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Monday, January 18th, 2010

Research Suggests Ways to Spend Smarter

High unemployment rates and sluggish recovery in the job market mean that many Americans are still budgeting carefully and watching every penny that leaves their wallets. It’s times like these when studies like the one conducted by researchers at San Francisco State University can help us make important spending decisions.

Memories Last Longer than Stuff

The new budget study examined recent purchases made by adults enrolled at SFSU. Here's what the researchers discovered:

  • Happiness from things fades. On average, researchers found, the thrill brought about by new objects faded in six weeks to three months. This means that, no matter how much you love that new computer, dress or TV, you will get used to it in a few months and the pleasure it brings you will dwindle.
  • Happiness from memories lasts. On the other side of the coin, the pleasure induced by spending money on experiences (like sporting events, plays, hikes, etc.) endures, thanks to our ability to remember and relive these experiences.

So how can you use this information to make the most out of the money you have for leisure? Focus on participating in events rather than accumulating goods. And, suggests the study, recruiting friends and loved ones to join you is a particularly useful way to make sure you enjoy yourself and create enjoyable memories.

Here are some ideas to consider when thinking about an experience (rather than an object) to spend money on:

  • Take a class. Many community colleges and organizations offer continuing education departments that offer fun classes like ballroom dancing, cooking, yoga or sculpture.
  • See a play. Check local newspapers or schools for events put on by community and school theatre or music groups. Bonus: these are often low-cost outings.
  • Plan a picnic. Even in bad weather, you can organize a picnic indoors to shake up the monotony of chilly days. Team up with friends and make everyone responsible for one part of the meal. Or have everyone agree to bring a dish they've never had before.
  • Be a tourist at home. Spend a day visiting museums or landmarks close to home that you've never actually explored. See what you can learn about your hometown.
  • Get lost. Team up with a friend and try to get lost. Then spend the day driving or walking around areas you’ve never seen before. Take pictures as souvenirs.

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Saturday, December 5th, 2009

FDIC: One Quarter of Americans Unbanked or Underbanked

At the beginning of 2009, the Federal Deposit Insurance Corporation (FDIC) initiated an examination of the unbanked and underbanked people of the U.S. as part of Census data collection.

The report was released this week, and shows some worrying trends about financial institution usage, particularly among minority populations.

  • Unbanked: This term refers to people who have neither checking nor savings accounts, and who rely primarily on non-bank financial institutions (like check cashing services, payday lenders, refund anticipation loans, etc.) for their financial needs.
  • Underbanked: This refers to people who have either a checking or savings account, but rely on alternative financial sources at least once or twice a year.

The Banking Study

According to the executive summary of the report, its goal was to address a gap in reliable data on the number of unbanked and underbanked households in the U.S.

The issue matters because those without bank accounts lose out on access to lower-cost financial management. Bank use can also permit people to build credit histories and establish financial stability – in other words, it’s in the best interest of the U.S. as a whole to improve access to banks for everyone.

Here’s a look at the hard numbers:

  • 25.6 percent of American households (about 60 million adults) are unbanked or underbanked.
  • A breakdown by race shows that 43.3 percent of Hispanic households, 44.5 percent of American Indian/Alaskan households and nearly 54 percent of black households are unbanked or underbanked.
  • At least 71 percent of un- and underbanked households have incomes of $30,000 per year or less.
  • The most common reason people offered for not having a bank account was feeling that they did not have enough money to justify one.
  • About two thirds of unbanked households use one or more of these financial tools: non-bank money orders & check cashing, payday loans, pawn shops, rent-to-own agreements and refund anticipation loans.
  • About one quarter of unbanked households use none of the aforementioned services, which suggests that cash is their go-to commerce tool.

Opening and maintaining bank accounts is an important step toward financial stability for individuals and households. On a larger level, the high numbers of unbanked Americans can be seen as one symptom of our country’s varied economic woes.

Additional Resources

Full FDIC Report (PDF)

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Posted in Bankruptcy and Predatory Lending | 6 Comments »

Friday, November 27th, 2009

True Bargains: What Makes a ‘Good Deal’

While looking for low prices is an important part of financial responsibility, it’s only one component: getting the value you need is the other half. For example, buying the cheapest brand of conditioner may seem frugal, but if you have to use twice as much as any other brand, it may end up costing just as much.

