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Category — Frugal Living Tip

The Pitfalls Of Payday Loan Services

When you are running low on cash and payday is still on the distant horizon, it can be tempting to take advantage of the services of a payday loan store or website. By signing up with one of them, you can receive an advance on your usual paycheck and have cash in your hand when you desperately need it. Sounds great, right? The fact is, payday loan services can actually trap you in an steadily worsening spiral of debt and can make you fall even further behind with your finances.

Don’t Rob Peter To Pay Paul

What did people do before there was such a thing as payday loan services or cash advance stores? They scrimped and saved their money in order to get through tight financial times. As unpleasant as it may sound, sometimes you really do have to bite the bullet and tighten your belt in order to survive until your next payday. Sure, using a payday loan service will put money in your hands right away – but what happens when your actual payday rolls around? Therein lies the rub.

Get Your Paycheck Early – But Pay Dearly For It

One of the biggest problems with payday loan services is that they charge truly exorbitant interest rates for their small loans. Typically, receiving a $100 advance will cost you anywhere from $15 to $25. When payday rolls around, the lender then takes out the $100 that you borrowed, along with the interest fee. Now you’re out that extra money, and receive a smaller paycheck than you normally would have.

Don’t Get Trapped In A Vicious Cycle

Since your next paycheck will be reduced by the fees that you’ll be paying to the payday loan service, you’re likelier to fall even deeper into debt. That’s why so many people turn around and take out yet another payday advance loan – and the cycle gets worse. In no time flat, you’re receiving smaller and smaller paychecks and scrambling to keep up with the interest fees that you owe your various lenders – and you’re more in debt than ever.

Be Smart With Your Money

Instead of taking out payday loans and paying the ridiculously high interest rates that go along with them, you should try to squirrel away at least a couple of hundred dollars that you can use for those times when cash flow is tight. Sit tight and wait for your next payday to arrive. In the long run, you’ll be better off for doing so.

February 19, 2010   No Comments

Put Away The Check Card

If you’re like most people, then you probably use a check card or a debit card to make the majority of your day-to-day purchases. These days, most banks and credit unions offer these cards to their customers for the sake of convenience; because these cards often have Visa or MasterCard logos on them, they can be used anywhere that such credit cards are accepted. Unfortunately, it’s all too common for people to use their check cards for virtually every purchase they make. In doing so, it’s easy to overspend – or to end up with a negative bank balance and a lot of overdraft fees.

The Problem With Plastic
Swiping a check or debit card when making a purchase can take a bit of the reality of out spending money. Even if you know you’re low on cash – or that the purchase you’re about to make isn’t all that necessary – it’s easy to push those concerns aside and whip out your check card. In the space of a single day, you can use your check card several times, slowly whittling away your checking account balance all the while. When your bank statement arrives, unpleasant surprises often do, too.

Cash In Hand Keeps You Accountable
If you find yourself getting into financial trouble because of overly enthusiastic check card usage, there is a way to mitigate the problem: carrying cash. As old fashioned as it may sound, having to count out twenties, tens, fives and singles to pay for something brings home the reality of just how much you’re actually spending. As you watch your stack of cash slowly wither away, you’re getting a clear reminder about how much money you’re flying through.

Divvy Up Your Cash On Payday
A great way to stay within your budget is by carefully divvying up your cash on payday. Pay your usual bills, then determine a reasonable amount for various daily expenses. For example, you might set aside $100 for your lunches for the month, or $50 for incidentals. Take that money and put it in separate envelopes; label each one with its intended purpose. Each morning, take the cash that you intend to spend out of the relevant envelope. When it’s gone, it’s gone – don’t cheat! You’ll be amazed by how much less money you spend by using this method.

Put Leftover Cash In A Savings Account
Although it won’t always happen, there’s a very real chance that you’ll end up with extra cash in those envelopes at the end of certain months. Instead of running out and spending it on frivolous things, make a habit of putting it right into a savings account or a “rainy day” jar – or use it to save up for something special, like an HDTV or a new computer. Once you reach your goal, you can spend that saved money with a clear conscious, knowing that you’ve been sticking to your budget. Reigning in your check card use is a really great way to live more frugally.

February 12, 2010   No Comments

Fast Food For The Frugal

When it’s time to cut the budget, fast food is often one of the first things to go, and rightly so. If you’re in this position, you’re not alone. The Wendy’s/Arby’s group recently posted a loss of $393.2 million .
Eating in is almost always a much cheaper and healthier option. In fact, a tighter budget can be a good opportunity to try your hand at a little fine cooking. You may find that you eat a lot better anyway.

