My Personal Finance Journey

Insurance Agents: Obsolete Relics of the Past or Critical Players on Your Personal Finance Team?

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Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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Do you all remember the days of travel agents?

I sure do! I remember that from the time I was very young until about 2004, travel agents were a pivotal part of society. In fact, I don’t think it was even possible to book a trip/travel plans without the assistance of a professional travel agent. I definitely remember running errands with my parents, and often times before a trip, one of those errands would include stopping by the travel agent’s office to pick up the tickets!

However, I think that most of us know how the travel agent story ended. The Internet became omnipresent, and quickly, Travelocity, Hotwire, Expedia, Priceline, and a host of other easy-to-use travel search engines (not to mention hotel, airline, and rental car companies themselves offering online travel booking directly) came out and made travel agents fairly obsolete. While I’m sure that travel agents do serve some roles at corporate levels or with planning trips for rich people or large parties, the days of normal individuals using a travel agent frequently are over.

Are Insurance Agents the Next Casualty of the Internet Age?   

During a recent trip to North Carolina, I saw a big sign at the side of Hwy 15 promoting the local State Farm insurance agent. And, it got me wondering if in today’s Internet age….

  • Is there still is a large demand for personal, local insurance agents? 
  • Also, do insurance agents add value to individuals’ lives, or do they simply drive up the cost of insurance products/services and will soon befall a similar fate to their travel agent relatives?

The purpose of today’s post will be to try to answer these questions. 

My Personal Experiences with Using Insurance Agents

To start to answer the question about whether or not personal/local insurance agents are becoming obsolete or if they are crucial for one’s personal finances, let’s take a look at how myself and the people close to me employ (or do not employ) insurance agents in our personal finances. 

  • Myself
    • Health Insurance – 
      • Administered through my work with graduate school. No insurance agent involved.
    • Homeowner’s Insurance – 
      • My condo homeowner’s insurance policy was purchased and is administered through a local insurance agency. 
      • When I was shopping around for homeowner’s insurance in 2010 prior to buying my condo, I did some pretty extensive searching for quotes on the Internet to get a feel for a competitive market rate for the coverage I needed. 
      • In the end, I decided to go with a local agent recommended by my real estate agent because I was still a little confused about some of the detailed language of the insurance policies and figured that getting the added help of the local agent would better ensure that I obtained the coverage I needed.
      • However, I have never met with the local agent face-to-face, and have only interacted with them via email. Whenever I have emailed them, they are always very helpful. 
        • Nevertheless, I’m still unsure whether the questions I had (first about setting up the policy and then amending it when my girlfriend moved in to my condo) could have been answered just as effectively by calling a national provider vs. dealing with the local agent. 
      • Also, it should be noted that when I originally took out this policy with the insurance agent, I did ask whether or not it would be more expensive to get the policy directly from the provider (Erie). They said it would be the same price either way. 
  • My Girlfriend
    • Health Insurance – 
      • Administered through her work. No local insurance agent involved.
    • Car Insurance – 
      • Not administered through a local agent. Purchased directly from Nationwide.
Overall, from my girlfriend and I’s personal experiences with insurance, it is still unclear whether having a local insurance agent adds much value to managing our policies. One reason why this is still unclear could be that we haven’t really had to use our insurance policies as much as people would that were older and had experienced more claims. Because of this, I then explored how my parents manage their insurance policies.

  • Parents
    • In true old-school style, my 60 year-old parents purchase pretty much all of their insurance policies through their local Shelter Insurance agent. They have been using him for maybe 30 years or so. 
    • They are very satisfied with having a local agent, and mentioned that it has been somewhat of a necessity to combat the complications of having a total of 8 insurance policies

The Current Demand Landscape for Insurance Agents

Having explored the demand and value of local insurance agents from my personal experiences, I then began searching for statistics on the usage of insurance agents on a more global or nationwide scale.

However, as I began reading through the results of this search, I soon was reminded that I had to maintain a very critical mindset to evaluate which was an objective report and which was not. Why is this, you might be asking? Well, if there’s one thing I’ve learned in the past three years with owning a home and personal finance blogging, it is this: the insurance business is extremely profitable for the people and companies that work in it. As such, one has to be careful in reading the ‘facts’/opinions of people that might be negatively affected by such a big change as the downfall of local insurance agents.

With this in mind, let’s review the findings I encountered on this search regarding the current demand for local insurance agents vs. buying insurance direct online:

  • A 2011 JD Power report found that a majority of people (52%) still buy their auto insurance policies through insurance agents, although this number is decreasing each year. Conversely, the percentage of people purchasing their policies online is increasing each year, with a full 28% of purchases in 2011.
  • In 2010, the Bureau of Labor Statistics estimated a faster than average 22% increase in demand for local insurance sales agents from 2010-2020.
  • A 2011 LIMRA news center report found that 64% of people still purchase their life insurance policies from an agent, while 26% purchase online. 
  • Even though the majority of people seem to still purchase their insurance policies from an agent, more than 50% of people now shop around for quotes online prior to visiting the insurance agent. What does this mean? It means that we as a people are becoming better informed about what a competitive price of insurance is in the market prior to buying. 

From these statistics above, I think we have clearly answered our first question to which we were seeking an answer today:

 Yes, there is still is a large demand for personal, local insurance agents in today’s society.

How are Insurance Agents Paid and How do they affect prices?

While I did not dig too deeply in to the base salary levels of insurance agents, I did find quite a few reports stating that insurance agents do receive heavy commissions (anywhere from 20-85% of the premiums paid for the first ten years of the policy) from the insurance providers on the insurance policies they sell. This means that in many cases, the insurance providers are not actually making a profit on the policies sold through insurance agents, unless the prices for these policies are higher.

However, what I found, both through my personal experience mentioned above and several Internet reports, was that the price of policies purchased from the provider directly and through local agents is the same.  

