Category Archives for Saving Money & Frugal Living
Would You Spend $28,000 for a One Week Vacation?
The following post is by MPFJ staff writer, Marie. You can read more of Marie’s articles over at her own blog, Family Money Values. Enjoy!
Home and Garden TV has a show called Island Hunters. This past week, they featured a couple (business owners and spouses celebrating a 15 year wedding anniversary) with a budget of $28,000 for a one week vacation. I watched in absolute disbelief as they surveyed 3 ultra luxurious private island retreats and chose the one that $6000 over their budget.
Could you (would you) spend as much for your one week vacation?
How do the ultra rich spend their vacation time and money?
While we are not part of the billionaire club, we have spent thousands of dollars on vacations. Our most expensive one was to Hawaii. We took (and paid all expenses for) one of our adult sons. But even staying in ocean side vacation homes and indulging every activity whim, we parted with $5000 a week for our 2 week trip. That amount put me in shock for quite awhile prior to committing to my years long dream of visiting the island states.
Billionaires sometimes build their own vacation dreams.
According to How to Vacation Like An Eccentric Billionaire some of the wealthiest folks build themselves a dream vacation home and then decide to make it available to others – for a hefty fee of course.
One of the most mentioned is Sir Richard Branson (Virgin Group). He built his private getaway on an entire island – Neckar Island and later opened it up to anyone who wants to spend From $80,000 per night for up to 34 guests ($2,353 per person per night) to book the entire island. At certain times of the year, you can get just a room instead of the entire island for around a mere $4000 a night.
A couple of other billionaires with similar retreats for rent include:
• Nick Troubetzkoy – Jade Mountain – which can be rented for the night for around $2200 to around $3000 but this might not be all inclusive.
• Thurston Twigg-Smith – Twin Farms – an all inclusive in Vermont – starting at $1500 a night for 2.
The ultra rich don’t want mundane luxury travel.
While I was thrilled to sleep to the roar of the ocean waves and breakfast on the deck watching the sun rise over the sea, some aren’t quite so satisfied with typical vacation experiences
According to Adventures in Affluence: How the Billionaire Vacations they seek out extraordinary adventures like diving with the sharks or having a world famous chef cook them dinner in the chef’s home or being safely escorted to or through digs they would never consider visiting while at home. They might want to visit a dive bar or walk through a funky neighborhood with their guide.
Still other vacation pursuits of the affluent might include a hunt your own dinner, where they stay at a luxury cabin, get shooting lessons, go on a hunt and (assuming they actually catch something) have the chef prep it for dinner – hairy deer pelt to yummy venison steak.
Of course, there are still folks who enjoy activities at luxury all inclusive resorts – such as taking a snow sleigh ride or helicopter ride over beautiful scenery.
Who spends like this?
I believe there are three categories of travelers that might consider spending huge amounts on vacations.
People so rich that money is no object.
These folks are already used to a luxury lifestyle and don’t usually want to down grade it for a vacation experience. Similar to what Donald Trump had to do to become the US President and downgrade his living style to camp out in the White House. He has already designated Mara-a-Lago in Florida as his winter white house.
People who can write off the cost as a business expense.
Our HGTV couple wanting to spend a week on a private island probably fits this profile. They own a pool design company together and were checking out the way the different resort pools were designed and executed, even while touring them.
On our Hawaii trip, my spouse met someone who fessed up to traveling on the company expense account quite a lot. Heck, I even expense out my trips to our lake condo when ever I can. If you pay US taxes, expensing trips to a business reduces your bottom line profit and hence the taxes you own on income for that business.
People who have saved up for a special occasion.
Our HGTVcouple may also fit this category, as they were celebrating their 15th wedding anniversary.
This category fits me best. My spouse and I worked hard for years to achieve our degree of financial freedom. A Hawaii trip has been one of my suppressed desires since the 1970’s when my brother was stationed there in the Army and the rest of my family got to visit him there.
This category also may fit engaged couples seeking an alternative to an expensive church wedding and reception. Spending $5000 or $10,000 on a destination wedding/honey moon could end up being a whole lot cheaper than a traditional ceremony/reception.
Most of us, even the high net worth folks, don’t spend nearly this much.
What do the high net worth folks spend?
In 2015, Business Insider reported on a BMO Private Bank study that claimed affluent Americans (these folks have over a million in investable assets) spend around $13,000 a year on leisure travel.
What do average North Americans spend?
Until recently, we vacationed only every 2nd or 3rd year. Each year we would take just one trip. On that trip we typically spent around $3000 total for the two of us – including all travel, meal, lodging, activity and souvenir expenses.
Value Penguin Value Penguin reports that the average cost of mainland trips is $144 a day. So for our typical 10 day trip that would total up to $1440.
That seems low to me, how about you?
How about you all? Do you vacation? How much do you usually spend?
Share your experiences by commenting below!
