My 2Cents!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A Newsletter all about Living with Abundance, Ditching Debt and Collecting Cash.
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------------------------------------------------------------------------------------------Janine Bolon, Editor janine@smartcentsinc.com
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In this issue -- Note from The Editor -- Beat the Great Depression by Saving Money -- Give to Get: Keeping the Flow of Money in Your Life -- Reader Question: When is it Time to Buy a New Car? -- WHO WE ARE
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Note from the Editor ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dear Frugal Friend, The news seems to be filled with financial woes of everything. It is easy to see how you can become depressed thinking of all the things that are wrong economically with our country and communities. In this newsletter I will be giving you ideas on what you can do right now to combat all this negativity. “Beat Depression by Saving Money” will get you motivated in your financial goals. “Give to Get” will be hitting the highlights of philanthropy as well as questions to ask before donating to a not-for-profit organization. Then as a wrap up, a reader asked me, “When is a car dead?” I’ll be giving you my car buying philosophy as well as the warning signs of a car’s demise I use to determine when it is time to shop for a new set of wheels! Wishing you abundance, Janine Beat the Great Depression by Saving Money! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The headlines were blaring at me: ”Savings at the Lowest Rate since Great Depression.” My husband handed me the financial section of our local newspaper as I was finishing up the breakfast dishes last week. “Oh no,” was my reply as I read the truly negative news. It seems we Americans have hit another record and, unfortunately, it isn’t one that I’m very proud of. For the second time in 73 years we are now saving in the negative numbers. 2006 has the dubious honor of a -1% savings rate. Yikes! On the average we are now spending more than we earn as a population. 2005 had us saving at -0.4% rate and what is even worse is there have only been two other years that we have saved so little as a country and those were 1932 and 1933. During the Great Depression, however, we were saving less due to the loss of jobs. One out of four households had no work and these families were tapping into savings in order to make ends meet. Food and rent were the major reasons for their decreasing balances. For 2006, what are the reasons for the negative numbers? A good economy! Believe it or not. I was stunned to read that the Associated Press article was listing low interest rates were the primary reason for this decline in our savings accounts. It seems at times like these it is more attractive to borrow money to make purchases by refinancing one’s home! The Federal Reserve has driven rates down to the lowest level in more than 40 years so is it a wonder folks are jumping at the ability to get a loan? These lower interest rates have caused a major increase in housing purchases, which has caused an increase in housing prices which has, in turn, increased the number of mortgage refinancings so people can have more money to spend on things. Eeek! There are problems on the horizon if this sort of spending continues. At some point the money will have to be repaid. Remember that the boomer generation is just starting to retire and pulling money from their savings to compensate for the lack of paychecks. This is adding to the negative numbers we are currently seeing and the number of retirees is going to increase over the next decade. So, what do you do? I mean, all this negativity about saving and the consequences of excessive spending is enough to make the stoutest heart want to grab the wallet, head to the mall and SPEND! Here is what you do. Make sure that at least 10% of your income is going directly into an IRA, 401k or if you are self-employed, pick one of the solo401k options that allow business owners to invest income in a retirement vehicle. It is important that you don’t give up your future due to the lures of today. If you are unable to save 10% of your income then start looking at what you are buying on a daily basis that can be handled a different way. We are NOT talking about deprivation here. If you are buying a cup of coffee at your local coffee shop every morning on your way to work, then I suggest you buy a thermos and make your coffee at home and take it to work with you. If you buy a trinket or little “something” every time you checkout at your local food mart then I suggest that you find another way to fill that emotional need. What is important is to ask yourself this question; “Why am I buying this?” It will amaze you how many times the answer is something out of a 3-year-old’s mouth. “Because I want it!” or “Because I’m mad/upset/irritated!” Often, many of my clients tell me that they get so depressed about their credit card bills they go out shopping to feel better! Talk about your vicious cycles, right? Here are some tips to avoid this sort of trap: 1-Every time you avoid buying that cup of coffee or that trinket at checkout, put that money into a savings account. One of my clients told me that by the end of one week she had $112 in her checking account. Talk about an eye opener. She knew that she had been spending money on stupid stuff, but had no idea it was THAT much in a week! 2-Track all your expenses. Yes, all of them. Buy or make yourself a little notebook that you carry around with you all the time. Every time money or a credit card leaves your wallet, record the expense. Over a month of recording you will start to see patterns in your spending that are impulsive, not satisfying in the long run and destructive to your mental health. Eliminate those expenses or find low cost alternatives so you don’t go into a deprivation/splurge cycle.3-Track your savings. Keep an eye on your savings account and watch it grow over time. When an emergency occurs or an unplanned expense hits, pull the money from your savings account and put that credit card back into your wallet. If you don’t have the money saved, then it is simple, don’t buy it! 4-Make financial goals. This is the single most powerful exercise anyone can do, but is the most often neglected. By making REALISTIC financial goals you will achieve them. What is necessary in making goals is to have a reason for them. Saying that you want to have $5,000 in a savings account by this year’s end is not enough motivation for me. I have to have a reason for that $5,000. Before I had an IRA in my name, I was totally committed to saving money so I could open it and to make sure I could fund it every year! Why? Because I had a picture in my mind of me old and grey and not able to work anymore, the thought of living with my children or being a burden to them is enough to make me save money for my IRA. 5-Affirm your financial goals. Instead of telling yourself or your loved ones, “Sorry, honey, you can’t have that we don’t have enough money.” Start affirming a positive financial picture. A better way to affirm abundance of money is to state, “I can’t have that, because I spend my money on different things.” This keeps the affirmations out of the negative and starts you to thinking about the purchases that really matter. Then, your not just throwing your money away. Take a look at your savings account balance as it stands today. Then, make a financial goal that is realistic for how much you want in that account in three months, then six months and then the end of the year. Write these numbers down and then post them conspicuously in your home. You will be amazed how those numbers keep floating around in your head and how they keep your fingers from grabbing your wallet the next time you pass the candy aisle! Give to Get: Keep the Flow of Money in Your Life by Giving it Away! