The Simple Dollar

A sale pending sign sits in the front yard of a home in Mt. Lebanon, Pa. earlier this year. According to Hamm, cosigning a loan, for a home or other large purchase, is a bad idea. (Gene J. Puskar/AP/File)

Cosigning a loan: Why you should never, ever do it

By Trent Hamm, Guest blogger / 06.03.13

I get this type of question all the time. A family member or a friend is trying to get a loan for some reason. Those evil banks won’t lend them any money. They want you to cosign their loan for them. It won’t cost you anything (so they say) and it’ll help a friend out!

Let’s reword that question into the reality of the matter.

Are you willing to take on this debt and get nothing out of it other than just maintaining your credit? In other words, do you want the pain of debt without getting anything at all out of it?

“Oh, but that’s the downside of doing this!” you say. Well, what’s the upside? In the best case scenario, you’re roughly where you were to begin with.

“But I’ll have a better relationship with this person!” you say. A good friendship will survive whether or not you cosign on that loan. Furthermore, what kind of friend wants you to extend financial risk to them with basically nothing in return? ( Continue… )

A for rent sign is seen on the front door of a home in Riverhead, New York last year. Hamm argues that there are a lot of good reasons to own a a home, but warns that the hidden costs of homeownership can add up. (Shannon Stapleton/Reuters/File)

When renting is better than owning

By Trent Hamm, Guest blogger / 06.02.13

In 2007, Sarah and I made the decision to become homeowners. We had fixed our finances to the point where we were ready with a down payment on a modest home. We were also under the belief that home ownership was the sure-fire way to build equity.

When we bought our home, we discovered that home ownership has a lot of hidden expenses beyond just the mortgage and that, if you’re not accounting for them, home ownership can be a big mistake. In fact, there are many situations where continuing to rent makes more sense even when you have the resources to buy a home.

Let’s walk through the pieces of the puzzle.

First of all, you’re going to want to make the choice that results in the smallest amount of your monthly income vanishing into the abyss. There are a lot of expenses for home ownership that are required to maintain and adequately protect your home and most of those bills do nothing more than maintain the home you already have. ( Continue… )

Maeve O'Brien serves ice cream from the Original Boston Frosty truck in Boston, Massachusetts. Hamm argues giving children treats, like ice cream, is fine as a rarity, but not as a routine. (Ann Hermes/Staff/File)

Teaching kids about money: Five common dilemmas

By Trent Hamm, Guest blogger / 06.01.13

Parenting is full of dilemmas.

You’re constantly faced with difficult choices and your children expect you to have all of the answers. Not only that, if your answers aren’t the right ones, you’re going to end up setting a bad precedent for your child.

The art of parenting is simply doing the best you can with these dilemmas as they come at you. No parent is ever going to make every shot, but the more dilemmas you get right, the better off you and your child will be.

Here are five money-related dilemmas we’ve faced over the last year or two with our own children.

Dilemma #1: Should allowances be tied to chores?
 On the one hand, allowances are primarily useful as a tool for teaching money management skills. It gives you a regular opportunity to teach your children about the basics of budgeting and, if you tie it to chores, you place an obstacle in the way of that lesson. You’re dealing with the challenge of finding age-appropriate chores and ensuring that your child does them before you can ever get around to the money management lessons. ( Continue… )

People wait in line to enter the City University of New York Big Apple job fair in New York. At some point in 2012, about 13 million Americans faced a crisis in which they lost their job and they were so financially weak that they faced immediate hardships without their next paycheck, Hamm writes. (Shannon Stapleton/Reuters/File)

The dangers of living paycheck to paycheck

By Trent Hamm, Guest blogger / 05.30.13

According to this survey, 68% of Americans are living paycheck to paycheck. Two out of every three adults living in the United States would suffer significant challenges if their next paycheck were delayed or absent.

In 2012, about 20,500,000 Americans lost their jobs, according to this data analysis. Even if you don’t perfectly agree with that analysis, you can’t argue that the number is somewhere in the ballpark. 2012 was actually a very low year for job loss, too.

Thus, at some point in 2012, about 13 million Americans faced a crisis in which they lost their job and they were so financially weak that they faced immediate hardships without their next paycheck. That’s about one in twelve adults.  ( Continue… )

A woman counts her US dollar bills at a money changer in Jakarta. If a financial advisor works on a commission, that means their income is somewhat reliant upon people signing up to buy specific financial products, Hamm writes. (Beawiharta/Reuters/File)

Need a financial advisor? Avoid commissions.

By Trent Hamm, Guest blogger / 05.27.13

It’s easy to find lots of personal finance information online. Most of the time, it’s easy to see how it applies to your life. Frugality tips, for example, are very easy to incorporate into day-to-day living and see exactly how they’re saving you money.

When you start moving beyond that and start looking at things like insurance and investments, it starts to get less clear, for two reasons.

First of all, everyone exists in a different personal finance situation. It’s easy to apply most frugality tips to anyone’s life without knowing exactly how their finances are because, well, they work for everyone.