****Photo courtesy https://www.flickr.com/photos/hotelinternazionaleischia/33066776756/
How Our Spending Patterns Have Changed Over the Last 100 Years
The following post is by MPFJ staff writer, Melissa Batai. Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food. She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.
Do you go out to eat several nights a week? Do you feel like you’re just getting by financially even though you have a decent income? Do your kids have so many clothes that they can’t close their closet doors? Do you have three cars in your driveway?
Think back in time 100 years ago to 1917. Our finances and conveniences have changed drastically since then, yet many of us still feel dissatisfied and that we don’t have “enough.” Why is this? Why are we unfulfilled when we have so much more than our ancestors who lived 100 years ago?
Our spending habits have changed dramatically since then, but we’re still not satisfied.
Spending Habits in the Year 1900
The Atlantic put together an eye opening article about how drastically our lives have changed since the year 1900. Back in 1900, “A quarter of households have running water. Even fewer own the home they lived in. Fewer still have flush toilets. One-twelfth of households have gas or electric lights, one-twentieth have telephones, one-in-ninety own a car, and nobody owns a television.”
Just stop for a minute and imagine being without these things. If a 1900 household didn’t have to pay utilities, make care payments, or purchase a television, cable, Netflix, etc., how did they spend their money?
According to The Atlantic, “Families [in 1900] spend a whopping 80% of [their money] on food, clothes, and homes.” Eighty percent! More precisely, this breaks down to approximately 43% for food, 14% for clothing, and 23% for housing.
Undoubtedly, life in 1900 was simpler in some ways, but a family needed to be diligent with their money just to take care of the necessities of life. There was very little leftover for extras and “fun money.”
Spending Habits Now
Thanks to outsourcing our textile industries to foreign countries, our annual apparel cost is only 4% per year, and yes, that includes those big spenders who have many, many more clothes in their closet than they will ever be able to wear. Thanks to big company farms, our food costs are now only 13% of our annual income (The Atlantic).
While it cost 57% of an annual income to pay for food and clothing in 1900, now those same categories only require 17% of our annual income. That’s a lot of extra money left over.
In 1900, housing costs were 23% annually, while they are now 33%. That accounts for some of the difference. Health care is now 6% of our annual spending; it was 5% in 1900. Another category that is now costing us more is transportation.
However, there can be no denying that our interpretation of “necessities” has changed. We now consider many luxuries necessities, and that mindset is squeezing our budgets.
How Americans’ Attitudes Toward Spending Have Changed
My husband and I like nice stuff as much as the next person, but for the 16 years of our marriage, money has always been tight. We’ve always been a one-income family. First, I worked full-time while my husband attended graduate school full-time. Then, when he graduated, I stayed home with the kids while he worked full-time.
Thanks to student loan payments and a fairly average income while living in a high cost of living area (Chicago), we’ve always had to live on a fairly tight budget. That means we were a one car family until this last fall. For 15 years of marriage, we made do with one car. That car is now 12 years old and has nearly 180,000 miles on it.
We rented until we finally bought our first house 2.5 years ago. In many ways we were more like a 1950s family than a family living in the 21st century.
In the book, The Overspent American, Jennifer Lawson, who participated in a focus group on spending said:
“In the fifties, growing up in upstate New York, my parents were considered middle-class pillars of the community. My father was an accountant. It’s a fairly poor rural area, and most people worked in a factory or waitressed or something. My dad was actually a professional person with a sign out in front. [My parents] had one car, and they drove it until it fell apart, and then they bought a new one, usually a station wagon. They had a fairly modest house. We took a vacation as a family for two weeks and rented a little cabin in Maine. And drove–nobody flew anywhere. I can’t remember anyone who had a second car. Everyone walked everywhere; children certainly didn’t have $100 sneakers. It amazes me now that my younger brother, who still lives there and who has a job that’s roughly equal to the job my dad had when I was growing up … he has three teenage daughters. And since they were about nine, they’ve each had their own color TV, and they have their own CD players, they all have their own telephone lines, because they complain about calls not being able to get through” (The New York Times).
Our lifestyles have changed dramatically since the 1950s, even more so since the 1900s. What we now consider necessities—two cars per family (at least), exotic vacations, designer clothes, Internet access and cable tv, college education, just to name a few—were not priorities, or even available, in earlier times.
Another phenomenon of spending is that the U.S consumer is quickly bored by what he has.
We can see this phenomenon whenever new electronic devices are released. Even though their current smartphones, iPads, etc. are working just fine, people are eager to get the newest release. Never mind that it may cost hundreds of dollars that they really don’t need to spend.
The same mindset is present when people choose to lease a car rather than buy it so that they can continually have a “new” car to drive every few years. Never mind that leasing costs them much more than buying a car, especially if they buy a used car.
People also frequently redecorate their homes, even though what they have is working just fine. When they redecorate, they often buy all new towels, couches, etc., depending on what room that they’re “updating.” Now, we tend to replace long before an item is worn out.
