Week 6: Buyer Beware

Working in public relations and marketing,  I have a pretty solid grasp of the power of marketing on your buying decisions. You might be surprised at all of the different ways companies lure you into buying.

Here are the four major ways companies compete for your dollars:

• Personal selling (ever had a Mary Kay or Pampered Chef party?)
• Financing (90 Days, Same as Cash. Guess what – 88% of us don’t pay it off in 90 days)
• Traditional Media (TV, Radio, Internet, Billboards, Newspapers, etc.)
• Product Positioning (Brand Recognition, Shelf Position, Color, Packaging)

You’ve all seen the tantrum-throwing toddler in the grocery store. The ooey-gooey treat he wanted was positioned right at his eye level. Think that’s coincidence? No way!

As adults, we have our own little “tantrums”. How many times have you pouted and rationalized a purchase that you wanted but didn’t really need. We come up with all sorts of great reasons why we “need” something. There’s a certain “rush” or “high” we get when we buy something significant. I know I’ve experienced new-car euphoria (somehow that wears off after about the 5th payment).

As we all know, it’s pretty easy to spend more than you make, so we need to develop a power over our larger purchases. Just understanding that marketing efforts are all around us to push those emotional buttons to buy things is a start.

1. Wait overnight before making a purchase. Sometimes just walking away and out of the store is enough to get you to really think about spending your money.
2. Consider your motives for buying. Is it to fulfill some emotional need, to have something no one else does, to be “cool”? It doesn’t matter how much stuff you buy, it will not make you happy. Happy is where you are and who you are, not what you have.
3. Never buy anything you don’t understand. An example for me are stocks and other investments. I don’t understand how they work (I will in a few lessons), so I won’t invest anything until I understand how it works.
4. Consider the “opportunity cost” of your money. In other words, by spending $x on this, you’re forgoing the opportunity to purchase something else with that money that may have more value, whether it’s an intrinsic or monetary value.
5. Talk with your spouse or a trusted friend before spending money on something of significance. Give yourself a sounding board to decide whether or not that purchase is really necessary.

I’ve noticed since I’ve started this class, that I’ve done a lot of picking things up in the store, carrying them around in the cart  for a while, and then I end up putting it back. I can only imagine the amount of money I’ve saved myself just by taking a moment to decide if I really “need” something. Many times the answer is no – and that’s OK.

Week 5: Credit Sharks in Suits

Go to this class, and you’ll want to pay off your debt TODAY and never go near another one!

This week’s class was about Credit Scores, FICO (credit) Scores, Identity Theft and Collection Practices. Fortunately I’ve never had to tango with bill collection companies, and after hearing what I did tonight, I hope I never have to!

Remember way back when you got your first credit card – maybe you were 18, maybe you were 21… man, didn’t we think we were cool. Everyone told you that you needed to take out a credit card or some kind of loan to build up your credit score. They even told me, as a young married woman, that I should take out my own loan in my own name so I could build up my own personal score. You even see commercials on TV now telling you that you should be shooting for a credit score in the 750-800 range.

Guess what – it’s not a measure of how well you’re doing financially, it’s an “I Love Giving My Money to Other People” score. Your credit score is calculated using 5 key measures:

Look what all the categories have in common – DEBT, i.e., something or someone else’s name on your money. If I progress through FPU and pay off all my debts and start saving for purchase (like my grandparents did) I don’t NEED a FICO score.

A couple of housekeeping items. If you haven’t already, scan your credit reports every year. There are three companies that provide them, and they are free of charge to you 1 time per year per company. You could do them all at once, or do one company’s report every 4 months so that you can track it all year long. It’s important to check it to make sure the information on it is accurate, and is yours. You can find each of the reports here: Annual Credit Report. Mistakes are common – the National Association of State Public Interest Research Groups did a survey of 200 adults in 30 states who checked their credit report for accuracy – 79% of those credit reports contained mistakes of some kind.

The updated version of the 1977 Federal Fair Credit Reporting Act requires a credit bureau to remove any and all inaccuracies within 30 days of notification. To clean up your credit report, you should write a separate letter for each inaccuracy, staple a copy of the your credit report to each letter, and circle the account number. For more information, visit the Federal Trade Commission here: Credit Repair.

