Archive for the ‘Consumerism’ Category

Chronic Vagueness

One of our users coined this term to me the other day and honestly, I’ve been thinking about it a lot lately.  What is Chronic Vagueness, and how does that apply to personal finance?  The answer is certainly much more clear than the term.

I guess if we apply the definitions of these two words, it makes more sense.  ”Chronic” means, constant, habitual, continuing a long time or recurring frequently.  ”Vagueness” means, not established, determined, confirmed, or known.  Putting both together, “Chronic Vagueness” could be a constant, habitual thought or set of actions that are done without an established, determined, or known set of facts.  Does that describe how you feel about your personal finances?

One of the things I love the most about what I do is talking with people that are clearing the chronic vagueness from managing their personal finances. Just recently, I spoke with a BudgetSketch user that was struck by the fact that her and her husband were understanding clearly their financial position for the first time, and BudgetSketch was working to help them create new habits and patterns of thinking about their finances.  Since she could see her budget plan in one view, she manages it daily by tracking her actual spending against her plan.  She said they have eliminated several hundred dollars of wasted money per month, and have already planned the payoff of their second vehicle over the next 3 months.  All of this is happening because they’ve changed their habits, and have a clear well-defined plan for moving forward.  I hear a lot of stories like this, and it’s music to my ears.

Many people “manage” their personal finances in a state of chronic vagueness.  Spending behavior is habitual, with no plan for how their money will be spent or even knowing if they can afford the constant spending patterns they’ve established every month.  Once a person tries to get a handle on this, it seems daunting, as it could be really hard to get their arms around.

BudgetSketch is as much a tool to remove the “chronic” spending behaviors, as it is medicine for removing the “vagueness” out of establishing a plan or even knowing your true financial situation.  It does this by first showing you a clear picture of your financial situation, and then it works to change chronic spending behaviors.  In BudgetSketch you’ll plan to spend, not just spend.

If you’ve made a plan to only spend $50 this week for work lunches, and by using BudgetSketch, you know you’ve already spent $50 by Wednesday of the week, you have a decision to make for the 2 remaining workdays.  In the past, you may have just continued to buy your lunch for Thursday and Friday, spending $70, but since you now know you’ve already spent your plan for the week, you can make some modifications.  Maybe you bring your lunch the next two days, or perhaps you reduce $20 from some other budget item.  Regardless, when you know, the vagueness is removed, and the chronic behavior of spending an extra $20 for the week on lunch is now a decision to make, not just a chronic behavior.

This is working for my family, and for many BudgetSketch users all over the world.  I would love to hear about your successes or best practices to remove the “chronic vagueness” from your personal finance management. You can do it!

I Need Some Help!

When we decided to build a tool to help people take control of their money with the idea that we could help teach people how to reduce their amount of debt spending and be better equipped to make sound financial decisions, we knew that we must live how we are trying to teach people to live. That is… live from an intentional budget plan, stop spending future income (incurring debt), and begin to reduce debt.

My personal goal is to take this all the way to a debt free lifestyle. Your goals maybe different, and that’s fine, but the tools and methods we use to reach our goals are the same. We need an effective budget (that we can follow) and learn how to make smart financial decisions. In my household, we have our budget plan working effectively thanks to BudgetSketch, but I need some advice on how to proceed with downsizing a particular debt, namely, my vehicle.

Some years ago (pre-enlightenment) I purchased a fairly new Mercury Mountaineer. Very nice vehicle, safe for the family, comfortable, but extremely expensive to own. The vehicle payment is high enough, but the yearly operating costs exceed what our budget can handle. So, in keeping with our contract with ourselves to pursue the goal of living debt free, we made a decision to sell this vehicle. We found a buyer and are ready to let it go… ah… feels good to get that liability off my balance sheet! :) However, I now have a new problem to solve.