This is a luxury that people in the 1900s didn’t have. My grandmother, who lived through the Great Depression, regularly washed out plastic baggies over and over again. Rather than throwing them away, she would get 5 to 10 uses from each bag. If something like a kitchen towel got a hole, she didn’t throw it away; she mended it. We’ve lost that bit of frugality that earlier generations developed out of necessity.
Undoubtedly, many in the middle class are feeling a financial strain. While some of that is due to modern day high costs (such as earning less money because our employers have to take so much out for taxes and insurance costs), much of it is also due to our increased expectations and standards.
The next time your budget feels unbelievable tight, look around your house and see how much you have compared to what your ancestors had 100 years ago.
How about you all? Is there a “necessity” you can do without to find more room in the budget? Can you be content without the latest new electronic upgrade?
***Photo courtesy of http://www.idpinthat.com/edit/5340
7 Things Wealthy People Never Do
The following post is by MPFJ staff writer,Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
If you’ve ever read Tom Corley’s Rich Habits or Thomas Stanley’s The Millionaire Next Door, you probably know that there are things wealthy people never do. The rich have a habit of behaving differently than the non-rich and in learning, studying and working to emulate their habits I’ve learned that the results of living the way the wealthy live affect both life and finances.
Here are seven things the rich never do. If you can learn to follow their lead, I’d be willing to bet your money would grow.
Fall for Advertising Gimmicks
If you ever take the time to view commercials and advertisements with a skeptical eye, you’d find that the goal of advertisers is to make you think you cannot live a full life without their product. Product users are always smiling, usually look phenomenal and give off the illusion that they have a perfect-beyond-perfect life.
The wealthy don’t fall for that lie. They have a clear understanding of what truly makes them happy and they know “stuff” isn’t part of the answer.
Neglect Their Savings Account
This report shows us that the Average American saves 5.7% of their income. And you know that since that is the average, it means that many people aren’t saving at all. In fact, this report shows that 62% of Americans have less than $1,000 in savings.
Adversely, the wealthy save as much as 51 percent of their income. While you might say “Well, yeah, they can afford to save that much of their income – duh!” there is another factor to their wealth and their plush savings accounts – they started saving early (usually as teenagers) and they formed a habit of putting money in savings every month – no matter what.
The study linked in the last paragraph found that one of the key factors in their willingness to save was that their parents taught them the importance of building a savings habit from an early age. Ironically, many of these young teen savers also starting investing a portion of their savings in the stock market while very young.
Stop Learning
Eighty-eight percent of wealthy people read non-fiction books every day for at least thirty minutes. They have a love for learning and then using what they’ve learned to reach goals that they’ve set. They spend very little time in front of the TV, opting instead for bettering their lives and increasing their knowledge via learning.
Make Impulse Purchases
The wealthy make it a habit to avoid impulse purchases. They think through any purchases, determining what – if any – value the purchase will truly bring to their lives before they buy.
Ignore Their Health
Seventy-six percent of the wealthy get some type of aerobic (cardiovascular) exercise such as running or biking four days a week or more. The thing about good health is that it helps you to think more clearly, and to have more energy to work toward the goals you’ve set.
Live Without a Plan
Seventy percent of the wealthy set at least one goal per year – and then make a plan with actionable steps that will help them reach that goal.
Act with Mediocrity
Speaking of goals, that’s another thing the rich never do: they never act with mediocrity. In other words, when they choose to do something, they commit to doing it well. Go big or go home is their theory.
Successful people – whether it’s being successful at growing wealth, gaining health or whatever avenue of success they choose – reach their level of success because they do things differently than those who aren’t successful. If you’re looking to bring more success into your life, consider doing what the successful do and dropping the habits like those mentioned above, as those habits will most certainly lead to unrealized dreams.
How about you all? What are things you are currently doing – and not doing – in order to reach your goals?
Share your experiences by commenting below!
***Photo courtesy of https://www.flickr.com/photos/togawanderings/5899676716/in/
How Hard it is to Hang Onto Your Money?
The following is a guest post. Enjoy!
One of the main reasons that we use banks is security. Sure there are other benefits – organization, centralization of different accounts, cards, benefit programs, lending, etc. But central to a bank’s identity is the fact that they keep your money safe. The concept simply doesn’t work without that aspect.
That’s why the ongoing PPI scandal from the past several years has been so alarming. Bank customers, without their knowledge or consent, were issued policies for Payment Protection Insurance (PPI for short). PPI isn’t a bad form of insurance on its own, but when it is sold fraudulently, as it was to thousands of consumers across Europe by banks and insurers, then there is a major problem.
PPI claims have poured forth by the thousand since the scandal emerged several years ago. Multiple class action and individual lawsuits are pending, and many individuals have already received restitution. If you find PPI payments drafting from your account, it’s important that you read a PPI claims guide soon, and get in touch with PPI claims handlers.
PPI as Emblematic of a Deeper Banking Problem
Even if you do not personally have PPI auto-drafting from your bank account, there are a number of other ways that large banks have been recently caught in defrauding their own customers. We only have to look back at Barclays Bank as an example.
