Welcome to Frugal Fridays where we share money saving tips, discuss living frugally and talk about personal finance issues.
This is my second annual guest hosting gig writing about frugal or financial New Year’s Resolutions.
Last year, I wrote "Economists are talking recession, and you may just want to be in the best financial shape possible to weather a tough year." Well, tough year doesn’t even begin to describe 2008, does it? Many of us (the lucky ones still working) are seeing retirement moving further into the future. Frugal habits have come back into fashion. And most of us are trying to pare down our lives to make a little go further.
With hope that 2009 will end better than it started, here are some ideas for one-time resolutions, ongoing activities, as well as hints on being a smarter financial consumer.
Let’s get started. Please, do not set yourself up for failure by trying to do all of these or setting vague, unrealistic goals. Pick one or two small, realistic, measureable goals. Then reward yourself when you accomplish them!
Managing Debt
Meet the devil. Make a list of all your debts, and the interest rates you’re paying. Knowing where you stand is a huge first step on the road to financial strength. It may not be as bad as you thought, or it might be worse. But how are you going to take control if you don’t know what you’re up against?
Keep a spending diary for two weeks. Or a full month if you’re motivated. It’s the only way to really know where your money goes. Keep every receipt. Write down all cash purchases. Watch the patterns that emerge. You’ll learn a lot and have the chance to do some soul searching about whether where you are spending money is in sync with your life goals.
Figure out how to not spend more than you make. This is a tough – if not impossible – resolution if you are unemployed or underemployed. It involves making a spending plan (some people call it a budget) so you can see if there are things you can cut back on. I use a cash flow spreadsheet; Mr. House and I get paid on opposite weeks, so I have a week by week Excel spreadsheet of what’s coming in and what bills have to be paid that week.
Get creative. If you’ve already cut out all the extras and need to catch up, think about selling something, getting a second job or renting out a spare room. I’ve done all of those in lean times.
Don’t let pride get in your way. If you are not making ends meet, get help. Learn what services are available in your community. Visit your local food pantry – the people who donated want you to use it. Call local social services agencies to find out if temporary rent assistance is available. At the start of the year, or shortly after, a lot of agencies get new funding and there is more help available than there was a few weeks ago.
Learn where to get help when necessary. It’s a good idea for everyone to know what types of services are available in your community. If you are fortunate enough to not need them, chances are very good that someone you know will need these services this year and they may be too upset or busy or overwhelmed to be able to research them.
Tame your Credit Cards
Credit cards can be enough of a maze that they deserve their own section here.
Make a plan to reduce or eliminate your credit card debt. There are some big changes coming in the credit card world that will dramatically change how the credit card companies do business. New laws going into effect in July 2010 will help consumers, but will also force significant changes in the credit card business model because the current model will no longer be profitable for the card companies. The biggest potential negative impacts I predict (there will be more offsetting positive impacts) are balance transfer offers will disappear and credit limits will be lowered. So use 2009 to get prepared.
Pay the lowest rate or lowest balance first? You know yourself best. Some people are more motivated by paying off small balances first; others prefer to pay off the highest interest rate first. Either one is a step in the right direction. Do not fall prey to negative thinking "It’s going to take me years to pay these off, so why bother?" The years will pass and at the end you can either have less debt or be in the same spot you are now. Any reduction – or at least not growth - in credit card debt is going to be a good thing.
Find a credit card that will let you transfer your existing balance at a lower rate. This is getting harder for people who don’t have stellar credit scores. You are probably not getting as many of those splashy balance transfer offers in the mail - you may have to seek out a credit card to transfer to and it may be the regular card rate, not a special balance transfer rate. If you have more than one card, and one has a lower rate, call and ask them if you can transfer balances from other cards.
If you do receive a really good balance transfer offer, this is the time to take it. But remember, most cards charge a 3% up front fee when you transfer the balance, so you have to add that 3% to the rate they offer to make a fair comparison to what you're currently paying. If you can find an offer that is a couple of percentage points lower than the rate you’re paying, but does not charge a balance transfer fee, take that one. If you can’t find an offer without a transfer fee, take one that caps the transfer fee at a certain dollar amount.
Transfer smart. If you transfer a balance to a card for a lower rate, don’t charge anything else on that card! Payments are applied to the balance with the lowest interest rate first, so while you’re paying off that 0% transfer, the 17% purchases are waiting at the back of the line and growing bigger and bigger.
Resolve to never pay a late fee. Set up automatic credit card payments for just the minimum payment. You have to pay that anyway, so automate it. Schedule it far enough in advance to make sure you aren’t ever late. You can make other payments during the month, but having that minimum paid on time will mean you avoid late fees and penalty rates and protect (or improve) your credit score.
Get financially fit
Join the Marines. Online, that is. Use the USMC Financial Fitness Online Resource Center. If you can get past the military language, this is absolutely one of the best online tools available for making a financial plan, saving, budgeting, and paying down debt.
