Friends Of The Family

On Saturdays I list four blog posts from the week that I thought were really good. I hope you enjoy them as much as I did.

Influence. You Already Have It at Becoming Minimalist: I mentioned this post earlier this week, but it deserves another mention.

Why You Need to Stop Wasting Your Time Chasing Passive Income at Studenomics: A lot of people think they can create additional income streams with very little work. This is very rarely if ever, the case.

Financial Milestones In Your 20′s at Making Sense of Cents: I haven’t achieved all of these yet, but I’ve done quite a few.

Will You Take Care of Your Parents? at Three Thrifty Guys: This is a question many of us will have to face eventually.

Also, thanks to One Cent At A Time for hosting this week’s Carnival of Personal Finance.

Lessons Learned: Interest Free Financing

Every Friday I post about one of the lessons I’ve learned so far in life, both financial and about life in general. We’ve all learned valuable lessons along life’s journey, sometimes the easy way and sometimes the hard way. Hopefully someone will read what I learned and avoid having to learn the same thing the hard way. Check back every Friday for a new lesson learned.

Interest Free Financing

In most weekly flyers, you come across deals offering a year or two of interest free financing on your purchase.  You commonly see these kinds of offers for large electronic items (TV’s, surround sound systems, etc) and furniture sets.

The no-interest financing works much like any other credit card. You open a credit account and apply your purchase to the account.  You get a monthly statement in the mail letting you know the minimum payment and showing the amount of interest charged during the month.  The trap that you can fall into is this:  If you only make the minimum payments, it is impossible to pay off the entire balance by the time the zero interest period expires.  Even if you make larger payments, you run into the same trap even if you have a remaining balance of $20 by the time the zero interest period expires.

When that zero interest period expires and you still have a balance from your initial purchase, you’re in for a world of hurt.  Let’s say you bought a $3,000 furniture set with zero interest for two years (it’s 21.9% after that, but you’ll pay it off before then, right?).  The minimum payment would start out at around $60 a month.  Now if you paid that same $60 a month for two years, at the end of the zero interest period, you would still owe $1,560 on your account.  Since you didn’t pay it off, the credit company goes back to the initial purchase date and starts charging you interest.  Get ready for this: after month 24 when they add back the interest for each of those months, they’re going to add a little more than $1,000 to your balance.  This represents the interest that they would have been charging you in each of those 24 months.  So, even if you pay the remaining balance in month 25, your $3,000 furniture set now cost you $4,000.

The Bottom Line

Luckily, this is a lesson that I learned the easy way by watching someone else go through this.  I’ve used interest-free financing myself, but I’ve always made sure to pay off the entire balance at least a couple months before the zero interest period expires. An even better idea is to make sure you have the money before the purchase.  Just park the money in a savings account and use it each month to make the payments, and make sure to pay the balance in full before the zero interest period ends.  That way you’re earning interest on the savings account and not paying any interest on the purchase.

Have any of you had an experience (either positive or negative) with a zero-interest offer? Share your story in the comments section below…

How Many Lives Do You Touch?

Josh at Becoming Minimalist had a very thought-provoking post earlier this week about influence and how people are constantly striving to have more of it. The main idea of his post is that each of us already has a ton of influence.

Doubting Our Influence
It’s easy to fall for the belief that we are all just one little gear in the machine of life. It’s easy to believe that our individual actions do not have an impact on the world around us. With more than six billion people on the planet, that belief is certainly understandable. Maybe it’s just the lazy way out, but we often downplay our importance and use this to rationalize our decision to not be that positive, uplifting presence.

You Touch More People Than You Think
However, using the analogy of being a gear in the machine, you don’t have to actually touch every other gear to have an influence on them. Think about it. If you greet the person at the coffee shop with a smile and ask how their morning is going, if you hold the door open for someone at work, if you come home and give an encouraging word to your spouse, help your child do their homework or learn a new concept, and send a friend an encouraging message on Facebook (or even better, on the phone), that adds up to five influential actions. That’s five other gears that you’ve put into motion. And who knows how many other gears each of those will touch and put into motion, all as a result of your actions. There’s a new television show on Fox called “Touch” that does a pretty good job at illustrating this concept. One action done at the right time can trigger a series of events and have a positive influence on a whole chain of people.

The Ultimate Influence
Our little boy is now just over a year old. At this point in his life, virtually everything he learns is from my wife and me. As parents, we have a tremendous influence on our children. Consequently, we have a (smaller) influence on every single person our children will come into contact with. When you think about it that way, it’s easy to see how important it is to be an example of compassion, responsibility, integrity, and hard work. You may never actually meet the people you end up influencing; just know that you are making a difference.

Little Things Can Add Up To Big Things

Today’s post is part of the “Family Financial Guidelines” series. Whether you’re going through a financial turnaround or are just wanting to stay on top of things, this series will give you the tools to get and keep your family’s finances on track.