Secondly, you should also request that “inquiries” be removed from your credit report. On the credit reports that I received from each of the credit bureaus, there were a total of 70 “promotional”  inquiries into my credit over the past year – some of them multiple times! No wonder I get so many credit cards offers in the mail. You can eliminate these pres-screened credit card offers, however. Here is a website where you can opt out of them for five years or permanently:  Pre-Screening Opt Out.

Finally, there was a consumer law passed by Congress, also in 1977, called the Federal Fair Debt Collection Practices Act, which protects you from unfair collectors. The original law only applied to collection agencies, but case law now makes most creditors abide by the Act. The full text of the act can be found in the above link, but here are some examples:

• Restricts collector calls between 8 a.m. and 9 p.m. YOUR TIME (unless they have your permission)
• Allows you to demand that a creditor stop calling you at work
• No collector or creditor can take a bank account or garnish wages without proper and lengthy court action, EXCEPT in the case of delinquent IRS or student loan debt

All in all, an eye-opening week!

Week 4: Dumping Debt

This was a fun week because we got a chance to see how quickly we can pay debt off by using what Dave refers to as the Debt Snowball.

The debt snowball is pretty effective – the idea is to pay minimum payments on all of your debts except for the smallest one, and then attack that one hard. Sell something if you have to. Any extra money you get your hands on should be applied to that debt until it’s gone. Then, you attack the second one. Every time you pay a debt off, you add its old minimum payment to your next debt, so “as the snowball rolls over, it picks up more snow”.

Here’s an example: Debt Snowball

I experienced absolute relief last week when my son’s car broke down. Why? Because I had the $1,000 emergency fund already established so I could pay for the repair! Fortunately it was less than $250, so it didn’t eat into it too much. Normally, this would have gone on my credit card. You can’t imagine how great it felt to not have to worry about how I was going to pay for that! It charges me up even more to pay off all my debt as soon as I can. I had a little bit of a bonus from work, so I was able to pay off two more debts this week – hooray! One was the clothing expenditure I wrote about in I Fell Off the Wagon, the second was my son’s drum kit, which I had been financing with the local music store. To date, I have paid off $3,149 in debt. Wow! What a great feeling!

I’m so impressed with Financial Peace University. I’ve really noticed a change in my spending habits, too. I’ve picked up and put down several items in the store over the last few weeks. I’m not as eager to part with my money. It hurts me a little to spend on things I really don’t need, so I haven’t been doing it. OK, I did go out to dinner with a friend, and ordered pizza for my kids one night when I had to work late, but it was within my food budget, so no worries.

Next week’s class is called “Credit Sharks in Suits – Understanding Credit Bureaus & Collection Practices”. Fortunately, I’ve never been subject to collection calls – I’ve always paid my bills. The only difference is now I pay them after I’ve “spent” my money on paper so that I know how much I can put toward debts without leaving myself strapped, which is what always seemed to happen.

Week 3: Cash Flow Planning

This week’s class was about Cash Flow Planning – spending your money on paper before it flys out of your pocket.

The idea is to find out how much you’re spending on what (and perhaps why!) by using a zero-based planning method.

Dave has a set of worksheets to fill out – some monthly, some less frequently – 7 forms in all.