Value Vs. Price

The "value" of an item is subjective, while price is relatively fixed. Two people may see the same item as having different values even when the price is the same.

  • Value: How much an item is worth to a buyer/seller (usually determined by how much you need or want an item).
  • Price: How many dollars an item costs. Dollars are sort of a generic value unit we’ve all agreed upon.

In many cases, value and price line up pretty well, and merchants will try to keep the two in line. Value really shoots up when a seller is asking for less than you’re willing to pay.

Maximizing Value

So how can you make sure you spend your dollars to maximize their value? Here are some tips.

  • Buy second-hand: Thrift stores, flea markets and garage sales are all excellent places to find good values because they’re filled with items that haven’t declined in intrinsic worth but whose owners grew tired of them. Gently used items are often steeply discounted and still perfectly functional (but avoid super-cheap items that are simply junk).
  • Spread the word: Let your friends and family members know what you’re looking for – someone may be trying to “get rid of” exactly what you need. When you’re in a store, tell the sales associate what you’re looking for. Ask for advice and find out if any discounts might be available.
  • Shop ahead & behind: If you know you’ll need a new pair of sneakers once a year, keep your eyes peeled at all times for bargains – many staples won’t “go bad” from sitting around a while. Take advantage of end-of-season sales to stock up for the next year (think Halloween decorations on November 1st).
  • Use the Internet: Craigslist, eBay, Freecycling, Amazon and other websites often offer significant discounts from retail prices. But if you don’t want to buy online or don’t like to pay for shipping, you can still use the Internet to get an idea of what various vendors charge for the item in question (and use that knowledge to bargain).

If you start thinking in terms of value, you'll be able to save money while getting your true dollar's worth—particularly important if you're struggling with debt or rebuilding your finances after bankruptcy.

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Posted in Financial Literacy | 2 Comments »

Monday, September 28th, 2009

More Tips for Outsmarting Marketers (And Keeping Your Money)

Thank goodness psychologists keep researching human behavior – thanks to their studies, we can know how and why we spend money on stuff we don’t need. Here are some tips (adapted from the book Predictably Irrational) for avoiding classic marketing and behavior traps that may lead to bad financial decisions.

Admit It: You Procrastinate

We all put off chores if at all possible (this is why fast food exists). Rather than assuming your behavior will change anytime soon, plan for procrastination.

  • Avoid free trials. Most free trials automatically enroll you in a service you have to pay for when the trial ends. You could, of course, cancel the free service at some point – but that takes planning and effort. Either avoid such services or set up a system to remind yourself to cut them off.
  • Watch out for convenience store prices. Convenience stores are so called because they’re just that – convenient. While it may be tempting to grab a gallon of milk or a few bars of soap while you’re picking up a prescription, resist the urge. You’ll save money by shopping in regular grocery outlets, even if it’s a little more out of the way.

Keep an Open Mind

  • Rely on your own judgment. If you’ve heard good (or bad) things about a brand or an object, you may be more likely to interpret your experience in that framework. But try to keep an open mind – you may find a less-expensive version of something that suits your needs just fine.
  • Sift through the lingo. Products touted as premium or professional grade often tempt us because they sound like they’re high quality. But remember that these words have no quantifiable meaning – the way they work is what matters.

Remember: Cost Does Not Equal Quality

There’s a joke that goes, A man will pay two dollars for a one-dollar item he needs. A woman will pay one dollar for a two-dollar item she doesn’t need. While arguably sexist, this illustrates an important point.

  • Don’t equate price with value: An item is not a bargain if you don’t need it. Similarly, if you must have something, it’s worthwhile to spend money on it.
  • Know when you’ve erred: Sometimes, we don’t want to admit we spent too much for something. But doing so allows us to see our mistakes and hopefully improve our behavior in the future – and maybe even get a refund.

Make Your Money Work for You

Whether you're saving up money for a vacation, creating an emergency fund, or learning to stick with a budget after filing bankruptcy, it's important to make every dollar work for you. By avoid these common pitfalls, you may be able to reach your goals with your budget – and your sanity – intact.

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Friday, July 3rd, 2009

Important Recession Lessons from Big Companies

We’re all looking for ways to cut spending, increase our savings and generally adjust to life in a time when credit is tight and jobs are scarce.

Here’s a look at some of the changes major corporations are making and what we little guys can learn from them.