 So, the question then becomes: how do the insurance providers pay for these commissions to put food on the table for insurance agents (i.e. how are they passed on to the consumer?)?

Well, since the price of policies purchased directly and from agents is the same, the only way I can think of is that insurance agent commissions cause the overall price of insurance premiums to increase for everyone. In other words, everyone pays for insurance agents, regardless of if you use them or not. That seems interesting, eh?! 

Do Insurance Agents Add Significant Value or simply drive up prices?

Having arrived at the observation that insurance agents do drive up insurance prices for everyone, the question then becomes: does the amount of value added by insurance agents warrant the increase in prices that they apparently cause?

 In short, the consensus among the Internet reports I found seems to be that yes, insurance agents do add a significant amount of value. In fact, it was interesting to note that I did not find ANY reports stating that insurance agents are an absolute waste of money.

Listed below is a summary of the arguments in support of the value that insurance agents provide:

  • Provide access to ‘invitation only’ insurance company policies. 
  • Can ask the right questions to each individual to make sure that person gets the coverage they need, especially if the person is not very well versed in finances. 
  • Claims are easier to handle whenever you have a real life person inside the company that can fight for you if needed. 
  • The insurance agent knows your local area. In other words, they can better advise you if for example, flood insurance or earthquake insurance is an absolute MUST. 
  • The insurance agent can guide you through all of the hard-to-understand legal language present in insurance contracts. 
    • Personal Note: I have read through my entire Erie Homeowner’s Insurance Policy and almost became cross-eyed at how confusing it truly was. 

Summary and Conclusions

To wrap things up, let’s just quickly review the key points we’ve learned from this investigation:

  • There is still a large demand for local insurance agents in pretty much all areas of insurance, with more than 50% of people purchasing their policies through these agents. 
    • However, the number of people bypassing these agents and purchasing their policies online is growing each year and may eventually overtake the market share of insurance agents. But, we are not yet to that point. 
  • Paying insurance agents does drive up the global cost of insurance policies since premiums levels are the same regardless of if the same policy is purchased from an agent or direct from the provider.
  • The general consensus seems to be that insurance agents provide a significant amount of value that warrants any increase in overall prices. 
Personally, I think that insurance agents will continue to be in high demand (and I will continue to use them) as long as two key points remain true:
  1. Buying from an insurance agent costs the same as purchasing directly from the insurance provider. 
  2. The language and level of complication of insurance contracts remains too confusing for individuals to feel comfortable purchasing without help. However, if the purchasing process could be made as easy as it is to purchase plane tickets with Expedia, I think we would see insurance agents become less prevalent. 

How about you all? Do you still use insurance agents to purchase and manage your policies? Why or why not?

 Do you think insurance agents are becoming obsolete, or will they continue to be in high demand?

 Share your experiences by commenting below!

    ***Photo courtesy of http://www.flickr.com/photos/drachmann/327122302/sizes/l/in/photostream/

    Start Planning Now for a Secure Retirement: Saving is the Key

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    Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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    The following article is by Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.

    It’s never too late to start planning for financial security in retirement. While the best scenario is achieved by starting early, late starters can do a lot to make sure they can retire comfortably. Don’t put it off any longer. The sooner you start, the more money you will have behind you when you choose to retire.
    You’re not alone if you have reached age 40 or older without any significant retirement savings in place. Recent surveys have shown that nearly half of all workers in the US don’t have any form of retirement savings. Only a very few people, who do have a retirement plan, save the recommended 10 -15% of their earnings.
    The ideal scenario for retirement planning is to start with your very first pay check and put away a set percentage of what you earn, every time you get paid, for the whole of your working life.
    Don’t feel bad if you haven’t done this; less than 5% of all workers have followed this plan. Who wants to save for retirement when you’re in your early twenties and just starting out in life? There’s plenty of time for all that, surely!
    The thing is, no matter how old you are now, the time to begin retirement saving is NOW! The best time was actually yesterday, but let’s not get too pedantic.


    The Best Retirement Planning Advice I Ever Received

    Possibly the best retirement planning advice I was given came from my elderly neighbor, who had been an investment banker in his time. You’d think he would have advised me on investments, but he talked about more basic strategies. His advice was to make use of the ‘vehicles’ that are in place for retirement saving. By this, he meant employer 401Ks, Roth IRAs and other types of IRA. He said that too many people look for fancy ways to invest their hard-earned cash when these entities are there for the taking.
    So, follow my experienced neighbor’s advice: check with your employer about a 401K and ask whether there are employer contributions available – this is virtually free money, so why not? Get some professional advice about other retirement savings plans and choose the ones that suit you best.

    The Key = Regular, Periodic Savings

    The key to a financially secure retirement is saving; even small amounts, saved on a regular basis, can add up to a decent amount on retirement. You owe it to yourself to make the decision – start now to put aside a set amount from every pay, even just $5 or $10. The secret is to make a start and increase the amount later.
    Of course, if you are already in your 40s or 50s, you are going to have to really ramp up the savings to build your retirement fund much faster in a shorter time. This will probably take some serious changes to how you spend your money; it did with me too.
    At first, I thought there was no way I could spend less, but once I started to look into it with an open mind, I found it reasonably simple to find areas where I spent too much and could cut back. I didn’t need anything too drastic to start with, but once I got started, I kept finding more ways to cut spending by a few dollars here and there. That’s the trick, you see; don’t try and make huge spending cuts, just look for lots of places you can save a few dollars. It soon adds up, let me tell you! I found that savings of less than $45 a week meant a nest egg of more than $60,000 when invested at just 4% for around 20 years. This gave me the motivation to cut even more in spending and find a higher interest rate.
    Cash savings alone probably won’t be enough to fund your retirement; you will need some investments as well. Investments allow your money to actually work for you; invested funds make money on your money. Choose investments that suit your age and income; this is where a financial advisor can really help.
    You’ll need a budget to help you see where you spend your money as well as some basic retirement funding calculations. I found some excellent free resources online that helped me with these calculations.
    When you know approximately how much you’re going to need in retirement, you can calculate how much you need to save during your remaining working years. You might find that you’re going to have to work longer than you planned, if you’ve left your run a bit late. Consider a second job and put those earnings straight into savings. Many retired people continue to work part time to help fund their later years.
    If you’ve really left your savings late, you might need to look at some major changes to your lifestyle so that you can fund a decent retirement. Become committed to your financial future and make those tough decisions before it’s too late. Consider down-sizing to reduce your mortgage or get rid of it completely. Pay off any high interest loans and get credit cards paid off so you aren’t left with on-going debts as you approach retirement.
    Procrastination is the enemy of a secure retirement. While it is never too late to get started on a retirement fund, the longer you put it off, the harder it’s going to get.
    So, make the decision and start NOW. You owe it to yourself to fund a comfortable retirement.
    So, have you started saving for your retirement? What has been your strategy?