When it comes to questions about specific insurance policies, how to save for future education expenses, and how to save for retirement, you can’t simply take every piece of advice out there at face value. Different solutions work better for different people in different situations, and without someone laying out their full financial plan on the table, it’s basically impossible to say what the best choice is.  ( Continue… )

A box from Amazon.com sits on the porch of a house in Golden, Colorado. After shopping the numbers, Hamm found that savings for goods delivered through Amazon's Subscribe and Save program were decent, but usually not better than a wholesale club. (Rick Wilking/Reuters/File)

Does Amazon 'Subscribe and Save' really save?

By Trent Hamm, Guest blogger / 05.25.13

When I buy household products, I look at the cost per unit before everything else. I try to figure out the cost per ounce, the cost per bag, and so on whenever I examine an item.

Usually, my comparisons end up looking at the cost of the item at our local warehouse club versus the cost of the item when it’s on sale at our local grocery stores. Usually, the warehouse club is cheaper on most household goods, but sometimes a great sale at the grocery store can bump that cost lower.

Lately, though, I’ve been looking at the Subscribe and Save program offered by Amazon. This is a program where you can choose to “subscribe” to household goods and, then, once a month they’ll package them up and ship them to you based on your subscription.

So, let’s say you “subscribe” to diapers on a monthly basis, shampoo every other month, and toothpaste every three months. On the first, fifth, seventh, and eleventh months of the year, you’d just get diapers. On the second, fourth, eighth, and tenth months of the year, you’d get diapers and shampoo. On the third and ninth months of the year, you’d get diapers and toothpaste, and on the sixth and twelfth month, you’d get all three items. Their system handles all of this scheduling for you – all you have to do is subscribe to the individual item you want. ( Continue… )

A person inserts a debit card into an ATM machine in Pittsburgh. When partners merge accounts, the financial responsibility is shared, Hamm writes. (Gene J. Puskar/AP/File)

One checking account – or two?

By Trent Hamm, Guest blogger / 05.24.13

When Sarah and I were first married, we maintained the two separate checking accounts that we had when we were single. Mostly, we kept it this way out of convenience, as we both were in the routine of paying monthly bills.

To keep things straightforward, we divided up the shared monthly bills. We were each responsible for our own bills – the loan on the car we individually drove to work, our own student loans, and so on. The rest were divided between us based on our income level.

We stuck with this format through our years of overspending as well as through the first few years of our financial turnaround. In fact, we only merged our accounts in 2008, well after our financial situation had strongly rebounded.

During the period where we overspent, it was good that we had separate accounts. If our accounts were combined, I am confident we would have overdrafted regularly, something we managed to avoid with separate accounts. Our mistakes were related to not having shared goals and spending for today.  ( Continue… )

Gasoline drips off a nozzle during refueling at a gas station in Altadena, Calif. Fuel efficiency is an important thing to keep in mind when shopping around for a new car, Hamm writes. (Mario Anzuoni/Reuters/File)

Fuel-efficient cars: Saving gas means saving money

By Trent Hamm, Guest blogger / 05.23.13

A few days ago, I posted an article on saving money on fuel during your commute. While all of those tips were useful, one in particular can really reduce your fuel costs when commuting – buying a more fuel-efficient car. But what does that really mean in terms of dollars and cents?

Before you even begin talking about how much you’re saving in terms of increased fuel efficiency, you have to determine some of the numbers you’re working with.

First off, how much does a gallon of gas cost? Right now, the gas station nearest to my home charges $3.999 for a non-premium gallon. So, we’ll go with that – $4 per gallon.

You also need to know how many miles you expect to get out of your car after you buy it. It really depends on the age of the car that you buy. If you buy a new or nearly new car, you might get as many as 150,000 miles out of it. For an old car, you might be lucky to get 50,000 more miles out of it. Let’s go with a happy medium – 100,000 miles.  ( Continue… )

A customer carries shopping bags at South Park mall in Charlotte, N.C. Whenever you allow yourself to make decisions on a retailer’s home turf, you’re allowing that retailer to add extra information to your decision-making process, Hamm writes. (Chris Keane/Reuters/File)

Going shopping? Know your target.

By Trent Hamm, Guest blogger / 05.22.13

One of my favorite places to visit is Prairie Lights Bookstore in Iowa City, Iowa. It’s an independent bookstore with a wonderful atmosphere and I truly love the opportunities I get to browse through the books there.

The problem is that when I go into a retailer without a specific purchase in mind but with an intent to buy something, I’ll usually end up buying something on the spur of the moment – or two or three things.

The last time I was in that store, for example, I wound up buying three books. When I walked in there, I didn’t actually have a title in mind that I wanted to buy. Instead, I was influenced by the store itself when I made those purchases.

(Thankfully, I had budgeted for this. I was anticipating some “spontaneous buying” on that day, so I budgeted that much cash in my wallet for just that purpose.)  ( Continue… )