  1. Bring Home the (Irregular) Bacon: According to CNNMoney.com, Marriott hotels found they could save two million dollars a year by switching their bacon from regular, rectangular strips to irregular slice – without sacrificing taste.Make it work for you: Now is the time to experiment with less expensive alternatives to your usual purchases – cuts of meat, brands of soap, Netflix packages. Don’t let a habit - also known as a rut! - keep you from looking for cheaper alternatives.
  2. Reevaluate the Extras: When airlines began charging extra to check bags, board first, have snacks, etc., many Americans were less than amused. But we also learned to pack lighter and bring our own food along.Make it work for you: Most of us pay for stuff we don’t really need or use. Take the time to reevaluate your spending to find and cut unnecessary items. Whether you opt for a cheaper cell phone plan, fewer cable channels, slower Internet or a different thermostat temperature, you could end up saving noticeable money.
  3. Share Whatever You Can: As this article describes, two Chicago-area wedding planners discovered they could save serious money by moving their complementary businesses into one storefront. Make it work for you: Sharing can mean a lot of things – trading nights of babysitting with friends, pooling funds with neighbors for a big purchase like yard equipment, renting a room of your house to a boarder, etc. Even carpooling or joining a vehicle-sharing company like ZipCar can save you money by spreading the costs over a large group of people.
  4. Don’t Rule Out Filing Bankruptcy: As GM and Chrysler have shown us, even major U.S. corporations sometimes need the protection of the bankruptcy court.Make it work for you: If your finances are beyond rescuing on your own, consider filing bankruptcy. This type of protection is a last resort, but it exists for a reason – to give struggling consumers and businesses a chance to start over financially. Check out these articles on celebrities and bankruptcy.

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Posted in Bankruptcy and the Economy | No Comments »

Saturday, June 6th, 2009

Saving Money — Are You Doing it Right?

Whether you’re recovering from filing bankruptcy or just trying to save money like the rest of us, you’re probably familiar with basic budgeting techniques: know what you make, examine how you spend your money, spend less than you earn, etc.

But are you doing it right?

Examine these tested money-saving tips:

  • Know the sellers’ tricks. If you’ve ever experienced that rush of excitement when you see a really good sale price or thrilling new item you didn’t know about, you’ve made a retailer somewhere proud. We all love the feeling of “discovering” a good buy, but keep in mind that vendors want to sell to you. Tricks like rearranging merchandise often to create a sense of urgency and creating hype around a sale are classic. Don’t let the artificial thrill of limited-time offers trick you into making purchases you otherwise wouldn’t.
  • Save first, then spend. Studies have found that people tend to part with “found money” more quickly than hard-earned dollars. So next time you get a check from Gramps or find a ten in the pocket of last winter’s coat, put it in the bank for a while. It seems that after such money has spent time in a savings accounts, we tend to be less willing to part with it.
  • Don’t ignore the big picture. Hopefully, you’re diligent about comparing per-unit prices at the grocery store, buying generic when possible and taking advantage of sales on necessities to pinch pennies. But are you as careful with bigger-ticket items? Make sure you’re crunching the numbers each time you plan to make a major purchase like a new appliance, a family vacation or a car. And keep in mind that the up-front cost is only one aspect: consider likelihood of repairs, repair costs, maintenance/energy costs, etc.
  • Shop with cash. It’s not surprising to learn that people tend to spend more money when no cash leaves their wallets – in other words, we drop more money when we shop with plastic. So use cash to limit yourself: decide what your budget is for a shopping trip and leave your credit cards at home. Even minor impulse buys can add up over time.
  • Compare prices wisely. A study of consumer behavior found that when deciding between choices of varying prices, we tend to practice what’s called “extremeness aversion.” If you see a really high-priced item and a really low-priced item, you’ll tend to go with the one in the middle. Call it the Goldilocks Effect. You can avoid this by researching what you want to buy ahead of time, deciding on features and a price range that suits you and sticking with that when you shop.

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Posted in Post-Bankruptcy Debtor Education | 1 Comment »

Tuesday, June 2nd, 2009

Energy Bills Don’t Have to Rise with Temperatures

If it's after Memorial Day that means we can start talking about summer weather, right? (I say this even though it's cold and rainy in Chicago right now.