      ***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6870886851/sizes/l/in/photostream/

      Looking For Some Simple Ways To Save More Money?

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      Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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      Click here to enter my free $79.07 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is September 30th, 2012.

      The following post is by MPFJ staff writer, Toi Williams, of Fine Tuned Finances. 

      If you are like the majority of people across the nation, you are interested in finding ways to save more money without having to dramatically change your lifestyle.  The good news is that there are many different methods you can use to reduce your everyday spending and eliminate unnecessary expenses. 

      Here are some of the simplest ways to save more money in your daily life.

      Create A Spending Budget

      Many people overspend because they do not have a plan in place to limit their monthly spending to an amount that is affordable on their salary.  By creating a spending budget that includes all of your monthly bills, limits for discretionary spending, and a set amount for saving, you will be better able to monitor your spending and keep your expenses below where they will begin to create debt.  Having a spending plan in place will also help you identify areas where spending can be cut or eliminated to have more money available for other needs.

      Use A Shopping List

      Retail stores are experts at getting people to purchase more items than they intended to purchase when they walked in the door.  In-store sales, clearance displays, and the placement of high-profit merchandise are all carefully designed to catch your eye and entice you into spending more than you should.  In order to curb this spending impulse, make a shopping list of the items that you need before heading out to the store and stick to this list while you are in the store.  That way, you only buy the items that you actually need.

      Choose Fee-Free ATMs

      If you use an ATM that is out of your banking network, you typically get hit with two fees: one from your bank and one from the bank that owns the ATM you are using.  Instead of using whatever ATM is closest when you decide that you need cash, plan your withdrawals to only occur when you can use an ATM that will not cost you a fee, like the ones within your banking network or located in retail locations and advertised as fee-free.  At up to $6 per occurrence, eliminating these fees can save you over a hundred dollars per year.

      Search For Discounts

      There are discounts available for almost anything if you are willing to look for them.  Many retailers advertise their discounted merchandise on their websites and in sales flyers sent out to areas close to their retail locations.  In many cases, these discounts can total 25% or more off of the cost of the merchandise you want.  Before leaving to shop for a particular item, take the time to research which retailers are offering discounts on that particular item and which one has the lowest price.  You may be surprised at the price differences you will find between retailers for the same item. 

      Consider Used Media

      The prices charged for new movies, video games, and books are much higher than most reasonable people are willing to pay, especially when there are so many other venues available to get the same or comparable quality items for much less.  There is a multitude of resale shops sprouting up across the country that sell used movies, video games, and books for a fraction of the price that you would pay for them new.  These items are inspected for quality before the shop purchases them and the company typically offers a short guarantee that the items will work after purchase.  Used media may also be purchased online from places such as Amazon and eBay, although you may not get the same guarantees that you would have purchasing the items from a resale shop.

      Adjust Your Entertainment Options

      You can save a lot of money on your entertainment options by being smart about the type of entertainment that you choose.  By shifting your habits slightly, you can reduce the amount that you pay for entertainment by 40% or more.  If there is a new movie that you would like to see, wait until you can see it during matinee times or until it appears at your local second run theater.  Instead of paying between $50 and $100 to see a nationally recognized band live, spend $10 to go see a local band in a more intimate venue.  Most cities have a wide variety of low cost entertainment options available, so check your local newspaper or city’s visitor guide for locations, times, and prices.

      Avoid Careless Mistakes

      Careless mistakes can cost you a lot of money very quickly, so it is best to avoid making mistakes at all costs.  Overdrafting your bank account can result in expensive overdraft charges and bounced check fees.  Neglecting to put enough change in the parking meter will result in having to pay a ticket.  Parking in a handicapped parking space without a permit will cost you even more.  Follow the rules at all times and read the signs that are around you.  Do not let stupid actions cause you to waste money on fines and fees that could be easily avoided.
      Following these simple tips can help you save hundred of dollars each year without having to change your lifestyle or make major sacrifices.  The money that you save can be best used by bulking up your emergency fund or paying down any existing debt that you may have.  If you can control your impulses and stick to your plan, you will end up saving quite a bit of money.

      How about you all? What are the most effective ways you’ve found to save a little extra money each month without necessarily changing your overall behavior?

      Share your experiences by commenting below!

        ***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6355220839/sizes/l/in/photostream/

        Is Gazelle Intensity Worth Your Health and Family Time?

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        Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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        The following post is by MPFJ staff writer, Melissa Batai, of Mom’s Plans. Enjoy! 
        Is paying off your debt with gazelle intensity worth affecting your health?  Is it worth missing out on time to spend with your kids when they are little?

