4 reasons we overspend at Christmas and what you can do about it

overspend at christmasI suspect if you ask most people if they didn’t list Christmas as their favorite holiday, it would probably at least rank in the top 3. Yet so often we overspend at Christmas which can be a real killer for our budgets. Too often we get caught up in the emotions of the moment and pull out the plastic figuring it isn’t that much and we’ll just pay it off in January. After all, Christmas only comes around once each year right? Rinse and repeat a few times and when January comes we get a real shock when we open that credit card statement. Then we spend most of next year trying to pay it off, until next December comes and we start the process all over.

One solution is to have a Christmas Fund where we save a little each month so that we have cash to pay for things when Christmas rolls around. This works, but the problem is sometimes there are things we forget about.

Extras

We know we have to spend money for presents for friends and family, a Christmas tree, and some other common things. But what about the extras?

  • Baking supplies for all those Christmas goodies
  • Wrapping paper, ribbon and bows
  • Travel expenses to visit family
  • Christmas cards
  • Postage to send those cards as well as any packages you need to ship
  • Special giving you do at the holidays
  • Family Christmas pictures
  • Special Christmas events you may attend

These are just some of the extra expenses that can trip you up.

What you can do about it

Ultimately, most of these items aren’t really unpredictable. They are expenses that we know we will have; we may just forget to plan for them. Perhaps it is too late to plan to handle these budget busters this Christmas, but this is a great time to make sure you aren’t tripped up next year. Start making a list of any expenses you have that are Christmas related.

The problem is come January when you decide you are going to save for Christmas next year, you will have forgotten some of these items. If you make a list now, then you’ll have a good idea of how much you need to save for next year and these Christmas “extras” won’t give you a January headache.

Emotional spending

This can be a tough one, especially as parents. We want Christmas to be perfect for our children. And when Johnny looks at us with those big blue eyes and tells us how much he wants that new iPad or video game or bike or you name it, it is hard not to cave in. And while that is true for our children, it is just as true for our spouses or other family members. Sometimes the only difference is the older we get our “Toys” just get more expensive. We know that we don’t really have the money to buy those presents, but then we start to think about the smile and the joy we’ll see on their faces when they open that gift and our will power disappears.

Now there is nothing wrong with buying things we think will make a loved one happy. However, when this emotion-based spending leads us to making purchases we’ll spend the next 12 months trying to pay off, it can be very damaging to our finances.

What you can do about it

Remember that “stuff” really isn’t the path to true happiness. If little Suzie doesn’t get that doll house she wanted, she probably won’t be scarred for life. Little Johnny probably won’t end up pursuing a life of crime because his parents didn’t buy him an Xbox when he was 10 years old.

I believe that most often the things that provide our most cherished memories are far more about people and relationships than they are about things. Do you remember what you got for Christmas when you were 7 years old? Probably not. But do you remember going to Grandma’s house on Christmas evening, or driving around to see the lights, or that special breakfast you always had on Christmas mornings, or a host of other traditions that make the holidays special?

Don’t put so much pressure on yourself to make the perfect Christmas. You loved ones will remember it as a perfect Christmas because of the time they spent with you not because of some present that will eventually be forgotten.

Fatigue

Fatigue is often a culprit for overspending.  You head out in the morning for a day of Christmas shopping. You spend the day going from store to store. Fighting the crowds. Standing in checkout lines. Etc. And by evening you are tired. Your feet hurt. Your back hurts. And what happens? You say let’s just order pizza tonight because no one wants to cook!

Or perhaps you are out doing that shopping and all you have left is crazy Aunt Mary. You planned to get a $15 dollar item for her but you haven’t found anything yet. You are tired and just want to get home, so you give in and buy that $40 item just so you can say you are done.

What you can do about it

The key to beating fatigue is planning ahead. If you know you are going to be out Christmas shopping all day, throw something in the crock pot before you head out or have some freezer meals planned ahead of time available. Or perhaps this is just another of those extras I mentioned earlier that you need to plan ahead for. Maybe part of your Christmas savings needs to be for having a little extra money for eating out.

Another key to dealing with fatigue is don’t wait until the last minute. I know there are some of you that enjoy heading out on Christmas Eve to finish off your list. Generally speaking though that’s a recipe for overspending. You’ll be tired, maybe a little frustrated with the crowds and feeling the pressure of time, and you’ll end up spending far more than you intended.

Unplanned events

Lastly, there are things that come up that despite the best intentions you just didn’t plan for. You started a new job a few weeks ago and had no idea that they traditionally have a gift exchange within the department. Your first child entered school this year and you forgot to plan for buying a Christmas present for his teacher. You pull out the lights to decorate the house and find that something happened over the course of the year and most of them are no longer working. Who knows. Often, despite our best efforts to plan, life throws us a couple curve balls.

What you can do about it

This one is tough as it is hard to plan ahead for the unexpected. The best advice would be to just assume something unplanned is going to come up and build a little extra fudge factor into your savings.

Remember the real reasons for Christmas

First and foremost remember Christmas is really about celebrating the birth of our Savior. In all of the hype and consumerism, that is easy to lose. While I don’t think all those other things we surround Christmas with are bad things, they can be bad if they cause us to forget the real meaning of Christmas.