The results, in some cases, were harmless. In other cases, the bank mis-sold PPI insurance to many of its customers. Customers were confused when they had not received annual letters in the mail updating them to how much they were spending on protection and their rights to cancel.
Other large banks have had large-scale theft of customer data. These have included the loss of sensitive information, such as account and social security numbers. Wells Fargo is one of the banks that have had such breaches, but in this case, the bank responded well, by issuing free identity theft protection services for the affected customers.
In the end, banks are businesses just like any other. Just because they are large doesn’t mean that fraud and mistakes will not occur. For people with money stored in these institutions, it is important to demand that they do their due diligence in protecting the customer’s wealth and preserving the customer’s interests.
Don’t take it for granted that your money is safe in a major bank. Keep an eye on the balances of your accounts, and take action immediately if something seems amiss. Fast action will allow you to achieve quick resolution of any problem that you encounter. The sooner you bring problems to your bank’s attention, the more likely they will be to make the issue right.
Great Federal Programs For Boosting Your Savings
The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.
Millions of Americans are having difficulty saving for their future. According to a report published in Forbes, roughly 63 percent of Americans say they would have difficulty coming up with $1,000 to handle a financial emergency.
The struggles of such a large segment of the populace has prompted the federal government to find ways to help. Government agencies have developed a number of programs designed to encourage saving by people of all ages.
Here are several of the most popular programs.
Saving For College
If you are planning on paying for college in the future, you might want to take advantage of a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for college costs. The plans are authorized by Section 529 of the Internal Revenue Code and are sponsored by states, state agencies, or educational institutions. All fifty states and the District of Columbia sponsor at least one type of 529 plan.
There are two types of 529 plans available, both with considerably different features. The first type is a pre-paid tuition plan, which allows savers to purchase units or credits at participating colleges and universities to lock in the current price. The credits can generally be used to cover tuition and mandatory fees. There may be exceptions for other qualified expenses provided by the plan’s sponsor.
Pre-paid tuition plans often have an age or grade limit for participants. The payments made from the plan are often based on the age of the student and the number of years of college tuition purchased. Depending on the plan chosen, the student will receive a lump sum or installment payments to pay for their college costs.
The second type of 529 plan is generally known as a college savings plan. These plans establish an account for the purpose of paying the student’s eligible college expenses. All qualified higher education expenses are covered, including tuition, mandatory fees, covered required supplies, and room and board. There are generally no age limits or residency requirements for these plans. Withdrawals from college savings plans can generally be used at any college or university.
College savings plans invest in stock mutual funds, bond mutual funds, and money market funds on behalf of the account holder. The investments in mutual funds are not guaranteed by state governments and are not federally insured, so losses are possible. However, earnings in 529 plans are not subject to federal tax as long as the withdrawals are used for eligible college expenses. They may not be subject to state tax either.
Saving For Retirement
The federal government is also trying to help more people save for retirement, which is an important goal for our country. About half of U.S. workers don’t get a pension or 401(k) from their employers and millions of workers do not have any retirement savings at all. As of the end of last year, 68 percent of America’s workforce reported that they are not participating in an employer-sponsored plan.
The United States Department of the Treasury developed myRA to remove common barriers to saving for retirement for people who don’t have access to an employer-sponsored retirement savings plans. myRA is a Roth IRA retirement savings account with no start-up cost, no fees, no minimum contribution requirement, and no risk of losing money. The plan is meant to be a starter account for long-term retirement savings. The idea is that participants will graduate to IRAs and employer-sponsored retirement plans once they get their retirement finances started with the myRA.
To be eligible for myRA, participants must make less than $131,000 a year (or $193,000 for married couples). People can contribute up to $5,500 per year to their myRA account (or $6,500 per year for those age 50 and over). The account maxes out at a balance of $15,000, but participants can keep a lower balance for up to 30 years. If either of those limits is reached, the savings will be transferred or rolled over into a private-sector Roth IRA.
Contributions can be made by linking a checking or savings account to the myRA, transferring after-tax dollars from a paycheck, or directing some of their federal tax refund to the account. Initial myRA investments are set at $25 with subsequent contribution limits set at $5. Most of the participants using myRA make monthly contributions that average between $50 and $100. If a participant changes jobs, they can keep contributing to the same myRA account without interruption.
Contributions are invested in a new United States Treasury security that earns interest at the same variable rate as investments in the government securities fund for federal employees. The Treasury Securities Fund offered a return of 2.9 percent over the past decade, which is still better than a typical savings account. Participants can pull out the money contributed (but not the interest) at any time without penalty. Barring specific exceptions, participants can only withdraw the earned interest free of tax and penalty if they are at least 59-1/2 years old and made their first contribution to the account at least five years ago.
Investing In Securities
The TreasuryDirect program allows US individual investors to purchase Treasury securities directly from the U.S. government. Participants can choose from Treasury Bills, Notes, Bonds, Inflation-Protected Securities, and Series I and EE Savings Bonds. The TreasuryDirect website is run by the Bureau of the Fiscal Service under the United States Department of the Treasury.
