Starting Out

19. June 2012 · 17 comments · Categories: Self Improvement · Tags: , , ,

On my way to work recently I was listening to NPR as I often do. Because there’s so much bad news being reported in the media on a typical day it can get a little depressing. So anytime I hear an inspirational story it lifts my spirits.

As part of its Family Matters series, NPR interviewed Nicholas McDonald, a 24-year old in Capitol Heights, Maryland. Here’s a link to the interview.

Nicholas told his story about being part of a multi-generational family living under one roof. He explained that he had a rough childhood and that he didn’t have many good influences growing up. Now, unemployed and in his mid-twenties, he is feeling pressure from his step dad to find a job.

Nicholas’s story is one that is playing out in the lives of an increasing number of Americans. Because of the recession and the difficult job market, many college grads are moving back in with their parents. Even with a full-time job, young grads are finding their student loan burden is too much to handle without support from parents. They may feel hopeless because of what they hear in the media. Or overwhelmed because they have no idea what they want to do. Or pressured by the expectations of family and friends.

The first thing you should do is realize that you’re not alone. There are literally millions of young Americans going through the same thing. At 26, I still don’t know exactly what I want to do when I grow up.

Second, eliminate the negative people from your life. These people thrive telling you that you can’t do what you want. Surround yourself instead with people who will support you and lift you up.

Third, don’t feel guilty for wanting to take a little time off. After graduating from college, I took a year off to live in Europe and pursue my love of traveling. I heard from so many people who said to travel while you’re young, because before you know it you’ll be 30 and stuck in the office. Backpacking through a foreign land might be just what you need.

Fourth, don’t lose hope. You have skills and qualities that nobody else in the world has. Sometimes all you need is that last bit of effort to reach your goal. I’m reminded of one of my favorite quotes by American writer Elbert Hubbard:

A little more persistence, a little more effort, and what seemed hopeless failure may turn to glorious success. There is no failure except in no longer trying. There is no defeat except from within, no really insurmountable barrier save our own inherent weakness of purpose.

Often, we’re all that stands in our way.

Finally, when you reach your goals and find success, sincerely thank those who helped you get there. These are your true friends who won’t count the costs when you need help.

As for Nicholas, he explains that as long as he’s contributing financially to his family he’d be okay still living there at 30. That may or may not be the case for you. But his example shows that by knowing what’s important to you and keeping a positive attitude, you’re likely find success.

Avoiding Lifestyle Inflation

12. June 2012 · 18 comments · Categories: Financial Health, Relationships & Money · Tags: , , , , , , , , , ,

Late last year my wife graduated from nursing school, and soon after we became a dual income family. This was certainly a blessing because it meant we could start repaying some of our student loans. But one of our biggest challenges lately has been avoiding the temptation to spend the extra paycheck.

This is something I considered even before my wife started working. We were accustomed to living off my income, so I wondered what it would feel like to have an extra paycheck every two weeks. I’ve always been pretty disciplined with money, but I wasn’t confident we would be able to avoid unnecessary spending.

When a family goes from earning one paycheck to two, one or both partners are often tempted to spend all the extra money. They might rationalize their behavior by saying that they deserve more after scrimping and saving for so long. This is known as lifestyle inflation, and is extremely hazardous to your financial health.

This past weekend I went to Costco for few things. I was strolling through the store as I often do, checking out the offerings, when I walked past some pillows. They looked really soft, so I walked up to touch them. “Yep, these would look great on our bed,” I said to myself. They might even help me sleep better. I did everything to convince myself that I needed these pillows, including telling myself that we could afford them now that we have extra money coming in.

In the end though, I walked away. Sure, I could have easily afforded them. The price was right too – $16 for two king size pillows. I thought about the pillows we currently have. Although they’re a year or two old, they work just fine. At this point they’re a want, not a need.

Recognizing the difference between wants and needs is a big step in avoiding lifestyle inflation. Just because you have extra income now doesn’t mean your list of needs has to expand.

