I wonder how many people are paying for road hazard insurance unnecessarily. I used to pay the annual fee to a big-name motor club for the promise to help me or my wife out if we had a flat tire, dead battery or needed a tow.
My decision to discontinue the coverage was easy the first time I called for help after being told that it would be over an hour before someone would come to change my flat tire on I-25 in Denver. Ordinarily I would change the tire myself, which is what I ended up doing.
Check with your current auto insurance company before paying someone else for roadside assistance protection.
I enrolled in the plan with my wife in mind, but they covered both of us for the same price so I thought I would try it out. On the day I called for help, my motivation was driven by the fact that my blowout occurred in rush hour traffic in the midst of one of Denver’s famous summer afternoon monsoon gully washers. We discontinued the coverage the next time they sent me a payment due notice.
It wasn’t until recently that I realized I had been wasting my money with the policy anyway. It turns out the full-coverage policy we’ve had with State Farm all these years comes with roadside assistance. I found out about it only recently while scanning my semi-annual premium notice into the computer. I looked into it a little deeper and found that it’s basically the same service I had been paying about $100 a year for once upon a time.
If we ever get locked out of our car, or have a dead battery, or need a tow, we’re covered. You have to call a special toll-free number to take advantage of it but no biggy; we just keyed the number into our cell phones.
Takeaway: Check with your current auto insurance provider to see if they offer roadside assistance. If so, don’t even think about paying another “motor club” for the same service.
We’re on a tight budget these days but determined to do something fun out of town with the kiddos for Spring Break. Since we’re new to Phoenix and only a six hour drive from the LA/Hollywood area, my wife and I decided we could work a thrifty road trip into the budget.
Beautiful pic of Santa Monica pier by Dana Damato (www.danadamato.com).
So we put some dates on the calendar and began to plan. The trouble with searching the web for things to do is that most of the search results include options that cost money. I knew if I could talk to some locals I could find some cheap or free ways to entertain our tween-aged daughters.
Since we don’t know anyone who lives in LA, I posted this plea for help in the “Frugal” message board on Craigslist/LA:
Looking for help from locals. We’re hoping to find a studio tour or filming of some sort to experience that is free or cheap. Any tips?
The crowd came through in a big way. Here are the responses I received in just the first 48 hours:
Google free tv tickets Los Angeles. We saw the Jimmy Kimmel show and Jeopardy. The Science Museum in Exposition Park is free. Natural History Museum is cheap. Ride the Blue Line to Long Beach. Take the Red Line to Union Station, walk to Olvera Street and Chinatown. Red Line also to Hollywood Blvd. Gold Line to Pasadena.
Call the Burbank studios to get tickets to Leno.
Universal has a theme park tour, but I think it costs.
Google free tv tickets Los Angeles. We saw the Jimmy Kimmel show and Jeopardy.
The Science Museum in Exposition Park is free.
Natural History Museum is cheap.
Universal city walk – it’s a few miles north of downtown LA (on the subway too) its free to walk around the stores and browse. the biggest cost is parking. but its about $80 a person to enter Universal City theme park next to it.
Drive to Santa Monica beach. You have to see the ocean plus the Santa Monica pier is a boardwalk classic the main cost is finding parking at the end of the 10 freeway.
Walk around Hollywood & Vine. See the stars in the sidewalk with Grummans theater handprints, and Kodak theater walk into souvenir stores see all the hucksters on the sidewalks, some impersonating stars.
Drive up to Griffith Observatory. That’s where they film lots of movies you’ll have a good view of downtown L.A. and the Hollywood sign nice science museum there too; parts are free.
Dream with me for a minute. Imagine that you woke up this morning and realized that the quick pick numbers on the Powerball ticket you bought at the convenient store the other day matched all six balls in last night’s drawing.
Lump sum or annuity?
Among the many important decisions you’ll have to make is weather you want a lump sum or series of payments over twenty years. If you were to choose the series of payments, you’re opting for what we call in the financial planning world an annuity.
Suppose you win the Powerball lottery. You’ll need to decide whether you want the jackpot as a lump sum or series of payments – or an annuity.
Now you know what an annuity is in it’s simplest form. Unfortunately, the insurance industry has added so many bells and whistles to annuity products that they’re far from simple.