It’s hard, however, to deny yourself a treat every now and then. Also, modern life is busy. Sometimes it’s difficult or even impossible to face the big job of cooking followed by the bigger job of cleaning up and putting away leftovers.

When planning your budget it’s always wise not to be too draconian about what gets cut. Be realistic about your decisions, especially when it comes to little extras like fast food. Making some small allowances for dinner out helps family morale and encourages moderation.

Beyond just cutting back, there are ways fast food lovers can have their burger and eat it too. As consumers we usually reserve our critical thought and healthy skepticism for bigger ticket items like cars or home electronics, but living more simply means questioning even the small purchases. As many credit card holders have found over the last few years, those little choices can lead to significant financial consequences.

Looking at your eating out habits with a more critical eye can save you serious money

First, scale down. Maybe you don’t really need the portions they’re offering. Ever try a kid’s meal? They’re much cheaper, often just as satisfying, and you might even find yourself getting nostalgic. Dairy Queen even throws in some ice cream.

Coupons are a great way to go and printable coupons are becoming more common online.

Also, remember that these are businesses that are trying to maximize their profits while trying to deliver more to the customer. Many chains even hire expensive consultants to work the alchemy of cutting costs while increasing sales revenue.

One way many restaurants do this is by pushing their cheapest products to the forefront. An example of this is found at Panda Express. Every plate comes with 1-4 entrees and your choice of chow mein or fried rice. These sides are easy to make in large quantities, have little or no meat, and are made from the cheapest ingredients.

This is good, but the entrees are the main attraction. So why waste money on the sideshow? If two people simply buy one 4-entree plate and share the side dish the meal is just as satisfying as buying a couple of 2-entree plates and costs less by nearly half.

By no means are these tips exhaustive. There are plenty of great ways to find good deals and save less on eating out. What you know, others may not. Take moment and give us all the low-down.

February 5, 2010   No Comments

Frugal Living Tip – Manage the Big Expenses

Just as you can’t squeeze blood from a turnip, it’s not easy to find savings by looking at portions of your life where you don’t spend very much.

That’s why G.E. Miller writes at 20somethingfinance.com about the importance of seeking savings where you spend the most money.

Miller cites a report from the U.S. Bureau of Labor Statistics showing that the average household devotes more than half of its annual expenditures toward two categories – housing (34.1%) and transportation (17.6%).

So if you really want to live more frugally, suggests Miller, it makes sense to take a hard look at your housing and transportation expenses.

For instance, if you live in or near a big city, using public transportation, walking or bicycling might be able to save you a big chunk of the $8,758 that the Bureau of Labor Statistics indicates the average family spends on transport.

Of course, as many of Miller’s readers point out, people trying to reduce both housing and transport expenses may encounter a Catch-22 scenario. You can usually find cheaper housing in an exurban or rural area, but those places tend to have poor public transport options. Or you can move closer to a big city and cut your transport expenses but have to contend with an expensive housing market.

How can you get around this dilemma?

On the transportation side, even if you need to drive a car, the type of car you drive can have a major impact on your finances. If you drive a large gas-guzzling SUV, you may be able to trim your fuel bill by downsizing to a compact or mid-size car.

Even if that’s not realistic because you need to transport a lot of people and/or packages in your vehicle, you might be able to still find savings either by choosing the most fuel-efficient car in its class (check the U.S. Government’s Fuel Economy website to compare mileage ratings) or by shifting to a less luxurious nameplate. For example, the Ford Motor Company owns both the luxurious Lincoln and mainstream Mercury brands. Buying the least expensive Lincoln SUV (the MXK) would require more than $38,000, but you could save a boatload of cash by choosing the Mercury Mariner instead for as little as $23,000 and change.

Similarly, even when it comes to housing costs, you can often find deals (especially in this real estate market) if you’re willing to be flexible. Are you willing to sublet part of a house from a homeowner having trouble making payments on her mortgage? If so, you could potentially do a good deed (helping the homeowner avoid foreclosure) while simultaneously getting a good deal on a home in a good location.

Loans can be hard to get in this climate, but if you have the cash, you might also be able to find good deals on housing in prime locations by including short sales, foreclosures and real estate auctions in your search.

Have you successfully figured out a way to lower transportation and/or housing expenses? Or do you think that lowering expenses in those areas is unrealistic and that people are better off applying frugal habits in other parts of their lives? Have your say in our Comments section below!

January 29, 2010   1 Comment

Frugal Living Tip – Does Prepaying a Mortgage Make Good Financial Sense?

