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.