Financial Sense Makes Cents

I’ll bet the first time you were told that “having a mortgage is good because you get a tax deduction”, your very first thought was “huh???” but then you just went with the conventional wisdom because the person that told you this was either older and more experienced than you or they were an accountant or CPA and you just figured they had to know what was best. Well I’m here to tell you that owing hundreds of thousands of dollars in interest on your home for 30 years, just for the priveledge of deducting 15 - 30% of it on your taxes is just plain stupid. If you could pay cash for a home or pay as much as possible in cash to reduce your loan balance, you absolutely should; because the only way you will ever accumulate enough wealth to live free is by not giving it away to the bank.

Cash is better for everything.

Cash is convenient but it’s risky to carry too much. With cash, one has to make sure of having sufficient cash before going to the store. Buying an article of clothing in a store on credit is much more convenient than using cash. Cash payers go into somewhere to pay, and will more often make an impule purchase than card payers who pay at the pump. However, credit card users will always buy more than they can afford to have because of the disconnect between using a little plastic card verse actually using your money. Just like chips in a casino. Casinos always want you to use chips because it is psychologically much easier to spend chips than money. Sit at a black jack table with $1000 in cash and watch how conservative you become at the table.

Debit is almost as good as cash- only safer.

Debit cards allow you to pay for purchases without using cash or writing a check, but they take the money directly from your checking or savings account. Debit cards can be useful if you don’t want to carry large amounts of cash or want to buy things by mail, online or by telephone (purchases that usually require a credit or debit card. Debit transactions are limited to how much cash is available in those accounts and banks may impose daily limits on the amount of transactions processed with these cards. Debit cards have become more of a norm. Using a debit/credit card can make your life easier (you don’t need to carry a lot of cash, show identification when writing a check, and can often avoid lines by buying things ahead of time), but it is important to understand how you are paying for your purchases. This means that you can only afford to use your debit card to make purchases if you can afford to pay for your purchase in cash. Many banks now offer ATM cards that also work as debit cards (they usually have a Visa or MasterCard logo. I get rewards on my debit card.

Credit is worse for everything - even the economy.

Don’t let economists fool you into believing “the more we charge the better off our economy and the banks are.” The only part of that statement that is true is the part about the banks. Credit actually causes inflation. When you use credit, you aren’t the only one getting charged an interest rate. So is the merchant accepting your order. That cost then gets transferred back to you the consumer in the form of higher prices. To use or not to use credit for a major purchase is an important decision. Credit cards give you a line of credit (loan of money) that you can use for purchases. Through buying on credit, consumers can use the item while they are paying for it. Credit cards also enable people to spend money they don’t have, a luxury cash payers obviously do not enjoy. Convenience of purchase is another reason that individuals use credit. When charging a purchase, all you need is a credit card or some other store procedure, which makes the purchase very easy. Credit cards are used on more than 80 percent of fuel purchases. Now do you think that credit adds a lot of cost to buying an item? Another reason people use credit is that it is less risky at time of purchase than when using cash. Some people use credit when there is a good sale on items. Another reason some people use credit, especially young people, is to develope a good credit rating. In many instances, they think they are paying less because the savings from the sale exceed their credit charges. This extra cost means that an item bought on credit will cost more than the same item purchased at the same time for cash. Keeping this in mind, you shouls always ask for a discount when paying cash for something, even demand it or threaten to go elsewhere. Why should you pay the same price as the person that is charging, knowling full well that the price of the item most likely includes fees to cover the costs associated with accepting charges?

In summary, if you live a credit free life, and it is possible; you will: Keep more of your money, help the economy, live within your means like you were supposed to, and probably won’t die early from stress related illnesses when you end up borrowing from Peter to pay Paul like most credit users eventually end up doing.

Just a quick blip here about spending that should put everything I have ever said about getting out of debt into massive perspective.

I know most of you think Ross Perot is crazy and he may be, but he is also a financial genius that has the ability to put things in layman’s terms so anyone can understand. On that note, I have placed a link to a financial chart about U.S spending, revenue, and debt that he has created. It will take about 10 - 15 minutes to watch this chart style presentation, but know this - at the end of it, anyone that took the time to watch it; even a three year old, will understand how much trouble we are in and why we all should eliminate any personal debt we have at this time because things are going to get real bad soon if something isn’t done about it!

View This Chart Presentation Now

Pay yourself first or pay yourself last, just pay yourself!

This is an old concept that I learned 18 years ago when I was a financial planner for Prudential, however the concept goes back to the beginning of time and it’s called “pay yourself first.” Pay Yourself First means just what it says. It simply means automatically setting aside a certain percentage of each paycheck to put into savings before you do anything else with your money, and is the cornerstone of financial success. It is one of the most powerful and effective strategies for building wealth. So how does it really work?