What are some better things we could be doing with the extra income? Here’s where our focus is:

1. Paying off student loans. This is where the majority of my wife’s paycheck goes. Watching the balance fall month by month is very satisfying.

2. Increase our giving. We feel that it’s important to give to those who are less fortunate than we are. Even though we aren’t bringing in tons of money, the extra paycheck allows us to be more generous.

I heard a quote once that’s always stuck with me: God increases our means not that we may increase our standard of living, but that we may increase our standard of giving.

3. Start saving for retirement. Before my wife started working she had zero retirement savings. We’ve since opened up a Roth IRA for her and contribute a little from each paycheck. When she becomes eligible to contribute to her 401(k) at work we’ll start contributing to that as well.

Extra money might come into your life from ways other than an additional paycheck – it might come through an inheritance, a raise, or from reducing expenses. Whatever the source, don’t squander it by buying things you don’t need. Instead, consider your goals and the needs of your family, and ask yourself how you might use it to better your life and the lives of those around you.

What are your tips for avoiding lifestyle inflation?

Photos by capetownstore.com and fastcompany.com

Ripoff Alert #6 – Pet Adoption Edition

08. June 2012 · 16 comments · Categories: Scams & Ripoffs · Tags: , , , , , , ,

The Ripoff Alert is a new series appearing once each week on Fridays. It alerts you to the latest scams and ripoffs trying to get between you and your money, and gives you information you need to stay safe.

Pet Adoption Scams

Pets are considered by many to be part of the family. In fact, many people treat their pets like they would a child. The emotional connections we’ve developed with our pets enrich our lives and provide many benefits. But they also make us vulnerable to a number of pet adoption scams when it’s time to look for a new pet or give up one you already own.

Most pet scams fall into one of three categories:  the Nigerian pet scam, over-payment and sales that involve sick or dying animals. I’ll talk about each one individually and how you can protect yourself.

The Nigerian pet scam

When looking to buy a pet, many people go online to places like Craigslist or search engines. Scamsters, usually operating overseas, post ads with detailed descriptions and even pictures of common breeds such as Yorkshire Terriers and bulldogs. They tell you a story about why the pet is free or discounted – they’re doing missionary work in Nigeria or some other African country, they don’t have time to care for the pet anymore, the animal was rescued from a natural disaster, yada yada yada.

When you contact the seller (scamster) for more information, he’ll answer your emails and phone calls. He’ll send you all the pictures you ask for. Some set up legitimate-looking breeding websites claiming to have AKC (American Kennel Club) certification. After all your questions are answered, the seller tells you to wire the shipping fees (usually from $150-$500), vaccination costs and various other fees. Wanting to get your new pet as soon as possible, you’ll go down to Western Union and wire the funds to the seller. They’ll then make up reasons for delays and try to get you to send more money. Once you’ve figured out their scheme, that’s the last you hear from the seller or your money.

There is no pet, the pictures are taken from the internet and the seller is not a missionary. Avoid falling in love with a pet from just a picture. You need to see and interact with it in person before making any decisions.

Over-payment Scam

This occurs when you’ve posted an ad offering your pet for sale and are contacted by an interested buyer. The price is negotiated, terms are agreed on, and the buyer sends you a check for more than the agreed-upon amount. You’re then instructed to deposit the check and wire a portion back to the buyer or a third party. Not knowing the check is fraudulent, you obey and it clears. A few weeks later it bounces back, but by that point you’ve already wired a portion to the scamster. Always be suspicious if you receive payment in excess of the correct amount. And absolutely don’t send your pet because you won’t see it again.

Sick or Dying Animals

This scam occurs at pet stores and in-person with private sellers. As you’re interacting with your potential new pet, you might notice the animal behaving a little strangely, but you don’t think much of it. So you pay the adoption fees and you’re on the way home with your new pet. A few days later after a visit to the vet, you find out it has worms, rabies, or some other serious medical condition which the seller failed to mention. Now, who’s going to take an animal back to the seller after days or weeks of bonding with it?

