Archive for the 'Below Your Means' Category

If you LBYM you will probably not end up on this show: Repo Games

Since the economic downturn, repossession or “repos”, of cars has been on the rise (and here).   Now, the same folks that brought us Jersey Shore (ugh) are at it again… exposing the desperate masses that are behind on their car payments and making them put on a show to “win” the title to their car.

We do not want to judge the contestants on this show, we can only imagine hardships they have endured and we have no clue as to what their particular financial situations are.  However, we feel it safe in saying that the rate of automobile repossession amongst those that truly and consistently live below their means is probably a lot lower than the national average.  We leave it to you to decide.

If you want to read more about shootings that have occurred during the filming of Repo Games click here.  If you want to read more about the show itself, go here.

In other interesting news on the topic, apparently airplane repos have been on the decline as lenders take a “soft approach” to people behind on their payments.

http://www.sxc.hu/photo/1339614

Vacation Tips: Creating spending budgets for your kids

Summer time is fast approaching, and along with it the mainstay of American family life – the summer vacation.  Whether you’re traveling or having a ‘staycation’, it’s easy to blow your budget with little extras.  You’re on vacation and you deserve it, right?  Well, at BYM we think the best vacation is one where one month later you’re not cringing when your credit card bill comes, and we’ll be posting tips throughout the next few months on making the most out of your dollar when traveling.

http://www.sxc.hu/photo/1339614Our first tip involves money and kids.  One of the best parts about a family vacation is seeing those little faces light up at all the great things that are happening.  But that can easily add hundreds of dollars on your total vacation expense, especially if you’re in a tourist spot like a theme park or a popular beach.  Keep control of your spending by setting a total budget for each kid on the vacation.  Be realistic here – if last year you charged up $20-$40 per day per child on candy, snacks, games, toys and souvenirs, don’t think you’re going to stick to $20 for the whole trip.  Set something reasonable that you can afford.

Once you’ve set a realistic budget, involve your kids in the spending decision.  The way we handle it in our family is to say “You have $40 for the weekend.  You can spend it on whatever you want, but when it’s gone, it’s gone and there will not be any more.  Have fun!”  You’ll love the peacefulness that comes from not having to grant or deny 50 requests every day from the “can I have this?” crew.  And you’ll be amazed at how much fun the kids have with the very grown up experience of making decisions.  You’ll also be surprised at how quickly the kids learn to be judicious with their money – much more judicious than they were when they were spending YOUR money!

If you have younger children, you should probably divide up the spending for them by giving them a daily limit, or even a before-lunch and after-lunch limit, otherwise they will blow all their money on the first day.  Younger kids don’t have a firm enough understanding of time, or of delayed gratification.  So break that $40 for the weekend into $20 on Saturday and $20 on Sunday.  It will be much easier for a young one to save up for a more expensive item by stashing some cash on Saturday then it will be for them to go all Sunday hearing “Sorry, you’ve already spent your money.”  (and it will be much more fun for you too).

If your kids have never had to make these kinds of financial decisions before, start before vacation so you’re not combining the excitement of the trip with trying to learn a new skill.  Take the kids to the mall, or a summer festival, and give them each a small amount of cash to buy whatever they want.  They’ll get the hang of it pretty quickly, and you’ll partner with them in their decision-making process instead of being the authority figure that decides whether they can have something or not.

If You Are New to Living Below Your Means: It will help your kids to see you going through the process of making tradeoffs yourself.  So let them see your own budgeting process, and set your own realistic limits on your spending for dining out, hotel, car rental, etc.  It will help keep you honest when you know you’ve spent enough for the day, but your credit card is right there tempting you to go over-budget.  It’s much harder to lie to yourself and say it’s OK to go over your budget ‘just this one last time’ when you know your kids are watching, and learning, from your actions.

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How not to blow your tax refund

Gawker is running a fun article on How to Blow Your Tax Refund.  With the average refund expected to be approximately $3070, author Brian Maylan provides a number of ways to blow it all on a spontaneous set of expenses including a trip to Paris and one of each bit of hardware Apple has to offer.