I now need to replace our family car with another safe vehicle. Considering we are a family of 4, my wife and I decided that the next vehicle needs to be a minivan. Plenty of room, safe, and much less cost to operate. We decided we will pay cash for this next vehicle and have set a budget of $3500.

Here is where I need some help. In my past life, I never bought a vehicle that was over 2 years old. I was good at the debt creation game back then and never had to worry about “Will this vehicle be reliable?”. The cars I bought were always new or almost new and had warranties. I see today that I wasted a TON of money just to make sure the vehicle was newer with a warranty. Some big payments too I might add.

This time around we are spending no more than $3500 on a minivan, probably something built from 1999 to 2002. I found a few vehicles that fit the bill, but I am apprehensive about how to make sure I am buying a good vehicle that will last us at least 3 years. Most of these vehicles have 110,000 to 165,000 miles on them. How do I make sure I buy a good quality vehicle that won’t nickel and dime me at the repair shop? Keep in mind that I am not mechanically inclined enough to work on my own vehicles. I will certainly need help from a mechanic when things go wrong.

So… I need some advice from some folks that are good at this sort of thing. How do I make sure I am not buying a bunch of problems, what kind of minivan should I buy, and how to make it last.

Thanks for your help!!

Marketing Debt Creation Tools to Our Children

Many Americans are waking up to the fact that they have overspent, and that debt is breaking our collective backs.  I spoke to a couple yesterday, who in recent years, had enjoyed a lifestyle well beyond her means.  Today, they have a mountain of consumer debt as a result of living a lifestyle of “Yeah, why not get it, we have the money”, and are now faced with some serious realities.  Their home is worth only half what they paid for it 5 years ago, making their mortgage balances exceed 100% LTV.  They have in excess of $50,000 in credit card debt, and are driving new cars to work that were purchased within the last 12-24 months.  They are beginning to see the fallacies in the self-convincing rationalization of “I like nice stuff”.  They told me if either of them lose any of their monthly income, they will begin missing payments.  This is a story that is playing itself out over and over across our great country.  Luckily for this couple, they’re starting to see it and are beginning a plan to change course.

I guess we could spend time looking for a place to lay blame. Yet, while we may be correct in identifying some of the cultural programming that has led us all down this path, we must recognize that we as individuals are ultimately responsible for our respective positions, and with that, ultimately responsible for finding our way out.  For some, that “way out” may take several years of hard work.  Getting out of debt and changing behavior doesn’t happen overnight.

Congratulations if you have recognized the pitfalls of the past.  I am right there with you.  We have to bring back the culture of personal responsibility and sound planning.  We have to be determined to break our habits of “I like nice things” consumerism, and begin living well within our means.  Personal savings is at an all time low, that’s a great place to start effecting some real change!

As we each develop a plan to get ourselves back on track, let me encourage you to pay serious attention to your children.  The selling of unsecured credit doesn’t stop with you.  Many Banks and Universities have joined forces to entrap our children in just the same way we have fallen prey.  As an example, Michigan State University gets $1.2 million a year (guaranteed $8.4 million over seven years), according to its agreement with Bank of America, to let them market and sell debt creation tools to our kids.  The contract calls for a $1 royalty to the university for every new card account that remains open for at least 90 days, $3 for every card whose holder pays an annual fee, and a payment of a half percent of the amount of all retail purchases using the cards.

Yeah… oh my goodness is right!

studentcredit

Read the NY Times Article here

Keep in mind this is just one example.  All across the country, lenders are lining up at Admission Offices, ready to sell our kids credit cards, knowing this naive demographic is the easiest to sell.  To make matters worse, Colleges and Universities are developing revenue streams by allowing lenders to do it.  Should you be upset and lash out at the banks and educational institutions?  Why?  In a free society, if someone is willing to buy, someone will be ready to sell.

The better course is to teach your children the pitfalls you have experienced.  Give them the fighting chance to deny the path of debt creation and to avoid the traps of consumerism laid out before them.  Knowledge is power, and I urge you to take the time to understand how to take control of your own situation and then pass those lessons on to your children.  Their futures depend on it.