Those who enjoy living a Frugal live generally try to avoid debt.

Debt is bad financially of course because it involves paying interest, thus ensuring that whatever you’ve purchased ends up costing more in the long run than it would have if you paid the whole price up front.

Debt can also make you feel bad, knowing that if a financial emergency like a job loss occurs, you’re still on the hook for whatever you owe (plus interest).

So, if you have a mortgage or any other large debt such as a Home Equity Line of Credit (HELOC), you might be tempted to prepay the mortgage/debt in order to reduce your debt as fast as possible and save money on interest payments.

But is that always a wise financial decision? The author of My Life ROI financial blog writes in his post “To Prepay Your Mortgage Or Not” that it might make better sense from an economic standpoint to resist the temptation to prepay your mortgage (provided that you have a reasonable mortgage interest rate, of course).

For example, if you have the investment skills to earn 8% in the stock market, why would you want to prepay a mortgage that cost you only 5% interest? (Remember that if you itemize your tax return, you may get a deduction on home mortgage interest too.)

So does the argument on not prepaying a mortgage hold water on close examination? Perhaps, but even the My Life ROI blogger acknowledges that completely paying off a big debt can have major psychological benefits for lots of people.

It’s also important to note that lots of people end up losing money investing in stocks, commodities and other financial interests. If you opt to play the stock market instead of paying off your mortgage and your investments go sour, you’ll still have to make your mortgage payments plus work harder to make up your losses in the market.

Ultimately, the choice depends on individual psychology and risk tolerance. If you have an iron stomach for debt, a low interest rate mortgage and good investment skills, opting not to pay off your mortgage early could make sense. But for many people, the prudent, safe and frugal thing to do would be to put at least some extra cash toward paying down your mortgage early when possible.

Does prepaying a mortgage make sense to you? Or would you rather use free cash toward investments? Make your case in the Comments section below!

January 22, 2010   No Comments

Frugal Living Tip – Sometimes it Pays to Spend

We spend a lot of time talking on this blog about ways to save money, stay out of debt and live frugally.

Living within your means is important, but it’s also good to have some balance in your life. Over at Personal Finance Advice, guest writer Rebecka O. delves into the issue of excessive saving.

In her article “Why I Don’t Save Money,” Rebecka shares a story about her mother who died with more than $1.5 million in savings — along with unfulfilled dreams of visiting Europe, attending a Broadway show, gazing at the Pacific Ocean and seeing penguins in the wild.

Rebecka says that her mother lived frugally and that she herself shared those frugal tendencies until her mother’s death, at which point she came to question the value of saving money if it meant missing out on longed for experiences.

So Rebecka devoted herself to fulfilling her most important lifelong dreams. In about six years, she blew through her entire share of the inheritance – about $300,000.

The responses by readers to Rebecka’s story are interesting in their own right. Some people questioned whether Rebecka should have spent the entire inheritance. Other readers were OK with her spending the inheritance, but criticized her choice of even delving into retirement savings to fund her goal of fulfilling all her dreams. Several readers suggested that Rebecka should have sought some balance or moderation, splurging on some dreams while saving some of the inheritance.

Be sure to read Comment #13 by Pat Merritt which contains a nice story about Pat’s own experiences with saving and the satisfaction she has received from spending on time with her family and a special artwork purchase. Here is an excerpt from Pat’s comment -

“You see, frugality is not just saving for retirement, or a nebulous future that may not come. It’s also getting the things that you really want now. It’s a decision making mechanism that lets you decide what is important to you and to set out and get the things that really matter.”

Do you agree with Pat’s definition of frugality? Do you try to minimize expenses in order to save the most possible money – either for a rainy day or to build an estate for your family? Or do you believe that money should be used sooner rather than later to fulfill your most important dreams? Or is some compromise path the best? Share your perspective in the Comments section below.

January 15, 2010   1 Comment

Frugal Living Tip – Saving for 2010!

Happy New Year! Hopefully this year will bring you health, happiness and good fortune.

Now let’s start talking about saving for 2010.

But the year just started? That’s right. That’s why this is the perfect time to start socking money away in a special savings account so that you have cash when the holidays roll around next year!

This article at eHow.com has lots of useful advice on getting out of debt incurred from excessive holiday shopping, but of course it’s much better to avoid going into debt in the first place.

How can you avoid holiday-related debts? LaToya Irby has written a useful article at About.com with 8 suggestions for avoiding holiday debts. Some of her bright ideas include shopping with cash rather than credit (that way you can’t spend more than you have) and focusing on buying gifts for others, not for yourself.