We here at BYM have never really understood the “found money” mentality when it comes to tax refunds.  Perhaps that is because through a lifestyle of saving and spending wisely… every single item on Brian’s list can be planned and purchased easily with a little bit of thought.

For those new to living below your means, a tax refund is anything but “found money” or a gift or anything of the sort.  In fact, it is money that you overpaid to the government that is being returned to you — without interest.  It is money that would have been in your pocket each month had it not gone to the government’s coffers.

May people that plan their taxes well actually end up owing a little bit of money at tax time.  Assuming you are below the threshold for penalties and interest, this is a good thing.  It means that money was with you where it could be saved, invested, or otherwise used by you, and not a interest-free loan to Uncle Sam.

From the BYM point of view, here are the top 3 things to consider doing with your refund:

  • Pay off high interest debt – While it may not be as fun as a trip to Paris, consider this.  If you owe $10k on a credit card at 20% and only make the minimum payments of $200, it will take you 9 years to pay off the card and you will have paid $11680 in interest!If instead, you used that $3,000 towards the same credit card, and then made the same $200 a month payment, you would pay off the debt in 4 1/2 years and pay just $3593 in interest.  That’s $8,087 in savings over 9 years.  Enough to cover 2 or 3 trips to Paris.

 

  • Save it! – It may make sense to not use all of the money to pay down debt.  Having some money set aside in savings or an emergency fund is always good advice.  May experts recommend that you should be able to live off savings without any income for at least 3 months and ideally at least 6 months.  Having an emergency fund can actually save you money later and in some cases .  Perhaps put $1000 into a savings account and $2000 into the credit card.The reason for this is that access (liquidity) to money (capital) has value in and of itself.  Assuming you are not continuing to spend on the credit card, the terms of that loan are a known quantity.  If an emergency does arise and you need more money, access to credit may not be available, or it may be at terms that are worse than the terms you already have. For example, if you have a 5 year car loan at 0.9% – paying it off early doesn’t really make sense, especially if you don’t have an emergency fund.   This is because your money can be earning more interest in a CD or Money Market Account than you are paying on your auto loan.  Plus, if you do have an emergency, you’ll be paying anywhere from 13%-20% or higher on the credit card debt you’d take on to handle the emergency.

 

  • Put the money into a self-insurance fund – We here at BYM are not fans of being over insured.  Buying “warranties” on products because you can’t afford to replace them later is never a good idea.  Put the money into a savings account and use it only to pay for the replacement of items that are out of warranty.  In addition, consider raising the deductibles on your homeowners and auto insurance policies.  Do not raise the deductible more than the amount you are putting away, because if you have to borrow money to pay the deductible all the benefit is gone.Consider, raising a deductible from $250 to $1000 will reduce the cost of collision and comprehensive coverage by 10 to 30% depending on your carrier.  This can be as little as $100 or as much as a few hundred in savings per year.

If you just have to do something with that three grand, maybe allocate 10% to something fun.  $307 can buy you a very nice evening out – or two.

How much are My Coke Rewards actual worth?

If you read my tips on travel, you know that I am big on reward and loyalty programs.  Between mileage plans and credit card rewards it’s pretty easy to get 1-3% of every dollar you spend “back” in points / what have you.  But not all points or miles are created equal; there value is often subject to devaluation and what you can get with those points or miles changes over time.  This post is about one of the more fringe point programs: My Coke Rewards.