        Everything Is Great–Until It’s Not

        As a nation, we seem to have a love affair with debt.  Our credit cards enable us to buy items we want NOW, and for quite some time, we feel we are living the good life.  We may not be able to afford everything we buy, but that is what credit is for.
        My husband and I accrued quite a bit of debt, both student loan and credit card, when I quit my job because child care for our two youngest children, who are 17 months apart, was prohibitive in our large city.  Unfortunately, my husband was finishing his Ph.D. and was working as a graduate assistant.  We knew we would rack up some student loan debt, but we took the risk planning on rising future incomes–his after he graduated and mine when my freelance career grew after the kids got older and I had more time.
        Could we have done things differently? 
        Yes, definitely. 
        We may not have been able to completely avoid student loan debt, but we could have tried to find ways to make more money and to cut our expenses even further.  Yet, we convinced ourselves we could afford our lifestyle because of the student loans and credit cards.

        Gazelle Intensity–It’s Not for Everyone

        Dave Ramsey, in a very animated way, describes a gazelle being chased by a cheetah.  He says when you are paying off debt, you should work as hard as the gazelle who is trying to run from the cheetah.  Get a second job, slash expenses, live like no one else so later you can live like no one else. 
        I love the principle of gazelle intensity, and for a year now, my husband and I have done our best to be gazelle intense.  My husband has a full-time post-doc position, and I am freelance writer.  Because I also care for our kids to save on daycare costs, I typically wake at 5 a.m. to do some work, stop at 7:30 a.m. to take my oldest to school and then work for an hour at naptime and then again after the kids are in bed from about 7:30 p.m. to 10 or 11 p.m.  In between, I am caring for the kids, cooking, and cleaning.  Most nights, I average 5 to 6 hours of sleep.  Every weekend, my husband watches the kids so I can do my work.
        In a year, we have paid down the equivalent of 30% of our income on our debt.  While our finances are looking better and our debt is decreasing, my health has been affected.

        Stress–It Doesn’t Do a Body Good

        Each month that I got less and less sleep, I felt worse and worse.  I started drinking coffee to stay awake, but the coffee would make my heart race.  I ate sugar for a quick pick me up only to crash a few hours later.  I was grouchy with the kids because I was so exhausted.  The kids could sense the tension, and they would misbehave.  As a family, we were miserable.  When my hair started falling out in clumps, I went to the doctor.
        Luckily, the problem I have is curable, but the doctor said that stress could have been one of the main contributing causes to getting sick in the first place, so my first order of business was to decrease my stress.  We hired a babysitter for a few hours a week and made some hard financial decisions.
        For the moment, we are no longer gazelle intense.  Instead, we will continue to live on a tight budget, and as we “find” extra money and our salaries increase, we will put that money on our debt.  We may not get out of debt as quickly, but both my husband and I will be healthy, and we will be able to enjoy spending time with our kids again.

        Gazelle Intensity–Have a Limited Time Frame

        As much as I love the premise of gazelle intensity, it doesn’t work for everyone.  If you have $10,000 to pay off, yes, you may be able to be gazelle intense for a year and knock the debt out.  If you have more than that and are looking at several years of debt repayment, gazelle intensity may not be good for you, your health, or your family.
        As for us, we still plan to pay our debt off in the next 5 years, if not sooner.  It is not as fast as I would like, but considering many people take 10 or more years to pay down their student loan debt, five years doesn’t seem that bad.  I am learning to slow down and accept that the path to financial freedom will be a little longer than I would have liked.
        How about you all? Has your health been compromised by being gazelle intense?

          ***Photo courtesy of http://www.flickr.com/photos/33037982@N04/3642138594/sizes/o/in/photostream/

          Making Payments to Your Kids

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          Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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          Click here to enter my free $79.07 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is September 30th, 2012.

          The following post is by MPFJ staff writer, Travis Pizel. Enjoy!

          My wife and I aren’t perfect.  As we fight our way out of credit card debt, we occasionally slip up and overspend.  We had just such an episode in July, and starting the following month, it was all hands on deck to recover from the financial hole we had dug for ourselves.  Unfortunately, during that period, we had to stop paying one of our regular monthly expenses, and are now behind.  Who is that creditor?
          Our children.
          We had to cut every expenditure we could, which included suspending the weekly allowances of our son, Tristan (13) and our daughter Tori (10) until we could get our budget and spending back on track. Lucky for us, they were very understanding of our situation, and granted us enrollment into a hardship program that gave us 0% interest and no late fees.
          Our kids’ weekly allowance is one dollar for each year of their age.  We had to suspend their allowance for six weeks which means we owe them a total of $138.  On September 14th, we sat them down and told them that we were re-instating Friday as allowance day, and handed them each their weekly amount.  We also told them that we would be “making up” the missed weeks by paying them double on selected Fridays.
          We could have just walked away from the missed weeks, after all we are their parents and what we say goes, but that just didn’t feel right.   I also thought this would be a great teaching opportunity for our kids.

          • Financial irresponsibility and debt can affect more than just you.   Your debt can affect your significant other, your children, and everyone around you.  I felt like a failure kneeling beside my son’s bed telling him he wouldn’t be getting his allowance for awhile.

          • Never walk away from your debts.  You may not be able to pay right now.  But hopefully, you’ll be able to eventually.  Plan for it and make it happen.  Even if your debt is to your 10 year old daughter.

          • Watch me fail, then watch me overcome:  Our kids don’t know the specifics or the numbers, but they know we’re in a Debt Management Plan.  They’ve watched us fail.  But more importantly, they see us fight back and overcome those failures.  They’ll watch us pay them back the owed allowance, and they’ll be a witness to the day when we make that final payment and be rid of our credit card debt.
          Parents commonly say they want their kids to learn from their mistakes.  I want more than that.  I want them to learn how to recover from those mistakes.   I don’t want my kids just to remember the time mom and dad stopped giving them allowance and how they couldn’t buy that new video game like they had planned.  I want them to also remember how mom and dad gave them double allowance for what seemed like forever because they wanted to make it right.

