photo credit: Mike Licht, NotionsCapital.com

Yeah, the economy is bad right now.  It’s been on the news for months and most everyone is feeling it, either in their pockets or investment accounts.  So here are a few tips on what NOT to do in this sluggish economy.

• Live off your credit cards - It’s really essential now to put the cards away.  Your focus should be on establishing cash reserves and reducing any existing debt.  Take your credit cards out of your wallet so  you won’t be tempted.  If necessary, freeze them in a bowl of water in the freezer.
• Raid your retirement - Withdrawing retirement funds is a permanent fix to a temporary situation.  In addition to pay penalties and taxes, you will miss out on years of compounding.  That $10K you withdraw today could have been as much as $100K at retirement.
• Tapping your home equity - Even if someone will give you a home equity loan in this market, it’s still a bad idea.  There’s no indication the decline in housing prices will stop anytime soon and you don’t want to be stuck owing more than your house is worth.

Have you changed your spending or investing habits in this economy?

Well, you won’t be rich but if you have a passport and vacation days to spare, you can make up to $2500 by participating in a jet lag study.  Unfortunately I just started a new position and just got back from vacation so I hate to leave again so quickly.  But my loss is your gain.  Check out the website - http://jetlagstudy.com - for more info.

photo credit: deansouglass

SavvyBro recently sought my advice on buying a new (to him) car.  So I decided to share with you guys a little of what I told him.

• Consider the total cost of ownership - The true cost of buying a car is much more than just the purchase price.  For example, in most states, you will be charged sales tax.  This can easily add several thousand dollars to the final cost.  So just because you have $15K to spend doesn’t mean  you can buy a $15K car.  Also, you need to weigh the increase in your insurance premiums and possibly your gasoline costs (for example, if the new car gets less gas mileage or requires a higher grade of gas).  Also, maintenance and repairs often cost more for foreign or ‘luxury’ cars.  These are all things to be considered before you make a purchase.
• Increase your emergency fund before you buy a car - Unless you’re paying in cash (the best option), you should increase your e-fund.  By adding a car payment to the mix, your expenses will increase and your cash cushion should increase as well.
• Put money down - Not having a down payment is a good way to become ‘upside down’ on your car.  If you don’t have a down payment, your car is likely to depreciate faster than you can pay down the principal at first.  This means you’ll owe more than the car is worth (being ‘upside down’).   This is a perilous situation because if something happened to the car (stolen or totaled), your insurance would not cover the full amount of the loan and you’d have to come out of pocket.  You can avoid that by purchasing gap coverage from your insurance company but that’s just one more thing to increase your expenses.
• Avoid long financing terms - In my opinion, financing a car for more than four years is a sure sign that you can’t afford it.  In addition, you’re almost guaranteed to be upside down on your loan for years to come.  Strive to finance your car for three years and pay it off even sooner.  This may mean saving a higher down payment or consdering a lower price range.
• Skip the extras - Once you’ve come to an agreement (if you’re purchasing from a dealer), don’t allow yourself to be upsold.  Cars today are quite reliable and can be reasonably expected to last well over 100K miles.  Extended warranties and such are just a way to separate you from your money.  The same can be said for rustproofing and other last minute add-ons the dealer will try to sell you.  Steer clear of these.
• Don’t rush - Buying a car is a major financial decision.  Don’t let a dealer or anyone else rush into making a purchase before you’re ready and have had a chance to evaluate all the details.  Dealers often try to ’sell’ you or convince you that a deal (or that particular car) is only available for a limited time.  Don’t fall for it.  Take 24 hours to cool down and look at the deal in a less-pressured environment.
• Be smart about financing - While there are some very good dealers, the bad ones cause them all to get a bad rap.  Check your credit score and credit reports before you even start searching for a car.  This way you can be informed and know what to expect in terms of financing.  Often your local credit union will be able to offer you better rates than a dealer.  In addition, they can usually give you a rough estimate of the rate you can expect without pulling your credit.  If you don’t like the terms of the financing, go elsewhere.
• Last but not least, educate yourself on the process ahead of time (I guess this should have actually been first) - There are fantastic resources out there from the internet to your local credit union to your friends and coworkers.  Research the various models of car, their reliability ratings, insurance costs, etc.  Find out about what financing is available and what you can expect.  Learn about the various auto options offered and what you need and what you can live without.

Have any of you bought a car recently?  What was your experience like?

photo credit: TheTruthAboutMortgage.com

Bankrate has another good article about the worst ways to borrow.