Second, I think Christmas is a time for family and close friends.

Both of those things can be celebrated without creating bills that will take us most of the next year to pay.

What trips you up most often at Christmas time?

Best of the week – December 13, 2014

Here are some articles that caught my eye this week….

5 Party or Potluck Pleasers for under $5

We are entering the party season and chances are sometime over the next couple weeks you will be invited to some potluck style dinners. Here are some recipes that you can try that will be very easy on your budget.

10 Things Every Parent Should Tell Their Kids (and Themselves)

If my son grasps onto these truths by the time he leaves the nest in a few years, then I think I would consider myself to have done a pretty good job parenting him. (Actually, I might need reminded of some of these myself from time to time.)

What is the Daily Interest you pay?

Interesting: the writer of this article quotes a study that the average American will pay over $200,000 in interest over the course of their lifetime. How much different would their life look at retirement if that $200,000 had been invested consistently over the years instead of being paid out in interest here and there.

Epic Budget Failure: When Everything Goes Wrong

One of the things I like about the way Dave Ramsey teaches budgeting in Financial Peace University is the recognition that especially when you are first getting started you probably won’t be very good at budgeting. What happens far too often is people try to budget. It doesn’t turn out well because they really don’t know what they spend on some categories. And so they give up after a month or two and just decide budgeting isn’t for them. If you haven’t budgeted before, then of course it might be a little rough when you first get started. You probably wrecked your bike the very first time you took off the training wheels when you were a kid, but you got back on and tried again until you learned. The same is true for any new skill you learn, and none more so than budgeting. The trick is to just make adjustments the best you can in the moment and then learn from your mistakes. Fix things in next month’s budget, and know you may well run into a couple more road blocks next month too. Adjust, learn and move on. Eventually, you’ll get where it becomes much easier. And even if you are an experienced budgeter, you’ll find a month here or there where either your will power slips, you get a little sloppy, or perhaps it just feels like the world is conspiring against you. Simply learn what you can from it and move on to next month. Just don’t give up! You only lose if you stop trying!!

What Your Credit Score REALLY Means

Fascinating look at credit scores. Personally,  I hate the concept of a credit score. The entire system is based on the initial assumption that you will always have debt. But I don’t want to play that game. And what I really hate is how insurance companies and other seemingly unrelated businesses have latched on to the credit score as a factor in what rates they will charge. So it’s necessary for me to continually stay in debt just so I can get a better rate on my car insurance? Sorry. I’m not going to play that game.

10 Reasons Not to Take Out a Reverse Mortgage

Reverse mortgages are horrible products that prey on the elderly. In my opinion the aging stars who promote these products should be ashamed of themselves.

14 Great books to give this Christmas

I believe that being a reader is one of the most important keys to personal and financial success. We live in a crazy world. Pretty much the only constant we have is change. If you are not constantly learning new things, you will be quickly left behind. Reading is one of the easiest ways to always be filling your mind with new thoughts and new skills.

If you would like to give the gift of a good book this year, here are some of my all-time favorites.

The Total Money Makeover by Dave Ramseygreat books

This book was the catalyst that started our family down the road to financial health. It is a great resource for people who are struggling. It is also a great resource for any young people just getting their start in life. We give this book to newlyweds as a part of our wedding gifts because we feel so strongly that, if followed, the principles in this book will draw them together as a couple.

The One Thing by Gary Keller

If you or someone you know struggles with heading in 12 different directions at once, then Gary Keller’s book, The One Thing, might be just what you need. He talks about looking at your activities to determine that “One Thing” that will have the most impact on your ability to accomplish what you want. Often we find ourselves busy all day doing a bunch of minor but momentarily urgent tasks and the most important things sometimes get pushed to the side. Yet had we focused on our “One Thing” instead, many of those other tasks might have become unnecessary.

David and Goliath by Malcom Gladwell

This might be the most interesting book I read this past year. Gladwell talks about how very often the things we see as weaknesses in our lives could be the thing that is our biggest advantage. He walks through several case studies but one of the most striking to me was of David Boise, one of the best trial attorneys in the nation. Boise is dyslexic and has always struggled to read. When he was young he would listen very closely to his mother as she read stories to him, eventually memorizing the stories so that he could appear to “read” them back to her. Turns out as a result of those listening skills he developed, he is devastatingly effective in cross examining witnesses, because he can remember past testimony and excels at picking up on minute details that many of us would miss. The very thing that seemed a handicap has helped him develop his greatest strength. The book is full of similar stories and really makes you rethink the excuses we often use for why we can’t accomplish things.

The Traveler’s Gift by Andy Andrews

The Traveler’s Gift is one of my two or three favorite books of all time. Andy Andrews tells the story of David Ponder, a down-on-his-luck business man, who while in a coma from a car accident is taken on a trip through history to meet several famous characters just as they are facing their greatest trials. For example, in his first trip he meets Harry Truman on the night before he is about to order the use of the atomic bomb on Japan. From Truman he learns that the buck stops here. We must take personal accountability for our actions. The book continues on as he meets six more famous figures. The fictionalized narrative makes the book a very easy read, and it contains tremendous wisdom. My wife and I like to give this as a graduation present to new graduates each year as the concepts in this book are key to leading a successful life.