The basic premise of this program is that for every Coca-Cola product you purchase you will get a few reward points.  Typically this is found under the cap, or the box and is anywhere from 3 to 25 points depending on what you have bought.  What I find amusing is that you get the same 3pts on a $0.50 cent 12oz bottle as you do on a $2 two liter bottle. So the cost to acquire new points varies widely from 6pts per dollar to 1 point per dollar.
So once you get all these points, what are they worth exactly?  The answer is it depends.  Here is a sample of what you can get for your hard earned points:
Item
Points Retail Cost Point Value
20oz Coke 30 $0.99 to $1.49 $0.033 to $0.0496
Live Nation $10 Gift Card
100
$10 $0.10
Swarovski $30 Gift Card
75
$30 $0.40
Fitness Magazine (1 Year) 133 $5 $0.038
Bon Appetit Magazine (1 Year) 250 $15 $0.06
Restaurant.com $50 Gift Card 600 $50 $0.08
Nike $50 Gift Card 2000 $50 $0.025

As you can see the value of reward points ranges widely from $0.025 (or less) to $0.40 (or more).  The is that it is very hard to value them, because many items are hard to value.  What exactly is an American Idol cup coaster worth?  How about a no-name set of wireless headphones?

LBYM!: Part of living below your means is getting the most value possible for your money or in this case points.  Let’s say I really wanted to buy both Fitness Magazine and Bon Appetit and I like to go out to eat a lot.  I would probably get the Restaurant.com gift card for $0.08 a point and pay cash for the magazines (Or would I – see below).

Why is there such a wide range of values placed on points?  This usually has to do with the arrangements made between the individual companies and Coca-cola.  It also has a lot to do with how over-priced or fungable the money is to each retailer.  Rest assured, that the odds are the amount of money Cola-cola gives to each retailer is approximately the same, it is probably something like $0.02 a point or less.  This means the “play” in the value largely comes from the individual companies.  For example, if Swarovski is willing to take get $0.60 from Coca-cola for a $30 gift card you know they probably have decent margins on their products.  The cheapest thing I can find one their site is $45, so at a minimum they will get $15.60 from you, for an item that may only cost them $5.

Restaurant.com is another great example on the fungibility of certificate price.  How much is a $50 gift card worth, when they often have coupons and promo codes for 25% to 80% off the face value of a certification?

There are also a bunch of hard-to-value deals.  Sweepstakes entries, Coke swag, charity donations, etc.  These are hard to value and that is probably to Coca-cola’s advantage.  What exactly is 35 points to the Special Olympics worth?  There are also a lot of ads and promotions on their site, so the actual value a retailer gets may be fungable as well… sure they only get $0.01 a point, but they are getting lots of web traffic, or a sale they may not of gotten otherwise.

To bring this all home, my estimate is that a Coke Reward point is worth about $0.03 to the average Joe and probably about $0.015 to the average retailer.  So this is not actually a bad deal, assuming you can find something you actually want from their catalog.  Combine this with the $0.01 per dollar you get back on your credit card, that $0.99 coke may actually only “cost” you $0.92.

For more information be sure to see the Wikipedia article for history and other thoughts on valuation.

You should also consider looking at the My Coke Reward (MCR) main thread over at Flyer Talk.

Cheers,

This posting is provided “AS IS” with no warranties, and confers no rights.

Living Below Your Means – Illustrated

The number one search hit I get for this site is “how to live below your means”.  I intend to address this directly through a series of future posts, but for now I wanted to illustrate the concept.  The idea is really very simple as Steve Martin explains here on SNL.  The truth though is that it is often easier said than done to actually do.  There are several reasons for this:

  • Living below your means is a lot easier if you have always done it and never gotten in to debt.  Once you have lived beyond your means, the road back is a hard one.  It’s not impossible, it simply requires more sacrifice.
  • We want too much stuff.  We as humans, need very little, but we as Americans have been taught to want a lot.  IMO, want in and of itself is actually a good thing, it is what drives us to greatness.  However fulfilling the want immediately before it has been earned (IE: going into debt) is a simply road into slavery.

More on all of this later.  For now, I present the following three illustrations:

First, we illustrate the simple concept of living below your means.

Second, that the gap between what you earn and what you spend is where this “so called saved money” comes from.  In the long run, saving and investment of capital is the only true path to prosperity.

Finally, this illustration shows that if spend more than you make your are probably doing the “live below your means” thing incorrectly.

That’s it for now.

Cheers,

This posting is provided “AS IS” with no warranties, and confers no rights.