Credit Free Life?!

The other night I was up late not feeling well, just surfing through the channels half conscious when this commercial came on that grabbed my attention. I saw a nice, low-key gentleman begin talking to me about all of the financial issues facing American families today. He talked about foreclosures, lost jobs, and the fear some are feeling about their futures. He began talking about living a credit free life and how you can make it through this world without the need for credit. By this time I was sitting on the edge of the couch, and with full awareness and attention, I started to think, “Hey this guy gets it!” I even started to feel motivated that there are others out there that are trying to offer solutions to their neighbors in time of need… but then he dropped the bomb.

I should have known. After all, no matter the circumstance, no matter the conditions, there is always room for an angle… room for profit at the expense of another. This humble-looking gentleman then introduced himself… “Hello, my name is Mark Speese, CEO of Rent-A-Center”. He continues… “Rent-A-Center has allowed millions of American’s to buy name brand merchandise without credit for more than 30 years, and what I believe makes a whole lot of sense, for a whole lot of folks, especially at times like these.” “No matter your credit standing, one things for sure, your family is always going to need things… folks still need washer and dryers, kids still out grow their beds, and those same kids are wearing you down about that new TV they’ve been wanting.” (insert slight wink) “Enjoy the things your family wants and needs without the burden of credit.”

He goes on to say that you can learn how to live a credit free life by going to their website, creditfreelife.com. I know we are consumers, I mean that’s our job right? We are told each day on the radio, on TV, and in newspapers that if the “consumer” quits spending altogether, our economy will collapse! I guess if that’s true, Mr. Speese would be a hero, no?

Let’s examine the facts.

The folks over at PIRG (Public Interest Research Groups) seem to have a different view of Rent-A-Center than the almost philanthropic message of Mark Speese. Judge for yourself:

http://www.pirg.org/consumer/rtoloan.htm

Problem: The predatory rent-to-own industry promises consumers the American dream of ownership. “For only 78 weekly payments of $10, you, too, can own this television.” The industry doesn’t tell you that the that the effective interest rate on that loan, however, is 220%APR with $560 in interest and finance charges.

Many states have enacted industry-friendly laws that allow the rent-to-own industry to deceive consumers by disguising their loans as rentals. But a few states enforce tough consumer protection laws. New Jersey PIRG has helped defend its strong law for years.

Unable to win in the state legislatures, the RTO industry has asked Congress to preempt, or over-ride, those strong state consumer protection laws and replace them with a weak industry-friendly federal law.

Background: The multi-billion dollar rent-to-own industry (Rent-A-Center, Rentway and others) sells televisions, appliances, computers, jewelry and furniture by making consumers loans payable on a weekly or a monthly basis. A television with a market value of $220 typically requires 78 weekly payments of ten dollars, or a total of $780. A customer who rents-to-own, or purchases, that television has paid $560 of finance charges at an imputed annual percentage rate (APR) of 220%. But the industry contends it does not sell. It claims it only rents, because if a consumer wants to stop making payments, he or she can do so and return the goods without further payments. RTO stores generally refuse to comply with state usury ceilings or interest rate disclosure laws such as the Truth In Lending Act. The industry, over the years, has also been accused of selling used goods as new, tacking on deceptive add-on fees and worse, bullying and sometimes illegal tactics when consumers are late with payments.

Over ten years ago, RTO operators convinced about 45 states to enact weak legislation that treats rent-to-own as a lease. Yet, several states — backed by consumer groups — insist on treating rent-to-own sales as small loans, requiring compliance with usury ceilings (New Jersey), APR disclosures (Vermont), or other consumer protection provisions (Minnesota, Wisconsin, North Carolina).

