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The Simple Dollar

In this May 2012 file photo, a Visa credit card is tendered at the opening of the Superdry store in New York's Times Square. Household debt freedom maximizes your personal gap between income and expenses, Hamm writes. (Richard Drew/AP/File)

The case for household debt freedom

By Guest blogger / 11.27.12

A couple times a week, I’ll get an email from a reader asking some variation on this question:

If I can refinance my house at 3.5% why would I ever want to pay it off early if I can earn 7% over the long term in the stock market? Debt freedom seems like a bad goal when credit is so cheap.

Even if credit is available at 0%, I argue that debt freedom is never a bad idea.

In order to explain that idea, let’s roll back the clock to 2005. In 2005, Sarah and I were swimming in consumer debt.

We had one car loan at 7% on which we had to pay $200 a month.
We had another car loan at 6% on which we had to pay $250 a month.
We had a credit card at 20% on which we had to pay $100 a month.
We had two other credit cards (around 20% each) on which we had to pay about $80 a month each.
We had two lines of consumer debt (around 20% each) on which we had to pay about $30 a month each.  ( Continue… )

In this June 30, 2010 file photo, an Associated Press reporter holds the Motorola Droid X during a product review in San Francisco. Hamm offers some ways to calculating if a plan upgrade will save you money. (Jeff Chiu/AP/File )

Mobile phone overage fees? It's time to upgrade your plan

By Guest blogger / 11.27.12

When Sarah and I signed our first cell phone contract, we signed up for a plan that gave us roughly 400 minutes per month, which seemed like a reasonable amount based on our estimates. After the two year contract, we found that we had only gone over that limit twice, so we signed up again for the same limit.

Before our next contract signing, we sat down to evaluate our situation. During the previous two years, we had only gone over our alloted minutes twice, so it seemed straightforward that we would just continue our plan.

There was a bit of a catch, though. We still had those bills from the overage months, and when we sat down and did the math, the cost of our overage minutes from those months was far higher than the two year cost of a plan that would cover all of those minutes.

That’s right. Upgrading to a plan that covered all of that usage and gave us far more breathing room in every other month was cheaper than the overage costs of just two months of usage.  ( Continue… )

In this 2009 file photo, a Time Warner Cable truck is parked in New York. Hamm argues that cable television is far from a necessary expense – and in certain cases, you can get by without Internet, too. (Mark Lenhihan/AP/File)

The case for getting rid of cable

By Guest blogger / 11.25.12

I’ve talked over the last few days about the value of reviewing monthly bills and subscription services. Today, I’m going to look at two bills that people often think of as “untouchable,” but which essentially just boil down to expensive entertainment.

I’m looking at you, cable/satellite bill. I’m looking at you, too, internet bill.

Let’s look at each of these bills separately.

First, a cable/satellite bill is purely for entertainment. There’s essentially no information that you can get from your cable box that you couldn’t get elsewhere, and honestly, the vast majority of what it’s used for is entertainment.

The question is whether or not you could get equivalent entertainment (or information) from other sources. Is there anything you’re getting from your cable box that you couldn’t really get from your DVD player, a roof antenna, and a converter box – and no longer have a monthly bill?

With just local television, you can get the necessary news and weather alerts and a wide diversity of programming (especially since, with the advent of digital television, you can get ten to twenty channels almost everywhere). With a DVD player, you have access to lots and lots of movies, especially in conjunction with a Redbox kiosk.

What about the internet bill? I’ll agree that many people use the internet for work-related purposes, but it’s also used largely as a source of entertainment in the home. Web browsing, movie watching, gaming – they’re all forms of entertainment enabled by internet access.

Again, can you find these entertainments elsewhere? Would a digital converter box and an antenna on the roof suffice for television programming? Could you use other resources, such as a library, for your other internet needs?

For many people, these two bills add up to well over $100 per month. In some cases, the bill can touch $200 or $300 a month. That’s a pretty big impact on a person’s monthly finances.

It’s well worth considering an alternative plan, at least in the short term, so that you can get control of your finances again. Eliminate the internet or the cable box (or both) from your home for a while and breathe a sigh of relief at the reduced monthly bills.

For many people today, I’d suggest choosing the internet over the cable box if you’re choosing between the two. There is a lot of entertainment that can be found online – often enough to replace the regular programming given to you by cable or satellite services.

Looking for another way to cut back on monthly entertainment bills? Consider cutting back on your mobile data plan. How often do you really use it for useful things that aren’t purely for entertainment?

The goal isn’t to live a spartan lifestyle. The goal is to stop paying for stuff you don’t use – or things that you can already get through another service – and put that money to better use in your life.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 


In this October 2012 file photo, a woman holds up a Netflix envelope to be photographed in front of a Netflix application on a television in East Derry, N.H. Monthly fees for services like Netflix are a constant drain, Hamm writes. (Charles Krupa/AP/File)

Are you spending too much on monthly services?

By Guest blogger / 11.22.12

When we first ran into our financial wall, the first action I took was to head to the library and check out a pile of books on personal finance. I brought home at least a dozen books and I started reading them rapidly and taking notes.

One theme that popped up over and over again was cutting costs. At first, I didn’t really know how to approach this idea, so one Sunday afternoon, Sarah and I went through all of our monthly bills and credit card statements. We decided to highlight everything we found that was not an absolute necessity.

So, we ignored things like energy bills, rent, groceries, car payments, and insurance, and we highlighted everything else.

This left us with a big pile of highlighted items that we started sifting through slowly. After a little while, we simply began asking ourselves a simple question about each item.  ( Continue… )

In this June 2012 file photo, gym manager Rick Limitone demonstrates a work out machine at Snap Fitness Rolling Strong Gym, a truck stop gym in Dallas, Texas. The lower your monthly bills are, the easier it is to make strong financial progress, Hamm writes. (LM Otero/AP/File)

Gym memberships costing you a fortune? Cancel them.

