Debit Cards, Rewards, and Security

No Credit Needed pointed me towards visaextras.com, a free points/rewards system for users of debit cards. There are a lot of people who are so blinded by the prospect of rebates and rewards that they wouldn’t dream of using anything but plastic. While I would disagree with them, at least using a debit card links your spending to your income in a very direct way.

MSN Money has a related article on rewards and security for debit cards. The most important thing to understand here is that DEBIT CARDS HAVE THE EXACT SAME FRAUD AND LOSS PROTECTION AS CREDIT CARDS. Check

Why NOT To Save For College

Yes, you read it correctly. There are some very good reasons not to save for your children’s college. Some, very, very, very good reasons not to save. People sometimes mix consumerism with the internal desire to give their children a better life with their own sublimations and misjudgements and end up thinking that they are responsible for doing everything themselves. In turn, they end up bankrupting themselves and doing their children a disservice.

Parents DO have responsibilities in their relationship with their children. I think that parents must:

1. Take care of themselves, physically, spiritually, and emotionally.
2. Build and maintain relationships with friends and family that are both functional and loving.
3. Strive to improve themselves and their fortune.
4. Model the behavior that they expect their children to follow.
5. Discipline their children to ensure that they do.

Everything else is details!

If you notice, there isn’t anything there that says you have to be able to send your children to the best private college and let them live the high life. You might need to look at the best college values and your children might need to work. Deal with it!

Nothing Wrong With Student Loans?

The prevailing logic in our culture is that student loans are a good thing, or at least a necessary evil that is required in order to get an education. In reality they sap both our individual and collective futures. We take the people with the most energy, the most enthusiasm, and the most potential and saddle them with long-term financial commitments at exactly the wrong time.

Student loans are a student loans are a multi-billion dollar industry , in some ways a shady one. With hundreds of millions of dollars going through major universities there is a significant conflict of interest, establishing a relationship that will enrich an institution at the expense of its students. The New York Times published an article detailing the tangled relationship between Citibank and several universities. While no wrongdoing was admitted on anyones part, both parties agreed to pay restitution and to abide to a new code of conduct for student loan processing. That sure sounds like wrongdoing to me!

Finding Inspiration

You can’t wait for inspiration. You have to go after it with a club.

– Jack London

Why I Don’t Use Credit Cards

The issue of credit cards comes up a lot when I teach FPU, and there is always someone who doesn’t see the problem with using them. Personally, I think credit cards are at best dangerous and at worst usurious. There is absolutely no upside to credit card debt, whatsoever.

Here are several reasons why I don’t use credit cards for my finances:

• On average, people spend 12-18% more when they use credit cards vs cash.
• Credit card companies don’t have any loyalty.
• Perks and rewards come at a very high cost.
• Credit Cards make it difficult to track your purchases day-to-day and easy to buy things you can’t afford. I don’t want to use any tool or service that has a vested interest in damaging my long-term future.

Here are some reasons why I don’t do business with these companies:

• Credit card companies force consumers to pay higher prices, even if they pay their balance off every month.
• There are a ton of tricks to force late payments.
• Consumers are regularly charged interest on debt that has already been paid.
• Interest rates can be raised arbitrarily, for something as mundane as applying for a mortgage or for accidentally making a single late payment with a different company.
• Interest rates can be changed retroactively, effectively raising rates for purchases that were made long ago.
• Credit card companies don’t seem to care about my security, and merchants are even worse.

Dabbling with credit cards is like playing with snakes. Don’t be surprised if you get bit!

Investing Strategy — From the Mouths of Babes

Is investing easy enough for children to do? Evidently so! Paul B. Farrell, author of ‘The Lazy Person’s Guide to Investing‘ wrote about how an 8-year-old crafted a portfolio that not only outperformed the S&P 500, but also his own professionally managed pick.

How did he do it? Well, primarily by investing in low-cost, well diversified mutual funds that cover the entire market. Sound familiar to all the FPU people out there?

Buying Used

I was browsing through MSN Money and found a great article titled “10 Things You Should Never Buy New“. There is some great practical advice here, definitely worth a read. Our culture is so focused on consumption and the marketing messages are so strong that it seems positively radical to settle for something other than the latest and greatest new thing. Buying used can be a fantastic way to stretch your resources and truly have your cake and eat it too.

