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May 2011 - Posts - The Dollar Stretcher
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The Dollar Stretcher

The Dollar Stretcher blog will explore people and money.

May 2011 - Posts

  • Changing Direction

    Have you ever changed your mind? It's something that we generally don't like to do. Even the phrase sounds negative. It seems to emphasize that your prior decision wasn't a good one. But that's not really fair. Maybe a more accurate description would be that you changed direction.

    Often we find that after we make a decision we learn new facts. Information that should cause us to reevaluate the decision we've made.

    For many of us that's difficult. We don't like to think that we might have made a mistake. In fact, in changing our minds we have to acknowledge that mistake and admit that there could be a better solution.

    That's a problem for us. It causes us to stay with prior decisions well past the time that we should be brave enough to make a new, different decision. We tend to waste time and money on something that we know isn't working.

    Let's look at some of the areas where it could be wise to reconsider some of our decisions.

    Do you review your investment and retirement accounts regularly? Not every investment performs the way you expected. Even the best choose some clinkers. It's tempting to overlook them. Just kind of skip over them when you look at your statement.

    Staying with bad investments can cost you time and money. Even if they're not worth much. Admitting the mistake will allow you to free up time and money that can be used to choose another investment. One that could have more potential that what you're currently holding.

    Do you assume that you will always have credit card balances? Maybe that has been true in the past. It could be that you've carried a balance ever since you were a teenager with your first credit card. So it only seems natural that you will always carry a balance. But, if that's the only reason for your belief, perhaps you need to consider additional information.

    Why not look at what you would need to do to pay off the balance? You can use this calculator to determine what it will take to pay it off. For illustration add $100 to the monthly payment and see what happens.

    Don't forget to think about the interest that you won't be paying any more. That's often a good motivator.

    Some folks tend to keep a lot of stuff around. People who live with clutter often just assume that it's a fact of life for them. Something that cannot be changed. But have you ever taken the time to calculate how much it costs you?

    If you need to keep a storage place it could be costing you quite a bit. Just $50 a month adds $600 to your annual budget. And, how often have you been unable to find something that you know you own and end up buying another? Maybe when you recognize how much clutter is costing you'll want to simplify your life.

    Our careers are another area where we often follow a straight path regardless of new information. As long as we're collecting a check we don't take the time to reevaluate our position. But in most job fields things are changing. What was true ten years ago is not true today.

    Take some time to evaluate what could affect your job. How solid is your company? Are they clearly profitable? Does the future look promising for them? Then take a look at your profession. Is technology making big changes to your job? Will your employer need as many people to perform the task in the future? Could your job be combined with another?

    If you think that your job could be in jeopardy, take steps now to make yourself more employable. Don't wait until you're laid off to get additional job training. Start now while you have time. There's less pressure looking for a job or taking classes when you're not on unemployment.

    What about your lifestyle? How we live says a lot about what we think of ourselves. And, once we reach adulthood we generally don't expect to change much. But, life always throws us some curves. What we expect doesn't always happen. Those changes may make it advantageous to reconsider our plans.

    Your reexamination may lead you to make some changes. Changes that could reduce your expenses or free up some money for more enjoyable pursuits. Don't be surprised if you open up a whole new world.

    Awhile back I saw a statistic on some of the best corporate managers. People who were known for making good decisions. You might think that they were right a large majority of the time. You'd be wrong. The decisions they made were only right 53% of the time.

    That means that nearly half of the time they were wrong. But, they did have one advantage. They were quick to acknowledge those mistakes and change direction. Putting themselves back on the path to success. There's no reason that you and I can't do the same thing.

  • Tornadoes, People and Money

    I'm sure that everyone is aware of the storms that tore through much of the southeast on April 27th. It's likely that you've seen pictures and videos of the destruction.

    What you may not know is that the server that delivers our newsletters to you is housed in Cleveland TN, right in the path of the storm. And the people who keep that server running (Craig and Cindy) have become good friends over the years.

    Last week I received an email from Craig. Here are some portions of that email:

    "As I write this, I am somewhat overwhelmed. The devastation that I have seen, let alone that which occurred over several states, is hard to grasp, let along describe. Most importantly is the sadness and grief over loss of life.

    In Cleveland, TN where I live, there were numerous tornadoes which snapped large trees and power poles in half, uprooted humongous trees, demolished houses, trailers, schools and other buildings. A close friend lost his baby and sister in this storm. We had 9 deaths in our county (all of them in my friend's rural part of the county).

    Some of you receiving these e-mails are in the Southeast and have no doubt experienced what I am writing about. Others of you may have never seen tornado damage in your lives.

    What I am asking for is that each person receiving this e-mail would simply stop right now and ask God to bring comfort to the grieving, relief to those in pain, healing to the broken in body and heart and hope for the future. Would you please do that now? I thank you."

    We're a financial journal, so this might seem a bit out of place. But it seems to me that it's not emotionally healthy to only think of money. To ignore the people in the world around you.

    So if you believe in a higher power please offer a prayer. If not, take a moment to think about those who have lost loved ones.

    I know that normally you'd expect us to provide a link here for contributions. We're not going to do that. This time it's not about the money. It's about people caring for people. Something that is indeed 'priceless'.

    Keep on Stretching those Dollars!

    Gary

  • The Lavish Cheapskate

    I get to meet a lot of interesting people in my job. And, it's always a pleasure to introduce some of them to you. Awhile back I met Ardy Skinner. We've visited on the phone a few times and found that we both have a passion for helping people and their finances. She does a blog that you might find interesting.

