Shannon Christman

The Secret of Personal Finances Revealed

July 9, 2008 By Shannon Christman 4 Comments

“Is it getting dark outside? Are you having trouble seeing? Turn the lights on!” is the gist of one “Wiggles Tips” segment on The Wiggles television show. These segments introduce the show’s preschool audience to a bit of humor – even they are old enough to know to turn on the lights when it’s dark out.

Newspapers and other media often have the adult version of Wiggles Tips when headlines like “People Are Upset about Gas Prices” appear on the front pages. Why is that news? I often ask myself, thinking back to the criteria for newsworthiness I learned in Journalism 101. Others might say, “That’s stating the obvious.” And we personal finance writers are some of the worst offenders. Personal finance books and articles often state the same obvious ideas over and over, elaborating in different ways:

Don’t spend money you don’t have

The prevalence of credit has complicated this simple advice, but every purchase is still a simple exchange of one thing for another, and those who have nothing to exchange can’t make a purchase. Bobby can’t trade his salami sandwich for Jimmy’s chocolate chip cookie if he doesn’t have a sandwich in his lunch. He might promise Jimmy tomorrow’s sandwich for today’s cookie, but eventually he has to pay up or he loses all bargaining power. He can’t trade food he doesn’t have. Yet many of us are spending money we don’t yet have, promising tomorrow’s sandwich and banana tomorrow for today’s cookie.

Cash doesn’t expire

If you don’t use all your money now, you can save it for later. Yet, our spending often increases to match our income, and we tend to forget that we may have higher expenses and/or lower incomes in the future. Sometimes we do act as though we have to spend all we earn right now or the money will go bad. It doesn’t, of course. Yes, you may lose some buying power due to inflation or risky investments, and yes, you might not live long enough to spend all you save, but in most cases, the money you save now will benefit you in the future.

When offered a choice between two things of equal value, choose the one with the lower price

Companies spend a lot of time and money to convince us that their products are far superior to their competitors’. Sometimes we believe in this superiority even when it isn’t really there; we pay more for products without getting more value. Additionally, limited-time discount opportunities – coupons, rebates, sales – can convince us that we are paying less for something of equal value when we could actually pay less for a product (or at a store) with no special discount. Other times, those discounts do save us a good deal of money. The simple, obvious task of paying less for the same thing can become complicated; another person’s perspective can help us distinguish between real and fake bargains.

You can improve your financial situation in two ways: spending less and earning more

A lot of people want to improve their finances without changing their habits, but unless you can convince your boss to give you a raise without adding to your workload, I don’t know how that’s possible. Either you have to change the way you spend (or don’t spend) money or give up some leisure time to earn more. You can buy less, pay less for what you buy, work more, or find a higher-paying job, but something has to change, and it all boils down to spending less or earning more. All the financial advice I’ve ever heard is some variation on one of these two obvious basics: spend less or earn more.

Buy low, sell high

This proverbial advice for success in the stock market may be the most obvious statement of all, but thousands of people earn a living by trying to figure out how to follow that advice. As with most obvious personal finance advice, there is always room for some elaboration and some disagreements over the best methods of improvement. Even the obvious isn’t always obvious.

I don’t think I’m putting myself out of work by telling you that personal finance blogs and books often state the obvious. Everyone needs to hear the obvious now and then – we see our own lives so closely that it’s helpful to have someone else point out factors we’re missing when we try to make decisions or plans. We can be so used to doing things the same way we always do them or distracted by an unrelated issue or simply focused on implementing one solution that we fail to see a more obvious solution to our problems.

The challenge for personal finance writers is rarely figuring out complex answers to financial difficulties, but rather stating simple solutions in ways that don’t make people feel embarrassed for not having seen the obvious themselves. The goal is to help people improve their own finances by offering them perspectives outside their own. I know I have learned new things from other personal finance writers, even if they do state the obvious; I hope you have, too.

Saving Advice from the 1950s: How Much Still Applies?