Irby suggests saving well in advance to make sure you have enough cash to buy gifts without resorting to credit cards. If you’re very disciplined with money, you be able to store that cash in your regular savings or checking account, but it might also be useful to open a special (interest-bearing) account devoted just for holiday expenditures or any other special splurges.

Read more about the benefits of this approach in the “Open a Holiday Savings Account” article in the PT Money blog.

Just think – if you set aside $100 a month, you’ll have more than $1000 for presents and gifts by the time the winter holidays arrive. Not to mention a few extra dollars in interest income.

What if you have some extra cash on hand right now? Well, you could take advantage of post-holiday sales and stock up on presents early for next year. Or you could look into buying a short-term 3-month or 6-month CD. Sites like Bankrate.com let you find the best CD interest rates.

But depending on how much money you’re looking to sock away for the holidays, you may get a better return by looking for special offers that banks sometimes run offering cash bonuses of $100 or so for opening new checking accounts. Just be sure to read all the fine print. Sometimes you’ll need to make a couple of check card purchases (even small ones) within a certain time frame to qualify for the bonus.

Why does the bonus make sense over the simpler CD or interest bearing savings account? Well, imagine that you put $1200 into each account on January 1st. With the bonus offer, you get $100 and perhaps spend $2 on little debit card purchases. You then have $1298 by December 1st for holiday purchases.

With interest rates so close to historic lows, you’d be very lucky to find a CD or interest savings account paying anywhere near 2%. Even with 2% interest, you would only earn around $20 by keeping your $1200 in the bank until December.

The math works out even better if you can find a deal that lets you open a new account and get the bonus with a small opening deposit such as $100. In that scenario where you’re gradually building up your holiday shopping account incrementally, you’d get much less than $20 at 2% interest, but you’d still get all $100 from the new account bonus, making that clearly the best choice.

And if you don’t end up spending all the money in your holiday spending account? Well, you can easily transfer most of it into your general savings account as a special ‘Happy New Year’ bonus to yourself in 2011!

Have you tried creating a special savings account for holiday purchases? Or do you have some other strategy for maintaining spending discipline around the holidays? Share your experiences and ideas in the Comments section below!

January 1, 2010   4 Comments

Frugal Living Tip – Affordable Nights On the Town

Merry Christmas!

On this holiday, perhaps it’s worth reflecting on the difference between being frugal and being a Scrooge.

A frugal person avoids frivolous and wasteful spending. A frugal person loves value.

A Scrooge lacks generosity. A Scrooge despises lighthearted fun.

But a frugal person knows that it is possible to have fun and be kind to others even without spending an arm and a leg.

There’s nothing written in stone that says every night out on the town has to involve champagne and caviar. In fact, it’s often easier to relax and have fun by using a little imagination and creativity to plan a less costly date or meetup with friends.

For inspiration, just check out Rose Jensen’s list of “10 Tips On Enjoying a Night Out for Less” over at the Free From Broke blog. Rose’s cost-saving suggestions include sharing entrées at restaurants, exploring the great outdoors, asking friends or family to babysit, and even seeking out online coupons at sites like Restaurant.com.

Get more inspiration from Financial Learn‘s post “15 Fun Cheap Date Ideas” including coffee dates, trips to the beach, rollerblading or kayaking, even baking a cake!

That’s not to say that you should never pick up a special treat for your sweetheart at the bakery, but there’s something special about sharing the experience of making a cake, baking it and enjoying it together. Truly a case of having your cake and then eating it too. :)

Need even more ideas for affordable activities? Laura Trahan has several suggestions, but I particularly liked her idea to volunteer together. Whether you help build a house, clean up a park, participate in a fundraiser or deliver meals to homebound seniors, volunteering can be a fun and rewarding activity. Maybe you could take turns with your loved one picking the volunteer activity. You’ll learn about some of the causes that matter most to your spouse or partner while having a chance to share some of your own enthusiasms.

Finally, Primer Magazine offers a fun article on 5 Affordable Date Night Ideas That Won’t Make You Look Cheap, including attending an opening at an art gallery or buying tickets to show your support for an up-and-coming local band.

If you do decide to stay in, Primer Magazine suggests you can still make the evening social by inviting over some friends and hosting an off-the-wall tasting event. Instead of a snooty wine-tasting, for instance, Primer gives the example of a sodas-of-the-world tasting, but you can adapt the concept to fit your own tastes. How about an ice cream tasting evening? Now that sounds sweet.

What are some of your favorite ways to have fun with friends, spouse, partner or family without spending a mint? Share your suggestions in the Comments section below!