The TreasuryDirect program eliminates many of the hassles that come from handling physical securities. The securities are held in the account in paperless electronic form. Because they are stored online, they cannot be forgotten or lost and heirs will be able to easily locate them in the future. According to the Treasury Department, there are billions of dollars in matured savings bonds outstanding that have yet to be redeemed.
Users can manage their savings portfolio online as their needs or financial circumstances evolve. From the website, participants can deposit money from their personal bank accounts or withdraw money from the TreasuryDirect account. To redeem the purchased securities, the user selects what securities they want to sell on the website and what account they would like the proceeds to be deposited in. There are no redemption limits to worry about and no fees for purchases.
TreasuryDirect’s security system is top of the line, requiring user names and passwords as well as security codes from a plastic card that the Treasury provides for the account. The money in the account is backed by the full faith of the U.S. government. The website also allows the transferring and gifting of savings bonds, which is a great way to get children and grandchildren on the path to saving for the future.
How about you all? Have you used any of these programs?
Please share your experiences by commenting below!
***Photo courtesy of https://www.flickr.com/photos/brizzlebornandbred/5025896783/in/
How to Get the Most Out of Your HSA
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
A health savings account – commonly called an HSA – is being touted as one of the hidden gems of wealth creation. If you’re eligible for an HSA, you can use it in a number of different ways that will help grow your wealth.
Experts call the HSA a “triple tax free” investment vehicle. Here’s why: First, the money can be contributed as a pre-tax investment. Second, earnings grow tax free. Third, qualified withdrawals are made tax free. Talk about a wealth builder’s dream!
Here are four things you can do to get the most benefit out of your health savings account.
Know the Contribution Limits
If you know the contribution limits for the HSA you can be sure to take full advantage of its benefits. For the current tax year of 2017, HSA contribution limits are as follows:
- $3,400 for a single person, $6,750 for a family
- $1,000 in catch-up contributions if you are age 55 or older
Know the HSA contribution limits for you particular situation and plan your contributions so that you can max out if you want or need to.
More cool things you should know about your HSA include the fact that you can change your contribution amount at any time during the year as long as you don’t go over the annual limit, and that withdrawals for qualified expenses are easy; usually done via a debit card, blank checks or via an online withdrawal.
Know What Your HSA Monies Can Be Used For
HSA funds can be used for a variety of different medical expenses, some of which may surprise you. Of course, HSA funds can be used for preventative care such as annual physicals, preventative screenings and well child checks.
However, health savings account funds can also be used for a variety of other things, such as:
- Tobacco cessation programs
- Weight loss programs for the obese
- Alternative health care such as acupuncture and deep tissue massage, provided those methods are also approved by your high deductible health plan and recommended by your primary doctor
Health savings account funds can also be used to pay for prescription medications, as well as some little known items such as braces, contact solution, bandages, breast pump supplies, artificial teeth and Braille books and magazines.
By knowing what items can be paid for via your health savings account, you can get the maximum benefit out of the funds you deposit in it. For more info on what qualifies for HSA withdrawals, go to this government website.
Understand Post-Retirement HSA Rules
After you reach age sixty-five, HSA withdrawal rules change a bit. First you can use health savings account funds to pay for most all Medicare premiums. Second, HSA distributions taken after age sixty-five are never penalized, even if they are not used for qualified medical expenses. However, distributions taken after age sixty-five that are not used for qualified medical expenses will be taxed.
Choose Your Investment Vehicles Carefully
It’s important when deciding how to invest HSA funds that you understand the risks involved with the available investment options and choose your investment vehicles carefully. Make a plan to balance risk as you choose how to invest your HSA contribution funds.
How about you all? What are your thoughts on health savings accounts? If you’re eligible, do you take advantage of one?
Share your experiences by commenting below!
***Photo courtesy of https://www.flickr.com/photos/76657755@N04/6921653338/in/
Helping Kids Prepare Financially for Driving and Car Ownership
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
One of the biggest parenting – and child – milestones is when your child becomes old enough to start driving on their own. Driving and car ownership are big responsibilities in many ways. Along with the responsibility to drive safely on the road, kids need to be taught the financial costs of driving and car ownership as well. Here are some tips on how you can prepare your kids for the financial impact of owning and driving a vehicle.
Calculate the Costs with Them
It’s important to teach your children a good deal ahead of when they get their license that driving and vehicle ownership costs money. When they become old enough to get their learners permit, sit down with them and start having discussions about what kind of car they want to drive, the costs of purchasing the car, purchasing gas, the cost of car maintenance and repair and the cost of insurance.
Since you’re spend-tracking (you are spend-tracking, right?), go over your own transportation costs with them so they can get a real-life idea that driving and car ownership costs money.
Don’t Pay for Everything
This is just my personal opinion, but I’m a huge believer in having kids pay for at least part of their transportation costs, even while they’re still under eighteen. Kids tend to hold more respect for that which they’ve worked hard to pay for.