So as temperatures do, eventually, start to warm up, it’s time to start thinking about ways to keep your temperature and your energy bills down. Luckily, it can be done. Here’s how.

  • Don’t ignore the old advice. Though you’ve probably heard this suggestion a hundred times, it never hurts to repeat it: turn off appliances you’re not using. This goes for computers, TVs, radios, phone chargers, etc.
  • Check your air filters. Old, clogged air filters can decrease the efficiency of your air conditioner and heater, meaning you’ll use more energy and get less benefit. At the start of each season, replace old filters with fresh ones. Some estimates say a clean air filter could save you 5 percent a month.
  • Take advantage of more sunlight: Instead of turning on lights whenever you enter a room, see if you can rely on natural lighting. Plus, in the summer, fewer lights on means less heat released into the room.
  • Power down the computer. If you’re at home more during the summer, you may be tempted to leave your computer on all day. But this can guzzle energy and produce more heat. Shut down or put into sleep mode machines you aren’t using.
  • Cook at night. If possible, use the oven and stove during cooler hours of the day to avoid over-heating the house. Dishes like pasta salad, chicken salad and fresh fruit taste great chilled and can be made ahead of time. If you can’t prepare food before meals, try grilling – it’ll keep the heat outside.
  • Try windows and fans. Fans use less energy than air conditioning, so if you can stand it, try to cool your house without using the AC.According to a recent story by the Dallas Morning News, for every degree below 78 you set your thermostat expect to pay 5-7 percent more for your utility bill at the end of the month.
  • Guzzle yourself cool. Never underestimate the power of cool drinks like iced tea, lemonade and plain old water. Keeping yourself well hydrated is one way to make the heat seem less oppressive.
  • Adjust automatic appliances: If you have a timer for outdoor lights or a thermostat, make sure you take advantage of it. Keep the house warmer when you’re away and save the AC for when you’re home. And make sure automatic lights don’t come on until the sun’s down.
  • Close the curtains: Using heavy curtains to block harsh sunlight really can lower the heat in your house.
  • Look for Energy Star: If you’re in the market for new appliances, look for ones with high energy ratings. And use them wisely. This means only do full loads of dishes and laundry and use cold water.

Remember, a little savings can go a long way. A 5 percent savings may not sound like much, but if your bill is $200 a month then you could save $30 by the end of August. And that's enough to buy ice cream for everyone on Labor Day.

If you're doing everything you can to cut back and you're still struggling to make ends meet, it may be time to think about filing bankruptcy.

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Wednesday, May 27th, 2009

Disney Hops on Financial Literacy Train

Disney has teamed up with T. Rowe Price to create an exhibit that helps kids (ages 8 – 14) develop basic financial literacy skills – because we all know how much fun diversifying our portfolios can be.

The exhibit, which is located in Epcot, reportedly allows kids to earn currency for their piggy banks through games. The various “levels” require players to engage in increasingly sophisticated thinking and decision-making.

The exhibit includes interactive games that are designed to show techniques for:

  • Setting financial goals: Players begin by choosing a real-life event they’d like to save their video coins for.
  • Saving money: One game lets kids choose between guiding falling coins toward “savings” or “spending” buckets.
  • Spending wisely: At the game’s end, kids learn that too much spending translates into not meeting their financial goals.
  • Diversifying investments: Yes, Disney has tackled this issue, albeit at a kid-friendly level. Players must hide their coins in various locations so the game’s villain (a wolf to the hero’s pig) cannot find them.
  • Avoiding inflation: To impart this lesson, players must manipulate levers to keep the wolf (presumably appropriately big and bad) from devaluing their saved currency.

There's no word yet on whether they'll include a special section on bankruptcy.

Playing Online

Besides the Florida exhibit, Disney has launched the Great Piggy Bank Adventure Game on the Internet for non-travelling families to enjoy.

Can All These Games Really Help?

It’s certainly debatable whether getting really good at a video game about saving money will translate into any real-life financial literacy, Disney’s informational/promotional Web site (innoventions.disney.com) points out that the experience might “inspire families to discuss financial planning” and otherwise launch more broad financial literacy activities.

And it’s never too early to start teaching your kids about how to manage money.

For Older Kids: Good News

Obama signed the Credit Accountability Responsibility and Disclosure Act of 2009 (aka the Credit Cardholders’ Bill of Rights) into law May 22nd, and one of its new protections if for young adults (that is, under 21) with credit cards.