July 7, 2008 By Shannon Christman 11 Comments

Buried in the bottom of a box lot I recently bought at an auction was an advertising booklet from the 1950s, 1003 Household Hints and Work Savers to Help You Beat the High Cost of Living. The title caught my attention because it mentioned a “high cost of living” in an era many of us now view as a good time economically, the time when many modern conveniences became affordable for the average American household. I suppose we always see the cost of living as high.

The ad for a funeral home just inside the front cover provided another smile – the cost of living may have been high then, but the cost of dying was not (at least by today’s standards). The ad promised “a beautiful funeral service” done “with highest regard to dignity regardless of cost…whether you spend $100.00 or $1000.00.” The advertiser is no longer listed in the phone directory; I was tempted to call and ask if they still offer beautiful services for $1000 or less.

Most of the booklet focuses on household tips for housewives (and yes, the term “housewives” is used regularly). Some of the tips would save money, but some would not. Some of the advice is actually the opposite of money-saving advice common today: use an automatic dryer instead of a wash line (with the argument that it saves ironing time and wear on clothing); eat cereal because “few foods supply so much nourishment at such low cost.” (Of course, “cereal” probably did not mean the sugared, boxed-with-a-toy stuff we buy now.)

The most outdated tips, of course, were the most interesting. Tips #580-583 are devoted to filling and draining the washing machine and using the wringer. Tip #41 recommends boiling handkerchiefs with a muslin bag filled with Orris Root in order to perfume them. The title of one chapter, “

Should We Cut Out Entertainment During Difficult Financial Times?

July 2, 2008 By Shannon Christman 8 Comments

“When I get a little money I buy books, and if any is left I buy food and clothes,” Desiderius Erasmus has been quoted as saying. If he read like I do (more for fun than for education), he was budgeting for entertainment before necessities. He certainly would not be alone. Today, many people continue to buy DVDs and concert tickets even when they’re trying to cut down on spending.

Kim and Jason’s Escape Adulthood blog recently commented on our apparent need for entertainment, saying that “even in a period as tough as the Great Depression, people will spend their last nickel on FUN.” They cite P.T. Barnum getting people to pay for circus admission; other sources have used the cinema as an example. (Movie houses weren’t empty in the 1930s; on the contrary, they became more popular.)

Based on the salaries we pay big-name actors, athletes, and musicians, it’s obvious that our culture places a high value on entertainment, but is it really a necessity on par with food and clothing? Some would say yes. Historically, people who worked hard for their sustenance and had little time for frivolities (miners, farmers, shepherds/cowboys, etc.) were still known to enjoy community dances, group singing, and storytellers. They might not have spent much money on entertainment, but they made it a priority. Perhaps we do have an inherent need for some fun now and then.

In fact, entertainment sometimes becomes more important when money is tight and stress is high. It could be escapism – when life gets tough, it’s much easier to go to the movies and imagine a fairytale ending than to stay home and address problems that seem overwhelming. It could also be fatalism – people believe (often erroneously) that they can do nothing to improve their financial condition, so they might as well go out and have some fun before the money runs out: Why not go to Disneyland today if I’m going to declare bankruptcy tomorrow?

For whatever reasons we crave entertainment, leaving some room in a budget for a little fun isn’t a bad idea. Making a budget too tight can easily lead to frustration, and many abandon their plans to take care of their finances when they start thinking they can’t ever enjoy themselves. When your income is needed more for other things, however, you can find less expensive alternatives to your favorite forms of entertainment. Check out books from the library (and enjoy the free programs they offer!) instead of going to the bookstore. Watch movies on TV or rent them instead of going to the theater. Attend sporting events and performances at the local high school instead of paying for their professional counterparts. You can also find new, inexpensive ways to entertain yourself – start looking for ideas.

So, Erasmus, it’s okay to budget for entertainment. Skip a meal or two if you have to. But don’t spend it all on fun – save some for other necessities.