Whether it’s a car, a college education or whatever, there can be a lack of understanding with kids regarding the work that it took to be able to pay for those things. When you give some or all of the responsibility for paying for car costs to your child, you help them to appreciate the privilege of driving, to learn real-life lessons about how the world works and you help them prepare for the transition to independent adult.
Set Rules for Driving Preparedness
It’s helpful when kids and parents have a mutual understanding of how vehicle ownership and driving responsibilities will work in your home. For instance, if your child wants to have their own car, show them how to set some money aside for a car maintenance/repair fund. Make sure they have enough money saved for an insurance deductible in case of an accident.
If your child will drive a family car, set clear rules about when they can use the car, when they can’t, and who will pay for what portion of gas, insurance, etc. It’s important too to have a clear discussion about what the consequences will be if the house driving rules are broken, who will pay the fine if your child gets a ticket and so on. When your child knows clearly how the rules work beforehand, there will be less pushback when a consequence needs to be administered or when they’re handed the bill for the increased insurance premiums due to getting a speeding ticket.
Other Driving and Vehicle Ownership Suggestions
There are other responsibilities that go along with driving besides the financial ones. For instance, one of our house rules is that we don’t push our kids to get their license right at the legal age of sixteen, instead allowing them to determine when they’re emotionally ready for the responsibility. It’s important to teach your children these rules as well:
- Never talk, text or browse on your phone will driving. Pull over in a safe place if you have to make a call or text
- Obey all traffic and driving laws at all times (this will be easier for kids if they see their parents doing the same)
- The better you take care of your car, the less it will cost you
- Make sure to insist that those who ride in your car wear seat belts at all times and stay calm while on the road so that they don’t distract you as you drive
- Always be attentive, cautious and defensive when you drive, watching out for other drivers who may be distracted or aggressive
- Avoid confrontations with other drivers by being polite on the road and heading to the nearest police station if there’s trouble
- For tips on what to do if your vehicle breaks down on the road, check out this AAA Auto Checklist.
Driving and car ownership are big responsibilities, both financially and otherwise. The more you can teach your kids ahead of time on how to be prepared for those responsibilities, the better they’ll be able to handle all of the tenets of driving.
How about you all? What other suggestions do you have for teaching your kids about driving responsibilities?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/statefarm/7979445278/
How Millennials Are Avoiding Credit Card Debt
The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.
Young Americans under the age of 35, who are often referred to as millennials, are increasingly avoiding credit cards and the debt that tends to come with them. Roughly 63 percent of millennials don’t have a credit card, versus only 35 percent of older adults, according to data from the Federal Reserve. The data also suggested that millennials are using credit cards less than people of a similar age did in the past.
The number of Americans under the age of 35 holding credit card debt has reached its lowest level since the data was first collected in 1989. According to the Survey of Consumer Finances, roughly 37 percent of American households headed by someone aged 35 and under held credit card debt in 2013. That is down nearly a quarter from immediately before the financial crisis that began in 2008. The level has not fallen as much for any other age group.
Reasons For Avoiding Credit Cards
There are numerous reasons for millennials’ avoidance of credit cards. Some young Americans say that they are avoiding credit cards because they have lived through the damage such debt caused during the financial crisis. Others say that they avoid credit cards because they do not trust the financial markets. Some watched as consumer and small business credit lines were cut off in the midst of the financial crisis.
Some millennials are dealing with much larger student debt loads than previous generations. The Project for Student Debt found that student debt increased an average of 6 percent each year from 2008 to 2012. According to federal data, the average American under the age of 35 now has $17,200 of student debt. That is 182 percent higher than Americans of the same age had in 1995. These burdensome student debt loads make it hard for them to take on any more debt.
Laws passed after the financial crisis also make it much harder for younger people to secure credit cards. The Credit Card Accountability, Responsibility and Disclosure Act of 2009, or CARD Act, mandated that borrowers must prove they have the means to repay the debt. The CARD Act also altered the lending landscape by restricting the ability of banks to market their products on college campuses. Today, many of the tents that credit card companies used to pitch all over college campuses to advertise their products have vanished.
Many young Americans believe the risks involved with debt outweigh the benefits. Credit cards offer the temptation to spend beyond one’s means. The idea with a credit card is you’re essentially putting money down that you don’t have and making a promise to repay it back with additional money for the convenience of having what you want right now. Some millennials simply prefer to pay for things as they go, without having to worry about paying a bill later.
Millions of millennials are using payment methods that do not involve debt for their purchases. Debit cards, which draw funds directly from a bank account, offer many of the same payment advantages as credit cards without the risk of accumulating debt. For online purchases, an app like Venmo or an online payment service like PayPal can be used.
The Consequences of Avoiding Credit Cards
Millennials’ avoidance of credit cards could prove detrimental in the long term, not just for them, but for the financial system as well. Historically, credit card use during the young adult years have made Americans more comfortable with making larger purchases with debt when they are older. Having a credit card also helped them establish a credit score, giving them more access to financial services later in life.