          How about you all? What financial lessons are important for you to teach your children? What strategies do you use to facilitate those lessons?

           Share your experiences by commenting below!

            ***Photo courtesy of http://www.freedigitalphotos.net/images/Other_g374-Giving_To_The_Poor_p57545.html

            Lessons in Frugality From Other Cultures

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            Welcome to My Personal Finance Journey! If you are new here, please read the “About” or “First-Time Visitor” pages to find out more about us. If you would like to receive free updates on articles like this by email, then sign up here or you can subscribe to the RSS feed. Also, check us out on Twitter or Facebook. Thanks for visiting! Keep on learning!
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            Click here to enter my free $79.07 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is September 30th, 2012.

            The following is a guest post by Staz Johnson. Staz passionately blogs about personal finance, frugality, investing tips, and more at Essential Finances. Enjoy! 

            Lessons in Frugality from Other Cultures

            As a newlywed going away on my honeymoon, I never thought that finances would be on my mind. I had just had a very small wedding ceremony and reception with less than 15 people attending. Since the wedding was so small, we didn’t end up spending too much on it; we had planned to blow more money in Europe, but instead, we learned the extent of frugality in a different country.

            Frugality as a Way of Life

            We took the train through England and Germany until we reached a small town in Poland. As far as towns go, this one is not at all rich, and the individuals residing here implemented more tips for frugality than I had ever thought possible. As we visited friends and family, we noticed that saving money was very common ground; an unspoken language of frugality existed ranging from a lack of impulse buying (or large and unnecessary purchases in general) to where most tea was made from herbs grown on the balcony, and if packaged tea was used, then the tea bag was reused to make at least two cups.

            Frugality in the Home

            When we spoke with my relatives, we found out that many of them made their own hand creams and conditioners out of a blend of coconut oil, olive oil, herbs, and spices. Hot water was also to be used sparingly. For example, when doing the dishes in the morning, cold water was used. My aunt told me that they only used hot water to clean the dishes after dinner because the foods eaten at that time are generally greasy, but in the morning, cold water works just fine. As we can see, saving money doesn’t have to be overly complicated, it just takes some consistency. By using hot water only to shower and clean up after dinner, you could save hundreds of dollars a year or more.

            Transportation

            As we went outside for a walk around the town, we noticed that there were many more bikes being ridden than we are used to seeing and that when cars do go by, they are usually very small. You could easily find whole families bike riding together as easily as individuals or couples. Not only are they saving money on gas and insurance, but the active lifestyle they live can lead to decreased health bills down the road. When we arrived at the park, we noticed people crouching down under the trees; I later found out that they were picking up nuts to for the winter underneath acorn and walnut trees. I personally haven’t tried this, but every summer I do pick mushrooms and strawberries for free from the forest and from our garden to save money going to the market.

            If you don’t get a chance to eat everything right away, remember that there are many ways to preserve foods so that they last in the future; mushrooms can be dried and then used for soup later, cucumbers can be pickled (as well as many other vegetables), berries and rhubarb can be used to make juices for now and jams for the future.

            Frugal Shopping

            We went to the market every day and my aunt bought only that which she will eat in the next day or two in order to make sure that nothing goes to waste. And when meat was purchased, every part of it was used; chicken bones that most people throw away were used the following day to make chicken broth and even the water in which the sausages were boiled was then used to start a new soup later on. My aunt had a little garden that she grew on the balcony and inside by the windows (you don’t always need a yard to grow a garden and save money on food) and she frequently traded her garden grown fruits and vegetables for other types of food with her neighbours such as trading tomatoes for apples or herbs for peas.  Many neighbours also baked their own breads and pastries.

            The cost of food is not the only expense individuals try to cut costs on; making your own clothing is also very common. Fabrics and yarn were bought very cheap and can be made into elaborate sweaters and shirts and skirts which can also be given out as gifts, saving money for birthdays as well as during the holiday season. Teddy bears and stuffed animals are also frequently made to save money for toys for the children. Another aspect of their life that I wanted to mention was that even though many people did not have much, they took very good care of what they did have and kept everything very clean and well maintained.

            Conclusions

            I have always tried to be frugal and spend less than I make, even attempting to sew my own clothes once, but my eyes were truly opened as to how frugal you can really be. I’m not sharing this to be judgemental; I wanted to share this to show that frugality can be more than simply a 30 day challenge. Most of us have the choice whether to be frugal or not, but in many countries, frugality is a way of life. Those who implement this into their daily routine end up spending much less, wasting very little (if any) and give their creativity a constant workout to come up with new ideas.

            How about you all? When you have traveled to other countries, have you noticed any effective frugal living strategies that are ingrained in to the culture?

            What ways do you think would be effective to instill more of a sense of frugality in to US culture?

             Share your experiences by commenting below!

            Is it Possible to Gamble in a Fiscally Responsible Way?

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            The following is a guest post. Enjoy! 

            Everyone loves the occasional flutter. And, with the wealth of sporting events going on recently, what better time is there for throwing a cheeky few quid/Dollars on the athletics or boxing event you’re watching?

            Indeed, if you know about sport, then the time could be ripe to take your winnings to the max. And, with the football season set to get back underway in a few weeks, more fruitful days could lay ahead for the sharp gambler.

            When Gambling Becomes of Problem

            But, the key to any successful gambler is discipline. While the feeling of winning is one which is rarely rivaled in life, it is important to ensure that any money you lay down is done in a responsible manner. Unfortunately, some people do not know their limits and end up in serious debt. In 2008, it was suggested that as many as 284,000 people in the UK were in debt because of their gambling habits, with the average person owing £17,500. And, it is believed that these figures have risen further in the four years since.