The Millionaire Next Door by Thomas Stanley

Thomas Stanley studied hundreds of millionaires and studied the characteristics of their lives. What he found was that most millionaires are not like the stars we see on TV. Most millionaires lead very quiet lives and are very modest in their purchases. In fact, they often may live a life indistinguishable from your next door neighbor. The most important thing I learned from this book that really changed my thinking is that long-term financial success really isn’t tied as closely as we would think to the size of your income. The truth is, many high income earners that appear to be very successful also spend as much or more than they make. In spite of a large income, they have very little saved. The key is not how much you have coming in but how much you spend vs. what is coming in. The book really gave me a new perspective on financial success.

The Truth About Money by Ric Edelman

Ric Edelman is one of the leading financial planners in the country and is very good at explaining financial matters in a very simple, easy to understand fashion. While there is much here about investing, it is far more than an investing book.  He talks about getting rid of debt, insurance, wills and estate planning, mortgages, and many other common financial topics. It’s a very good primer for those looking to build their financial knowledge.

God Came Near by Max Lucado

This might have been the first book I ever read by Max Lucado. I read it many years ago and I loved the way that Max takes the love and grace of God and presents it in such an understandable way that really touches the heart. God Came Near is a collection of short thoughts focused on the Christmas season.   You couldn’t go wrong giving any book by Max Lucado but God Came Near remains one of my favorites.

Who Moved My Cheese by Spencer Johnson

As I mentioned above, one thing that is certain in life is change. This marvelous little parable tells the story of a group of mice in a maze who suddenly find that the cheese no longer shows up in same place it always has, and follows how the different mice handle it. It is a simple story with deep implications for how we handle change.

Fresh Wind Fresh Fire by Jim Cymbala

One of the best books I ever read on prayer. Jim Cymbala 35 years ago took over a tiny run down church in a tough New York City area. The book follows the story of how that church reached a very hardened culture and grew into what we know as the Brooklyn Tabernacle. Amazing stories of how through prayer God moved in incredible ways to change lives.

The Five Love Languages by Gary Smalley

The Five Love Languages is a classic book on marriage. Gary Smalley’s premise is that each of us feel loved in different ways. Problems arise when we don’t understand how our spouse understands love. For example you might feel love through acts of service so you run errands and do lots of nice things for your spouse, but your spouse feels love through quality time spent together so they actually feel rejected because you are always off running these errands. By understanding how your spouse feels love you can make sure that you are building each other up in a meaningful way. It is a wonderful book for the young married couple.

The Case For Christ by Lee Strobel

Lee Strobel was a reporter and an atheist who set out to disprove Christianity after his wife’s conversion. He used his reporting skills to track down various experts to try to find conclusive evidence that Christianity was based on a lie. The deeper he dug, the more he began to realize the irrefutable truth of the gospel and he became a Christian himself. The Case For Christ chronicles that search. He has since written several other “The Case For” books investigating various aspects of Christianity. All of them are very well done.

Getting Naked by Patrick Lencioni

If you know someone who works in a customer service or consulting type role, Getting Naked: A Business Fable About Shedding The Three Fears That Sabotage Client Loyalty is a great book for understanding how to create lasting, meaningful relationships with customers. Much like Andy Andrews, Lencioni also writes a fictional tale that illustrates how showing a little bit of vulnerability can inspire tremendous customer loyalty. The narrative style makes it an easy, entertaining book to read.

Mere Christianity by C.S. Lewis

A classic book by a classic Christian author. In Mere Christianity Lewis presents a logical defense of basic Christianity. A great book to help you understand why Christianity is true.

The Light and the Glory by Peter Marshall and David Manuel

Looks at the birth of America from the voyage of Christopher Columbus down to the founding of the fledgling new nation and how God provided throughout. If you have a history lover in your family, they will enjoy this book.

These are some of my favorite books I have ever read. You can check out my Bob’s Bookshelf page for even more suggestions. Give the gift of reading this Christmas!

What are some of your all-time favorite books?

The 3 simple steps to achieve financial freedom

Financial FreedomVolumes have been written that claim to have the secret to financial success. Some are good. Some not so much. But the truth is that personal finance really isn’t all that complicated. The secrets to financial success are really so basic that it really shouldn’t be necessary to state them. But the reality is common sense isn’t so common and as a result people struggle to follow these three simple steps.

1. Live on less than you make

This is the most basic of financial principles and yet is so often ignored. You will simply never make any progress as long as you are spending as much or more than you have coming in.

There are really only two parts to this equation. It is how much you have coming in (your income) minus what you have going out (your expenses). If you currently are spending more than you earn then you have to address one side or the other of this equation.

More income

If your income is so low you can barely meet your basic needs then the answer lies in finding ways to improve your income. In the short-term that might mean getting a part-time job or trying to pick up some extra hours or some overtime at your current job.

Working long hours might solve your immediate problem, but it isn’t really a long-term answer. If you try to work 80 hours a week at low paying job for years on end eventually you’ll burn out. If this is where you find yourself then you need to start to think about what you can do to find yourself in a better place 5 years from now.

  • What do you really enjoy doing and is it feasible to make a living at it?
  • Are there some classes you need to take?
  • Are there some books you need to read?
  • Is there an apprenticeship that you could get into?
  • Do you know someone that currently does that “thing” who could offer you advice or help you get your foot in the door?