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Americans are wonderful when it comes to Philanthropy. We have a marvelous giving spirit to the point that we will give even if it is the last five dollars in our pocket. This is known as impulse giving. You see a guy on the street corner playing a saxophone and you drop cash in his hat to thank him for the tune. You see a box at check out that reads some local family had a fire and needs money to restart and you drop a few dollars to give them a leg up. So much for impulse giving, what do you do if you wish to make your giving more consistent? What are some of questions you should ask before you make charitable donations from every paycheck? I have found four basic questions you should ask before you give. 1. Can the charity you’re interested in state a clear mission statement and focus of resources? When I am looking at different organizations to donate I frequently call them up and ask to speak to a “officer” because I am a prospective donor and I wish to learn more about them. Usually before I hang up the organization has offered to send me literature in the mail and has given me a web site address to visit. Whenever I have spoken to an organization that didn’t communicate in a clear way to me, then I know that I need to find a different group. 2. What are the organization’s goals? Can your charity tell you future goals it has for their financial and physical resources? Are they going to buy a building and are looking for additional funds for that? Do they want to bring on additional staff? If so, why? Asking an organization to tell you what it is doing is EXACTLY what not-for-profits love doing. They enjoy the opportunity to discuss what they are about, where they are in their goals and their dreams for the future. 3. May I have a copy of your annual report? This document will show you exactly how much money came into the organization and in what ways it was used. Most of my questions about how a charity uses my money can be answered by this document alone. If you don’t understand certain aspects of this document, call the charity. They will be happy to explain it to you. 4. Do you trust your charity? As I was wandering around different web sites to find suitable charities, I ran across an article by Charity Navigator. This was one of their questions they had and I found their answer was perfect because it was totally in line with my own personal experience with charities: “Our research has shown that the overwhelming majority of charities in this country are not only responsible and honest, but also well-managed. So, give with confidence.” I will only add this. If at any time during your phone call with a charity officer you feel uncomfortable or something doesn’t sound quite right, then move on to a different group. Charities are in need of frequent and stable givers. If you don’t trust a charity then by all means, don’t support it. For more information on charitable giving and finding organizations worth your dollar, I recommend that you go to: www.charitynavigator.org. Charity Navigator was created in 2001 when a philanthropic couple decided that an unbiased evaluator of charities was needed to assist financial donors. Their research data agree with my personal experience that the number of dishonest organizations is very, very small. Give the web site a look and see some of the great work people are doing to make their communities better. Reader Question: When is a car dead? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dear Janine: “When is it time to get a new car? How do you go about deciding the right time to call it junk?” Ah, this is a question I get a lot in my seminars. Car buying is a stressful event for me and I despise the amount of time it takes. Why can’t I just go to a car lot, pick my car like a can of beans and buy it? Why do they make me spend so much time there? Even when I have purchased a car with cash it took over 4 hours!!! How ridiculous is that? But enough about me, onto the reader’s question. I can usually get 200,000 miles from any car because my husband and I are nutty about making sure the oil is changed and that we take our vehicles in for maintenance exactly when the manufacturer suggests. I have found it no problem to hit the 200,000 or 250,000 mark with a car or truck as long as I do those two things, oil and maintenance. So, when do you call a car dead? Here are my criteria: 1. Is the car/truck has unreliable? If I can’t drive it and KNOW that I will reach my destination. Time to go! 2. When the mechanic tells me it is going to take time to get parts in due to the AGE of the car. Yes, I’ve driven cars that long! One friend of mine says if it takes longer than 5 days to get parts in, you know your car needs retirement!3. When the car becomes unsafe to drive and isn’t easily fixable. I have had rebuilt engines put in for $1,800 and other high expense repairs, but if the car isn’t safe to drive I get a different one! 4. When the cost of repairs is 75% of the cost of buying the same car in running condition. I got this answer from the Dollar Stretcher e-zine (www.dollarstretcher.com). The mechanic stated, “If a new transmission in a 1990 Ford Taurus, costs $1500, and I can buy a used ’90 Taurus in better condition than the one I have (once it is fixed) for $2000, I won’t fix it but will look to replace it.” This is sound advice that I definitely agree with. These are some of the criteria I use to buy a different car. Now, I always buy a new car (actually I buy the program car. This is the car used by dealers for all the “test drives” and is usually a model year behind when I decide to buy) and then I run the wheels off of it, so to speak. I use tip #4 when deciding if it is time to buy another new program car. Also, I make sure that I have enough money saved up so I can buy it in cash. I love seeing the dealer’s expression when they see me walk onto the lot with my four kids and I tell them, “No, thank you. We won’t need a loan. I have cash.” Do You Have a Question for the Next Newsletter? ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ If you've got a question you want me to address in the next newsletter, type it up and please send it to janine@smartcentsinc.com with the subject line "My 2Cents Question." My 2Cents will feature a question each issue from the Frugal Friends Network. If you wish to remain anonymous, not a problem! Just state that in your email.
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