By Guest blogger / 11.21.12

As I mentioned yesterday, one of the first things Sarah and I did when we began our financial recovery was to start going through all of our regular bills – monthly bills, annual bills, and everything in between. If it needed to be paid regularly, it was examined.

This included quite a few club membership fees, subscription fees, and gym fees. We had a warehouse club membership. We were members of a local gym. We were members of a food co-op. We had entertainment bills, too, such as Netflix and Gamefly.

All of these monthly and annual bills added up to a lot of money per year. In fact, our membership and subscription bills added up to several months of car payments.

Were they worth it? We had to dig in a little to figure that out.  ( Continue… )

A studio image of a calendar taken December 2010. Short-term goals are much like pieces to a jigsaw puzzle where you have only the vaguest idea of what the final picture looks like, Hamm writes. (Ann Hermes/The Christian Science Monitor/File)

Set clear long-term financial goals

By Guest blogger / 11.20.12

When Sarah and I first began our financial turnaround, we discovered that it was very easy to set and complete very short term personal finance goals and microgoals.

We’d agree to spend a weekend without spending any money.

We’d agree to spend a day or two going through our DVD collection and eliminating 60% of it.

We’d agree to spend the next month avoiding bookstores.

These were strong microgoals. These led into some great short-term goals.  ( Continue… )

In this October 2009 file photo, workers at the family-owned R.E. Kimball company, which makes jellies and jams, prepare orders to be shipped or picked up in Amesbury, Mass. When you buy local, at least some of that money stays in your community, Hamm writes. (Melanie Stetson Freeman/The Christian Science Monitor/File)

All things equal, buy local

By Guest blog / 11.20.12

I compare online and offline prices all the time. It’s simply part of how I naturally shop.

Sometimes, though, I’ll find that I can get essentially the same exact deal both online and off. The best online price I can find matches the price I see in the store.

In that situation, I always buy local.

There are a lot of reasons to buy local, of course. Here are some thoughts and tips.

First, when you buy local, at least some of that money stays in your community. If you buy from a company halfway across America (or in another country), very little of the proceeds of that purchase stays local. If you buy local, at least some of it will directly help your community.  ( Continue… )

An employee picks up a gold bar at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna in this August 2011 file photo. When we wish for just one big thing that can transform our lives, we often overlook the thousands of little steps we can take right now that can add up to real change, Hamm writes. (Lisi Niesner/Reuters/File)

Dreaming of a windfall

By Guest blogger / 11.19.12

I love reading random Twitter feeds.

I’ll wonder what random people are thinking about a particular topic, so I’ll go to Twitter and search for that topic. Often, I’ll see an interesting remark from someone and wind up on their personal Twitter feed, reading about their lives and stories.

More than anything, this has taught me that even with the great diversity of people on Earth, there are a lot of experiences people have in common. They have hopes and dreams. They have disappointments and failures. They have joys and things that they cherish.

One dream that I often see mentioned is that of a giant life-changing windfall. People often lament that their life would be better if they suddenly discovered some money, as it would free them from whatever situation that they’re currently struggling with.  ( Continue… )

Online vendors will try to lure you to spend more money with free shipping minimums. Ignore them, Hamm argues. (PRNewsFoto/File)

Is that free shipping really free?

By Guest blogger / 11.18.12

It happens to almost everyone who shops online.

You go to a site to order a specific item that you’ve already decided on. You add that item to the cart and head to the checkout.

But wait!

The site informs you that if you add just $12 more in items, you can get free shipping on your order! Ordinarily, the shipping costs $8, but if you just add another item, they take away that fee.

You can get a $12 item effectively for just $4. That’s a deal, right?

Not really. Let’s walk through this.

First of all, you have to find an item at exactly $12 in value to maximize this deal. If you end up buying something for $20, you’re getting it for $12. If you find something for $40, you’re getting it for $32. A minor discount, but not a big one.

If you try too hard to find something that matches the “maximum value” here, you’re more likely to wind up with something you don’t even want. If you broaden your search, you wind up not getting much of a bargain and you’re buying something you didn’t intend to buy anyway.

Second, you’re still spending extra money on something you don’t need and had no intent of buying. In order to do this, you have to search around to buy another item that you never intended to spend your money on in the first place. Spending money on something completely unnecessary is never a good idea.

Unless I am picking up something that I’m absolutely sure that I need (like toiletries and so on), I consider it a waste of money to tack on something more just to get free shipping.

Sure, I might be missing something of a bargain, but I don’t consider it a bargain to wind up with something else that I don’t really need.

Leave free shipping behind. Do price comparisons that include the shipping costs and stop buying more just to “save” money.

This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere. 

In this September 2012 file photo, Jeff Bezos, CEO and founder of Amazon, speaks at the introduction of the new Amazon Kindle Fire HD and Kindle Paperwhite personal devices, in Santa Monica, Calif. Do price comparisons across the real world and the internet and you’ll end up finding the biggest bargains of all, Hamm suggests. (Reed Saxon/AP/File)

For big savings, compare prices online

By Guest blogger / 11.15.12

It seems pretty common to use online sources to comparison shop for the big items. The internet is a powerful tool for finding the best bang for the buck on automobiles, homes, televisions, cameras, and so on.

Yet that’s just a starting point. I use the internet to comparison shop for anything non-perishable that will cost me more than $20 or so over the course of a year.

Garbage bags. Toilet paper. Socks. Laundry detergent.

I use the internet to comparison shop for all of these things, and many, many more.  ( Continue… )

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