1. Major Components of a Healthy Financial Plan: This lists all the financial components you should address and then you decide what action you need to take and when. For example, the first component is a Written Cash Flow Plan. The action I need to take is to fill one out, and have it done by next week (my homework). There are other components on there, such as a Will and/or Estate Plan, Debt Reduction Plan, Emergency Funding, Retirement Funding, etc. Right now, the only thing I’m focusing on is the Cash Flow Plan I need to get done before next week!
2. Consumer Equity Sheet: This is your personal balance sheet. You list the value of all your assets, subtract any debt from those assets and what you’re left with is your net worth. I’ll probably look at this on a quarterly or annual basis – it’s too depressing to look at monthly!
3. Income Sources: This is where you list all your sources of income – your paycheck, any bonuses, interest or dividend income, alimony or child support, cash gifts, etc. and describe how frequently they occur.
4. Lump Sum Payment Planning: These are payments you make on a non-monthly basis, such as real estate taxes, medical bills, insurance, clothing, vacation, which can be “budget busters” if you don’t plan for them. The recommendation is to annualize the cost and divide by 12 to determine the monthly amount you should save for each item.
5. Monthly Cash Flow Plan: AKA The Big Momma. This is where you allocate every single dollar of your income to a category. The plan is 3 pages long and includes every conceivable category. When you’re done, your total income minus expenses should equal zero.
6. Recommended Percentages: Dave has recommended some percentages to be spent on housing, giving, food, etc., so after you do your Cash Flow Plan – you check your percentages to his recommendations and see where you fall. If you’re above or below, perhaps it’s a spending category that needs to be looked at more closely.
7. Allocated Spending Plan: This is similar to the Monthly Cash Flow Plan, but now you allocate all of your money from each individual pay period. Chances are you do this already if you’re paid more than once per month. The first paycheck goes to the mortgage and utilities, the second one goes to “xyz”.

Last night after class, I completed #2 , #3 and #5. It took me a couple of hours, and it was rather grueling. You’re supposed to do #5 and #7 monthly. I’m hoping it will get easier. I suppose the next thing I should tackle is #4 and figure out all those things that I know come up every year and plan for them.

This is not easy – you have to make a commitment to do it. Dave tells you to give it 90 days because it’s a process, and like everything else, it takes practice. If that’s true, then by the end of this class, I should be well on my way.

Closing Credit Card Accounts

So apparently, some credit card companies get a little miffed when you want to close your account.

I have to preface this post with the fact that I first went online to get my credit reports so  that I could make sure there weren’t accounts out there I had forgotten about. If you haven’t ever done this, or it’s been awhile, I strongly urge you to do it. You can get one free credit report from each of the reporting agencies annually. Fortunately, there was nothing on there I didn’t know about. I have had that happen, though. It takes several phone calls and letters to finally get it off.

Back to the credit card thing… Since I recently paid off two credit balances, I decided the next step was to close some of the accounts that I have. Easy, right? Well…

Capital One – this one needed to be closed first. I’ve been a good-standing member since 2004 (in other words, I used it a lot, but I was making my payments on time) and over the years they had jacked my credit limit up to $18,700! Whew! I had heard once upon a time that even if you don’t use a card, the potential liability of it counts against you in a credit report. I’ve had a zero balance on this card for about 8 months (yay, me) but never bothered to close it. Never know when you might need $18,700…

Anyway, I call Customer Service, because, of course, closing your account online is not an option. I started with a guy I barely understood. As soon as he heard I wanted to close my account, he transferred me to his “supervisor”, which, big surprise, I could understand perfectly. I explained I wanted to close my account as I am trying to get rid of some credit. He asked if I had a different card that I preferred, and would I like some rewards, a higher credit limit, yadda, yadda… He threw it all at me. When I said no, just want to eliminate credit cards, he replies with – “What?? You’re not going to have any credit available to you at all – are you sure you want to do that?” Yes, yes I do, you moron, now just close my freaking account. Then he gets all business and clipped and crabby and goes into the schpiel…”Your account is now closed. All future transactions will be declined. Credit bureaus will be notified within 30 days”, blah, blah, blah. Seriously, a script. Then he promptly hangs up on me. No goodbye, no thank you for your business, no it was a pleasure to serve you, just dumped. Jerk.

JCPenney – I have no statement anywhere on this thing – I haven’t used it since 2009, so I go online to find a number to call. Surprise! Under Customer Service I find “Close Your Account”. Really? Can’t be that easy. Oh, but it is. You click a box to tell the reason why you want to close, submit and you’re done, but not without a warning reminder that if I close this account, I will no longer receive sales notices and coupons in the mail. Oh, darn. SUBMIT – done.

Slumberland – this is my bedroom furniture that I just paid off. Incidently, I just received a statement in the mail yesterday, which of course was on the way before I paid it off. So, I call the number – there is actually an option to close your account  – alas, they are not open on the weekends. Dang. Well, two outta three ain’t bad.

