The Dollar Stretcher

One thing that's puzzled me over the years of dealing with people and their money (and there have been quite a few of them!) is why people make financial decisions that are not in their best interest.

You see that most of our economics is based on the assumption that you and I will try to get the most for our money. We might not always be successful. And, sometimes we'll be misled or even cheated. But, overall we'll generally get the best deal on any purchase and, if we're selling, get the best price for our item. The assumption is believed to be true for both individuals and for companies. At least that's what I learned in school.

The last few years I've become more aware that often people don't do what's best for them. Sometimes they spend (or save) irrationally. They make financial decisions that even they know aren't in their best interest. But somehow they seem unable to do anything else.

If I look at my own financial decision making I like to think that I'm rational. Yes, sometimes I spend money when I shouldn't. But, it's not unconscious. I'm aware that a choice is being made to buy extra comfort, convenience, or... I'm also aware that sometimes I too reluctant to spend money. Buying used when new would better suit my needs.

Based on my email, I know that I'm not the only one making decisions like these. What I'm beginning to wonder is whether most of us are irrational in our financial decisions at least some of the time.

What's your take on the question? Are people generally logical in their financial decisions? Are they a mixture of rational and irrational depending on what day of the week it is? Or could they even be largely illogical in choosing their financial path?

I'd love to hear your thoughts on the subject. Who knows, maybe we'll all learn something that can help us be more successful in managing our finances.

Keep on Stretching those Dollars!

Gary

This post originally appeared in "Financial Independence" - a free daily look at what it takes to take control of your money. To subscribe click here. 

A record 2.8 million U.S. properties began the foreclosure process in 2009 (according to ForeclosurePulse.com). It appears that there's no end in sight. And, while the focus has been on families losing their residence, there's a subplot that's gone largely unnoticed. Innocent renters are often hurt when banks foreclose on their landlords.

Nationwide it's estimated that about one third of properties that are being foreclosed are not owner occupied. And, while some of those are second homes, many are rentals. It's probably pretty safe to say that at between 25 and 30% of foreclosures are occupied by a renter. So about 750,000 renters were in foreclosed units last year.

What does foreclosure mean to the renter? If the bank forecloses on your landlord they take over the property. Their goal is to protect their financial interest. Sometimes that hurts the renter.

Historically, banks wanted the owner to vacate a foreclosed property. That meant the renter, too. So even renters who had leases were suddenly being thrown into the street. Without any legal recourse.

In May, 2009 the "Protecting Tenants at Foreclosure Act" became law. The main part of the law guaranteed that tennants could stay until their lease was up. Those on a month-to-month get 90 days.

Today, in part because of the law and in part because it's bad business to chase away paying renters, banks are allowing more tenants to stay in foreclosed properties. Often they'll use a management company. Some managers are more responsive to renter needs than others.

So what can a renter for protection? Unfortunately, even with the new law, their options are fairly limited.

It's hard for a renter to determine if his current or potential landlord is in financial trouble. There is one website that can check an address for you. It's not 100% certain. They only report what their records show. But, you'll want to avoid any properties on their list.

In some counties, court records are available online. Checking your county's website can be a real eye-opener. You can check your landlord by name (or by company name). Look for any pattern that shows financial problems. Make sure you look for liens and mortgages against the property you rent.

If the bank does notify you that your landlord is being foreclosed, contact the local housing agency. They'll be in the best position to tell you which local, state and federal laws apply to your situation. Among other things you'll need to know who should get your rent checks and who to call for a leaky faucet.

As a tenant you can sue the former landlord for lost deposits and rent. But the small claims process can take months. Plus you're trying to get money from someone in foreclosure. The odds of getting your money back are pretty long.

The trickiest time for a renter is when the landlord expects to be foreclosed. Some will collect rent and make no effort to make their mortgage payment. They'll also avoid doing any maintainence. This can go on for months. That's why it's a bad idea to prepay your rent in this economy. If you have next month's rent available, better to put it into an insured savings account until the rent is due.

If you're looking for a rental, beware of landlords who seem overly anxious to get you into their unit. Some are attempting to use renters' first/last/deposit to keep themselves afloat financially. Reputable landlords will check your credit and references. Failure to do so could be a sign that they're just after your deposit. Time to run!

Bottom line? It's important for a renter to check out the landlord. The tools aren't particularly good, but they can help you avoid some obvious problems. And, if you do find that your landlord is in foreclosure contact the bank and housing agencies to see what steps you need to take to protect yourself.

