May 2011

What About Indulgences?

Everyone pursuing a frugal lifestyle eventually runs smack up against something that they desperately want. For many people, this soul-searching seems to be sparked by their lust for an iPad or iPhone. Others may crave a Kindle, a $300 pair of shoes, or a flatscreen television.

Endless threads online are devoted to the topic, which often devolves into a drearily predictable form of bickering. On one side you have your crusty old coots (of all ages) who dourly insist that only an idiot would buy something so frivolous, and that you can either call yourself frugal or you can buy a _____ but not both. On the other side you have the dilettantes who trot out any number of self-deluded excuses, no matter how torturous, to justify their purchase.

How about this: let's try taking a "sensible snacking" approach to budgetary indulgences. Even the most self-deluded person wouldn't try to justify eating a carton of Ben & Jerry's after every meal, and even the crankiest of cranks can probably admit that a little ice cream once in a while is probably alright.

WSJ Reveals: Poor People Have No Money

A shocking claim, to be sure! But all kidding aside, the Wall Street Journal has learned that "Nearly half of Americans say that they definitely our probably couldn't come up with $2,000 in 30 days." This goes beyond not having any income, it indicates how little we are saving as a nation, and how fragile the lives of most Americans has become.

Note the figure, "Nearly half." This includes everyone from the Middle Class down. In other words, you don't have to be on food stamps to not have any money in a savings account. Even people with a good income don't have access to money in case of emergencies.

Dave Ramsey: Worth It?

I have a soft spot in my heart for Dave Ramsey and his financial teachings. Dave Ramsey kickstarted my personal financial education, and a lot of his opinions continue to shape my personal financial road map.

One day in 2006 on my commute to work, I listened to an episode of "This American Life" that had a story about Dave Ramsey. I was intrigued. I had always thought about financial planners as boring droning voices talking about stuff I didn't understand. But this Ramsey guy seemed to be giving solid advice in plain language, and - most importantly - he was giving it to people like me.

Gold Bubbles and Fiat Currency: Our Make-Believe Economy

Why, when it comes down to it, we're all riding a make-believe train.

     A "bubble" in econo-speak, is a period of trading in commodities whose prices are significantly inflated form their intrinsic (see: actual) values." We've all heard of the 'housing bubble' of 2007, and probably remember the 'dot-com bubble' of 2001. Essentially, people buy stocks, commodities, etc., then attempt to sell when demand grows and costs increase. However, a bubble occurs when the costs continue to increase past the actual value of those stocks, and most people attempt to buy so that they can then turn a profit by selling at these inflated rates. Economists don't know why bubbles happen (though they have several theories) but we all know that bubbles eventually burst. When they do, they can have devastating effects.

Why Buying A Lottery Ticket Is Stupid

You may have heard of scratch tickets and lottery tickets dismissively called "a tax on the poor," or "a fine for people who are bad at math." Any economist will gladly tell you that a lottery ticket is the worst way you can spend a dollar. But why?

The odds of winning any given lottery are printed in tiny print at the bottom of the ad. But it can be hard to put those numbers into perspective. Right now, your odds of winning the Washington State Mega Millions jackpot are 1 in 175,711,536.

Here are some other numbers for comparison:

  • Odds of being struck by lightning: 1 in 576,000 (305 times more likely)
  • Odds of being struck by lightning twice: 1 in 9,000,000 (19 times more likely)
  • Odds of being stung to death by bees: 1 in 5,332,000 (32 times more likely)
  • Odds of being dealt a Royal Flush: 1 in 42,000 (4,183 times more likely)
  • Odds of being hit by a drunk driver: 1 in 6 (29,285,256 times more likely)

Don't Buy Gold - Sell It!

The flip side of what we talked about earlier, the record high prices of gold and how insane it is to buy high like all the ads are pushing, is that this is THE time to sell.

According to most experts, gold prices are an inflating bubble which, just like the housing market and the Dot Com market before it, will burst any day now. When it does, prices will probably freefall for quite some time. That's just how it works.

You can tell that this is a great time to sell, because that's what all the experts are doing: trying to sell (to you). All of those "Buy gold now! It's never been worth zero!" ads are designed by people who have a lot of gold, and who very much want to sell it. They know what they're doing - you should follow their lead!

Coupon Cheaters on "Extreme Couponing"

It's the show I love to hate! I watched several episodes this weekend with some friends. We marveled at families who could buy (e.g.) 62 bottles of French's mustard with a straight face. Later that weekend, a series of clicks led me to a thorough dissection of one particular episode, in which the blogger makes a pretty clear-cut case that at least one of the couponers is committing fraud.