So now, I only have 2 credit cards open – Discover, which I just paid off, and Chase Visa, which still has a pretty good balance. I’m still a little “affeared” of closing the Discover, “just in case”.  At least the limit on it is only $5,000. Once I pay off the Visa, I’ll feel better about it, I think.

Tackling My Personal Plan #3

Never in my life have I been so excited to pay off a bill!

I received my tax refund today which was conveniently direct-deposited into my checking account. Before I lost my nerve, I paid off the remainder of my bedroom furniture AND my entire Discover card balance. Woo Hoo! That feels goooood.

Not only did I pay off some debt, my first $1,000 into my emergency fund is firmly established. Baby Step #1 – Mission Accomplished! This qualifies as a high point in what has been considerably less than a stellar week. The trick now will be to stay away from it unless it’s a true emergency. I may have to refine my definition of what constitutes an emergency, because I’m guessing that buying myself some toy or other coveted item doesn’t qualify.

Back to my crappy week… Ordinarily after the few days I’ve had I would have gone on a shopping spree to console myself. Rather than rack up my credit card, I imbibed in a FREE bottle of wine (supplied by a Dave Ramsey-ite friend a few weeks ago – you know who you are) instead. Not the whole bottle by myself, but enough to take the edge off the miserableness. I think Dave would approve of my non-retail therapy.

Next week’s class is CashFlow Planning.

Key Points

• Spend all your money on paper before the month begins.
• Use the envelope system for successful cash management.
• Give your budget 90 days to really start working.

Not sure I have enough cash with which to flow at this point – but I’ll give it a shot!

I Fell Off the Wagon

Damn – this is really hard to admit, but, I told myself when I started this blog thing that I’d chronicle all my experiences, good and bad.

So, here’s the deal. Herberger’s was having a clearance on their winter suits for 75% off. Now, I’ve always been a sucker for a sale, but it just so happens, I really need some decent, professional work clothes. And, I haven’t bought any in a long time. And, my tax refund is due any day. And, it’s 75% off – did I mention that??

The good news is that I got two suits and a killer dress for my stepdaughter’s April wedding for $130. More good news is that my friend is getting married two weeks after my stepdaughter, so, I can wear it again. One suit was $24, the dress was $20, and the other suit was $80. OK, so I probably could have left the $80 suit hanging in the store, but it was my size, the last one, it looked good… Plus, the suits were regularly $200 each, and the dress was $125. So, I actually “saved” $200, right? RIGHT? Big, fat W R O N G!

OK – enough rationalizing. I screwed up, I know it, and I’m not proud of it. I haven’t told you the worst part – I put it on my Herberger’s credit card. Gulp. I can visualize Dave shaking his head at me and screaming – “Sharks in suits! Sharks in suits!”

As penance, I will pay the whole balance off immediately when I get paid next Thursday, which will dip into my fun money. *sigh*

I blame my friend Patty for telling me there was a sale…

Tackling My Personal Plan #2

Quick update on my Personal Plan…

#3 Utility Bills

I received my MDU (natural gas) bill today – it was only $52! If I hadn’t activated level billing, it would have been $96.80. I’m digging this!

Week 2: Relating With Money

Nerds and Free Spirits Unite!

Nerds, as defined by Dave, are those that like doing a budget because it gives them control, and they feel like they are taking care of loved ones.

By contrast, Free Spirits feel controlled by a budget, don’t feel cared for, and can appear irresponsible to the Nerd.

Guess which one I am.

What he’s saying, basically, is that in every relationship, there is typically a Nerd and a Free Spirit – a Saver and a Spender. The trick to making the relationship work is for both parties to do the financial decision-making together. 57% of marriages end in divorce over money – fighting about how to save it, how to spend it, how to budget it, etc. So, if you can both at least get in the same book (even if you’re not on the same page) it should increase the likelihood of your relationship success. Generally, it’s about agreeing on a value system. Do you put relationships above money, or money above relationships?