The bottom line is the next 5 years will pass regardless of whether you do anything or not. You have a choice to spend those 5 years learning new skills so that 5 years from now you are in a better place, or you can spend the next 5 years complaining about your current situation and wake up 5 years from now no better off than you are now.

Cut expenses

While there are certainly some folks who are living at the poverty level and have an income issue, the truth is that for most of us we have enough coming in to meet our basic necessities. Perhaps not all our wants, but certainly we have enough to put food on the table and provide basics of shelter, clothing and transportation.

The problem is we live in a very marketing-oriented culture and the basic job of marketing is to convince us that our lives are somehow lacking and we would be so much better off if we only had this one thing.

So we decide I’d be happy if I only had a better car even though my current one gets me where I need to be. Or maybe it’s a bigger house. Or a better smartphone. Or these new tools. Or that new gadget. And before we know it we end up spending more than we have coming in and we wonder why we can’t save or give like we know we should be.

You will never find real happiness in stuff. True joy doesn’t come from the newness of our car, or the size of our home, or anything else we can buy. Chasing after happiness through stuff is an empty pursuit.

If you have enough coming in to cover your basic needs but not all your wants it’s time to start looking hard at your expenses to see where you can cut.

2. Have a spending plan

The second key to financial health is you must live on a spending plan.

I don’t believe most people are purposely spending more than they make. Even the most financially irresponsible ones among us have at least some idea that you probably can’t spend more than you make over an extended period of time. So why do so many do it? I think the answer is simple. They simply don’t know. Without a written spending plan we only have a vague idea of what is going out and coming in each month.

Our easy access to credit cards makes this even worse because if we come up a little short we can always use the plastic and worry about it next month. A few dollars here and a few there don’t seem like that big of a deal until we finally reach the point where we can no longer make the payments and by then it may be too late.

A spending plan doesn’t need to be complicated. You don’t need an 8 tab spreadsheet full of complicated formulas to track your spending. It can be as simple as just a piece of paper where you list your paycheck at the top of the page and then start subtracting off one by one the expenses you have coming in for this month. The keys are:

  1. Since every month is different you need to do a new plan every month. Sure many things are the same from month to month, but every month has a few things that are unique.
  2. You need to assign a purpose to every dollar you have coming in. Unassigned dollars disappear. Maybe those extra dollars are assigned to paying down debt, or increasing savings, or even to buying that item you have been wanting. But if you don’t decide ahead of time, you’ll get to the end of the month and wonder where those dollars went.
  3. You have to stick to it. Your budget won’t be perfect. That’s OK. But just understand if something unexpected happens and you go over in one category you have to compensate by reducing other categories in your budget. It all still has to balance or you are wasting your time.
  4. It is about priorities. The purpose of your spending plan is to make sure you are able to spend your money on what matters most to you and not your day to day whims.

3. Look in the mirror

This is the most difficult of the three steps. Ultimately, financial issues are rarely related to money. Money is merely the symptom. The problem is our own behaviors and beliefs that get us into trouble.

For many years I basically lived paycheck to paycheck. I wasn’t doing anything dramatically wrong, but I wasn’t really doing things right either. I was frustrated because it seemed like I could never quite get ahead. Financial things were always a matter of two steps forward and three steps back. What I was doing wasn’t really working but I also didn’t really want to change. It was only when I reached the point that I was fed up with making a decent living yet always feeling broke that I was willing to start doing things a different way.

The truth is most often our problem is really the person staring back at us in the mirror each morning.

Living on less than you make is not easy. Often it means saying no to something you want today so that you can say yes to something you want even more tomorrow. While creating and living on a spending plan isn’t complicated, it does require some amount of discipline.

The Weight Watchers folks have a saying that “Nothing tastes as good as thin feels.” The point being if we want to be healthy and feel the way we want tomorrow, then we may have to put down that doughnut today. That’s hard to do when I am staring at that box of Krispie Kreme’s. My will power will likely fail until I get so fed up with struggling to tie my shoes that I want to be thin more than I want that doughnut.

The same thing applies to financial matters. Until you decide that it is worth whatever sacrifices you need to make, you will probably continue to struggle financially.

If you are frustrated with where you are financially, and you want to change but you aren’t sure where to start, send me a note. I’d be glad to work with you in more detail on any of these steps.

The bottom line is basic personal finance isn’t complicated. You don’t need a master’s degree in finance. There are no secrets that only the wealthy know and there are no short cuts. You simply need to spend less than you make, have a plan, and have the discipline to stick with it. Simple, but not easy or everyone would be doing it.

This week choose gratitude

Often people ask how I manage to be happy despite having no arms and no legs. The quick answer is that I have a choice. I can be angry about not having limbs, or I can be thankful that I have a purpose. I chose gratitude. – Nick Vujicic

For those of you living in the United States, this week we celebrate Thanksgiving. It is a day where we often gather with family, stuff ourselves with way too much food, then watch football through the afternoon in a semi-comatose state as we recover from that big meal. Hopefully, in the midst of that we each take some time to reflect a bit on the many things we have to be thankful for.

