you can only get $500 from us, but we have an agreement with the folks next door, go over there for another $500.

In Phase I of Leopold’s destruction —- going from store front loan to store front loan —- he borrowed, $5,900* in payday loans. In normal payments, this is a total of $24,950 in yearly payments that will only pay down a fraction of the loan.

But it gets better. If for some reason you can’t make your payment, the loan company pushes the button and cashes the check you wrote. Now an amazing transformation occurs. Now your arrangement with the company moves from a credit issue, to a criminal issue. You have bounced a check. You have probably bounced several checks. A misdemeanor. And for those check’s written over $1,000, this becomes a felony.

So, even if you walk out of the payday loan company and file bankruptcy that day, you are not protected. You are now facing criminal fraud charges.

Leopold’s paycheck this week will be $634.56. His payday loan payments alone are $1,513.

Checks will be cashed.

Like I said, this Friday, will be a very bad day.

Today, Leopold has an appointment with a second lawyer —- the first one gave him little hope. And for all of you who think that Leopold had no choice, that he had to take out those payday loans, let me leave you with this.

It is far better to bounce checks to direct payments you have made, than to take out a payday loan.

It is far better to have you cable turned off, than to take out a payday loan.

It is far better to have your credit card cancelled, than to take out a payday loan.

Once you get in bed with these guys, you never get out. Even if you take a quick loan, pay it off and walk away, the seal has been broken. And you will be back.

It’s the mob with a storefront.

May 24, 2014
How to Create a Budget

When my wife Debbie and I were first married, we were on a very strict budget — I mean a death grip budget — where every dime was needed and every penny was accounted for. And even though we were extremely strict with our money, we didn’t go without. We didn’t go hungry and we didn’t go in debt. In fact, it was not even a difficult financial time for us but more of a disciplined one; a lean but happy one. And actually it was because our household budget was so severe that this was an extremely secure and safe time for us — because no matter what happened financially, we had a budget envelope set aside for it.

Now, my routine at that time was pretty set as well. Every payday I would leave work at lunch to cash my check and when I did, I had the guilty pleasure of peeling off the very top seven dollars — we had calculated both our checks down to what was needed and mine held an extra seven bucks in it — and I would get to just blow that money. The bulk of the check was converted into cash to be taken home and placed in the various envelopes where it was needed but that first seven bucks, that top seven bucks, was all mine, baby. And that meant I could spend it on — any — thing — I — wanted.

And I did.

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It took me about nine minutes.

Because the bank we used on Court Street in Binghamton, NY was only a block away from the greatest delicatessen north of Flatbush: The Old World Deli. And every Friday, I would wait in line with the downtown lunch crowd along with the smells of pastrami and corned beef and I would order a sandwich the size of my head, a pickle and a drink. And even though I would try to make the lunch last, even though I would try and savor it, the meal would be over in less then ten minutes. And once again I would be broke.

Happy, but broke.

Now this type of severe budgeting is not a great way to plan because it breaks the first financial rule of, pay yourself first — and pay yourself more then seven dollars. And it also shows what happens when you are ultra strict about your finances — and what happens when you do get a few bucks in your pocket.

But, it worked for us.

CASH IS KING.

Now, the best and most pure method of creating a budget is to use a cash system. A simple cash envelope system — separate envelopes marked with each budget area and then placing the cash needed in each envelope — is the best method by far. No math errors. No confusion. If you don’t have enough money in the envelope, then you don’t have enough money for that item.

However, whether we like it or not we are very close to becoming a cashless society. Our paychecks are directly deposited. Many of us pay bills electronically and other items we need we use our debit or credit cards — and electronic bits and bytes bounce back and forth where dollars and coins once did. In fact many economists estimate that paper checks may be completely obsolete by 2020.

On top of that, we are becoming a society that is not only e-payment friendly, but is actually becoming cash-resistant. Because the business world doesn’t want you to use cash.

Why?

Well, from the merchant’s perspective, the less cash a business takes in means less risk of error or theft. It also means there is less need to make physical bank deposits and if you are purchase from a line of credit, then your buying power has increased. So a merchant sells less to those using cash than those using a line of credit.

From a banking perspective, credit card interest is a financial goldmine but even using debit cards make banks a lot of money — I mean a lot of money. Because every time you use your debit card as a credit card, the merchant pays a bank fee. And every time you use the debit card as a debit card, the bank will either charge you a POS (Point Of Sale) fee, or build in a monthly cost into your account. In fact, many banks are raising these POS fees to discourage consumers from using the cards as debit cards, because they can make so much more income by charging the merchants for the credit transaction.

And from a consumer perspective, it’s simply becoming easier to use credit or debit cards. We can now use cards in vending machines, in parking meters and many stores have drastically dropped — or completely eliminated — purchase limits on credit and debit cards; which means we can buy a pack of gum or a soda and put it on a card. And since our payroll is often direct deposited anyway, using the debit card from our account just saves a step of running to the bank or ATM.

So how do we create a cash budget in a cashless society?

Well, the best way to do this is to use cash in those areas that we have the most flexibility — and therefore the largest margin for error.

HOW TO CREATE A BUDGET.

1. Gather data going out. Grab all your bills, statements, account data and begin listing all your expenses — and not only monthly expenses, if you pay something once or twice a year you need to take a portion out for that monthly. Include in this list everything; car insurance, mortgage or rent, car payments, entertainment, groceries, utilities, dry cleaning, garbage services, car maintenance, retirement or college savings, vacations. Everything.

2. Gather data coming in. List all the monthly income. Record all of your sources of income — if you do something once or twice a year that earns income include that along with your regular income.

3. Breakdown expenses. Everything you owe is in one of two categories. It’s either fixed — meaning it is the same payment month after month — or its variable — meaning the expense can change, such as groceries, entertainment, vacations, etc. Use cash for all your variable expenses.

4. Total everything. If your total for expenses is less than the total for income, good. We’re off to a great start. This means you will have some wiggle room to whittle down any debt you have or save and invest. If your list shows more expense going out then income coming in, you’ll need to make some changes. Usually this is tied to a high debt load, so look at that first and see what can be done to reduce it.

5. Adjust, adjust, adjust. It will take about three months to tweak your budget so it works for you. There will be items you forgot or things change. The more accurate the budget is, the more of a tool it will be for you.

And remember a high income is not needed for financial security — the more you budget and stay out of debt, the better you will be. My cousin, Rena, was the sole breadwinner of her family. She bought a house, raised two kids, put them both through college and has a nice retirement lined up, all on the salary of a McDonalds Manager.

May 24, 2014