• First of all you have to have the discipline to do this.
• Secondly you have to choose a method and amount which I will explain later.
• And third, you have to tie this in with one of the debt elimination strategies I have discussed in prior articles.

If you have the discipline, then simply choose a small affordable amount such as: 10% of your take home pay, or one hour of your income a day. Then take that money every week and put into an high yield savings account before you even look at your bills or go grocery shopping. This forced savings will help you look at your debt or bills, and how you pay them a lot differently. By the way, anyone can do this. You will simply look at it as a pay cut when you pay your bills. This will force you to shop and spend differently to accommodate your smaller checking account balance every week. If you do not have the discipline to do this, then pay yourself last. By this I mean increase your tax with holdings from your pay check to the max. This will cause more money to be deducted from your pay every week and you will get much more back at tax time due to an over funding of your tax obligation. You then take that money (all of it) and put it into a high yield savings program. Obviously I prefer paying yourself first, but paying yourself last at tax time is still better than most Americans do, which is pay everyone else and hope to have something left for themselves. This is how debt starts to snowball and take over.

Saving and paying off debt simultaneously is hard but not impossible. Does it make sense to put money in a savings-type account earning minimal interest when you could be paying three times that much in interest on your credit card balance? Of course not, that is why debt elimination is the second part of paying yourself first. Reducing your debt is actually a way of saving money.
Achieving a debt-free lifestyle is important, too. We all could manage our money better and get out of debt, especially now with today’s economy. If we’re going into a recession, we need to get out of debt. Those who have a higher debt to income ration going into recessionary times, will emerge in the worst shape when it is over, if they emerge at all. So after you pay yourself, you will pay down your debt. After you pay down your debt, you will pay your regular expenses or bills. If there is anything left over (and there should be very little if you are paying your debt down properly) you should either spend it on yourself because every now and then you have to live a little, or add it back to your savings. Remember, you’ll need this savings for the not so everyday expenses that come up every now and then, otherwise you will just accumulate more debt again.

Here are some resources that have helped me live the lifestyle of someone with much more money than myself:

• JC Penny Clearance Outlet I didn’t even know they had a clearance outlet, probably not too many people do. Great deals here!
• Restaurant.com This one has always amazed me, but has never failed me. One of my favorites. Each out for a lot less!
• Key Codes Like a clearance house for clearance houses and items.
• Deal Time Definitely worth looking at. Comparison shops for you.
• The Mother Of All Savers Everyone knows mother knows best. This site is very well organized and can help you save a bundle.

Check back for more resources in the future. In the meantime there is one other thing you need to know and that is how to almost always get that additional discount at checkout when you shop online. Almost all online checkout centers have a box asking for a promo or discount code of some sort. You don’t know how many times I’ve bought stuff online thinking I was getting a great deal because I did not have to pay sales tax, or because I really researched my prices first I can’t be paying too much; only to be staring at this box just before I put my credit card info in. Then one day it hit me like a brick in the face. “Why not open another browser window and go to a search engine and type in the name of the online store I was at and add the words promotion codes or discounts.” IE: staples promotion codes or staples discount codes (for when I shopped at Staples.com.) Well now I almost always pay even less because that extra search phrase usually gets me an extra discount code to input right before my credit card info. If you can’t find a deal at one of the site above, then go where you want, but always do that extra search for an online discount code before you make the final purchase.

No big article today folks, just some simple financial tips that everybody should be aware of. After all, that is the name of this site.

• Social Security - If you are approaching the time when you need to start making retirement plans, please know that every dollar you earn while still working after the age of 60 will still have social security tax deducted from it, but may reduce your monthly stipend if you only work part time or at a trivial job that does not pay much (check with your accountant.)
• Identity - If you have not yet purchased a mail box lock and a cross cut paper shredder for your mail trash, then go to Safety 1st and browse through the safety and insurance premium reducing items because it’s not if, but when someone will try to steal your identity.
• Credit - Have you had the urge to by new furniture and take the “no interest or payments for 1 year” option? Well don’t do it. If you do, you will be opening a revolving credit account with a very low limit and high interest rate that will be listed on your credit report / score. Even though you may pay the balance off before any interest comes due, you will be hurting your credit score by adding a “garbage” account line to your score that will invariably lower your score (see my post from March 19th 2008 titled “Improving Your Credit Score.”
• Saving Money - Are you living debt free yet? If you are, you might want to consider ING for your savings. You could earn 7 times the national average over a local bank. If you are not debt free yet but you still save regularly I still recommend ING for a greater return on your everyday savings allowance.
• Taxes Have you appealed your property tax rate lately? You might want to consider it as many people are paying an unfairly balanced and improper levy of their property. You may have thousands of dollars, just ask you attorney for more information. Not looking in to this is like not counting your change at the cash register, eventually someone is going to make a mistake.