    Ardy's personal story is fascinating. She's a single mom who ran up over $75k in credit card debt. She taught herself how to dig out of the hole and wrote a book about her experiences called "The Lavish Cheapskate". I love the title. Wish I had thought of it myself!

    Ardy and I were talking the other day. We began to share experiences with our kids in college and how important it is for them to know about the financial world they're entering. We also discussed how little financial education most kids were getting prior to graduation. So Ardy offered to give her book away to our readers who might want to give them as a graduation present. All she asks in return is that readers pay for the shipping ($4.99). Can't ask for much more than that!

    We even did a review of the book when it came out. You'll find it here.

    If you'd like to get a copy of "The Lavish Cheapskate-Everyday Strategies to Free up Money and Recession-Proof Your Life" click here. It's a limited offer so don't wait.

    Oh, and don't tell Ardy, but my guess is if you wanted one for yourself she probably wouldn't mind too much!

    Keep on Stretching those Dollars!

    Gary


  • A Little Difference

    Sometimes the difference between success and failure is very small. Occasionally you'll see a race (NASCAR, horse or foot) that will be decided by just an inch or two. Such a tiny amount determines winners and losers.

    What's also striking is how much difference that can make in the future. Our stock car winner will take home a bigger prize purse. They'll find it easier to get sponsors. Winning opens many doors.

    A similar thing happens in personal finance. The difference between financial success and failure is really quite small. And, somewhat surprisingly, it's not tied to being more disciplined or working harder your entire life. It's a simple rule of economics that can work for or against us.

    What is it that makes such a difference? It's compound interest. Truly the double edged sword of personal finance.

    When it's working for you, compound interest is a wonderful thing. If you save a dollar today and invest it (earning interest or profit). It will be worth more tomorrow and still more the day after that. If you wait long enough even relatively small amounts can grow quite large.

    Let's take a look at the difference between saving/investing $1000 and spending/borrowing the same amount of money.

    To save $1000 requires some effort on the front end. You'll need to find a way to accumulate the money. After that you'll decide where to invest it. From that point on it's just a matter of monitoring your investment. No heavy lifting required.

    That $1000 you saved, if invested today earning 9% (the long-term average for stocks) would be worth $2367 in 10 years, $5604 in 20 years, or $13,268 in 30 years. Again, that's just from the initial investment. You don't need to add anything to the account.

    What happens if you end up on the other side of the coin? If you borrowed and spent $1000, you'll be paying interest on the borrowed money. That requires you to work to earn the money. Over and over again. At 15% (a fairly typical rate on credit card accounts) you'll need to come up with $150 just to cover the interest every year.

    So borrowing that grand will cost you $1500 in interest payments in 10 years, $3000 in 20 years, or $4500 in 30 years.

    What would happen if you made two decisions. One to not spend/borrow the $1000 and another to save $1000. How would that work out. Well, in 30 years the difference in what you would have spent in interest payments and what you would have saved works out to over $16,700. 

    Now I can hear you say that $1000 is a lot of money. How could you manage come up with that much?

    OK, let's mention just a few simple ways. Skipping a $3 latte every day would save $1095 in one year.

    Or bringing in your lunch three days a week. Saving about $4 per lunch or $624 in one year. Saving a grand takes less than two years.

    Most of us can find a place or two where we could save $10 to $15 a week. But, maybe you've already cut your spending down to essentials. There's no place to cut anymore. In fact, you're depending on credit cards to put food on the table.

    If that's the case then consider getting a McJob in your off hours until you earn the $1000. No one's asking you to work two jobs forever. If you earned $8 per hour and worked just 10 hours per week, you'd have your $1000 in just 13 weeks. So taking a part-time job for 3 months could mean that you'll have $13,268 in 30 years. That's pretty good pay for a little part-time work.

    What's the point? The difference between being in good shape financially and always struggling with money isn't that big. Often it doesn't take a superhuman effort to put off borrowing money or to save a little. But the results for those who do make the effort can be very big. And that makes the effort very worthwhile.


    For more infomation on how compound interest works.


  • Shopping for Gas

    Just did an interview with Jeff Wuorio for an article for USA Today's Weekender magazine. He was asking about finding the best deals on gasoline.

    I mentioned a couple of the gas comparison sites GasPriceWatch.com and GasBuddy.com. Also that I understand that some people are posting gas prices in various gathering places (workplace lunchrooms, church bulletin boards, etc).

    But something else is important, too. In our goal to buy gas at the cheapest price we can shop too carefully. (what? has The Dollar Stretcher lost his mind?)

    Here's what I mean. Suppose that you can save 5 cents a gallon. And you'll buy 15 gallons when you fillup. That means you'll save 75 cents.

    But, to save that 75 cents you need to drive out of your way to get to the station. If gas costs $4 per gallon and you get 20 mpg, that means that you consume $1 in gas to drive 5 miles. So if you drive 4 miles to save 75 cents your savings will disappear driving to the station. And, remember that if you're making a round trip, that's only 2 miles out of your way.

    So there's only so far that you can go to save on gas. A rough estimate is that you can drive about 1 mile to save 1 cent on the gas price.

    I hate the higher gas prices just as much as you do. And, I do believe in price shopping. But, like in so many frugal efforts, the lowest price isn't always the best value for you.

    Keep on Stretching those Dollars!

    Gary

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Gary is a former financial planner and purchasing manager who edits The Dollar Stretcher website <www.stretcher.com> and newsletters. You can follow Gary on Twitter.com/gary_foreman
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