One of the gals tonight shared her story of quitting a high-paying job that she’s been at for 10 years, to a lower paying, lower stress job. Last year, she didn’t attend a single one of her daughter’s soccer games. She credits her change to following Dave Ramsey. By paying down her debt, she was able to take a lesser paying job that allowed her to spend time with her family. Before applying the principles Dave teaches, she needed that high-paying job so she and her husband could pay the debt they had accumulated.

Single parents, like me, are encouraged to find an “accountability partner”. Married people have one built-in. We have to find one, otherwise we’re in danger of impulse buying (typically brought on by stress) and the “I deserve it” spending. Your accountability partner should be someone with whom to discuss your major purchases and your budget. I thought about asking my dad – he’s always handled money very well, and as a result is living a very nice retirement. Something I hope to do someday.

I decided I’m going to ask my 16-year-old son, Dominic, to be my accountability partner instead. My parents never brought my into their financial world, and as a result, I didn’t really have a clue about how to handle money. I’m hoping that by bringing him into this with me, he’ll start to understand the importance of managing money, and won’t make the same mistakes I did. If I don’t teach him – who will?

Homework for this week is to start collecting credit card offers that come in the mail throughout the rest of FPU. At the end, we’ll each add up our total to see how much potential debt we’ve avoided!

No class next week as they are holding the South Dakota Gazelle Rally. I’m not very familiar with it, but from what I understand, past “graduates” of Financial Peace University get together to share their success stories and tips for achieving it. They’ve just started a Facebook page – South Dakota Gazelles. Not much activity there yet, but I’m sure it will grow.

For the record, I’m a Nerd. ;0)

Tackling My Personal Plan #1

For the past couple of days, I’ve been making some of the minor (in some cases, Major) adjustments to my expenses that I outlined in my “Quickie Budget Quandry” post. Here’s where I’m at so far…

#2. Tax Withholding

I used a nifty little tool the IRS has to recalulate my withholding allowances. Check it out: IRS Withholding Calculator.

When I did the calculations based on my 2010 tax return, it suggested I claim 7 allowances and would still have a dinner’s worth of a refund. I decided I’m not comfortable with being that close and possibly owing, so I filled out a new W4 and claimed 6 instead. I marched it up to my HR department this morning. According to IRS Publication 919, your employer “must put your new Form W-4 into effect no later than the start of the first payroll period ending on or after the 30th day after the day on which you give your employer your revised Form W-4.” In other words, I should see the change on my paycheck no later than March 25, I think. No wonder people are always confused by governmental speak! It takes them a paragraph just to tell me that it could take up to 45 days for it to go into effect! FYI – there should be a new publication 919 for 2011 published some time in March.

#3. Utility Bills

I took the plunge and called both my electric and natural gas companies and requested level billing – it should start next month. This won’t save me any money, but it will allow me to budget more easily by keeping the monthly bills roughly the same throughout the year.

#6. Garbage Can

Bad news – I can’t eliminate the garbage can fee entirely – I have to use the cans provided by the city. Good news – by downsizing from a 95 gallon can (which is the largest) to a 35 gallon can (the smallest), I’ll save $3.78 each month. Not a big deal, I guess, but it all helps. More good news – I’m not being charged for the recycle can!

#10. Sirius Satellite Radio

I didn’t have a #10 on my previous post, but now it became this. I LOVE having Sirius radio in my car! It makes travelling so much nicer because you don’t have the fuzzy static in between stations. When you’re travelling across the states of SD, WY and NE – you hear it a lot. However, it isn’t a necessity, so after much internal deliberation and a lot of whining to myself, I cancelled it. Just in time, too. My automatic quarterly renewal was coming up on February 27. It’s a $180/year expense I really don’t need. I have CDs and an MP3 player, I’ll live. *sigh*

Class tomorrow night! “Relating to money”… not sure what that means, exactly, the key points listed in the class  description are:

• Men and women think very differently about money.
• The nerd and free spirit must get on the same page.
• If you’re single, find an accountability partner to discuss your finances with.
• Teach your children how to manage money so they make smart decisions.

Guess I’ll be looking for that accountability partner…