Last week I wrote about how cutting back on your biggest expenses can really improve your monthly budget. However, cutting back on the little things makes a difference too.

Little Things Add Up To Big Things
It’s easy to look at your big expenses and make the connection that they represent a large chunk of your spending. With the little things, it can be a bit more difficult to really realize how much money is being spent. Since the amount being spent is relatively small each time, it’s easy to rationalize such spending as not being a big deal.

Some Examples
Smart Phone Apps & Downloads: If you download four apps, songs, or videos a week you can expect to spend somewhere between $4 and $10 a week. Over the course of a year, that can add up to as much as $500. Try limiting your downloads to the free versions to save a bundle.

Eating Out For Lunch: If you eat out for lunch every day at work at $5 a meal (which is a pretty inexpensive lunch), that adds up to $35 a week and nearly $1,700 a year. Wow! I understand that going to lunch with co-workers is a good opportunity to network and develop relationships, and I’m not saying to cut it out altogether. Even cutting down from every day to three days a week would end up saving $480 a year.

Books and Movies: If you’re an avid reader and read a book every week, you can easily spend over $400 if you buy every book new (either at the store or with an e-Reader). Check out your local library, where you can rent books (both physical books and e-books) for free. You can also sign up for services such as paperback swap to reduce the cost of reading. The same goes for movies. Rather than buying the newest releases, see if your library offers those titles (you may have to wait a little longer for new releases). Or use the nearest RedBox to rent movies for a little more than $1.00. Unless it’s a movie you really love and will watch multiple times, it’s usually more cost-effective to rent than to buy.

Vending Machine Purchases: Most workplaces have a couple vending machines that offer snacks and soft drinks. It’s pretty common to hit that mid-afternoon wall and need a little pick-me-up. But if you spend $1 a day on a candy bar and another $2 a day on a couple cans of pop, that can add up to $1,000 a year. Instead, buy your own snacks and drinks and bring them to work. This can easily save $500 a year. And by bringing your own snacks you aren’t limited to the choices in the vending machines, so you can bring healthier snacks. Both your wallet and your waistline will thank you.

The Bottom Line
The little things can add up to be almost as large as some of your larger monthly bills. By cutting back here and there, you can really save a lot in your monthly budget. The trick is not to cut out these things completely (you may feel really deprived and miserable), but either scale back or find less expensive alternatives.

Monitor Your Credit Report

We all know how important our credit score is. A good credit score leads to a lower interest rate on your mortgage and auto loans. A good credit score means you get approved for the premium credit cards (rewards cards). A good credit score leads to lower car insurance rates, and prospective employers can look at your credit score before deciding to hire you.

Most people know how to build a good credit score. The single most important factor is that you pay your bills on time. Keeping your credit accounts in good standing goes a long way in getting and keeping that high credit score. However, despite your good habits of keeping your accounts in good standing, one case of identity theft can derail your credit rating if it goes unnoticed. It would be awful to apply for a loan only to find out your credit rating has been trashed because someone stole your identity, opened a number of credit accounts, and then never paid on them. This actually happens a lot more often than you would think.

Regularly Monitor Your Credit Report
One way to help prevent this from happening, or at least catching it before it can do serious damage, is to regularly monitor your credit report. You can check this for free online at http://www.annualcreditreport.com. There are a number of other websites that claim to give you a free credit report, but then end up charging you a fee. Don’t fall for it. Also, keep in mind that this is only for your credit report, not your credit score.

By law, everyone in the United States is entitled to one free credit report from each of the major credit rating agencies (TransUnion, Experion, and Equifax). In other words, you can check your credit report three times every year. Personally, I check our (my wife’s plus mine) credit reports every January, May, and September (every four months). Your credit report will show all of your credit accounts and their status. It lets you know if your accounts are current or past due, and whether you’ve been late in paying on them. If anything on your report looks suspicious, they provide you with the steps you need to take to get your credit report corrected.

The Bottom Line
It’s easy to get caught up in all the daily responsibilities in life. We’re all really busy with work, family, and friends. But monitoring your credit report is an important thing to do. So get out your calendar (whether it’s a traditional paper calendar or on your smart phone) and set a reminder to look at your free report every four months. Don’t get caught unaware in the future when you go for a loan and find out that an identity thief trashed your credit.

Happy Mother’s Day

I told our little Tyler that it was Mother’s Day and asked what he’d like to do

He said that mommy deserves gold and diamonds, or at least to go on a cruise

I told him mommy certainly deserves that, but those are things we cannot really do

So he said he would write a poem, straight from him to you:

Mommy,

Thanks for all the things you do
For feeding, bathing, and changing poo

Thanks for staying home with me
And being the best any mommy could be

I know taking care of me all day makes you tired
And sometimes when it’s time for bed I’m still really wired

Just know that with all you’ve done and all you do
I’m lucky to have a mommy like you

Happy Mothers Day!