When I used to teach my financial consultant trainees about annuities, I always found it helped them understand the concept better if we put them into categories. Most annuity products can be categorized as either a fixed annuity or variable annuity and again as immediate or deferred.
Fixed or variable
A fixed annuity means that it accrues interest at a minimum guaranteed rate. The interest paid is generated by underlying investments in bonds or other securities that pay interest and the eventual return of principal. Since annuities are also insurance products, fixed annuities are typically guaranteed to pay a minimum rate plus additional earnings (or dividends) on top of the guaranteed amount.
On the other hand, a variable annuity offers no guaranteed rate. Instead, the return generated by a variable annuity depends on the performance of underlying investments – usually publicly traded stocks and other non-interest bearing securities. Variable annuities can even lose principal in the event of a drop in the stock market.
Immediate or deferred
Most annuities can also be classified as either immediate or deferred, a reference to when the payments (to you) begin. As the name implies, an immediate annuity will begin payments right away. That could be in a month, a quarter or even a year from the contract date, depending on when you request your first payment. Deferred annuities often don’t begin to pay out for several years. During that time, you can typically increase the size of the annuity principal by contributing more premiums to it.
To summarize, you could have a fixed annuity that’s immediate or deferred. Likewise, a variable annuity can be either immediate or deferred.
The connection to Powerball
Okay, so how does this lesson about annuities tie in with Powerball? Remember, if you ever win the Powerball lottery one of the most important decisions you’ll have to make is whether you want to receive your winnings as a lump sum or annuity – a series of payments.
You don’t need me to tell you that your chances of getting hit by lightning in this life are better than matching all six Powerball numbers. However, anyone can purchase an annuity contract. If you have a sizable lump sum from insurance proceeds, the sale of property or a business or what have you, you can convert that money into a series of payments with an immediate annuity. In many cases you can even roll all, or a portion of, your retirement account into an annuity. (Be sure to educate yourself on potential tax consequences if you consider this move.)
Suppose you don’t have a large sum of money. You can purchase a deferred annuity with a smaller sum of money and add to it over the years to build up your own annuity “jackpot.”
The Washington Post headline for January 1, 2012 read “Senate overwhelmingly passes ‘fiscal cliff’ deal.” This after President Obama cut short his Christmas vacation with the family in Hawaii to fly back to Washington negotiate a deal with Speaker Boehner.
Image credit: Fox2now.com – St. Louis, MO
With all the talk recently about the fiscal cliff and how President Obama’s plan would surely send the U.S. into a double-dip recession (the first dip having occurred 2008-09), I got to wondering about how my own tax situation had been impacted by the decisions of Washington in recent years.
It’s hard to know what the truth is with all the sound bites we hear in the news, so I did what made the most sense to me and looked back at the tax returns I have filed jointly with my wife for the past several years.
Our effective tax rates for 2004 through 2011
Year Rate Pres Senate control
2004 6.68% Bush Republicans
2005 5.43% Bush Republicans
2006 9.37% Bush Republicans
2007 8.02% Bush Republicans
2008 6.46% Bush Democrats
2009 6.46% Obama Democrats
2010 7.46% Obama Democrats
2011 8.45% Obama Democrats
I was a little surprised by what I found. Our highest effective tax rate (9.37%) was in 2006. I did a little more digging found that the Republican Party not only occupied the Whitehouse (George W. Bush) but also controlled the Senate at that time.
During this time period our gross income increased by 16%. Neither my wife nor I changed employers or moved. Our dependent (children) count remained constant too.
The takeaway for me is that Republicans aren’t as true to their claims of being the tax reduction party as they would like the American public to believe. During the Bushpresidency, our effective tax rate rose nearly 3% from 2004 to 2006 before it began to drop in 2008 in response to all of the stimuli designed to head off a recession. (Note: we went into a recession anyway.)
During the Obama years, our tax rate increased from Bush’s last year in office; however, as of our 2011 tax return we’re still not back to the peak rate of 9.37% tax rate we were paying in 2006 under Bush and a Republican controlled Senate.
Don’t take my word for it. Look up your own tax returns and see what the impact has been for you.
Here we are in a new year again. If you are a resolution maker and want to do a better job at managing your finances, consider one or more of the resolutions below.