            But, how do you recognize if your gambling has gone from being the harmless bit of fun it is intended to be, to something much more serious? Well, there are a few tell-tale signs. These include having arguments with your family and friends over money issues, yet still being able to scrape enough cash together to go down to the bookies, losing interest in other activities and thinking of gambling constantly. You’ll know that things really have come to crunch point when you are forced to borrow money off people, can’t afford to pay bills because of gambling, or even have to sell your possessions just so can rustle up enough money for groceries.

            If You Must Gamble, Gamble Responsibly – Here’s some tips

            When gambling, be it on the horses at your local turf accountants, online using a dedicated account, or even on the fruit machines in a pub or nightclub, there are some simple rules which will keep your gambling in check, up your enjoyment, and ensure you don’t lose your shirt.

            • The first of these involves setting money and time limits. Tell yourself that the most you are prepared to put down is, say, £50 and that the maximum length of time you are willing to spend checking forms in the bookies or online is 20 to 30 minutes. This way, you’ll ensure that you can only lose what you can afford to and you also avoid the temptation to lay bets on other races or events happening later in the day.
            • It’s also important not to overestimate the likelihood of a win. While you might be certain that Sad Ken will romp home at Kempton Park, nothing is guaranteed, so you should never gamble money you don’t have on what at first appears a no-lose situation.
            • Another no-no is chasing your losses. Just because your last bet didn’t come in doesn’t mean that you should stake more funds trying to get your lost money back. This often just makes the issue worse and can be one of the trigger points to a serious gambling problem.
            • It’s also a good idea to have a spreadsheet or database which tracks your betting. This way, you’ll know exactly what you bet on and when and how much you won or lost. Heck, you could even set up a bank account just for gambling as this would ensure that you only spend what money is transferred into it.

            A final suggestion is not to gamble when you’re under the influence/drinking. While a quick bet here and there can be good fun when you’ve had a few drinks with friends, alcohol can impair your judgement and make you do things which you’d avoid when sober, such as making ridiculous bets.

            How about you all? Do you ever gamble with your money on sporting events or at casinos? If so, has it ever had any negative effects on your finances? 

            What tips do you use for helping to keep your gambling fun in check?

             Share your experiences by commenting below!

            ***Photo courtesy of http://www.flickr.com/photos/matsuyuki/201651074/sizes/l/in/photostream/

            Advanced Couponing for Savings Pros

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            Click here to enter my free $79.07 giveaway for a chance to win 5% of My Personal Finance Journey blog income and give another 5% to a charity of your choosing! Deadline to enter is September 30th, 2012.

            The following post is by MPFJ staff writer, Kelly Gurnett. Kelly runs the blog, Cordelia Calls It Quits, where she documents her attempts to rid her life of the things that don’t matter and focus more on the things that do.


            You may already know the basics of Couponing 101:

            • Clip any coupon you think you might use.
            • Keep them organized (by product type, by expiration date, etc.)
            • Let go of brand loyalty.
            • Stock up when things are on sale.
            • Combine coupons with on-sale items for extra savings.
            • Join every free store rewards program out there.

            You can rake in some decent savings with just these strategies. But if you’re anything like me, you want more. Maybe your budget has gotten tighter recently due a job loss, a new baby, or (in my case) a leap into the world of self-employment. Maybe you’ve been watching Extreme Couponing and have dreams of building a stockpile big enough to feed your whole neighborhood for a month. (I can relate. I’ve had those fantasies.)

            Whatever your reasons, Couponing 101 just doesn’t cut it for you anymore. Fair enough. Then it’s time to take the advanced course.

            So get out your pen and notebook, buy a bigger coupon binder (you’re gonna need it!), and let’s get started.

            Couponing 101 – Level 2            

            Say “Bye Bye” to Self-Consciousness. Without this essential ability, you will have a hard time pulling off some of these advanced plays. You need to get comfortable with the idea of being the “crazy coupon lady” (or guy) and occasionally making the people in line behind you mutter over how long your checkout is taking.

            Learn to let it roll off you and diffuse the tension with an apologetic smile and an olive branch statement like, “Each penny counts in this economy, huh?” Yes, you’re going to annoy some fellow shoppers (and some cashiers) when you play the advanced coupon game, but it’s worth it when you see your savings. They’re about to be horribly jealous as they watch your total plummet from $60 to $30 to $5.25.
                        
            Duplicate Coupons. The key to stocking up on sale items is to have as many coupons for each item as possible. While I do not advocate Extreme Couponing strategies like getting your whole family inside a dumpster to rummage for thrown-away inserts, there are plenty of easier (and more hygienic) ways to get your hands on multiple inserts.


            Ask your neighbors and relatives if they use their inserts, and if they don’t, ask if they’d mind putting them aside for you. You can make the rounds each week to collect them or just get them the next time you see the person. Don’t overlook “used” inserts, either—if your friends and family are willing to give you their inserts after they’ve clipped out the coupons they want, chances are you can still get a good amount of coupons from the leftovers. (Especially since casual couponers usually only clip the name-brand items they use—whereas you, as a couponing pro, know how to use whatever you can get.)

            Online coupons. Even easier than clipping, with additional deals you won’t find in the weekly inserts. Just check off the coupons you want, hit “print,” and you’re ready to go. Often you can print a coupon more than once. Popular sites include Coupons.com, SmartSource, and Red Plum.


            Rebates. Add rebates to your couponing arsenal and you can really make off like a bandit. Rebates usually require purchasing an item, then mailing in the receipt and proof of purchase to get a check in the mail several weeks later. If the item was already on sale, this just means you’re making more money from it.

            How do you find these rebates?  Check out the rebates section of sites like Couponaholic and Fabulously Frugal.

            Couponing sites. There are hundreds of sites out there that make advanced couponing easier by doing things like matching up current store sales with existing coupons to save you the work of doing it yourself. Some of the top sites (in addition to those listed in the previous section) include Refund Cents, Coupon Mom, and Coupon Cabin.