Instead, take some time to get in touch with the breeder’s past customers, as well as veterinary references to see if the animal has been examined. Research the breed to see if it’s a good fit for your home and lifestyle.

A variation of this scam occurs after you’ve contacted an online seller who sends you pictures of a pet you’re interested in. After you’ve agreed and sent the money, the animal in the picture ends up not being the one you actually receive. The pictures could be of anyone’s pet – just because they have pictures doesn’t mean they have the pet.

Protecting Yourself

The #1 thing you can do to protect yourself from pet adoption scams is never buy a pet on the internet. It’s fine to use the internet to find a local breeder, but always visit the animal in person. Insist on spending time with the parent animals and see where they’re kept. Watch for signs of timidness or sickness. Remember, the animal will be part of your family for 10 or even 20 years, so it’s important to take the proper precautions when selecting one. Finally, if the seller focuses mostly on getting paid you know there’s something fishy going on.

Teaching Your Kids About Money

07. March 2012 · 4 comments · Categories: Investing, Kids & Money · Tags: , , , , , , , , ,

Kids today are woefully unprepared for many financial decisions they will have to face. To prove this fact, ask any high schooler what a budget is. I’m willing to guess that about half will stare blankly at you as their eyes glaze over, and the other half will say something along the lines of, “It’s something Mom and Dad fight over all the time.”

Part of the problem is that some parents aren’t sure how to approach the subject with their kids, so they just avoid it. They may not be very good with money themselves. Other parents may assume kids will learn important lessons about money outside the home. Whatever the reason(s), kids aren’t getting the financial education they need.

LearnVest lists 9 money lessons financial experts teach their kids. Obviously we’re not all financial experts, but I want to talk about a few of these I believe any parent can handle:

2. Money is about making choices

Every time we spend a dollar we are making a choice. We are choosing to trade our life energy and resources for a product or service we hope will enrich our lives. By using our money for Item A, it means we’ll have to do without Item B for the time being. Also, by choosing to buy Item A, we’re choosing not to invest that dollar for the future or to give it to charity. This is why it’s so important to evaluate our needs and wants, put them in proper order by making a budget, and only buy our wants after our needs are taken care of.

3. Delaying gratification can pay off

Let’s say you really want to buy an item costing $200, but you only have $100. You could buy a $100 item that you like or you could wait until next month, save up the extra $100, and get the item you really like. In order to do this though, you have to go a month without any items. That takes discipline and a willingness to delay gratification until you can afford the item you really want. Alternatively, you could invest that $100 at the beginning of the year and have 7% more – $107 – at the end of the year given a 7% interest rate. To get that extra seven dollars though, you have to wait all year. Is it worth it?

6. Work for what you want, and it will mean more

For my 17th birthday my parents bought me a used car. Because it was my first car and it meant I didn’t have to ask my parents for rides anymore, I was pretty excited. I took care of that car and enjoyed having it during my senior year of high school. My parents sold it when I was in college and I went almost seven years before I had my own car again. At 24 I bought a car by myself for the first time. I still drive this car almost every day. Even though it’s not the newest or nicest car out there, the sense of accomplishment I get when I’m behind the wheel is greater because I paid for it myself.

8. Budgeting is a family affair

Do you involve your kids when making financial decisions? If not, you’re missing out on a chance to teach them how you make decisions about where your money goes and why. When they’re old enough to earn money doing chores around the house, get them a piggy bank like this and require that a portion of the money goes into each of the four slots: save, spend, donate and invest. Explain the importance of each category and get them excited about saving.

9. A little goes a long way

Just a few examples set by financially responsibly parents can set kids on the right track. Show them your retirement accounts and explain that a portion of every dollar you make is saved for when you choose to not work anymore. Show them what you’re saving up for whether it’s a family vacation, new furniture, or Lasik. Explain that by waiting and saving up a few extra months you can avoid credit card debt and instead rely on savings. If you donate to a charity, explain why.

Always look out for opportunities to teach your kids about money and finances. You’re the best example they have.

Photo by enemyofdebt.com