• Payday loans - This is one of the worst of the worst.  The interest rates are exorbitant (often in the triple digits) and this makes it very hard to pay these off.  Of course, the loan company will keep rolling the old loans into new loans in order to separate you from more of your hard-earned money.  I would advise against these at all costs.
• Car title loans - Similar to payday  loans, these loans usually come with high interest rates.   And even worse than the payday loans, if you don’t pay, they can and will repossess your car.  What’s more, after they sell your car to pay off your loan, they are not obligated to give you any money earned over your loan amount.  Let’s say you default on a title loan for $1000 on a car worth $4000.  They will repossess your car, pay the loan and leave you with nothing.  No car or the money the car was worth.  And how will you get to work?
• Refund anticipation loans - Now that the IRS will direct deposit your refund, this is even more of a ripoff.  You pay a sizeable fee for the ‘privilege’ of getting your money a week sooner.  It’s just not worth it.  Start planning ahead now so that you won’t get a large refund.  You can have that money in hand now.  There’s no point in giving the government an interest-free loan.

These are just the first three on Bankrate’s list of bad borrowing.  Read the article for the rest.  Have you fallen prey to any of these loans?  If so , what are you doing to pay them off?
 

photo credit: TheTruthAboutMortgage.com

Bankrate published a good article on the do’s and don’ts of borrowing.  Below are their tips along with my thoughts on each.

• Save money while repaying debt - I agree with this one.  I believe it’s important to build or maintain a mini emergency fund of at least $1000 while in debt.  This way, you can deal with unexpected expenses without having to incur more debt.
• Find the best interest rate - Just like all money isn’t good money, all loans aren’t good loans.  Paying high interest rates can double or even triple the amount you spend to pay off your debt.  While you should avoid debt as much as possible, seek out the lowest interest rates if you do take on debt.
• Read the fine print - Many people complain about the ‘tricks’ or dirty tactics that credit card companies employ.  However, all the details are right there in the fine print that you signed when you made the credit application.  If you can’t be troubled to read, or if you don’t understand, the details, perhaps you should reconsider applying for credit.
• Pay on time every time - It’s very important to make all your payments and on time.  If not, those low interest rates you searched for can go out the door.  Now many credit cards have ‘universal default’ stipulations.  This means you can be penalized by Card A for making a late payment on Card B.  If you don’t think you’ll be able to make the payments, avoid the debt!
• Borrowed money is not free money - ‘Available credit’ isn’t a license to spend.  Just because a company is willing to LOAN (not give) you money doesn’t mean you have to take it.  Remember, creditors are willing to loan you money for their own benefit, not yours.
• Don’t borrow frivilously - If it isn’t a house, perhaps an education or a car or some other DIRE need (like emergency medical care, not shopping, not dining out), then you shouldn’t borrow for it.  Having to borrow is a sign that you can’t afford it.

These are just a few of the tips in the Bankrate article.  Be sure to check out the article for the rest.  How are you doing in regard to making good decisions when it comes to borrowing?

photo credit: Roebot

Many people research ways to save money when planning a vacation such as airfare or lodging deals.  However, most fail to evaluate ways to save money while ON vacation.  Mr. Savvy and I recently returned from a week in Mexico.  Here are some of the tips we used to save money while we were gone.

• Set a budget before you leave - It’s easy to overspend if you aren’t careful.  Therefore I always set a budget for spending money before I leave.  I always have a notepad with me in general so I devote a sheet of this pad to my vacation spending.  I note what my budget is as well as how much of that is allotted for cash.  Then, as I spend, I jot down what I spent and when.  This also comes in handy when it’s time to reconcile your bank account or credit card statement.
• Don’t overpay for souvenirs - Souvenirs can pricey.  However, try to avoid the tourist areas and look for the same items in the areas where the locals frequent.  Also, only purchase items that you will truly cherish or use.  Do you really need yet another T-shirt?  On this trip, Mr. Savvy and I purchased a small sculpture for our home.  We’d been looking for an accent piece for our foyer and were able to kill two birds with one stone.  Now we have something memorable from our trip as well as home decor.
• Don’t bother with travelers checks or exchanging your money - Unless you’re going somewhere truly off the beaten path, travelers checks are of little use.  I prefer to use my credit card whenever possible as well as withdraw some local currency from the ATM for ‘walking around money’.  You can get a better exchange rate and avoid fees by making ATM withdrawals instead of exchanging money.  Also, if you withdraw more local currency than you need, don’t change it back to dollars (or your home currency).  The exchange rate is not as good.  Instead, apply your remaining local currency to your hotel bill and put the remainder on your credit or debit card.
• Consider the alternatives - Don’t be so quick to take advantage of the hotel offerings.  They’re often marked up.  As an example, instead of buying pricey snacks from the hotel shop, Mr. Savvy and I walked to a nearby convenience store and bought snacks and beverages to keep in our room.  Another couple in our hotel opted to take a taxi to Walmart to do the same.  Activities were also more expensive when booked through the hotel.  There was a snorkel tour being offered for $35 per person.  We took a cab to the same area (we had our own equipment) and snorkeled for $34 total.  We saved 50%.