I urge you to recognize the real problem so that the real solution may present itself. Mark Speese is disguising the real problem behind a fake solution at your expense. Living a credit free life is not changing your habits from buying things with credit to buying things without credit! Living a credit free life involves buying only what you need with cash and leaving credit alone completely. I can assure you, those living in the US today without credit card debt are not nearly as worried about their personal financial situation as the average consumer in this country.

Everything begins with recognizing that we need to break our dependency on credit and spend less and save more. Rent-A-Center is just another shameless company eager to release you of your hard earned money by employing a despicable diversionary tactic with creditfreelife.com.

I urge you to take control of your own situation. Be smart. If you are in debt, ask yourself why? In most cases, if you honestly answer that question, the solution will become clear.

There is no substitute for personal responsibility and hard work, and there are many people, including myself, that are with you every step of the way!

“When life was simple.”

Mr. Robert Miller (87), Ms. Queen Esther Woodard (96), and Ms. Lillie Deloatch (88) have an interesting perspective on life living through the Great Depression.  I fondly remember listening to similar stories from my Grandfather and Grandmother (also known as Papa & Mama), tales of hardship and simplicity, love and hard work.

It shouldn’t take you long to find the common theme in the following stories.  Our society has moved from having very little and being happy, to having much and being unhappy.  Somehow we have found ourselves in a self-made prison, whose walls are made of debt, struggling to find that simplicity we left long ago.  Working harder and harder to keep up with a life that is quickly getting out of our control.  Many people don’t see the problem yet, while others are keenly aware and looking for answers.

Our parents, grandparents, and great grandparents were providers.  They produced what they needed for their families, and what they couldn’t produce, they went without.  Today we have been programmed to consume, and the message is… “Why go without?”  Instant gratification is the slogan, and with one swipe of the credit card, you can be on your way home with your newest treasure.  Those who make money on this slogan are good at it.

There is no doubt the hardships that these wonderful people endured were extreme, but somewhere between their life of hardships and the one we have created for ourselves today (a different kind of hardship), there must be a place where happiness is real and hardships are lighter.

The road to this place begins with each of us.  We are responsible for our own.  Eliminate debt.  As Mr. Miller will tell you, save your money, “You’re gonna need it one day.”  Learn it’s okay to go without.  Taking control of your finances and your life in this manner will bring happiness in spades.

http://www.washingtontimes.com/news/2008/dec/29/witnesses-to-the-great-depression-remember/

Robert E. Miller, 87.

Born in 1921 at Columbia Hospital in the District , Mr. Miller spent the Depression years as a child in the nation’s capital.

Growing up in a home at 23rd and P streets on top of Rock Creek Park, Mr. Miller had two sisters, three brothers and a big German police dog – “and that was all that boys want, a brother and police dog.”

His father worked as a night watchman from 7 at night until 7 the next morning, all for $75 a month. “We lived off that, and I don’t know how you could say it, but we were a very happy family, eatin’ with what we could get, your bread. … A loaf of bread, white bread, cost five cents,” he said.

“You didn’t have any electric lights in your house. You had what they call coal oil lamps,” he recalled. “We had no electricity at all … no running water … had to go down to the corner, pump’s on the corner, just mash on the top and the water would come out. You take your bucket and go down there and pump, get your water, come back to the house, and that’s the way you got your water.”

In the winter time, Mr. Miller and his siblings had only one over coat to share among them. On the way to school, whoever got dressed first got to wear the coat. “The rest didn’t have any, so we just walk with shirt sleeves, sweater, no sweater, and we’d walk [24 blocks] to Dunbar [High School]. We would walk that, rain, snow, whatever. . . . Get to school the best way you could, and still we managed to be happy, jovial, playin’ all the time, never any fightin’ anything,” as he tells it.

He and his siblings would wear their shoes until the soles were completely worn out, using newspaper to cover the holes.

“But it was a tough time, I remember. I guess that was the recession then. People didn’t have any jobs; they would stand on the corner and sell apples, nickel apiece. They were unemployed, they didn’t have nothing else to do,” he remembered. “That’s the way they made their living.”