Having a good credit score is more important for this generation than previous ones because today, many more things are tied to credit scores. Credit scores are used to determine interest rates on mortgages and personal loans, may be used as a qualification for a rental home or employment opportunity, and may be used in the determination of insurance premiums. Those with low credit scores or non-existent credit histories find themselves paying more for the same financial services that others obtain at a much lower rate.
Fortunately, millennials don’t need to go into debt to get a good credit score. By paying off the credit card debt completely each month, they can still have good reports sent to the credit bureaus based on the open account. However, a survey by Bankrate found that only 40 percent of millennials with credit cards pay off their balances in full each month, compared with 53 percent of older adults. Millennials were also most likely to miss payments completely.
Finding a Good Credit Card
For millennials that do choose to use a credit card, picking the right card is key. Those just starting with credit cards should choose the card with the lowest annual interest rate without being distracted by offers for cash back or rewards. Until you have experience using the card, you will not know whether the rewards offered are worth it or even if you will spend enough to qualify for the rewards. You can always get an additional card with rewards after you have established your credit history.
Finding a credit card with a reasonable interest rate may be difficult for most millennials. According to Experian, the average millennial has a VantageScore of 628, which lenders largely consider subprime. Even for millennials with higher scores, the lowest available APRs offered on new credit cards topped 15 percent on average last summer according to CreditCards.com, marking a five-year high. These rates are expected to rise with future rate hikes by the Federal Reserve, as there are legal limits on certain card fees but no limit on APRs.
While choosing the best interest rate seems simple, it isn’t. Even after you have the card, it’s best to simply assume that the company can change your rate at any time for any reason. The key to ensuring that the rate stays as low as possible is minding the fine print and playing by the rules.
Be aware of when introductory offers end and what transactions they apply to. Review the information for all the fees that apply to the card, including annual fees, balance transfer fees, and cash advance fees, even if you don’t think you would ever use that service. There are many websites available online that will compile the information for several different cards into an easy to read format for comparison.
***Photo courtesy of https://www.flickr.com/photos/128185330@N03/17705922131/in/
Should You Really Give Up Your Latte?
The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!
What’s your guilty pleasure expense? For many hardworking adults, it’s their daily latte or cup of coffee.
Almost everyone has a guilty pleasure expense and it’s often a smaller expense you may hardly even notice.
Maybe yours is the discount section near the checkout at Target, picking up a freshly baked bagel on your way into work in the morning, or grabbing a scratch-off lottery ticket at the gas station.
For the sake of this post, I’m going to be offering a new perspective on the latte factor since many people drink coffee and it’s understandable how that small expense can add up quite a bit over time.
Breaking Down the Latte Factor
How much does a typical cup of coffee cost? In most areas, it can run you anywhere from $2-$5 on average depending on the size of the cup whether you’re grabbing a cup at the gas station or at your local Starbucks.
If drinking coffee is a daily habit for you, that means you can spend anywhere from $10-$25 per week just on your lattes if you pick one up each week day.
While that may not seem like much, that could be gas to fill up your car or go toward a smaller monthly bill.
If you buy coffee on your way to work each morning, you could spend anywhere from $40-$100 per month and that’s if you’re not a repeat offender who picks up a second cup in the afternoon.
Needless to say, your daily latte habit which seems so small can really add up over the course of the year.
If you have financial goals to pay down debt, save more, or stop living paycheck to paycheck, it could seem like you’re wasting your money on an unnecessary expense that you need to cut ASAP.
Before you think about giving up the latte completely so you can become a debt-free millionaire, here are a few reasons why you shouldn’t.
How is the Latte Helping You?
Before you give up your guilty pleasure expense, first determine if and how it helps you. My example of purchasing items from the discount section was a bad example because it’s not the best idea to keep buying things out of habit.
However, if you were looking to decorate your home for the season or pick out a birthday gift for your coworker or niece, you might find some good deals which could help you save money.
If your daily latte helps you wake up and focus, it could increase your productivity throughout the day so you get more done.
You May Not Have to Go Cold Turkey
If buying the latte is your thing, you might have a hard time trying to go cold turkey and cut it out completely.
If you try to cut out your habit too quick, you might pick up other bad habits that cost you even more money and provide no real benefit to you.
This is why I believe when smokers try to quit, they find better results if they work on weaning themselves off cigarettes first.
In the case of coffee, you don’t always have to purchase it at your local cafe. You can brew your own coffee at home or wait until you get to work if your employer provides coffee for free.
I’m not much of a coffee drinker myself, but my husband is and we pick up cappuccino drink mix at the grocery store so we can make coffee at home each day for less.
It costs about $4 per small container and that container makes about 17 cups so we save a ton of money with this DIY hack.
See if you can find more affordable hacks for the expenses you’d like to keep so they don’t deter you from reaching your goals.
