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August 2011 - Posts - The Dollar Stretcher
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The Dollar Stretcher

The Dollar Stretcher blog will explore people and money.

August 2011 - Posts

  • The Financial Forest and Trees

    Most of us have probably been inspired by a distant view. Of the mountains, sea shore or a forested valley. The panarama can be awesome! Sometimes that perspective can help us see things that we couldn't see up close. At a distance we can't see individual trees so well, but we can see patterns that wouldn't be apparent up close.

    That's probably true of life as well. Including our financial affairs. Sometimes when we're debating about buying a new car we're so close to the tree that we cannot see the forest. But, if we step back and look at the forest we may notice a pattern that can be helpful in making decisions today. Let's see if we can't discuss some examples.

    We'll start with that car. It's easy to get caught up in the moment when the salesperson is talking about easy payments and your spouse is getting that new car fever look in their eyes (or maybe the look is really in your own eyes!).

    Before you sign on the dotted line it might be wise to look at other cars you have bought. What do they have in common? For some of us the answer would be that we were tired of them after about two years and wish that we could trade for something different.

    If that's the case you're better off looking at a used car. If you're financing a new car you'll still be upside down in two years. If you're careful buying a used car you probably can trade it for what you owe two years down the road.

    It's not just the big ticket items like cars and houses. As you contemplate that new big-screen or the upgraded cable/internet package think about your history with similar items. What does the pattern look like? For some it will typically be a patient time with lots of shopping and research. Others will have an almost irresistable urge to buy it today!

    Whatever pattern you see should give you some clues as to how to proceed the next time you're considering a similar purchase. Suppose that you're prone to make quick purchases and only later wish that you had waited until additional features are available. That should give you some help in deciding how to respond to the urge to buy today.

    If you reflect a bit other patterns may emerge. Do your possessions reflect a need to have the best of everything? A lot of high end merchandise? You may want to consider why your decisions have that common theme.

    The other side could be true, too. Do you notice a history of buying a little less than you need? It could be that you're confusing buying the least expensive item with frugality. It is possible to be too cheap for your own good.

    Don't forget the little things in life. What daily spending habits have you picked up? And, what do they tell you about yourself? Look for tendencies. You may often pay for convenience. Or to calm a need for caffeine or sweets. Recongizing those habits could tell you much about your finances and yourself.

    By stepping back you may also notice things about your emotional reactions to money. Look for emotions that tend to commonly occur before or after a purchase. Those patterns may help you understand why you buy.

    You could discover patterns that shed light on how you relate to others and their money. Keeping up with the Joneses could be an emotional reaction that you need to understand if you want to change your purchasing habits.

    Finally, don't just look for patterns that need to be fixed. There's a high likelihood that you'll see some areas where you typically do well. Celebrate those areas. Use them to encourage yourself to get better in areas that can use improvement. Hopefully each time you step back to get the scenic perspective you'll find an even pretty picture than the time before.

  • Single Mom Survival Guide

    As you might imagine I read a lot of stuff on personal finance issues. The quality is often uneven. Sometimes the writing is good, sometimes it's not. But more importantly, sometimes the ideas are good and sometimes they're not.

    I've always felt that it was important for us to help you find the worthwhile ideas. Sift through all the books, sites, articles, tips and ideas to find the ones that would be most useful to you. Tools that you could use to better your life.

    One of my favorite sources over the years has been the team of Jill Cooper and Tawra Kellam. Regular readers will recognize the names. We've featured dozens of their articles. Typically they provide real world, practical tools for stretching our money.

    Jill authored an ebook "How I Lived on a Dime: The Story of a Penny Pinching Mom" that tells her story of raising two teenagers alone while she was making just $500 per month. It's full of great advice. Especially for single moms, but good for any family.

    From now until 8/31 she's offering the ebook for half price ($6.48). I believe that's an excellent offer. We do make a commission on each sale. So you'll have to take my word that I'd recommend it if all I got in return was your 'thanks' for bringing it to your attention.

    If you'd like to see some of Jill's work visit her section of the author's index.

    To find out more about the ebook and to order visit here.

    Keep on Stretching those Dollars!

    Gary

  • The Danger In Student Loans

    Back in June 2010 total student loan debt surpassed total credit card debt (USA Today). The total was over $850 Billion.

    If you're a regular reader you know that we have a strong dislike for debt around here. I've seen debt derail a lot of families over the years and hate to see it happen to others.

    I understand the argument for taking on student loans. I have two kids in college. We all want to see our kids succeed. And, we're willing to 'invest' in their futures.