Those were the days before credit cards, when life was simple. But one could have credit at the corner grocery store and pay it at the end of the month.

The merchant “just had a big ledger. You come in and get $20 worth of stuff. And the end of the month he was expecting you to pay him your $20, which a lot of people didn’t do, but that’s the way you worked.”

At the time, Mr. Miller didn’t know about the Depression. As a child , that that’s just how things were. Times were hard.

“I thought that was just normal life,” he remembers. “We always had some kind of food. My father would eat opossum. We’d go to Rock Creek Park, get a opossum for him, right in the park, bring it home, he’d eat it. I wouldn’t eat any of it,” he said.

“We always had sufficient food. Meager-type food. It wasn’t the best food. We would maybe get some kind of meat, maybe neck bones or something like that. My mother would cook them, my father would eat the neck bones, and we’d eat what now would be thrown away: the greases off the neck bones, that is what we would eat, heat it up and pour it on in a plate, get some bread, and sop that, and we thought we were living good. We were happy with that.”

He said, “It was a nice childhood, but it was tough times. It never occurred to you that you were living in hardship.

“I did grow up knowing that you had to look ahead: If you get a dollar, don’t spend the whole dollar. Spend maybe 75 cents, but keep a quarter. You’re gonna need it one day. And that’s the way I lived,” he recalled. “I bought my first home like that, puttin’ away nickels and dimes.

“I live in two different worlds, the world back then and world we got now, and the world we got now I don’t think too much of it, to tell you the truth.”

Queen Esther Woodard, 96.

Born on Jan. 26, 1912, Queen Esther Woodard was 18 years old when the stock market crashed Oct. 29, 1929. She is the daughter of a sharecropper.

Sitting upright in her wheelchair, Ms. Woodard is alert and full of life in a red sweater and a blue plaid blanket that covers her lap. She is surrounded by messages of faith, posters on the walls, eight Bibles on the shelves, stuffed animals on the bed and old photographs.

The seventh of 14 children , she grew up as a child in Rocky Mount, N.C. She married Oscar Woodard, a carpenter, at age 21.

Working the fields was not just for adults. Everyone who could work did so. Ms. Woodard worked in the fields from age 11, with her brothers and sisters. In the fields for long hours even after school, their labor was needed by their father, who toiled in the fields of peanuts, cabbage, sweet potatoes, collard greens and corn.

“When I was a child, we didn’t go to school but six months out of the year, and sometimes when we get home from school, we had to change our school clothes because we didn’t have but one pair of shoes. Get them shoes off so you wouldn’t wear them out too quick and go in the field and go to work,” she recalls.

In addition to the hard times of the Depression, the country was also segregated. Her best girlfriend was white, yet they couldn’t eat together at a restaurant. “But it didn’t change the taste of the food,” she says, laughing.

Ms. Woodard said life wasn’t too hard for her and her family because her father grew everything, living off the land. Although times were extremely harsh, they were generous. Her father would kill the hogs, take the meat and give it away like he had no mouths to feed. He’d kill six hogs in November and six more in February, and that meat would last.

Taking the lessons and examples of her generous parents and strict religious upbringing during life in the Great Depression, she has given to others in need through the years. “I guess some people think I’m crazy, but you know, I don’t value my money that well. I don’t value it’s so important to me that if you’re hungry I couldn’t give you a soda and sandwich.”

Lillie Deloatch, 88.

Ms. Deloatch was born on May 8, 1920 in Branchville, Va., nearly 10 years before the stock market crash. Today she sits in her room at the Stoddard Baptist Nursing Home in the District, safe, comfortable and far from the farm where she grew up near the North Carolina border. The room is clean, the bed made.

She rests in her wheelchair, and the blinds are open to the street below, with its barren trees marking the winter season as the nation’s economy remains in crisis.

