Sunday, May 18, 2008

Personal Money tips

With gas prices just under 4 bucks this weekend, I thought it would be a great time to share with you this wisdom about your Wallet from Dumb Little Man:

Seven Spending Sins: Fast Track to Financial Torment

Posted: 16 May 2008 07:59 AM CDT

Written on 5/16/2008 by M. Taylor of Gregory Pennington, a UK based Debt Management Specialist.

Seven’s a good number for lists - enough to be comprehensive, but not too big to remember. We’re surrounded by significant sevens: seven days in the week, seven continents, seven colors in the rainbow, seven wonders of the world, seven dwarfs…

It’s a significant number in money too, and not just for accountants. However many bad habits you have, each is likely to stem from one of just Seven Spending Sins.

Sins of the wallet

The (original) Seven Deadly Sins focused on spiritual matters, but our Seven Spending Sins are more about material consequences. Avoid them and you’ll be better off in this world; if you end up being a better person as well, think of it as an added bonus.
  1. Greed

  2. Do you really need it?

    While not the sole culprit behind our financial troubles, greed certainly accounts for more than its fair share. Think back to your last five financial mistakes and you’ll probably find (be honest) at least three that are down to greed.

    Did you really need that big holiday / fancy stereo / new outfit? How much would you have in the bank by now if your house wasn’t full of CDs you never listen to, clothes you never wear, books you’ve never read…?

    Whether struggling through a financial crisis or just looking for ways to stretch your pay packet, you’ll reach your goals much faster if you stop before every purchase and ask yourself: Is this a ‘need’ or a ‘want’?

  3. Impatience
  4. Do you need it now?

    If you’re buying on credit, you’re throwing money away. Unless it’s interest free, any kind of ‘buy now pay later’ deal means you’re paying more than the product’s worth – probably a lot more.

    Anyway, even interest-free debt is still debt. It means you’re committing yourself to living on a lower disposable income for the next X months / years. Maybe you can afford it today, but what about tomorrow? If you lost your job, could that expense be all it takes to push you over the edge?

    (Plus, if you’re looking at a high-tech purchase – plasma TV, computer, cell phone, etc. – it’s almost guaranteed to be cheaper if you wait a few months.)

  5. Pride
  6. Perhaps the most ‘male’ of all the sins.

    Let’s divide it into two categories:

    ‘Keeping up with the Joneses’ syndrome.

    Does your male ego insist on having the loudest stereo, the biggest TV, the fastest car? If the guy next door buys a louder / bigger / faster one, does your wounded pride keep you awake at night?

    Don’t be fooled. How do you know he’s not deep in debt (or living on beans on toast) to pay for it all? If you’re driving a smaller car but sleeping soundly and eating gourmet meals, maybe you should take some pride in that.
    ‘Never ask for directions’ syndrome.

    It’s a classic ‘guy’ joke – as a gender, we’re incapable of asking for help. For women everywhere, it’s a source of great amusement. They know we’re always on the internet checking out advice, tips and commentaries (like this article), so who do we think we’re fooling?

    So if you’re wondering (for example) which credit card, bank account or debt management plan is best, just admit you don’t know. Either go back to school and spend two years studying economics or talk to a financial adviser. The best deal for the guy next door isn’t necessarily best for you – it all depends on your lifestyle and financial circumstances, so talk to someone who knows what questions to ask.

  7. Laziness
  8. Take the time; put in the effort.

    If you’re one of those guys who spends 3 months choosing a stereo and 30 minutes choosing a mortgage, be prepared to pay through the teeth. Mortgages, car loans, hire purchase deals… they’re serious decisions, and they deserve some serious thought.

    Do the research, check out your options, ask the questions, and read the small print! If there’s anything you’re not sure about, get a second opinion.

    And never underestimate the importance of 1%. A 6% deal isn’t 1% more expensive than 5% – it’s 20% more expensive. Let’s say you spend the next 25 years paying off a $200,000 mortgage:

    * At 5%, it could cost around $1,200 a month, and around $150,000 interest in total
    * At 6%, it could cost around $1,300 a month, and around $185,000 interest in total

    Ask yourself: if someone offered you $35,000 to spend a week doing some research, what would you say?

  9. Misplaced respect
  10. Careful who you listen to.

    Possibly the flip side to ‘never ask for directions’ syndrome: when we admit someone knows more than us, we’re tempted to trust them on everything from debt to real estate.

    Your smart buddy might know a lot about computers, but does he understand loans like a professional debt adviser? Your friends and family mean well, but they’re not going to understand the pros and cons of your various financial options – or the recent news, or the upcoming industry changes. And they certainly won’t be able to build up a complete picture of your personal circumstances, so they can work out which financial service does what you want.

    And while we’re on the subject, don’t ask your bank manager for stock tips. Tax advisers, accountants, bank managers, stockbrokers, etc. might all be ‘in finance’, but there’s a world of difference between them. (Why else would all those different jobs exist?) If you want specialist advice, talk to a specialist.

  11. Gullibility
  12. Be a man!

    Blame the advertisers if you wish, but learning to stand up to peer pressure is a major part of growing up. If you buy everything the TV and magazines tell you to, you’re certainly enhancing someone’s lifestyle, but probably not yours…

    Anyway, never mind what they think – what do you think? If the shirt looks good on you today, it’ll look good next month too, even if that color / style / brand is “like so out this week”.

    Some girls might be impressed when you flash the cash, but if you’re living beyond your means, the party has to end sooner or later. If your girlfriend sees you as an ATM – and if you’re OK with that (!?) – what’s she going to do when it all catches up and you spend the next 10 years living on a shoestring?

  13. Miscalculation
  14. Do the math.

    Miscalculation comes last in the list as it’s not really a character flaw – just a question of short-sightedness…

    How many people spend $5 on the lottery every week and complain they can’t afford a savings account? They’re wasting $260 a year on a long shot. What would happen if they spent 10 years putting that money into a bank account with 6% interest?

    * They wouldn’t have that 0.00001% chance of winning big bucks.
    * They’d have a 100% chance of ‘winning’ around $1,000 in interest – on top of the $2,600 they’d saved.
Basically, when you’re looking at any financial deal, you need to figure out the stakes and the odds. Focus on just one of the two and you won’t be thinking straight.

A quick test

Look at this sentence: “Extra insurance on a rental car will cost $10 but might save you $10,000.”

Which words jump out at you?

1. ‘will’ and ‘might’, or
2. ‘$10’ and $10,000’?

What does your answer tell you about yourself?

Written by M. Taylor of Gregory Pennington, a UK based Debt Management Specialist.

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