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Tips to deal with financial emergencies

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What if a financial emergency, crisis, or sudden need requires more cash than you have available in your savings account? It could be a large medical expense not covered by your health insurance plan, a large down payment on a house, or an extended period of unemployment.

You may be tempted to simply turn to your credit cards to make up the difference. While credit cards may help temporarily bridge the gap in a financial emergency, they are not a long-term crutch. In fact, turning to credit cards can lead to a new crisis, as high-interest debt turns into a monster that can’t be paid down.

What can you do once the special savings account runs out? There may be no magic solution, but there are ways to make the problem more manageable:

  • Talk with trusted friends or relatives, with the goal of eliciting fresh ideas about how best to deal with the emergency. They may come up with an alternate approach that lowers the overall cost.
  • See if the source of the cost (hospital, bank, etc.) is willing to accept an alternate payment plan. For instance, if a large down payment is required, is there any way to reduce it? Or, if you have just been billed for a $30,000 hospital procedure not covered by insurance, will the hospital allow you to work out an installment plan to pay it off? If the answer is yes, watch for special conditions, fees, or excessive interest.
  • Immediately come up with a plan to cut your expenses. Start with the flexible expenses that are nice to have, but are not absolutely necessary. Personal Finance For Beginners In 30 Minutes, Vol. 1 explained how opting for cheaper phones, cable TV service, and cars can potentially save thousands of dollars every year.
  • Start selling stuff. Furniture, antiques, jewelry, musical instruments, and collectibles may be hard to let go of, but they can provide cash in a pinch. Try to establish the fair market value for the items and your target prices before talking with potential buyers.
  • Consider radical approaches, including rethinking your housing and transportation requirements. For instance, renting out property, downsizing living arrangements, or shifting from cars to public transportation can make a huge impact on annual spending.

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 2, by Ian Lamont. All rights reserved.

Should I use Quicken, Mint, or other software to manage personal finances?

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Quicken, Mint, Check, and other services offer the ability to aggregate and track all of your financial and spending information in one place.

The basic idea behind these services is similar. After registering, provide the login details for various accounts — banking, credit card, loans, bills, etc. The software connects to these accounts, downloads the data, and adds everything up. It makes it a lot easier to manage personal finances. The software interfaces can display the following data:

  • Total cash available, across all accounts
  • Total credit available
  • Monthly budgets and expenditures, by category
  • Investment performance (stocks, mutual funds, retirement accounts, etc.)
  • Alerts (for instance, a spike in spending in a certain category, or an upcoming bill)
  • Advanced features such as investment analysis and online payments

If you complete the setup process and link up all of your primary bank, credit card, and financial services accounts, these tools can provide some fascinating insights into your assets, investments, and spending levels. One of the most eye-opening pieces of information for me was a chart on Mint.com that showed my overall assets, including the total value of my house and retirement accounts.

But the services have some fundamental differences:

Quicken vs Mint vs Check

(Note: Mint.com is now owned by Intuit, which also sells Quicken as well as other financial software packages including TurboTax and Quickbooks.)

Many people would choose one of the free money management tools. However, there are a lot of people who will gladly pay for Quicken because it is PC-based software. Data you enter into Quicken is not uploaded to the Internet. This means users have more control over their data, and feel reassured that all of their sensitive personal and financial information won’t reside on a remote server or in the cloud.

In addition, users of Mint and Check have reported issues with third-party bank and billing accounts that may become inaccessible or fail to update. Being unable to access certain data makes for flawed planning and analysis. For instance, how can you accurately track and plan for debt reduction if you can’t connect to all of your credit card accounts?

Lastly, the services can be complicated. Besides the hassles associated with connecting all of your accounts, setting up budgets, targets, and alerts is a lengthy process. Some people have complained that the tools aren’t flexible enough to handle real-world budgeting or planning situations that might be thrown off by an emergency or unexpected expense.

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 1, by Ian Lamont. All rights reserved.

How to cut utility costs: My 10% solution

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The following post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 1, by Ian Lamont. All rights reserved.

When it comes to saving on other types of utility bills, the experts tend to get into home improvement projects such as adding insulation to your attic, installing double-glazed windows or energy-efficient heating systems, or caulking every last crack and crevice.

That’s great if you are handy with tools or happen to be on a first-name basis with the staff of your local hardware store. But for the rest of us, I advise a much simpler approach that I call the 10% Solution. Here’s how it works:

  1. Determine the sources of spending on electricity, gas, heating, air conditioning, and hot water.
  2. Reduce consumption by 10%.