Now, in order for your older teens to get a credit card, you have to cosign for them.

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Posted in Financial Literacy | 1 Comment »

Wednesday, March 25th, 2009

Starting a Savings Plan

Whether you’re recovering from bankruptcy or just trying to improve your finances, saving money is essential.

How to Save Money

The secret to saving is to do it little by little. This isn’t winning the lottery, but over the years, the small amounts you sock away will accumulate.

Forced savings: If you don’t think you can resist spending what you earn, consider a plan that forces you to save. Many employers offer retirement accounts that automatically deduct money each month from your paycheck. Or, if you have a mortgage, you’re building equity in the home with every payment – another type of savings.

Mini-savings: Even saving toward specific goals can save you money. Consider opening a savings account strictly for purchases – a new car, a stereo, etc. Rather than paying interest on a loan, you can make a purchase when you have enough money in your account for a one-time payment.

Gradual savings: If you’re like most Americans, you don’t have much money left over after each paycheck to stash away. But that shouldn’t keep you from hanging on to whatever you have. Even 20 dollars a month will accumulate with help from compound interest.

Why Save? Think About It.

The safety net. If you’re hit by job loss, reduced income, divorce, injury or a natural disaster, you’ll likely have unexpected expenses.

Many people who file for bankruptcy do so because some surprise cost overwhelmed them financially. A savings account can help you in a crisis.

The money-saver. As you know, if you’ve ever taken out a loan to buy something (home, car, etc.), interest payments add up quickly. If you have enough money saved to pay sticker price with no help from a lender, though, you’ll save money in the long run.

Even if you have only enough savings to make a larger down payment, you can keep interest costs lower.

The money-earner. The beauty of savings accounts is compound interest: when you put money in a savings account, you earn interest on the principal amount (whatever you initially deposits) plus whatever interest your account earns.

So, the longer you let your savings account sit, the more money it earns you, and you don’t have to lift a finger.

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Posted in Financial Literacy, Post-Bankruptcy Debtor Education | No Comments »

Tuesday, December 23rd, 2008

Bills Keeping You Down? Check Out These Tips on Saving Money

Whether you’re recovering from bankruptcy or just trying to improve your financial situation, you’re probably looking for ways to make sure your finances are in top shape.

If you’re ready to start spending and saving a bit more wisely, you’ve come to the right place.

This page is designed to offer you some everyday tips for hoarding a little more of your hard-earned cash.

Pack it Up: Buying lunch every day may not seem like a major expense, but small purchases add up fast. Whether you pack five lunches on Sunday night or throw some food in your bag each morning before work, you could end up saving hundreds of dollars each month.

Shop Generic: Your grocer likely carries store-name brands of your favorite foods, and many of these taste no different from the pricier name brands. Save money at the grocery store by buying generic for a week or so – you can always switch back to name-brands if you don’t think the taste matches up.

Clip Coupons: Coupons are not just for grandmas anymore. Web sites like couponmom.com and others offer amazing savings on everyday purchases.

Make Some Coffee: Don’t worry – we’d never ask you to sacrifice your caffeine fix for the sake of savings. But, if you’re buying java by the cup every day, you’re likely dropping hundreds of dollars a year on the habit. Home-brewed coffee is much cheaper.

Walk it Out: This is a double whammy. Consider dropping a pricey gym membership (especially if you don’t use it that often) and walking to complete minor errands. This will save you on gym costs and on gas.

Crunch the Numbers: Is your cell phone plan the most logical for your talking and texting habits? What about your TV and Internet packages? Figure out how much you spend each month and see if you could cut back.

Put on a Sweater: Yes, we know you hated it when your dad told you to put on a sweater when you complained of being cold as a kid, but the man had a point: heating costs add up quickly, so if you’re chilly inside, consider layering.

Barter: Before currency was common, the barter system allowed people to trade goods and services without exchanging cash. Consider trading favors with friends (take turns babysitting each other’s kids, for example) or joining the retro-chic Swap Meet trend. Invite over some friends and tell them to bring clothes they’re no longer wearing – then trade the night away.

Thinking About Filing Bankruptcy?

If you’re struggling with mountains of debt and are having a hard time paying your bills, filing bankruptcy may be a good debt-relief option for you.

Talk to a bankruptcy attorney today.

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