Join an online community. There are lots of online groups that support each other in their efforts to get financially fit. Heck, someone could even start a weekly support diary here.
Use the tools available to you. Mint and Wesabe and Quicken Online are free online money management tools. They are a good start, but if you don’t use big banks, your financial may not be available for downloads. You can also buy Quicken or MS Money. It’s easiest if you start at the beginning of a year - which is right now! I use the old-fashioned Quicken, and download my checking account activity weekly. Since I am missing the checkbook balancing gene, this allows me to actually know what I have in my account. I started with checking one year, and then added savings, loans and 401k. I now update it regularly by clicking on an Update button. Pretty easy and I can see where I stand at a glance. Oh, if you love charts and graphs, this is for you.
Consider credit counseling. If you’re in over your head, get help. But beware of those places that advertise on television – there is no quick and easy way out of debt. The National Foundation for Credit Counseling has good advice on choosing a reputable credit counseling agency.
Don’t use "credit repair" services. They do not repair your credit. They are a scam that counts on the credit bureaus not being able to handle requests to verify debts in a timely manner. You may see some negative information removed for a month or two, but if it’s legit, it will come back on. Visit the FTC site for more info about what you can do yourself and how to avoid being scammed.
Housing
Buy a house? This could be the right time... If you are working at a job that feels pretty secure, and you want a house to live in (not because you think real estate is a good investment), this may be the time to buy a house. Mortgage rates are really low. Housing prices are more realistic in most areas and there are lots of houses for sale. There are many programs now available to help first time home buyers – tax credits, down payment assistance, seller-paid closing costs, etc. Visit the HUD site for comprehensive info.
Refinance your mortgage? Rates are low. If you have an adjustable rate mortgage or are paying more than 6%, and you're not under water (owe more than the house is worth), this is a good time to think about refinancing into a fixed rate. Shop around and get Good Faith Estimates before you make a decision; closing costs and fees vary wildly and what looks like a better rate is often eclipsed by tons of fees and points. I recommend shopping local lenders.
Get help with your mortgage. There are new programs for homeowners popping up every day. Call local social service agencies or local lenders to find out what's available. More home owner programs could be available if/when the new administration's economic recovery plan is passed.
Back to Basics
Shop around for financial services. Just because you’ve been at Bank A since you were 19 doesn’t mean you should stay there. For starters, click on CheckingFinder.com. See? There really are better deals out there. For the hour or two it would take to switch your checking account, you could reap years of benefits and be supporting a credit union or community bank. Which leads to...
Dump the big corporate bank. What more do they have to do to convince you that they don’t care about you? Please consider a credit union or a community bank. For full disclosure, I work at a credit union, but I was a CU member long before I was an employee. CUs are member-owned not-for-profit cooperatives. What is more progressive than that? Just about everyone in the U.S. can join a credit union. Ask family members if they belong to a CU – you may be able to join theirs. And my CU industry peers might shoot me for saying this, but a community bank is the next best choice.
Start an emergency fund. Start small with $5 or $10 per paycheck if that’s all you can afford. My credit union lets me "hide" accounts on the home banking system by unchecking them. I can have a small amount of my paycheck deposited into a special savings account and never see it when I check my balances online.
Be prepared. Make a list of all your credit card numbers, expiration dates, and the phone number to call if it’s lost or stolen (they’re on the back of the card). Keep the list in a safe place and if you travel often, give a copy to a trusted friend or family member.
Make a treasure map. What would happen if you got hit by a bus tomorrow? Would your family know where to find info about your accounts, insurance, retirement? Write it down and tell them where the list is. Make sure the list includes account numbers, passwords, and contact info for financials, brokers, and insurance agents.
Set up overdraft protection. Either transfer from savings, or open a small line of credit. If you need it, you’ll be glad you did it.
Decide whether you need/want overdraft privilege on your checking account. That’s the "we pay your check but charge a fee" service. It can be a blessing or a curse depending on your circumstances. You can ask to have this turned off. I did, but I have my home equity line of credit set up as overdraft protection so I know I will never bounce a check.
Review your will, living will, medical power of attorney and insurance beneficiaries. Do they still reflect your wishes? If you don’t have anything to review, you know what you should do. If you’re in a relationship that is not a legal spousal relationship, you and your partner should be doubly sure everything you want is in writing and copies are kept in your medical files and with trusted family or friends.
Review your insurance. Can you save money by increasing auto or homeowner deductibles? Can you decrease your auto and homeowner coverage amounts by adding a personal liability umbrella policy? (We were able to and saved about $300 a year.) Do you have enough life insurance to provide for dependents and/or your partner? Shop around for coverage prices, too.
Plan for retirement. This one is getting harder with the current stock market situation. But that’s still no excuse to throw up your hands and quit. Depending on your age, retirement planning could mean changing your life style now so you can save more or delaying retirement. If you’re young, it means putting something away every month.