Keep on Stretching those Dollars!
Gary

My money tape? Being poor is something to be proud of. My Dad was a factory worker, my mom stayed home. They both worked very hard to provide everything we needed and more. We have a very prestigious private college locally. I was able to live at home and work full-time while attending college. The students there were of substantial means and treated locals with disdain. This hardened my “proud to be poor” status.
I am now an adult and my husband works very hard and has been able to provide some things that not everyone else in our circle/community has. I find myself embarrassed to have those things. As my husband points out, we are by no means wealthy. Somehow, I feel disloyal to my family by having more. Help!
Autumn

Autumn's response is very understandable. As a young adult she's working hard to afford a private college. The vast majority of the students come from wealthy families. They look down on people like Autumn. She's faced with a choice.
She can decide that the other students are right. Money is the measure of a person's worth. So the best thing that anyone can do is to accumulate wealth.

Autumn chose the other path. She rejected their view. In fact, she went the exact opposite way. A person should be proud to be poor.
But, you'll notice that both views have the same underlying belief. That possessions determine how valuable a person is.
That pride that started in college still plays out in Autumn's life today. And, it's causing discomfort. So what can she do that will allow her to be comfortable with her current finances?

The first thing is probably to recognize that money and possessions don't determine a person's worth. We're not better people because we have money. Or because we don't have money. It might help if Autumn can think of people that she values and respects. Some are probably better off financially. And, others are not so well off materially.

She can also look at the flip side. She probably can name both wealthy and poor people who are mean and not nice.
Ideally Autumn can see herself as being a valuable human being regardless of her possessions. Recognizing her worth is intrinsic, part of who she is and not what she has.

Finally, a thought about 'disloyalty'. There's nothing disloyal about accumulating wealth. As long as it isn't used to drive friends and family away. We've all met people who use their wealth to 'lord it over' or impress other people. Generally we don't like them. But, nothing says that we have to become that person. In fact, if we value people for who they are, it's unlikely that we'll use money to manipulate them.

Do you have an interesting Money Tape playing in your head? You're not alone. We all learn by sharing our experiences. Please send your Money Tape by email and we'll include as many as we can in future issues.

My tape is that too much money is not good to have. The way i grew up my parents had a lot of money and I was embarrassed. So therefore I've led a life just having as much as I need, and spending the rest. I would like to break away from this tape as I age, because I want to start saving a lot more! Any tips on how to get rid of this money tape?
C.

Gary's response: I'd suggest that C. think back to their childhood and try to understand why they were embarrassed. What C. finds could help overcome the reluctance to saving.

For instance, it could be that C's parents were very proud of their wealth. And, weren't afraid to display it. Naturally that might make it hard for C. to make friends with kids from less prosperous families.

But, thinking about it, does accumulating wealth mean that you have to display it for the world to see? Does anyone need to know how much C. has in the bank or a 401k account? Just because C. can afford fancy clothes or a fancy car doesn't mean C. has to buy them. So, if that was the concern C. probably can put the fear away and begin to save for the future.

Or maybe C. was embarrassed having things growing up that friends didn't have. Again, that's understandable. Growing up we all want to be like our friends. But is there any reason that the size of C's savings account should force C. to give up current friends (even if they're penniless)? C. appears to be a very down-to-earth person. Accumulating some savings doesn't need to change that. And, in fact, there's no reason that it should.

Examining the Money Tape could help C. understand the underlying feelings. And, once C. understands them they won't hold the same importance. Chances are they aren't relevant to C's life today. Once C. recognizes that the Tapes won't have any power. My guess is that C. can find a way to avoid any problems and still start saving.

This post originally appeared in "Financial Independence" - a free daily look at what it takes to take control of your money. To subscribe click here. Do you have an interesting Money Tape playing in your head? You're not alone. We all learn by sharing our experiences. Please send your Money Tape by email and we'll include as many as we can in future issues.

As we've discussed before, our Money Tapes are thoughts that go through our mind telling us what we believe to be true about money. Typically they've been with us a long, long time. We've accepted them as part of our reality.

But what happens if one of our Money Tapes is false, or isn't true all of the time? What happens then?

Often the results are a train wreck that you're not even aware happened.

Let's consider an example. Suppose that you were raised to believe that your value was determined by what you produced by your hard work. So naturally, you've worked hard all of your life. Often putting in extra hours and even skipping family events so that you could produce more.

When a special project keeps you from your son's birthday party your Money Tape plays: "You're most valuable to your family when you're working hard." Believing it to be true, you plow into the special project and plan on apologizing to your son when you get home.