            The Trifecta (CVS, Walgreens, Rite Aid). If you have yet to discover the wonders that are these drug store’s weekly deals, you’re in for a treat. I refuse to buy anything full-price at a drug store because the prices are usually inflated. But by mastering these stores’ weekly circulars, I’m usually able to get half my monthly grocery and household needs fulfilled at deep discounts.

            You’ll want to sign up each store’s frequent shopper programs in order to get these deals, plus sign up for their e-mail lists for special promotions. Here are the basics you need to know to rock the trifecta:

            CVS Extra Care Bucks. Each week, CVS offers Extra Care Bucks (or ECBs) on particular items. For instance, if you buy a certain brand of shampoo, you get $2 in ECBs, which print out as a coupon at the end of your receipt that you can use on your next shopping trip. (These print-with-your-receipt coupons, in couponing lingo, are known as “catalinas.”) The next time you go shopping, bring all your ECBs from previous trips and you can knock your total bill down even further.


            Percent-off coupons. CVS in particular regularly offers 20-25% off coupons through e-mail, which you can either print or send directly to your frequent shopper card. Always use these coupons before any other coupons, because the larger your starting total is, the larger the amount you’ll shave off. I usually hand my percent-off coupon to the cashier first, then hand him the rest of my coupons, just to make extra certain he scans the percent-off coupon first.


            Freebie / Money-Making Items. Every once in a while, a trifecta circular will feature a “free” item. If you purchase a particular brand of contact solution at $7.99, you’ll get a $7.99 catalina with your receipt, so you’ve essentially gotten the product for free. If you have a coupon for that item (for, say, $2 off), the store will actually be paying you $2 to take that product off its hands. Not too shabby!


            The BOGO/BOGO Double Play.  Using coupons on items that are “Buy One, Get One” (or BOGO) can net you some great deals. Using BOGO coupons on BOGO items nets you the mecca of couponing, lots of free stuff.


            Rite Aid’s policy has since changed (probably because they caught on to those of savvy enough to play this game)—but not so long ago, they accepted BOGO coupons on BOGO items. I happened to have multiple sets of BOGO Cover Girl coupons thanks to my generous friends and family, and Cover Girl foundation was BOGO that week. It was one of my proudest couponing moments when the cashier rang up $64 worth of makeup and I walked out of the store with it without having paid a cent.


            You can find each store’s coupon policy on its website or by stopping by its Customer Service desk. I would highly recommend having a physical copy of the policy with you when you check out, as you may need to show it to an uninitiated cashier to prove you really can do what you’re trying to do. (Sometimes you may even need to prove it to the manager they call over to double-check it with.)


            Selling Your Stockpile. Hardcore couponers believe that if you can get a product for free or at profit, you’d be silly not to get it—even if it’s something you’d never use. Which makes monetary sense, but then what do you with all that un-needed stuff?


            If you are truly hardcore, you can save it all up till garage sale season and then sell it to make even more profit. Since you’ve gotten these products for free, you can mark them at a low enough price that customers will be eager to grab them up. I’ve run several garage sales, and the stockpile items are usually the first to sell out.

            Especially popular items? Toothpaste and toothbrushes, over-the-counter medicine (especially pain killers and cold remedies), makeup, and hair color. Just make sure any expiration dates are well in the future, and you’re good.

            How about you all? Do you have any other advanced couponing techniques you use?

             Share your experiences by commenting below! 

              ***Photo courtesy of http://www.flickr.com/photos/24218656@N03/6932081205/lightbox/

              How Conferencing Can Lower Expenses for Your Business

              The following is a guest post. Enjoy! 

              Businesses of all sizes are struggling to find effective ways to cut costs, even though many of them find that they have no choice but to reduce their spending. Communications are among the biggest overheads that most companies, especially smaller and start-up enterprises have, largely because of expensive phone bills. However, a growing number of businesses are turning to conference calling and seeing how it can save them money. Conference calling has many advantages over other forms of communication besides being cheaper.
               
              Conference calling allows meeting organizers to invite several people at once to a phone or video call and can be arranged in a matter of seconds. It also helps to save time and enable people to work from home rather than spend valuable time traveling to and from the office. Some companies have grown rapidly on the back of providing conference calling services.

              How about you all? With the cost of travel these days, are you using teleconferencing more in your career?

               Share your experiences by commenting below!

              Democrats, Republicans, and Wealth – Who Has More and Who Creates It Better?

              Personally, one of my least favorite things to discuss, especially in an election year like this one, is who is right and who is wrong between the various political parties in the US.

              Why is this? Simple – because it is almost a lost cause to get someone to change their mind about their beliefs in this area. As such, these conversations usually just turn in to arguments for the sake of arguing, which I am not a big fan of. In my book, everyone is entitled to their own opinion, and that is fine by me!

              However, one of the things I do enjoy researching and sharing are the various financial differences between Democrats and Republicans based on available data. 

              For example, in Jeremy Siegel’s book, Stocks for the Long Run, his team analyzed the various returns of the stock market when Republicans vs. Democrats held the Presidency and found that from 1948-2001, the annualized real return for when Democrats were in office was almost 5% higher than for Republicans. This was fairly surprising to me since Republicans are often generalized in the financial media as being the party that is more interested in the success of private industry.

               As a continuation of the Democrats vs. Republicans financial comparison, today, I wanted to try to seek an answer to the following two questions based on available data:

              1. Are Democrats or Republicans wealthier (as far as personal finances go) in the US? 
              2. And, who is better at creating wealth?

               

              Initial Hypothesis

              Based on the general impression given by the financial and political party campaign media, I would guess that Republicans, on average, have more personal wealth and are better at creating wealth in the US than Democrats.

              Comparison of the Political Affiliations of the Richest People in America

              Starting at the top sounds like a good place for us to begin our numerical investigation. In other words, the first thing I looked for was a listing of the political affiliations of the top 20 richest people in the US, based on the Forbes Richest Person in the World listing.