Take advantage of your 401k. If you have one available, make sure you are contributing enough to get the full match. I know it may seem like pouring money into a black hole, but tell yourself you are buying shares on sale.
Stop getting credit card convenience checks. These are a ticking time bomb for theft. Call all your credit card issuers and ask them to stop sending you convenience checks. It’s that simple.
Buy a shredder. Keep it where you open your mail to make it easy to shred pre-approved credit card offers, paid medical bills, and anything else that has bits of personal info someone could use to steal your identity.
Change your passwords. I’ve gotten used to changing mine frequently because it’s required in the financial industry. Use a combo of letters, numbers and special characters. Check the security of your favorite passwords here. Don’t use your address, birthday or your pet’s name. One of the most common ways to guess someone’s passwords is to look at their pages on social networking sites and start trying common things. People are just not very creative when it comes to passwords. To keep track, I have a password-protected spreadsheet in Excel of all my work and personal passwords.
Stop getting pre-approved credit card offers. Opt out of pre-approved credit card offers. They tempt you to get more cards and spend more money, and the offers themselves are a very common way for identity thieves to tap your credit and ruin your life.
Switch to online banking and bill pay. It takes a little time to enter the account numbers and addresses into a bill pay system, but once it’s all there, paying bills is a breeze. You’ll save money on stamps and your account information will actually be more secure. Use your credit union’s or bank’s bill pay system rather than the vendor; you have less exposure to possible data theft.
Sign up for eBills and eStatements for all accounts. Obvious and not-so-obvious green benefits, but also faster delivery, no more lost or late mail. No more risk of mailbox theft. If you really need paper, print it yourself – at least there won’t be gas and jet fuel used to get your paper to you.
Check your credit report for accuracy. Visit AnnualCreditReport.com to get a free copy of your credit report from all three major credit bureaus (Equifax, TransUnion, and Experian). Be prepared – the reports can be very different based on where you live and what types of credit you have. Get one today, one three months from now, and the last one a few months later to monitor whether accounts are being opened without your knowledge. Do NOT visit FreeCreditReport.com - they are not the official free credit report site and there are thousands of consumer complaints against them for deceptive marketing!
Decide if you really need to know your credit score. If you’re applying for a loan, or denied credit, ask what your score is. If you are just curious, you will have to pay. Don’t sign up for a year’s worth of scores and don’t pay more than $5-$7 for a one-time score. Just know that each of the three bureaus calculates your score differently and they will not match. There are also scores that weigh credit card debt or consumer loans more heavily, so the score your financial is using to set your rate might not be the some one you’re getting.
Get better organized
How is that going to help? Let me count the ways... first, ask yourself if once during the last year you ended up paying a late fee on a bill because you simply forgot it? Did you go out and buy triple A batteries because you couldn’t find the ones you already had in the junk drawer? Okay. You get the picture.
To get started, get a binder for your bills and 12 large envelopes. Train yourself to put unpaid bills in the front pocket of the binder as they arrive. Punch holes in the sides of the large envelopes and label them with the months. For extra credit points, create and print out pages that have all your regular monthly bills listed in due date order with spaces for misc payments that will pop up. Take a minute to see how often you need to pay bills... most people can get by with twice a month, but maybe you need to do it every week. Then do it. After you pay a bill, move it into that month’s envelope. Add in ATM and credit card receipts, and maybe print out your monthly bank statement and toss that in. At the end of the year, you have all your financial records in one handy place, sorted by month.
If you want to get more obsessive, write things like when to schedule an oil change for your car or reminders to make vet or doctor appointments on the appropriate month. This system worked for me for years, until I switched to computerized record keeping.
There’s always more...
Stop telemarketing calls. Register at the National Do Not Call List..
Stop getting unwanted catalogs. Two benefits to this - you can remove temptation to spend and save some trees by visiting Catalog Choice. You choose which catalogs to stop or keep receiving.
Take a class and learn a new skill. Maybe you want to learn to cook quick meals so you don’t eat out as much? Maybe a basic home repair or sewing class at the local tech school? Ask yourself, what am I paying someone to do that I could do myself?
Rethink what’s necessary. How many sets of sheets do you need? How many pairs of shoes? How many video games? If you decide not to spend some dollars on something, put the money into a savings account.
Explore one new financial topic this year. Read a book about personal finance, or attend a class. Remind yourself that you are someone who can be smart about money.
Give what you can. Time, talent, treasure... share them.
Your turn
We're all in this together... I believe it was Hugh Downs who said "To say my fate is not tied to your fate is like saying your end of the boat is sinking."
Let's help each other keep our boats afloat this year. What are your financial resolutions this year? Do you have a favorite frugal web site you would like to share? How about telling us your secrets for financial fitness or your hopes for getting financially fit?
Disclaimer: I am the VP of marketing at a credit union, sit on the board of a financial literacy foundation, and write a lot of financial consumer education articles, but I do not know your personal financial circumstances. Please do not take what anyone says - even me - on a web site or blog as gospel truth.