But the Money Tape is only partially true. Working hard is important. But so is being present at your son's birthday party. In fact, it's very likely that the party is more important.

Since you believe your Money Tape you think you did the right thing. And, you're surprised when your son isn't that interested in your apology. It's only years later that you realize how much he wanted you to be there. In short, a train wreck that you weren't aware of.

The moral of the story? Listen for and question your Money Tapes. Make sure that they're true for the specific situation you're facing. Otherwise you may think that you're doing great, even though your train is hurtling off the tracks!

What's your experience with Money Tapes? How have they affected your life. We'd love to hear your story.

 Here we are already entering the 2nd month of the new year. With the holidays over, it's a great time to focus on our finances.

Sometime over the last few weeks you should have received statements on all your savings, investment and retirement accounts. This is a great opportunity to work up your Personal Balance Sheet (PBS).

A PBS is an important document for all of us. It's effectively our financial scorecard. A PBS lists all of our assets at their current value and all of our liabilities (i.e. debts). Total all of your assets. Then total all of your debts.

Hopefully the assets are worth more than your debts. Your "Net Worth" is the amount that your assets exceed your debts. Your goal is to increase your financial net worth as you get older. Not surprisingly, the more debt you have the harder that is to do.

For more information about how to calculate your net worth visit here.

BTW, just for the record I recognize (and I hope that you do, too) that your value as a human being is not equal to your financial net worth. It probably should be called your 'financial' net worth, but in common practice it's not.

Finally, a suggestion. This is the type of thing that we're working on in our daily enewsletter "Financial Independence". Not only are we learning about financial tools like PBS, but we're also discovering the Money Tapes that often rule our financial lives. If you'd like to take control of your finances just send an email to: join-fi @ hub.thedollarstretcher.com

Keep on Stretching those Dollars!

Gary

Wanted to talk to you about two new things that we're doing in 2010. If you visit the website <www.stretcher.com> you may have already noticed the first. It's called "Frugal News" and you'll find it on the right side of the page near the bottom. We want to use it to help you keep up with everything you need to know to get the most for your money. We cover as much as we can here at TDS, but we can't be everywhere. So we're happy to let you know about other articles that could be helpful. We'll find as many as we can ourselves. But, if you know of an article that others might enjoy, please send us the url by email.  We'll try to include as many as possible in the Frugal News section.

The other thing that we want to do this year is to provide more time and money-saving ideas on video. We'd like to start with submissions from you. The best tips and articles have always come from our readers. We really believe that if you add up all of our readers and visitors you'll find more money wisdom than in any other place on earth. So we're asking you to share those ideas via your videos. They don't need to be overly professional. We're looking for good ideas, not Hollywood production values. So if you'd like to share your thoughts, just shoot your video and send it by email.  Knowing the great ideas you have, I can't wait to see what videos we receive.

Finally a hope that you're managing to stay warm this frigid winter! If you're looking for more ways to keep warm visit our Winter Heating Section. Keep on Stretchin' those Dollars!

Gary

It's not that I'm so smart, it's just that I stay with problems longer. - Albert Einstein

Recently I was approached by a reporter. They were doing a story on people who were tired of the effort it takes to control their spending. What suggestions, she asked, did I have for people who were struggling and thinking of just giving up?

A little time brought to mind some of the things that I've seen people do who continue when the easiest course was to quit.

The first is to make a decision. Once you've decided to pursue a goal, do not question it. Unless you have significant new information, you have no reason to doubt your original decision. So don't trouble yourself with questions. Just continue along the path you chose to follow.

The second involves breaking big goals into smaller pieces. They say that success breeds success. I believe that's true. Dividing a big goal into smaller goals allows you to have some smaller successes along the way. Each one helps to motivate you to strive for the next small goal. Pretty soon you've accomplished the big goal.

Rewards are the third tool to accomplish financial goals. Most of us want to know "what's in it for me?" That's only natural. So put something in it for yourself. If you're paying off a credit card, treat yourself to a small reward at predetermined points along the way (i.e. after $2,500 has been paid down or when the balance is reduced by 25%). Looking forward to the reward takes your mind off of the struggle.

Reminders can also be helpful. If you're saving for a vacation, you'll find that a picture of the campgrounds on the refrigerator can be a great motivation. Some people put a card in their wallet to remind them of their commitment to reduce debt. They see it every time they reach for cash or a credit card. It can help you resist needless purchases.