Of course, this is not an exhaustive list but just a few ways you can save money while on vacation.  What are your favorite vacation money tips?

photo credit: lemoncat1

With Thanksgiving only two months away, now is the time to start thinking about your holiday travel. Here are a few tips to find the cheapest airfare -

• Book at least 21 days in advance (30 for international flights) - Airlines only allot so many seats for low fares. The farther in advance you book, the better chance you have at getting those fares. If you wait until the last minute, the fares can double or even triple.
• Consider neighboring airports - When I lived in the San Francisco area, I would often fly out of the Oakland airport. Smaller, nearby airports may have lower fares. For example, those in the NYC area could fly out of Newark.
• Fly on the days others don’t want - Instead of flying the day prior to Thanksgiving, fly on Thanksgiving Day. The airport will be less hectic and you’ll save money. Or instead of returning on that Sunday, return on Monday.
• Comparison shop - Rather than searching on the airline websites, look at sites that show multiple airlines. While the most popular sites are Travelocity and Expedia, I also like Kayak. However, once you find a fare, book directly on the airline’s site for better customer service if you have an issue.

What methods do you use to find low airfare?

As a result of a class action suit, TransUnion will provide free credit monitoring to consumers. The company is required to provide six or nine months of the monitoring service. If eligible, you have until September 24th to register for benefits under the settlement. Any consumer who had an open credit account or line of credit is eligible. The account had to be opened between January 1, 1987, and May 28, 2008.

To register, go to http://www.ListClassAction.com or call 1-866-416-3470. You will need to choose from one of the following options -

• Six months of credit monitoring
• A cash payment (if money is available for distribution)
• Six months of credit monitoring and a potential cash payment
• Nine months of enhanced monitoring service (if you select this option, you can’t get any cash)

photo credit: Casey Serin

A lot of people neglect their credit scores, citing your score is just a ’stay in debt’ score. Some say it doesn’t matter because they’re not applying for credit anytime soon. Well, your credit score can affect much more than just the interest rates you get on loans or credit cards. MarketWatch recently published an article on who else watches your credit.

• Employers - Many employers now do a credit check as a condition of employment, particularly if you work in the financial industry. Bad credit or too much debt can equal no job.
• Insurance companies - Those with good credit are often rewarded with lower premiums. My car insurance company recently requested that I provide my SSN and allow them to do a credit check. Both Mr. Savvy and I obliged and our rates were decreased as a result of our good scores.
• Landlords - It goes without saying that the vast majority of landlords will check your credit, as well as any criminal record. A landlord wants to know that you will pay your rent on time, each and every month. The best indicator of this is whether or not you pay your other bills on time.
• Utility companies - It’s become the norm for utility companies to request your SSN when you initiate new service. If your credit is good, you will rarely have to pay a deposit. However, those with less than stellar credit often have to pay substantial deposits. This ensures the company will get at least some of what is owed if you skip out on them. However, for those whose finances are already tenuous, having to pay a large deposit can set them back even further. All the more reason to keep your credit in order.
• Cellphone providers - Just like utility companies, cellphone companies want to know that you won’t incur a large bill and leave it unpaid. While they can disconnect your service, the threat of a loss of cell service doesn’t carry the same weight as the threat of no power or water. Therefore, cellphone bills aren’t high on a lot of people’s lists.

So you see, credit scores are about more than just obtaining credit. It’s increasingly affecting other areas of your life. If you haven’t done so already, take the time soon to pull your credit reports and score. Be sure to verify all information and correct any errors. If the adverse information IS correct, start today on working to improve your score. It may save you hassle and money in the long run.

It’s been a busy few months. Between home improvement projects, a new job and some travel, I haven’t been keeping a close watch on our finances. We’ve spent five figures on irregular expenses since May which is just plain crazy. Therefore, Mr. Savvy and I have set aside a date to review the ’state of the union’. We will take a look at our past spending as well as planned future spending and figure out how best to optimize our bank accounts, credit cards, etc. We both have reward cards and debit cards, we have both individual and joint accounts and it’s getting to be a lot. Our homeowners insurance just went up as well so there’s definitely work to be done.

How often do you seriously and completely review your finances? I would suggest no less than once and year. You may discover ways to save money or ways that you’re just plain wasting money. After our state of the union, I will post the decisions/changes we make. I invite you to do the same.