              Luckily, a study in 2011 by the New American Gazette had already analyzed this data exactly the way I was wanting to.

               What they found was that 75% of the top 20 richest people in America support the Democratic party. Even George Soros, a stock market financier, was listed as being a Democrat. In fact, Bill Gates, Warren Buffet, Larry Ellison (the top 3 wealthiest on the list), and the two Google principals were all associated with the Democratic Party. This was rather surprising to me!

              Comparison of Congressional Representatives

              Moving down the ranks of richest people in America (now to the tens to hundreds of million Dollar net worth level), the next groups that we come to where political affiliation is very easy to identify are individual members of the House of Representatives and the Senate. By now, I’m sure we’re all fairly well aware that nearly every member (regardless of political party) in Congress is wealthy and a millionaire.

              • In the Senate, the Democrats appear to be slightly wealthier, with a median net worth in 2010 of $2.69 million compared to $2.43 million for Republicans. Honestly, this is hardly any difference at all, and I would actually consider them to be tied for wealth for practical purposes. Source.
              • In the House of Representatives, Republicans seem to be significantly wealthier, with a median net worth of $834,250 compared to $635,500 for House Democrats. Source.

               

              Comparison of Political Affiliations of “The 1%”

              Does anyone remember 2011? It seemed like you couldn’t even turn on the TV or bring up a web browser without hearing about the infamous 1% protests, etc. I even got to see the 1% protest / Occupy Wall Street camp in the heart of New York City during my girlfriend’s ING New York Marathon in November!

              According to a 2011 Gallop Poll, the wealthiest 1% of the US population is defined as earning an annual income of $500,000 or more. The results of this study showed that the largest percentage (41%) of the 1%’ers identify themselves as “Moderates/Independents.” However, when it comes to voting, a majority (57%) tend to lean/vote Republican.

              Wealth & Political Affiliations for the Rest of Us

              When it comes to determining if more normal-income earning Democrats or Republicans are more wealthy, the conclusions become VERY complicated, but rather interesting!

              Listed below is a summary of what I found in digging around the Internet:

              • The 10 poorest states in the US according to average income levels (Arkansas, Mississippi,  Tennessee, West Virginia, Louisiana, Montana, South Carolina, Kentucky, Alabama, and North Carolina) by majority, vote and are represented in Congress by Republicans.
              • According to USA Today, Slate.com, and CityData.com, the wealthiest overall geographic locations (counties and states) in the US tend to vote, by majority, Democrat. In other words, these areas had higher overall average incomes compared to locations that voted majority Republican.
              • However (and here’s where it gets interesting!), according to slide 9 of a University of Arizona academic report, when the entire overall voter population is taken in to consideration, the majority of wealthier voters ($100,000+ income per year) tend to vote Republican, and the majority of less wealthy voters vote Democrat. This same finding was confirmed by other reports I came across online as well.

              At this point, we have a little bit of disparity on our hands. Or, at the very least, these results seem rather confusing. On one hand, we have that across the entire US population, richer voters tend to pitch their ballot for Republicans. However, geographic areas where on average, there are wealthier people are Democrat. At this point, you may be asking – what is the reason for this? Or furthermore, is this even possible?

              As far as I understand it, there are two agreed-upon reasons in the literature for this seemingly odd paradox:

              1. In states/geographic locations with overall lower incomes, the lower-income earners tend to vote Republican.
              2. And, in locations with overall higher incomes, the higher-income earners tend to vote Democrat.

               

              Are Democrats or Republicans More Effective at Creating Wealth?

              From the paradoxical reasons mentioned above, an interesting question presents itself: are these wealthy locations wealthy because they are Democrat, or do locations already with high concentrations of wealth just tend to vote more majority Democrat? In other words, is being Democrat the cause, or the effect of high concentrations of wealth/high income earners in an area?

              In terms of more measurable quantities, (if we investigate the ’cause’ route) the question might become – are Democrats more effective than Republicans at increasing average income levels and Gross Domestic Product (GDP)?  

              Listed below is a summary of the various results I found relating to this question:

              • In his book, Unequal Democracy, Princeton professor, Larry Bartel, analyzed the average annual growth rate in real income levels in the USA from 1948-2005 during Democrat and Republican Presidencies.
              • In addition, I found a Bloomberg report showing that more private jobs have been created during the times that Democrats have held the White House than Republicans since 1961 .
              • Lastly, I found a FoxBusiness report showing that since 1949, the GDP increased an average of 4.2% per year during Democrat Presidencies versus 2.6% when Republicans controlled the executive branch.

              From this data, it seems that Democrats are more effective at creating wealth, at least at the country-wide level, than Republicans.

              Conclusions

              Since all of this can get a little convoluted, let’s summarize the key things we found from this investigation:

              • If you take the entire US population in to consideration, Republicans voters are in fact, individually more wealthy, as was suspected in the initial hypothesis. Because of this, we could say that they are better at creating self-wealth than Democrats.
              • However, a majority of the top 20 wealthiest people and wealthiest geographical locations in America are Democrat. 
              • In addition, the statistics show that Democrats are also better at increasing the overall wealth of the nation in terms of GDP, average income, job creation, and the stock market.

              Another key takeaway for me from this post is that I now do not believe either party can be universally called “the party of the wealthy” or “the party of low-income earners,” since there clearly are very wealthy and not-as-wealthy people on both side of the political party aisle.

              How about you all? From the people you’ve come across in your life, do you think Republicans or Democrats have more personal wealth?

               Share your experiences by commenting below!
              ***Photo courtesy of http://www.arteyfotografia.com.ar/contenido/objetos/14/13/ db/1413dbc8b23d72a950505b86298534801db7109b/ mini_500_12461_128525497724416.jpg

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