That’s it. Find those things in your house that consume energy, and then cut consumption by just 10%. For example:

  • If you usually take a 10-minute shower, cut it down to 9 minutes.
  • Reset your thermostat to be a little warmer in summer, and a little cooler in winter.
  • If you have a programmable thermostat, set the air conditioning and heating systems to power down a little earlier than usual. For instance, in the winter, we set our home’s internal temperature to drop after 10 pm when we are in bed and under the covers. We program the thermostat to increase the temperature by 4 degrees the next morning before we get out of bed.
  • Check your hot water heater’s default temperature and drop it by a few degrees.
  • When it’s time to replace lightbulbs, get slightly lower-wattage bulbs or energy-efficient alternatives.
  • Conserve energy in the kitchen, especially when using the stovetop or heating hot water (microwaving hot water or using a British-style electric kettle are not only faster, they are much more efficient than using a gas or electric range to boil water).

Nest thermostat cut utility costsTaking slightly shorter showers, turning down the A/C by a few degrees, or making other tweaks to the ways in which you use energy are hardly noticeable. But they can save hundreds of dollars per year in power, gas, oil, and other energy costs.

Internet bundles are not as cheap as you think

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The following post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 1, by Ian Lamont. All rights reserved.

Home Internet service is a necessity for most people. Internet service providers and cable companies know this. To get you to pay more, they offer “Internet bundles” that combine Internet, phone, and cable TV. If you only want one of these services, the price is steep — at least $50 or $60 (and sometimes more, if there is no local competition).

Let’s do the math on an Internet plan that does not include phone or television:

Monthly rate: $60

Cable modem rental: $8

Total monthly cost: $68

Annual cost: $68 x 12 months = $816

The bundles may seem like a deal — just $99 per month for all three! That’s not much more than paying for one service at a time, right?

Not so fast. There’s a catch with these bundles. Actually, there are several catches:

  • “Equipment, installation, taxes and fees are extra.” These fees are unavoidable, and bump up the price well over $100 per month.
  • The basic bundle seldom includes everything you want, particularly when it comes to cable television channels. Even local broadcast television channels may not be included!
  • Internet speeds may be limited.
  • Phone service may be limited to local lines; out-of-state area codes cost extra.
  • The rate does not include the cost of renting a cable modem
  • Rates increase regularly — sometimes as much as $15 per year

All of a sudden, the $99 bundle costs $140 per month to get to the service levels you want for Internet, phone, and cable TV. Let’s do the math:

Annual cost, first year: $140 x 12 months = $1,680

That’s not all. The price of the monthly bundle usually jumps after 12 months, and sometimes jumps again after 24 months. I saw one $89 per month bundle that includes Internet, cable TV, and a few premium channels rise to more than $200 after 2 years. Here’s how the bill breaks down when the customer starts paying full price:

Monthly cost for cable TV: $90

Monthly cost for high-speed Internet: $70

Monthly cost for premium channel package: $25

Additional monthly taxes, fees, modem rental, and other charges: $20

Total monthly cost: $205

Annual cost: $205 × 12 months = $2,460

But there are ways to save serious money.

  • Get your own cable modem if you are handy with computers. They cost $20 to $30, and you will have to install and configure it yourself. Savings: $60 in the first year, nearly $100 per year thereafter.
  • Don’t get extra cable channels beyond the basic service. You will be able to get premium programming through your Internet connection using Netflix, Hulu, Amazon Prime, and other services.
  • Negotiate with the ISP or cable company. In the past, I’ve asked for and received discounts from telecom providers. The best time to do this is when you have a better offer in hand and the original contract (typically 2 years) is over.

The other item you should consider getting on your own is a wireless router, which will allow you to set up Wi-Fi. These devices are small and connect to the cable modem. Unfortunately, they can be tricky to set up, but at least they are cheap — the one I have cost just $20 from Amazon.

Wireless routers cost

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Volume 1:
How to cut expenses, reduce debt, and better align spending & priorities
.

How to cut car costs

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The following post was excerpted from Personal Finance For Beginners In 30 Minutes, Vol. 1, by Ian Lamont. All rights reserved.

Autos dominate our lives. We depend on cars for work and pleasure. We plan our cities and new homes around them. Even when we’re relaxing in front of the television, advertisements for new cars are constantly paraded in front of our eyes.

Thanks to relentless media exposure and little-understood financing and sales practices, not to mention the perception of autos as important status indicators, most people replace their cars on a regular basis. A rent survey found that a typical new car-owner will keep a vehicle for nearly 6 years.

For many, there is no question that when they get their first vehicle — or buy a replacement car — it is going to be a new car. This is an accepted piece of wisdom.

Photo Credit: Kenneth William Caleno

If you follow the six-year buying pattern listed above, you probably will have purchased three new cars by the time you turn 40. Or, you may have fallen for the dealer pitch that urges customers to “lease a brand-new car for just $199 per month!” Of course, you have to read the small print to see that leases come with all kinds of gotchas, ranging from big down payments to restrictions on annual mileage. And you don’t actually own the vehicle in a leasing situation. That means there’s no trade-in when the lease is up.