Her father was a sharecropper.

“Yes, indeed, I remember,” she says. “When Hoover was in the seat, right? And we couldn’t get good flour. … The hogs had died, and we didn’t have no meat,” she recollects. “We raised our hogs, chickens; we had cows, dogs, cats and eight children. There was a lot of love. We were poor, but a lot of love. We all went to church. We were all right.

“Momma made our clothes. Somehow, I don’t know, somehow we made it. My father was a huntsman. He hunted rabbits and squirrels. We ate it.”

Even though she lived on a farm, hardships were everywhere; not many were spared. On the farm, she worked in the fields picking cotton.

“It really was really a hard time. I remember my mother asked my father one day – he was taking a bail of cotton to Branchville: ‘Joe, bring me a piece of cloth [so I can] make Lillie a dress to wear to field.’ And he bought it, cotton material, and my mother cried. She said, ‘Joe, Lillie never wore anything like this in her life.’ And I liked it. It was all right for the field.”

Ms. Deloatch compared life during the Great Depression to life today. “But back then, in those days, they was good old days. Wasn’t like we hatin’ one another like they do now. There was more love, you know,” she said.

Some Offer!!!

So, according to the U.S. News Rankings and Reviews site, Chrysler Improves $2.99 Gas Offer and you may be thinking, “That’s a good thing, right?” Well, let’s see if we can’t shoot a few holes in the financials of such an “offer”.

We’ll start by mentioning that the offer received some criticism when Chrysler first announced it but not for the reasons you might, or perhaps should expect. Environmental groups, whose members often exhibit signs of intelligence, suggested the focus should be on the purchase of more fuel efficient vehicles. Other, amazingly perceptive individuals noted that the cheap gas came at the expense of more lucrative purchase incentives.

But we digress, back to the financials…

So, you’ve been tooling around in the same old 2004 minivan for five years now but at least you paid it off last month. It has served you well but recently it seems a bit jerky during stops and starts. Now that you’ve got the extra $500 a month you used to pay toward the auto loan you figure you’ve got a little cash to spend on repairs. So you take it up to the dealership to have it looked at and while you wait you’re eying the 2009 minivans.

Bad news! Your minivan needs a transmission, and the service manager quotes you $2000-$2500 for a new transmission!!! Bad news travels fast, especially at car dealerships, and it isn’t long before a salesperson saunters over to see why you look so sad. Three hours later you’re ready to ink a deal in which they keep your 2004 minivan, and you drive off the lot with a brand new 2009 minivan for only $550/month for six years after a $2000 incentive, and don’t forget $2.99/gallon gasoline for the next three years!!!

Somewhere in the back of your mind commonsense is having a hissy fit. Its screaming at the top of its lungs, “DON’T DO IT!” but if you listen carefully you’ll then hear it say this, “Keep the old minivan, and for three or four months save the old payment to purchase and install a reconditioned transmission. Then bank the $500 each month (or pay off other debts), pay $20,000 for a quality used van in three years (saving $500/month at 4%) and have an additional $20,000 in cash at what would have been the end of the loan for the 2009 minivan!!!” Didn’t you hear commonsense say that? You should have!

But we forgot the cheap gas!

Eh, not really… By the numbers quoted in the U.S. News report, the average consumer will save $1200 over the course of the three year $2.99/gallon offer. If you heard and acted upon commonsense, you’ll save that in under three months and be driving a quality used minivan within three years! What’s even better is you can repeat the process every three years and upgrade your vehicle every time while paying cash, that is if you’re willing to stay the course for the next three years.

Let’s not forget our friends, the environmentalists!

Indeed, let’s not! So, how is this plan a “green” plan? We suggest that if a sufficient number of consumers would heed commonsense, landfills would fill more slowly as vehicles lifetimes were extended and natural resources would be preserved (and the pollutant by-products of production reduced) as fewer new cars would be manufactured.

So you tell us, is that some offer?!