I believe far more than a feeling, gratitude is most often a choice. It is a matter of where we put our focus. Most situations can be seen from more than one perspective.

Not an easy choicechoose gratitude

Five years ago near the bottom of the great recession I was laid off from a job I had for 21 years. I had thought after 21 years that I would probably retire from that company but as so many have discovered in recent years the days of 30 years, a gold watch, and a nice little retirement party are almost over.

So how do you respond to something like that?

  • I could have turned bitter.
  • I could have complained about the unfairness of being dumped after so long a time.
  • I could have been paralyzed with fear. 2009 was a scary time as unemployment was sky high and every day it seemed there was another bad report on the nightly news.
  • I could have decided that while age discrimination is illegal that doesn’t mean it doesn’t subtly still happen and resigned myself to never finding a comparable job in my field.
  • I could have just decided life was unfair and given up.

Choose gratitude

I will admit that many of those thoughts crossed my mind. But there is another way to look at it.

  • I could also focus on many great people that I had the opportunity to work with over those 21 years and the friendships and good times we shared.
  • I could focus on the generous severance package I was given that gave my family some cushion as I looked for a new job.
  • I had the opportunity to pick my son up from school each day that year, something I enjoyed tremendously and an experience I would never have had if I had been working.
  • I could be grateful for the many interviews I was able to get during that time even though many of them didn’t pan out.
  • I am thankful I had the opportunity to teach some at a local community college which afforded me the opportunity to try out something I had always thought about doing.
  • I could be very grateful that I had stumbled across Dave Ramsey a few years before so we were debt free and in fairly decent shape financially when the storm hit.
  • And finally, I am especially thankful that 8 months later I was offered a job with my current employer at slightly more money than I made at my old employer.

It all comes down to where I choose to focus. I believe the key is gratitude is a conscious choice. We must deliberately choose to be grateful even when sometimes we might have to stretch to find reasons for it.

You might say it is easy to find gratitude looking back with a new job and the days of uncertainty behind you. It is a fair point. It is a lot harder to trust the sun is still shining when the storm is raging around you than it is after the storm has passed. There were certainly many days of discouragement during those 8 months. That’s why choosing gratitude is hard.

Purposely decide your focus

I want to make clear, I don’t want to minimize anyone’s situation. There are many who were laid off as I was during 2008 and 2009 and have struggled greatly in finding comparable work. Financial hardships can be devastating when we face the fear of not knowing how we will be able to provide for our family.

And beyond finances there are other situations that can be even more painful. Failing health, broken dreams and death are realities that we all face. The small town where I live was rocked this past weekend when three teenagers were tragically killed in a car accident as they lost control on icy roads. Why do things like that happen? Where could we possibly find reasons for gratitude in situations like that? I don’t know.

Sometimes though it is only in those darkest of days where we learn that when we don’t have all the answers, we serve a God who does. When we get to the end of our abilities, we find that God is still able to carry us through, even if we don’t see how it is possible.

In about 3 months I will celebrate 5 years with the company I now work for. I wish I could report it is all sunshine, but it is not. There have been challenging times. There are still things I wish were different. Life is rarely exactly as we’d like it to be. And that is a good thing. Because it is through those challenges that we grow, and one of the areas where I am still growing is learning to find reasons for gratitude in all situations.

I write about the power of trying, because I want to be okay with failing. I write about generosity because I battle selfishness. I write about joy because I know sorrow. I write about faith because I almost lost mine, and I know what it is to be broken and in need of redemption. I write about gratitude because I am thankful – for all of it. – Kristin Armstrong

What will you choose to be thankful for this week?

The 2 rules for deciding what type of insurance you need

Insurance is a key part of your financial plan, and yet it is something we often neglect. I think there are a couple of reasons for this.

First, insurance is often expensive and it is one of the only things that we buy that we hope we never use.

Second, and maybe even more important, insurance can be very confusing. There are so many different types of insurance. Health insurance, cancer insurance, accidental death insurance, disability, auto insurance, homeowners, renters, whole life vs. universal life vs. term life insurance, mortgage life, credit card protection, even warranties. I could keep on going and fill a whole article just with types of insurance. What insurance do I need? What insurance is a rip off? How do I know? And then even when I choose insurance often there are many different options. So many choices I think many just throw up their hands and give up.

But the problem is there is probably nothing that will land you in bankruptcy quicker than not having the right insurance: A major hospital stay with no health insurance. Your house burns down and you didn’t have the coverage you thought you had. In a moment of distraction you get in a major auto accident, but you don’t have sufficient liability coverage. These are the types of things that can sink you financially, literally creating a hole it may take years to recover from.

So how do you know what type of insurance you need?

1. What is the worst that could happen if you didn’t have the insurance?

The first question to consider is what is the implication of not having the insurance.

Remember the purpose of insurance is to transfer risk to the insurance company for things that you could not handle.

So for example if I am offered an extended warranty on the microwave I just bought what is the worst that could happen if I decline? Well, if my microwave quits working shortly after I bring it home I may be out the $100 or so I paid for it. That doesn’t make me happy. Losing $100 hurts, but on the other hand it will hardly break me. I could financially recover from that set back without too much difficulty. That is a risk I can safely assume so it makes sense to pass on paying for that extended warranty. (Plus these types of risks are really why you have savings and an emergency fund.)