While cars are a necessary, fixed expense, a fetish for new cars can lead to real financial pain. Fortunately, there are alternatives:

If you buy a new car, keep it longer. Recently manufactured cars tend to be vastly superior to the cars of decades past, in terms of resistance to wear, corrosion, and major mechanical failures. The old rule of thumb about the need to replace the engine or the car after it’s been driven 100,000 miles has been thrown out the window in the latest generation of vehicles (as recently noted by the New York Times in an article titled “As Cars Are Kept Longer, 200,000 Is New 100,000”). This is party due to better materials and on-board technologies, but it’s also because of an intense desire on the part of manufacturers to stay globally competitive.

What this means for you, the consumer, is a new car can be driven for 10 years or more if it’s properly maintained. Heck, drive that sucker into the ground before you replace it!

Consider used cars. It’s not necessary to buy a new car. You’re often paying a premium for a new vehicle from dealers who will do anything to close the sale with a slew of extra charges, features, and fees that you don’t need. Good used cars can be had for less than $10,000, if you do your research and shop carefully.

Photo credit: Kenneth William Caleno, licensed from Shutterstock

“How to cut car costs” was excerpted from Personal Finance For Beginners In 30 Minutes, Volume 1:
How to cut expenses, reduce debt, and better align spending & priorities
.

How to limit spending on luxuries

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It may sound easy to limit spending on luxuries, especially if you are someone who doesn’t do much shopping in the first place.

luxury purchase - a new laptop/MacBook ProBut if you have a shopping habit, or a family member who likes to buy luxury items such as high-end laptops or expensive clothes, it’s not so easy. Here are some tactics for taking control of luxury spending:

Set a monthly shopping budget: After determining your income and subtracting rent, food, healthcare, transport, insurance, and other necessities, and setting aside some of the remaining cash for savings and retirement, you should be able to budget the remainder to “other,” including shopping. If shopping is a priority in your life, then allot more — but still stick to the budget. If you need help planning out your monthly shopping budget, consider some of the software tools described in Chapter 4.

Limit shopping trips: My daughter has a thing for shoes. If she steps into a shoe store, there is a 90% chance she is going to leave with a box of new shoes. The easiest way to limit her spending? Reduce the frequency of trips. The second easiest way? Paying with cash — preferably her own!

Use cash: When you use a credit card, you’re using someone else’s coin — usually the bank’s, or the store’s, if it’s a store-issued card. Because the cash is abstracted through plastic and far-off monthly payments, it can seem like you’re not paying anything at the moment of purchase. It’s a mental trick that works against your financial interests. Fortunately, there’s an easy way to counter it: Start paying with cash. The act of handing over a small stack of twenties to buy that fancy-shmancy kitchen gadget sends a pretty clear signal to your brain that your supply of money just got appreciably smaller.

Read the return policy before making a purchase: Think back to any item you’ve bought in the last few months that cost more than $100. Yes, I’m talking about that designer hat that looked good on the store mannequin, but on your head, not so much!

What was the return policy of the store you bought it from? You probably don’t know, or would have to hunt for the receipt and look at the fine print. The next time you make a big purchase, look at the return policy (or ask someone) before you make the purchase … and give preference to merchants who offer the best terms. If you have second thoughts or decide that the hat is not worth it, return it for a refund or store credit before the refund period expires.

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Volume 1:
How to cut expenses, reduce debt, and better align spending & priorities.

Do you really need cable TV?

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According to the Television Bureau of Advertising, nearly 60% of U.S. households subscribe to cable television. More than 30% use alternate delivery systems, including satellite TV.

If you get full-service cable TV or satellite television, ask yourself the following questions:

  • Do you really need hundreds of channels of cable TV programming?
  • Are you actually watching those four premium services that you added on to your subscription package?
  • Are your kids better off watching 10 hours of Nickelodeon and the Disney Channel every week?
  • Are CNN and CNBC providing information that you can’t get from the Internet for free?

The answer to these questions is almost certainly no. According to Nielsen, which tracks TV viewing habits, the average U.S. household receives 189 cable channels but only watches 17 of them. Yet people don’t hesitate to shell out $100 or more every month.

Take a look at the extra charges on the following telecommunications bill, which piles on more than $50 in premium channel charges in addition to the $135 base price for Internet/cable/phone service. The grand total is $226 per month:

RCN cable TV bill

There are some situations which do require cable or satellite television. Residents of rural areas or distant suburbs may be too far away from broadcast towers to receive over-the-air broadcast signals. If you want foreign-language programming, you will need to pay extra. In some television markets, professional sports are only offered through a cable television subscription. And there are some people who can’t imagine life without HBO or ESPN — they consider the dramas, games, and other programming to be life priorities!

But not everyone needs expensive subscriptions to premium channels. Millions of households would do fine with just the basic service package that brings in the nearest terrestrial broadcasters. A recent FCC study found the average cost of basic service is a little over $20 per month. For people who live near major urban centers, basic cable can be replaced by an antenna that plugs in to the back of a flat-screen TV. For a single one-time charge of $40, an antenna can bring in 20 or more digital television signals.

This post was excerpted from Personal Finance For Beginners In 30 Minutes, Volume 1:
How to cut expenses, reduce debt, and better align spending & priorities.