December 25, 2009   No Comments

Frugal Living Tip – Dinner for Just Five Dollars?

At many restaurants, just ordering a beer or a fountain soda can set you back $5 (especially once you figure tax and tip into the equation).

So it sounds downright ludicrous to suggest that you could whip up a nutritious and delicious family dinner for less than a Lincoln.

Still, that’s exactly what Erin Chase, a.k.a. The $5 Dinner Mom, does over at her blog 5dollardinners.com. Pretty much every day – sometimes several times per day – Erin posts recipes, shopping trip reports, coupon alerts and other valuable information to help her readers put together tasty meals without breaking the bank.

For example, check out this recipe for Caesar Chicken Pasta Salad that combines protein, pasta and veggies for the whole family, with leftovers for the next day’s lunch, all for $4.55.

(Erin breaks out the cost of almost each ingredient – counting 3 cents for 1 tablespoon of olive oil. The only ingredient costs she doesn’t tabulate are for spices like salt and pepper, plus items she grows herself, like the tomatoes from her garden.)

Some of the other $5 dinner recipes that struck us as being particularly inspiring?

Admittedly, Erin is only able to bring some recipes (such as the shrimp scampi) in under budget by relying on sales, but there’s something to be said for being a savvy sale shopper at the grocery store.

Erin also seems to be a big fan of farmers markets and offers tips on the advantages of buying in bulk. For instance, she recounts getting a 5 lb. jar of honey from her local market for just $20. In another instance, she buys 2 zucchinis from the farm stand for a grand total of 18 cents!

And if you’re feeling nervous about trying out a new recipe, have no fear! Erin enhances her blog with numerous photos that show the beauty and fun of food preparation. Just check out these gorgeous photos that show the creative process behind a Grilled Eggplant Panini from start to finish.

And in case you think these meals are only fit for a sparrow, think again. On her FAQ page, Erin notes that she uses these recipes to feed her family of four, including two boys ages 4 and 2. It’s true that Erin admits she lives in the Midwest where prices tend to be lower than on the coasts, but even if you’re in a big pricey metropolis, you should still be able to put together similar recipes for just a few dollars more – certainly much less than you’d pay at a restaurant or take-out counter.

If you can’t get enough of Erin’s recipes online, keep an eye out for her first recipe book, due to appear in January 2010 from St. Martin’s Press.

Would you get a thrill out of cooking $5 dinners for your family – or would such a low threshold seem too restrictive? What are some of your favorite inexpensive recipes to cook? Share your thoughts in our Comments section below!

December 18, 2009   No Comments

Frugal Living Tip – Would You Rather Pay the Bank or Pay Yourself?

There’s nothing wrong with having nice things like a comfortable late-model car — as long as you can afford them.

Of course, if you can’t afford to purchase expensive products outright, a bank or lender will often lend you the money up front and let you pay it back on an installment plan.

Sounds generous — until you realize just how much extra this arrangement can cost you in interest fees. To find out the dirty details, try punching some numbers into the calculator at Cars.com.

Just for example, let’s say you wanted to buy a $30,000 luxury sedan, but only had $10,000 on hand. According to the Cars.com calculator, financing $20,000 of the purchase at 7.45% interest over 4 years will end up costing you $541 per month.

That sounds manageable, but if you crunch the numbers and multiply the monthly payment by the length of the loan (48 months), you’ll discover that the lender recoups a shade under $26,000.

That’s right – you pay almost $6,000 for the privilege of spreading out the purchase over four years.

Paying all cash up front lets you save loads of dough in the long run. If you don’t have enough cash on hand for such a large purchase, consider buying a more affordable model so that you won’t have to finance as much of the purchase price.

Once you’ve got the car paid off, put off the temptation to trade it in for a newer model. As long as the car is mechanically sound and doesn’t require expensive repairs, you should be able to drive it for many years. As the author of the No Credit Needed blog points out, every month that you don’t make a car payment to the bank, you can pay yourself and make a deposit into a savings account.

Instead of accumulating debt, you’ll be earning interest on those savings, stashing away money for a rainy day so that if you do encounter a major expense, you can handle it without resorting to loans or credit cards. And if you invest the money wisely, you could even supplement your income and create more wealth.

Avoiding loans so that you can pay yourself instead of paying the bank helps you save money in the short run and in the long term.

How do you handle car purchases – cash, loan or lease? Do you have a savings strategy for ‘paying yourself’ every month? How do you resist the temptation to splurge and stick to purchases that you can afford? Share your stories in the Comments section below!

December 11, 2009   No Comments