But let’s consider what if I did not have home owner’s insurance and my house were to burn down? Would I be able to replace my house and all its contents? Chances are unless you are a millionaire, losing your home and everything you own would probably destroy you financially for many years. I can’t afford to take that kind of risk. I need to have home owner’s  insurance that will cover me if something catastrophic happens to my house.

By looking at the worst case scenario you can evaluate whether the insurance protects you against a risk that you can’t take or if the implications of the worst happening aren’t that severe.

2. Am I already covered?

The second question to consider is am I insuring against something that I already have covered?

For example, should I buy cancer insurance? The answer is no if I already have good health insurance. My health insurance will cover me if I get cancer. I don’t need to pay extra for cancer insurance because I am already covered.

Or how about accidental death policies? These cover you if you were to die in an accident. But you should already have a good term life insurance policy in place to protect your love ones if something should happen to you. You aren’t extra dead if you die in an accident; you don’t need to pay extra for insurance.

You want to make sure you are covered for risks you can’t handle, but there is no need to pay twice for the same coverage.

Find an insurance agent who is a teacher

Make sure you have an insurance agent who is willing to take the time to explain what you are purchasing. Never buy something that you don’t understand. If you are confused or it isn’t clear, ask questions. And continue to ask questions until you understand. If your agent is unwilling to patiently explain things in a way you can understand then it’s time to find a new agent.

And lastly, never buy insurance just because your agent said so. Understand that not all types of policies are created equal for your agent. Some types of insurance provide them with bigger commissions than other types of policies. If you feel you are being pressured into signing up for a particular type of insurance and your agent can’t give you a clear explanation of why, it may well be because your agent is hoping to earn a nice commission at your expense.

7 tips to save money while Christmas shopping this year

Believe it or not, as of Thursday it will be six weeks until Christmas day!

The question is are you a procrastinator who will be fighting the last second crowds and desperately shopping on Christmas Eve? Or are you one of those ultra organized people who had everything bought and wrapped back in July?

Chances are most of us fall somewhere in between those extremes and you probably are at least starting to think about starting your Christmas shopping. If that’s you, here are some ways to save and get more for your money this year.save money while christmas shopping

Have a plan

Make a list of who you plan to buy for and decide ahead of time how much you will spend on each person. Be intentional. Having an amount in mind for each person will help you avoid those impulse purchases that can easily get out of control.

Use cash

There is a difference psychologically to paying with cash as opposed to using a credit card. When you swipe a card it doesn’t register in your brain the same way as when you actually hand that cash over. When you pay with cash you feel the purchase more than when you use a credit or a debit card. Plus, when you use cash it will help you stick to that plan you just created because when the cash is gone there is no more spending. And most important, when you use cash you don’t have to dread that sinking feeling when the credit card statements start arriving in January.

Black Friday… online

Perhaps you are one of those who love the challenge of heading out before the crack of dawn on Black Friday to fight through the crowds and get the latest deals. I’ve done it on occasion, but too often it has amounted to standing in line in frigid weather waiting for the doors to open, racing through the crowds, only to find that there were only two of the sale items I was looking for and they were grabbed by some guy who had been camped out by the door for three days.

What I have discovered in recent years is that many of those sale items are also available online. There usually are a limited number of items available so you need to make sure you know when the sale starts and be online soon after. But sitting at home making the purchase in my nice warm, quiet home is a lot easier than fighting the 4:00 am crowds. I get some great deals every year by doing this.

Use E-Bates or similar services

I love using E-Bates to save a little money on my online purchases. There are tons of retailers that offer savings through E-Bates. Using the service could not be easier. Simply go to E-Bates.com and then from the E-bates site click on the link to the store where you want to shop. You’ll be redirected to the retailer’s web site where you shop like you normally would. When you make your purchase, E-Bates will send you a rebate of part of your purchase. Many retailers offer rebates of 2-4% with some 5-10% or more.

I have frequently used E-Bates, but there are several other similar sites like RetailMeNot.com or BradsDeals.com that provide similar services. You won’t get rich using these sites, but every dollar helps, especially when it often only takes a couple extra clicks to save.

Store rewards and mailing lists

If your favorite stores have a shopper rewards card or a mailing list. sign up.

The grocery store where we frequently shop also has gas stations and you can earn fuel perks to save on gas by shopping at the grocery store. They also sell gift cards for a number of popular retailers and they often give double fuel perks on gift card purchases. So sometimes if I know I am going to make a purchase, I stop by the grocery store, pick up some gift cards and save a little extra on my gas.

Many retailers also have mailing lists and frequently send out coupons for in-store purchases. I’ve used these coupons on many occasions to save and the only cost is a few extra e-mails.

Discounted gift cards

Sites like GiftCardGranny.com allow you to buy gift cards for less than their face value. E-Bay is another good site for finding discounted gift cards. If I can buy a $50 gift card for $45, I just saved 10% on my purchase.

Watch out for buying yourself gifts

I know I have been guilty of this and I bet you have too.  I go Christmas shopping and come home with 2 presents bought for others and 4 things I bought for me. There’s nothing wrong with this, especially if you see a good sale on something you need. Just have a care that you don’t spend all your Christmas money buying presents for yourself.