Odder still, she has apparently been pretty open about her tactics, both to the show, and to the manager of the grocery store where she checked out. For his part, the grocery store manager was apparently very "shrug" about the whole thing. He figured if the coupons scanned, he would get reimbursed for them. Plus having the show film in his store was good advertising.

Federal Budget Cuts: Part 2

Pros and Cons

Federal Budget Cuts: Part 1

Although there are strong arguments for budget cuts, some economists fear that these cuts will harm our economy. One reason against large federal budget cuts is the idea that our economy is still in a delicate state. Given this, some speculate that cutting funds for important programs might further the negative effects of our economy’s recession.

Gold Is Worthless

We talked about gold as a disaster hedge a little while ago, but how about gold as an investment? Not to mince words, but this thing about gold as an investment is largely being pitched by and for conspiracy theorists. You see ads for "Buy gold!" slathered all over places like the website of Alex Jones, conspiracy theorist extraordinaire.

Should you buy gold?

No you should not.

"It's never been worth zero" is one of the big selling points of gold. But hey, that's true of… just about everything. Milk has never been worth zero, but that doesn't mean you should buy it as an investment strategy.

Where to Hide Cash in Your Home

Let's take a lurid little derail into the twilight realm where statistics overlap with the fevered fantasies of paranoid gun fanatics. Last weekend I started thinking about the cash I keep on hand. It's not very much, but I would sure be sad if some tweaker broke into my house and stole it.

Clearly, the safest place for your money is in a bank. But aside from that, where should you hide your cash? I did some research on this topic recently and learned a lot.

First of all, the typical burglar is only in your home for 10-15 minutes. But they get a lot done in that short space of time. A burglar will walk into your home looking for cash, jewelry, electronics, and prescription medicines. And they don't care if they leave the place pretty.

What's Liquidity, And Why Does It Matter?

"Liquidity" is one of those financial terms that I always thought really rich people (and people involved in the financial industry) needed to know. A specialized term; jargon that the rest of us don't need to know.

Then a few years ago I decided to start my own financial education. And I learned that liquidity is a concept that is actually quite relevant to "the rest of us."

To put it simply: Liquidity is why, when you're living on the edge, you only ever put five or ten bucks of gas into your car's gas tank.

Goals: The Secret to Financial Success

Of all the financial tools and methods I have heard about and tried, "set a financial goal" has been far and away the most useful. And it's free, which is definitely a bonus!

To quote J.D. Roth of Get Rich Slowly, "When you have an end in mind, it's easier to see when you've made a wrong turn."

The key to choosing a goal is to make it as specific, and as personal, as possible. Most of us, left to our own devices, would choose a vague and unobtainable goal like "Become rich."

Hope For "Unbanked Americans"

Third and final part on the "Invisible Banking Crisis"

In this last installment of a three-part series on the estimated 1 in 5 Americans who do not have (or do not use) a bank account, let's look forward to the promising news.

First of all, if you yourself do not have a bank account, I hope these articles have convinced you that having a bank account is important. Not having a bank account causes you to waste a lot of money - and a lot of time. It makes your life so much more difficult! But you knew that already. The question is, what to do about it?

If it has been more than six months since you last tried to get a bank account, try again. Banks are hungry for new customers, and some of them have loosened their formerly tight restrictions on new account holders. And if you had a report on the CHEX system, it may have rolled off by now.

Life Without A Bank Account

Part 2 on the "Invisible Banking Crisis"

Yesterday we discussed how people come to be bankless. Almost 20% of Americans - one in five of us - either lack a bank account, or never use it. But what do you do, if you don't have a bank account?

Unfortunately, this is a situation that seems to bring out the worst in people. "Predatory lending" is not just a euphemism. These businesses are literally preying on the poor. They know they have people over a barrel, and they charge accordingly.

The media often points the finger at paycheck cashing and payday loan services. But you almost never read about how Walmart is the nation's largest casher of paychecks. For only three or six bucks, the Walmart MoneyCenter will cash your paycheck.

Why Don't Some People Have Bank Accounts?

Part 1 on the "Invisible Banking Crisis"

According to a 2009 study, up to 25% of Americans have no bank account, or are "under-banked," meaning that they have an account that they never use. There is little hard data on these bankless Americans, but most of them are living at or below the poverty level.

People who have always lived comfortable lives have a hard time understanding why poor people don't have bank accounts. But you know what? I've been there. And let me tell you, I know how bad it can be.

Bankless Americans fall generally into two categories: Willing and Unwilling.