    But, as a former financial planner I need to point out a few truths about student loans.

    First, the lender is not your friend. Don't trust them. Just because you qualify for a loan doesn't mean that you should take it. The lender is only worried about getting paid back with interest. How much you struggle to make those payments doesn't concern him. The fact that the feds are backing student loans (just like they did so many mortgages that are now in default) makes the loans safe for him.

    The loans are also safe for the lender because it's almost impossible for you to walk away from them. Student loans aren't eliminated even in bankruptcy. If you fall behind they can collect from your tax refund or your paycheck (US Dept. of Education). About the only way to not repay a student loan is to die. (not surprisingly, we don't think that's a very good strategy)

    Second, the 'invest in your kids' argument is only partially correct. When you invest you look for something that will pay interest or increase in value. Investing is all about returns. You wouldn't invest in a company that had a poor forecast. You carefully estimate how your investment is likely to fare.

    Recognize that you're not investing in "education" or even "your child's education." You're investing in your child plus a specific school and a specific degree.

    How much effort did you put into studying your child's school or what degree they're getting? You may be investing $40 or $50k in this school and degree. What are the prospects for your student after graduation? Way too many of them are getting degrees in fields that have little or no demand. Not to upset anyone, but many soft majors (things like "___ studies") have little demand outside the university. Just recently I fielded a question from a mom who's two students got degrees in "art history" and "rhetoric." Now they can't find jobs in those fields.

    Thoroughly investigate the school, too. Is a degree from a private school worth the extra cost? What about online schools? They offer much lower costs. But, you'll want to make sure that a degree from your school is recognized as valuable by prospective employers.

    It's time that parents and students realize that 'education' is not necessarily valuable in a monetary sense all by itself. Employers are willing to pay for specific skills and are unwilling to pay for others. Don't make an 'investment' that has little or no chance of returning your money.

    Third, students need to be cautious about how much debt they take on. The average is in the $25k range (finaid.org). The quick rule of thumb is that total student loans and credit card debt should not be more than their annual take-home pay after the student leaves college. We'll skip the math, but that would mean that they're paying about 10% of their income in debt repayment. Most budgets will get tight if more than 10% is going to debt repayment. Especially for young people who are thinking of buying newer vehicles, setting up homes and dreaming of exotic vacations. None of those things will be possible if debt is taking more than 10% of income.

    Which brings us to another warning. Too many students either don't get the post grad job offer that they were expecting or drop out before getting the degree. The number of underemployed young people is pretty disheartening. Especially if they have large student loans. It's one thing to leave college and take a lower paying job. It's much worse if a quarter of your income is going to repay student loans.

    Finally, don't discount the dropout rate. About 3 in 4 students pursue education beyond high school. But less than half get a degree within 6 years of HS graduation (NY Times). That's a lot of student loans with a zero investment return.

    Don't get me wrong. I'm not against college education. And, in certain circumstances it makes sense to borrow some money to get through school. But, I am against borrowing money stupidly.

    Just because a college will accept you, they offer a degree subject you like and someone else is willing to lend you money is no reason to borrow it. I'd call that borrowing stupidly.

    Remember that the college and lender are not responsible for you finishing a degree. They're also not responsible for you finding a job after graduation. And, they're most certainly not responsible for repaying your student loans. Those responsibilities fall squarely on your shoulders. You're wise to recognize that before you agree to borrow their money.

    Keep on Stretching those Dollars!

    Gary

     

     

  • Keeping Up With The Joneses

    Saw an interesting movie the other night. Normally it wouldn't have caught my attention, but the subject is more than appropriate for Dollar Stretchers. It's called "The Joneses" starring Demi Moore and David Duchovny. The plot revolves around Moore and Duchovny who parent the typical upper-middle income family. The trick is that they're not really a family. Rather they're a pretend family that has been hired to move into a neighborhood and conspicuously consume in an effort to encourage others to spend more. They rave about how various purchases have made them happier and are measured by how much consumption goes up in the neighborhood.

    Dollar Stretchers won't be surprised at how the story ends. I won't spoil it, but will say that all the supposed consumer related happiness fades when the reality of debt begins to hit home.

    Although the plot seems strange at first, it's really not that far removed from companies who try to get 'first responders' to adopt their products and then influence those in their social circle.

    It's far from the best movie I've seen this year, but was an interesting view. You might enjoy it, too (but, fair warning, it's probably not appropriate for your children).

    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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