What tricks do you use to save money while Christmas shopping?

The hidden danger of credit card debt and what you can do about it

According to statistics drawn from the Federal Reserve and other government sources, the average American family has about $7,281 in credit card debt. However, there are many households that do not have credit card debt. If we filter out those, the average credit card debt among families that are in debt is $15,607!

So how does this happen?

I suspect most people don’t intentionally go out and charge $15,000 in credit card debt. It just kind of happens over a period of years.

Perhaps, we decide we’ll just keep the card around for emergencies. But then life happens. A car repair here. An unexpected medical expense. That shower gift we had to buy for our friend because we forgot the party was this weekend. Then there were a few times that we worked late and didn’t feel like cooking so really how much can a pizza here or there add up to. And on and on until one day we realize the payments are getting out of control.

Or perhaps we get a card so we can take advantage of the rewards. We intend to pay it off every month anyway. And we do for a few months. We think we are beating the system. Then a month comes when we had some unexpected expenses and we can’t quite pay that card off. But we promise we’ll catch up next month. Except something else happens next month too. And month by month we slip further and further behind. We didn’t intend to end up with $15,000 in debt, it just kind of happened.

The real hidden danger of credit card debt

The real problem with credit cards is they can mask the issues that lead us down the path toward financial danger. The biggest of these is spending more than we make. It is impossible to get ahead financially if you consistently spend more than you bring in.

But here’s the thing. If I am using cash, I don’t have the option of spending $1,200 if I only have 10 uncle Benjamin’s to work with. When my wallet is empty, it is empty.

Or suppose I write checks. I can certainly write $1,200 worth of checks when I only have $1,000 in my account. But some of those checks are going to bounce, and I’ll figure out pretty quickly that I am spending more than I have.

But when I use credit cards that safety stop isn’t there. As long as I don’t surpass my credit limit I can continue to charge as much as I want.

Credit cards allow us to spend without the immediate feedback of the consequences. I spend $200 extra, but I don’t have to deal with that today. I don’t see a bill until next month and then it’s probably only $20. I can handle that. And so I finance our overspending a few dollars at a time until one day I wake up and realize I have thousands of dollars of credit card debt, and I can no longer make the payments.

So how do you avoid the slow trap of credit?

Budget

First, you need to have a budget. A budget need not be complicated. It is simply spending purposely, on paper, your monthly income before the month begins. If I make $4,000 this month, then I can’t spend more than $4,000. By committing it to paper, I have the opportunity to make sure I am spending it on what matters most to me and that I am not spending more than I have.

Emergency fund

Second you need to have an emergency fund. Things break. Jr. falls and breaks his arm. We get in an accident on the way to work. The boss tells you that he’s sorry but the company isn’t doing well and your services are no longer needed.  Life happens. And usually it happens at the most inopportune times. Without an emergency fund of at least 3-6 months of expenses, you will have little choice but to turn to your plastic when those emergencies hit.

Use cash

Use cash for your everyday expenses. The envelope system is a great way to keep your spending under control. The beauty of cash is that when it is gone you have no choice but to stop spending. You can’t “cash” yourself into debt.

15 things to do if you need some quick cash

A 2011 CNN report indicated that 64% of Americans would not be able to quickly get their hands on $1,000 cash if they had an emergency. So what do we do when when we need cash quickly? Well many times the answer is pull out the plastic. Many people get themselves into deeply in debt by using that credit card that they kept only for “emergencies”. Ten emergencies later they wake up one day with thousands in debt.

So what can you do if you don’t have an emergency fund and need to raise some cash quickly?quick cash

1. Revisit the budget

The first place to go when you need cash is your budget. If you don’t have one, now would be a real good time to get started. When you don’t have a plan money has a way of disappearing. A few dollars here and a few there? How much do you spend on eating out? Your daily coffee? Entertainment? Nothing wrong with those things, but if you are in a pinch financially it’s time to do some cutting.

2. Cut your expenses

Take a look at your monthly bills. Do you have options on your cell phone you never use? Have the deluxe cable package with 500 channels, but you only ever watch about a half a dozen of them? Check with your utilities to see if they have a budget plan that can save you money.

3. Have a garage sale

Most of us have lots of stuff sitting around that we rarely use. If you need some quick cash it’s time to put out a sign and have a garage sale.

4. Sell something online

If a garage sale isn’t a good option because of weather or where you live, then consider selling online. E-bay works great for smaller items. Craigslist is good for larger items that are more difficult or expensive to ship.

5. Sell parts of yourself

Sell your plasma. Technically you can’t sell your blood, but you can be compensated for your time. If you have long healthy hair, consider selling your hair.

6.  Go door to door

Take a walk around the neighborhood or if you don’t want to go to your neighbors take a walk around a nearby neighborhood that is more affluent. Offer to mow a yard. Rake some leaves. Clean out the gutters. Shovel snow. Walk the dog. Run some errands. Offer to babysit. There are lots of low-cost ideas like this where you can turn a little sweat into dollars.

7. Volunteer for overtime

If you have a job where overtime is an option volunteer. I don’t want you having to work 80 hours a week forever, but for a short time when you are in need of some extra money, overtime is a great option. (And if you show your boss that you aren’t afraid of some hard work, you might just get a raise or a promotion!)