Going After Big Wins
Finally, the most important reason why you may not want to give up your latte is because it’s still a small element in the grand scheme of things.
Yes, it’s important to cut unnecessary expenses especially when you’re trying to manage your finances better or get out of debt. However, you may find it difficult to cut out everything.
And if you do, you’ll realize that there’s not much else you can do to lower your expenses once you’ve cut out several categories.
What you should do is focus on going after big wins instead of focusing so hard on the small wins.
Scoring a raise at work, establishing an additional stream of income, or selling your car for $7,000 are all big wins that can have a profound effect on your finances.
When I was working a traditional job and started freelancing on the side to generate more income to put toward my debt, I earned an average of $2,000 per month after taxes essentially giving myself a $24,000 annual raise which was huge.
I committed to bringing my lunch to work most of the time but at least once a week I’d eat at a restaurant or order takeout because I like dining out and it was a great way for me to relieve stress from work and get out of the office for a little time.
The $5-$10 I spent on lunch once a week didn’t deter me from meeting my debt repayment goals for the year given that I was bringing in $2,000 from side hustling each month.
So Should You Give Up That Latte?
Only you can decide what’s best for you since you know your situation best. You should take all these factors into consideration and try to find a balance between cutting back on the small stuff and going after big wins.
Making small adjustments to reduce your expenses can definitely add up and help, but big wins provide a faster, more satisfying result.
How about you all? What small adjustments in your spending have you made that have really helped (or not!) your budget?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/akane2011/14330276248/
What I’d Tell My Teen-Aged Self About Money
The following post is by MPFJ staff writer,Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
I’m turning fifty this year. All in all, I’m happy about fifty. Life is good and I’ve learned lessons that have helped us overcome a massive financial mess. But along with the many good decisions I’ve made, I’ve made my fair share of mistakes along with way – many of them financial ones. If I could go back in time and talk with my teen-aged self, here’s what I’d tell her about money.
Money is Always Available…Somewhere
I always had this thought growing up that there was a set amount of money in the world and that either you had it or you didn’t. I grew up believing that whether you were rich or poor was largely out of your control, and we were on the poor side. I’ve learned through side hustling that money is always available somewhere if you’re willing to go out and find it and work for it. The want ads are bustling with opportunities for work, as are sites like Upwork and Craigslist.
The work opportunities out there may not always be pleasing to one’s palette, but they are available. If I could go back and talk to my teen self, I’d tell her not to cling to her job as if it was the only one available, because there’s always other opportunities to earn money for those willing to work to find them.
Mindset Affects Wealth
Since I grew up poor and was taught (inadvertently) that we were destined to be poor, my mindset was that there was no use in trying to change things. I believed this up into my mid-forties, and then I found personal finance blogs. As I read the stories of dozens of people climbing out from under their debt, I realized that we could too.
From there my husband and I began a long process of figuring out why we were always broke, and we learned that we were self-sabotaging our money management because we’d both been under the false belief that we would always struggle for money. We were piddling away our money on small, useless things like drive-thru meals and cable TV, not realizing the impact those “little” spends were having on our bank account.
We were so lack-minded that we’d start to feel panic if we had a little bit of money in savings. It just didn’t feel right. I know that sounds odd, but when you’ve lived with a belief long enough – no matter how wrong that belief is – anything contrary feels wrong.
We had to teach ourselves that, more than deserving “stuff”, we deserved financial security. This is what I’d tell 16-year-old me: How you view money affects how much money you’ll have.
Popular Opinion Doesn’t Matter
Growing up poor in the public school system is not fun. I remember being teased about my two-dollar canvas tennis shoes and thrift store jeans. These memories convinced me that “stuff” meant acceptance. When I got my first job in fast food at 15, I spent nearly every dime I made on clothes at the local County Seat (give me a shout if you’re old enough to remember that store J ).
Eventually – but not soon enough – I learned that the pursuit of the approval of the Joneses is fruitless. If I could tell my teen self that, she’d be one rich woman right now.
Thinking Bigger Will Get You Bigger Results
When we were struggling for money and deep in debt, we could never think beyond making it to the next payday and hoping we’d have enough money to pay the bills. If we ended the month in the positive (which didn’t happen very often) it was a good month.
Once we started to pay off our debt, save money and manage our lives differently, we learned to think bigger. Our original goal was to simply have enough money to make it through the month. Then our goal changed to paying off some of our debt. Then we wanted all of our debt gone. Our new goal is financial independence – for the purpose of helping others.
The great thing about learning to think bigger is that it allows you to take others into consideration besides yourself. We now give away more money and “stuff” than we ever have before. We’re making an impact for good on others and aren’t so focused on ourselves. If I could go back in time, I’d tell my teen self to expect more out of life than just making it to the next payday. I’d tell her to think BIG and allow herself to imagine a better future – one where she could journey toward success and help others in the process.
How about you all? What would you tell your teen self about money?
***Photo courtesy of https://www.flickr.com/photos/goodncrazy/4833445750/in/