Finally, it's helpful to have friends to encourage you and share experiences. Most long journeys are much easier if we have one or more people to walk with us. So find a frugal living partner at work or in your neighborhood. Or join an online discussion group. Not only will you find help, but you'll become stronger when you encourage others. In fact, we have one specifically on Frugal Fatigue.

So don't let the length of the journey discourage you. The total distance is not that important. All you have to do is to stay on track for today. And, that's something that all of us can do.

Keep on Stretchin' those Dollars!

Gary

Sonny asks a good question, although at first I wondered if it weren't better suited for a parenting column. But given more thought, it occurs that it really helps illustrate a point about raising financially responsible children. How so? Let's take a look.

We'll begin by considering what Junior is saying when he refuses to eat anything but hamburger or ham. Part of it is good. He's exploring how much control he has over his world. And, although I'm not a child psychologist, that strikes me as healthy. It's all part of the growth process.

The bad part is that Junior is attempting to dictate his surroundings. In effect, he's telling Mom and Dad that he expects them to feed him only the things that he likes. And, it's up to them to perform to his standards.

Sonny, understandably, wants to make her child happy. But making him happy now could set the stage for much unhappiness later. Now might be the perfect time to teach Junior a better way of relating to the world around him.

What does eating peas and carrots have to do with finance? In this case quite a lot. If Sonny gives in to Junior's demands, he'll expect that others will, too. Not only at dinner, but in other areas. It will be an unhappy surprise for Junior when they don't.

He won't know how to handle it when a boss expects him to perform a task that he doesn't like. He'll rebel when a purchase doesn't make him as happy as he expected. In short, he'll expect to get his way all of the time. And, as we adults know, that's not the way that life works. Especially our financial lives.

So what can Sonny do to avoid mealtime boredom and a lifetime of financial frustration for Junior? She can begin by serving Junior a variety of foods. Whether he likes them or not.

If dinner tonight consists of chicken and mashed potatoes, then that's what's available for Junior to eat. He may fuss and demand something different. That's when Mom and Dad need to tell Junior that nothing different will be prepared for him. He can choose to eat the chicken and potatoes or wait until the next meal. It's his choice.

Chance are Junior will run away refusing to eat dinner. Don't chase after him. If he asks for a snack that evening, inform him that you're willing to reheat the chicken and potatoes for him. If that's not acceptable he can wait till breakfast.

After a day or two, Junior will realize that Mom and Dad aren't going to give in. He'll be faced with a choice. Eat the healthy meal that's presented to him or go hungry that night. It won't take long before he discovers that chicken isn't so bad!

It's important not to get into a fight with Junior or to try to force him to eat. That could be bad for your relationship with your child. Just prepare a healthy meal (as a good parent should) and offer it to your child. Then give them the opportunity to eat if they're hungry.

Ok, now let's tie this back to Junior learning about personal finance. It's important for all children to learn that we don't always get what we want. Trying to do so will mean spending money that we haven't earned. Buying things that we can't afford. And, then expecting the world to fix the problem that we created.

Junior is much better served by learning early to adjust his wants to the world around him. He may want hamburger every night, but chicken is good, too. He may want a new luxury SUV. But he can afford a less expensive used cross-over. Not everything he sees in the store fits within his income.

So to answer Sonny's question, she can make whatever dishes that she and her husband like. Not only will they be happier, but in the long run Junior will be happier, too.

Even though I don't get to spend much time writing anymore, it's still one of the hats that I get to wear. There's something exhilarating about having a blank screen in front of you and being responsible for putting something useful on it.

But, I'd be dishonest it I didn't also say that there's something a little terrifying about it. Here you are alone with your thoughts at the keyboard. What if you get a case of writer's block? What if you don't have anything valuable to put into words?

I think that facing a new year puts us all in a similar spot. No, it's not a completely blank slate. You still have last years' debts or savings. And, your boss probably won't become suddenly nice at the stroke of midnight (although that WOULD be a Cinderella story!).

But you do have an opportunity to say what you want 2010 to be for you. Your future has not been predetermined. Think of it as having a blank screen to write on. What would you want to write on this new year? Something personal? Something financial? Something relating to your spouse or children?

One other thing about writing. Generally you have to revise what you've written. Change a word or two. Maybe add or drop an idea. Done well each change brings you closer to the finished product you want.

The same is probably true of our blank screen for 2010. We'll probably will want or need to make some improvements as we go along. Changes that will move us towards the ending we want.

So don't hesitate to write on the new year. In fact, I'd encourage you to do so. My hope is that whatever you do write on 2010 will bring happiness to you and to your loved ones.

Keep on Stretchin' those Dollars!

Gary