An example … this weekend I took my 3 and 6 year olds shopping and we got bought a soccer ball, a toy helicopter, a model, a board game, and some action figures. Plus, we stopped at the restaurant of their choice and got lunch. Sound expensive? It certainly could have been! However, on Saturday our church had a very large garage sale, and everything they bought was used. The grand total of their purchases was $5, and the soccer ball only cost a nickel. Lunch consisted of a hot dog, chips, and a soda from the card table out front, which cost $2 each, for a total of $9. Now, this was money that they earned (through commissions, not allowance) and they were thrilled with their purchases. Doing this at a toy store and a chain restaurant could have easily cost us a hundred dollars or more.

At the same time, this week the entire family is going to go to see The Lion King on the stage, a big deal for us. The tickets are very expensive, several hundred dollars for all of us. Normally we could not have afforded both a shopping spree and a night on the town. However, we were able to do both by buying used.

Give it a try!

Is it a Want or a Need?

As our family started down the path to financial peace, one of the most useful tools that we had was to classify the things in our life as a want or a need . If everyone could agree it was a need, then we made room for it in the budget, regardless of what we needed to do to get there. Otherwise, it was a want, we prioritized it and tried to fit it in as best we can, but only if it made sense.

If your monthly income covers all of your needs then you are doing well. Otherwise, you are going to have to make some decisions about increasing income or temporarily going without.

You would be surprised how often we disagreed about what was a want and what was a need, and how just considering our lives in this way changed the way we approached money. It is pretty easy to decieve yourself on exactly what is a luxury and what isn’t. Here is a simple test that we came up with …

The Want Test

Think about one of your ‘need’. Imagine your life without it for 90 days, or with a substitute that is significantly less expensive.

• Would I be considerably less safe or comfortable without it?
• Would it signifcantly disrupt daily life for me or my family if I didn’t have it?
• Would it cost me a lot cash up front to get rid of it?
• Would it violate the spirit or the letter of the law if I lost it?
• If I was counseling to someone else in my situation, would I recommend that they keep it?

If you can honestly answer ‘no’ to all of these questions then it is most likely a want in need’s clothing. Unless you have completed the baby steps then I would recommend that you reduce or eliminate this cost as soon as possible.

Also, I would take some time to consider if over the long term if this expense is more important then retirement, college savings, or investments. If your first answer wasn’t an immediate, unqualitied, unflinching ‘yes’, then you should really reprioritize this item in your life. I promise you, it will be worth it!

Luxury or Necessity?

Pew Research has published some survey results on attitudes around what the average American considers a luxury and what is a neccesity. The list of things that the average person “can’t live without” has multiplied in the last decade, incorporating items that are new (such as technology and computer-related items) and previously available (microwave ovens, air conditioning, clothes dryers) alike.

While this isn’t particularly surprising, the survey tells a lot about American life in 2007. The thing that grabbed me was this statement:

… one pattern was consistent: wherever there has been a significant change in the past decade in the public’s judgment about these items, it’s always been in the direction of necessity. And on those items for which there are longer term survey trends dating back to 1973, this march toward necessity has tended to accelerate in the past ten years.

I think this tells us a lot about the American mindset and the power of marketing in our culture. We don’t just want it, we want it now, regardless of the consequences. It doesn’t really matter if we need it, or if we can afford it, only if we can get it really quickly.

Week 3 Homework

This lesson is titled, ‘Relating With Money’. This is absolutely critical, as we believe that personal finance is 80% behavior and 20% math. Just knowing the numbers isn’t enough to win!

The homework assigned for week three is:

1. Read Chapters 14, 15, 16, 17, 18 in Financial Peace Revisited (it came in the kit with your materials, no need to purchase again).
2. Finish off and start living by the zero-based budgets you have been creating over the last week or so. It is very common for your budget to be off for the first three months or so, don’t worry if your assumptions were off or you get an unexpected bill. Budgeting is an an iterative process and one that will become easier over time, I promise.
3. Fill out the 1st column of the Financial Snapshot form. A copy came in your materials, or you can do it at the FPU Member Resource Center. If you do it online, you are entered in a drawing to win an iPod.
4. Start tracking the information for the FPU Progress Check.

Lastly, we have some additional reading on this subject, if you are interested.