8. Get a part-time job

Deliver papers. Flip some burgers. Deliver pizzas. Many retailers are looking for extra help for the holidays. Offer tutoring services.

9. Look online for work

Sites like Fiver.com, Elance.com, or odesk.com provide opportunities to use your skills to bid for work online.

10. Check your taxes

Do you regularly get a large tax refund? If so that just means you are giving the government extra money each week so that later they can give it back to you. Adjust your withholdings so you can bring that extra money home.

11. Get back a deposit

Did you have to leave a deposit for utilities or other services. If you have been regularly paying your bills, call and see if you can have that deposit refunded.

12. Sell some scrap metal

Have a bunch of junk lying around. There could be value in that metal. Load it up and take it to a scrap yard.

13. Temporarily stop investing.

This should be one of your last resorts, but if you are really in desperate need, temporarily stop saving for college or retirement. Just don’t make a habit of this, and only consider doing it for a very short period of time.

14. Make something

Do you have some crafting skills? Woodworking skills? Sewing skills? Make something and sell it at a local craft show or an online site like etsy.com.

15 Take on a boarder

If you have an extra room consider renting it out.

What not to do

While there are many good ways to earn some extra money, there are also some common ways that are very bad ideas.

  • Payday loans
  • Borrowing from friends or family
  • Take a trip to the local casino
  • Buying lottery tickets
  • Compromising your integrity

Get an emergency fund

While many of us have found ourselves at times needing some extra cash quickly whether through unforeseen circumstances or because of poor financial decisions, the trick is to make sure this isn’t a way of life. Having a good emergency fund turns a crisis into an inconvenience. If you are in a rough spot financially, do what you need to do to raise some quick cash, but use the pain of your current circumstance to motivate you to change. As this crisis passes, build up your emergency fund so when the next bump in the road comes (and it will come), you aren’t left in a panic.

What things have you done to raise money quickly?

8 ways to use the extra paychecks when you get paid every 2 weeks

If you get paid every two weeks, then 4 times a year you actually get 3 paychecks in the month instead of 2. If your first two paychecks are sufficient to cover your bills, then that 3rd paycheck almost becomes like a bonus. But how can you use it wisely?

Here is what I do know. If you do not have a plan for the money, it will disappear. You will get the extra paycheck and you’ll wake up 2 weeks later and wonder what happened to it.extra paychecks

So here are 8 things you can do to make that extra paycheck really make a difference.

Create an emergency fund

If you have no emergency savings, take the extra pay and stow it away for a rainy day. Many times we get ourselves into credit card debt because we are unprepared when Murphy comes calling. You know that guy Murphy? If it can go wrong it will and always at the worst possible time. Life happens to us all. Things break. Accidents happen. If you have an emergency fund to cover these bumps in the road then emergencies move from a crisis to an inconvenience. Ideally, you should have 3 to 6 months of income saved away. If you aren’t there using those extra pays to beef up your savings is a great way to make sure the extra pays are a blessing.

Pay off a debt

Do you have credit card debt? A car loan? Student loan debt? Medical debts? Use the debt snowball to list those debts from smallest to largest and use that extra pay to start knocking off some of those small ones.

Save for Christmas

Christmas is just around the corner. What if you saved that extra pay and used it to pay cash for Christmas? Wouldn’t it feel great to enjoy the holiday knowing that you weren’t facing 6 more months of payments as you try to pay off all you charged for Christmas? You can do it by saving for Christmas ahead of time.

Save for non-monthly expenses

Home owners insurance. Some utilities like water, sewer, and garbage. Taxes. Subscriptions. Membership fees. Birthday gifts. Auto registration.

These are just some of the items that are non-monthly expenses. These kinds of expenses used to really kill my budget because I hadn’t planned for them. Now I set aside a little each month to cover these non-monthly expenses so that when they come I am ready. You could use those extra paychecks to build up some savings on the side to cover these non-monthly expenses.

Save for a car

Most people believe the lie that you will always have a car payment. I know I did for much of my life.

The problem is the average new car payment in the US is just under $500 a month. I am convinced that car payments are one of the primary things that keeps most average families from ever making any financial progress.

But the reality is you really can save up and pay cash for a car.   It just takes a little planning. How about saving those extra payments in a car fund. What would it feel like to walk into the car dealer and lay down cash to buy your next car?

Make an extra mortgage payment

What if you used one of those extra pays to make an extra mortgage payment each year? Did you know that by making one extra mortgage payment each year, you can shave 7 years off a 30 year mortgage?

Give

Use some of that extra money to support a local ministry that is close to your heart. Help support a missionary that your church sponsors. Help out a neighbor that just lost his job. Buy some groceries for a single mom. There are lots of ways you can use that extra pay to make a difference for the kingdom of God.

Treat yourself

And lastly, it’s ok to use some of that money to buy something you have been wanting. There is nothing wrong with enjoying some of our hard-earned money. Just make sure you are also doing some other wise things with the money too.

Make your extra paychecks count

The key is to be intentional. The same principles apply to bonuses, inheritances, or any other found money. Make sure you have a plan. Without a plan the money will just disappear and you’ll wonder what happened to it. But if you have a plan, those extra paychecks can really help you jump-start some wise financial behaviors.