Eight Ways to Get Cash in Hand by the End of the Week

June 30, 2008 By Shannon Christman 9 Comments

On a recent visit to the Yahoo! Answers website, I found a lot of questions that boiled down to the same thing: How can I make money (usually about $100) fast (usually by the end of the week)? Apparently this question is on many people’s minds. So here are a few answers:

My best answer is to hold a yard sale. Gather up everything you no longer need or want, put it in front of your home, and ask people to buy it. Depending on the quality and quantity of your stuff, you should be able to earn about $100 by the end of your sale, but you will also have to part with some of the things you already own. Don’t forget to get your ducks in a row by having enough labels and getting the pricing right – people go to garage sales looking for deals, so you’ll need to organize accordingly.

Auctioning off your things is also an option, of course, but online auction sites can’t guarantee cash in hand by the end of the week (due to mailing and electronic money transfer times). Local auction houses may work if their auctions aren’t scheduled too far in advance. Auctions save you time and effort compared to yard sales, but many auction houses are selective in what they will sell, and even the things you can sell may be sold in lots for less than you would get in a yard sale. Auction houses also charge a commission, so they’re not as good as yard sales for getting the maximum amount of money.

You still have at least one other alternative for selling your things quickly: a pawn shop. With a pawn shop, you have some hope of getting your stuff back, but you still have to generate that cash to repurchase it in another way.

If you have nothing of value to sell (or nothing you’re willing to part with), you can find some discarded stuff to salvage. Gather up aluminum cans and take them to a recycling center or sell some scrap metal to a junkyard. Check local laws and salvage yard policies first. In some places, trash picking is illegal, so you have to know of a good place where plenty of salvageable materials are readily (and legally) available. You also have to know what’s valuable, be willing to work hard, and have something to carry the bulky items you find.

If you want the money quick but don’t have time to earn it, ask your friends or relatives for a loan. This option only works a few times, especially if you don’t have a good track record for paying people back quickly. You also should have a pretty good reason to make the request, something more urgent than a concert by your favorite band or a trip to the liquor store.

For those whose needs are truly urgent (and truly needs), check with local charities and government sources. You may qualify for emergency aid to pay rent or utility bills. Most of these organizations or agencies have stringent requirements, so you have to be willing to swallow your pride and fill out some paperwork.

You could also offer services to your neighbors – lawn mowing, babysitting, dog walking, car washing, etc. – in exchange for cash. Depending on your neighborhood, this option may also require a bit of pride-swallowing, unless you have an established business that offers these services. To be perfectly legitimate, this income-earning method also requires you to pay taxes (and possibly hold some special licenses or permits).

I doubt any of these answers are quite what the Yahoo! askers wanted to hear. Having an urgent need for money is stressful, and few (if any) of the fast ways to make money are ideal. Avoiding situations where you need money fast is yet another great reason to plan ahead and save money whenever you can. Ultimately, the best way to get money for surprise expenses is to earn it before you need it and keep it on hand.

Image courtesy of eperales.

Getting Full Value Isn’t Black and White

June 28, 2008 By Shannon Christman 4 Comments

“Here, let me show you these great glasses — I want to make sure you get the full value of your insurance coverage,” enthused the salesman trying to get me to upgrade my purchase. I had already carefully chosen my favorite pair from the rack of frames my insurance would cover completely, using up enough time that my children’s attention spans and my husband’s patience were both ending. Now the salesman, doing his duty to his employer, was trying to get me to change my mind.

“You have great insurance,” he elaborated. “It covers $130 for glasses. If you don’t buy this [$170] pair, you won’t be taking full advantage of your benefits.” Funny, I thought, that the full value costs me $40 more.

I saw no difference in quality between the completely covered $120 pair of glasses and the $170 pair on which I would owe money — both would improve my vision, and both appeared pretty sturdy. Plus, I actually preferred the appearance of the less expensive pair — the more expensive one made my eyes look squinty and had designer brand logos splashed all over the thick arms. (I try to avoid giving designers free advertising.) Despite what the salesman said, not having to pay extra for my glasses seemed far more valuable than using the entire $130 my insurance covered. “Free” was the full value he was trying to pitch to me.

Gift cards present a similar situation. Because it’s rare to spend exactly the amount on the card, particularly when taxes are added to the sale, gift card recipients usually have to decide whether to buy something that will cost less than the total value of the gift card or to spend more than what the card will cover. Which option gives the full value of the card?

Most people will choose to spend more than the card covers — retailers count on it. If your bill at that store would be the same whether or not you had a gift card, and the card acts as a discount on your purchase, spending more than the face value truly does give you the full value of the card. However, if you are using the card as an incentive to treat yourself to something you would not normally buy, going over the amount on the card means spending money you didn’t intend to.

Available options also figure into the equation. When you get a gift card, you might see it as a challenge to get as close to the value of the card as possible without going over. However, the store may not have anything below the amount on your card, except for a whatchamacallit you don’t really want or need, while you could choose a thingamajig you really love for just over the target price. In that case, you must decide whether a free whatchamacallit is worth more to you than a discounted thingamajig. It might not be.

In the end, getting the “full value” of credit (in the form of a gift card or insurance, for example) doesn’t always mean the same thing every time. Some dollar amount will usually be wasted — either the cash you didn’t intend to spend or the credit on your account. In some cases, spending the entire amount on your gift card or insurance gives you the full value. In other cases, the full value means getting something for free, even if you don’t spend all you are entitled to spend. You get the full value of “free money” by considering your options each and every time you have some to spend.

Image courtesy of ifranz

Ten Ways to Keep the Cost of Eyeglasses Low

June 26, 2008 By Shannon Christman 12 Comments

Eyeglasses are an oddball purchase. Most people who need them will buy them, but the amount they pay can vary greatly without much difference in quality. There are a few ways, however, to find glasses you like for a price that’s low on the scale.

First, consider whether you truly need prescription glasses. If you are farsighted, you may be able to improve your vision to your own satisfaction with a pair of over-the-counter reading glasses. I’ve seen these glasses priced as low as $0.99 in the past year. My father was once surprised to discover that a pair of reading glasses, which he purchased to use temporarily (until his broken prescription glasses could be replaced), helped him see better than his broken pair did.

If you discover that you do need prescription glasses (or a new prescription), find out if your insurance covers the purchase. Get the details. When our optometrist told my husband that his contacts were covered, I called to ask about my glasses and found I qualified for a free pair (which, somehow, still wound up costing $30) if I went to a different store — my usual eyeglass store did not accept my insurance.

If you don’t have optical insurance or your insurance covers very little for glasses, find out if your local warehouse club has an optical center. Glasses often cost significantly less there than at other eyeglass stores. The full price at warehouse clubs may even be less than the after-insurance costs elsewhere.

When you go to buy glasses, look near the back of the store for overcrowded, poorly lit racks of glasses. There you should find inexpensive frames that are often quite fashionable. If a salesperson catches you on your way, don’t let him talk you into buying the first pair he shows you. It will most likely be the highest-priced pair in the store. Likewise, don’t let him talk you into upgrading a pair you are already satisfied with, no matter how great he tells you they look on you. If you don’t need scratch resistance or glare resistance or ultra-light lenses, don’t take them. You may see very little improvement from the upgrades. You can also find online eyeglasses retailers which can be a great resource for comparison shopping online.

Buy only one pair of glasses at a time. Keep your old pair as backup in case your new pair breaks. If you think you need two pairs to avoid clashing with your clothes, be sure your single pair has neutral frames. If you want a pair of prescription sunglasses, consider buying clip-on or magnetic sunglasses to attach to your prescription glasses. They work well, and you don’t have to worry about changing pairs when you go inside. Some styles blend in so well that it’s hard to notice that the shades aren’t a permanent part of the glasses.

Don’t assume that you have to buy completely new glasses every year, even if you see your optometrist or ophthalmologist annually. If your prescription has not changed and your frames are still in good shape, keep them until they are nearly worn out. If your prescription has changed but your frames still look great, find out if you can have the lenses replaced with your new prescription. You may even consider putting new lenses in vintage eyeglasses that belonged to someone else in your family.

Once you have a new pair of glasses, take good care of them — make them last! Put them in a case at night, clean them with soft materials, and take them back for adjustments as necessary. (Most eyeglass stores will make minor adjustments for free.) Help for your eyes doesn’t have to cost an arm and a leg.