1. Make a budget (or spending plan)
Budget – it’s a scary word, I know. Almost as bad as the word “diet.” If you don’t like the word budget, try calling it a spending plan. Whatever you call it, without putting more thought into what you spend, you are more likely to spend money recklessly.
Keep it simple. You don’t need any fancy software or apps; a simple spreadsheet is what I use. Plot out what income you expect to receive on a monthly basis and how much you expect to spend.
I have found that predicting expenses is a lot easier if you download transaction history from your bank or credit union for recent months or the same month a year ago. Although it takes a little more work, I like to plot out every day of the month so I can project how my account balance will likely change from day to day. This is a good way to help prevent unnecessary transfer and overdraft fees.
2. Spend less
Sounds painful, but this is actually the one of the easiest things to do. A simple way to find ways to save is to look at your bank statements. What always stands out to me are purchases like coffee or fast food places. You don’t need to give them up completely, but you can cut back on the number of times you go there or on what you buy. Try this: small-size rather than super-size. Or bring your lunch to work one more day per week. Taking these little steps can add up to big savings.
Top financial resolutions people make according to creditcards.com.
3. Pay down debt
This one is a real challenge and offers perhaps the greatest feeling of satisfaction. My wife and I paid off three loans that had been weighing us down in 2012 and we aim to get rid of our last two in 2013. Take if from me, there is no better feeling than calling to ask for the payoff amount for a loan then telling the service rep, “Thank you – now help me make my final payment and close this account for good.”
Opinions differ among experts as to which debts should be paid down first. We’ve been following the debt snowball method made famous by Dave Ramsey. You pay off your smallest loan first by getting aggressive with extra payments. As soon as that debt is gone, add the minimum payment that you would have been paying on that loan to the payment you’re required to make on your next biggest loan until it’s paid off. Repeat that sequence until your debts are paid off.
With interest rates as low as they are currently, now is also a good time to see if you can renegotiate lower rates with your lenders. Be careful about consolidating debt. By bundling all your debt into one large loan, it’s possible to become overwhelmed and feel like you’re getting nowhere.
4. Save more
Don’t confuse this with spending less. What I mean by saving more is actually putting money away for you to use later on. The best way to get and stay motivated on this goal is to think of it as paying yourself. Ideally, you should be the one you pay first always. Anyone just starting out in the working world should make this a high priority. However, it can be really tough to do if you haven’t gotten serious about spending less or paying off some debt.
5. Get in touch with your investments
When friends or family members ask me for advice with their investments, I’m always amazed to find out how little they know about what they currently have. How much do you have? Where is your money invested? What sort of return are you getting? If you can’t answer those basic questions, getting answers should be a high priority.
Once you have a better idea of what you have and how it’s invested, do some digging to find out if it’s appropriate for your goals. Learn about investing in stocks, bonds and mutual funds and get intentional about how your money is invested. You can only work so many hours per week to earn money for yourself. If you’re investing wisely, your portfolio can become like a silent partner for you – earning money for you even on your day off. Trust me, if you ever plan to retire you cannot grow your investment portfolio too large.
Don’t have investments? Make it a goal. It’s easier than ever to invest your money and have it go to work for you. The most convenient way to get started investing is with your retirement plan at work. If you don’t have access to one, look into setting up an IRA (individual retirement account) or mutual fund account.
6. Educate yourself
Learning more about what you currently have is an important step, but don’t stop there. Learn about the stock market and what impact the decisions made by the numbskulls in Washington have on the market. Find a few blogs or websites to follow, starting with mine. I learned a lot about financial matters in college and my formal training but the real valuable lessons I learned by reaching, watching and doing. Expanding your knowledge about finances is a responsibility you owe to yourself.
In December 2012 I called my credit union to ask about consolidating a loan we have elsewhere with a loan I already have at the credit union. The solution they offered surprised me: A cash out auto loan, whereby I send them the title for the truck I recently paid off and they loan me up to the blue book value at a very low interest rate.
Image property of autopawnamerica.com
Making a move like this is counter to the general advice offered by Dave Ramsey, whose wisdom my wife and I have been relying on in our pursuit of financial peace by eliminating all our debt. What I would tell Dave is that I’m not taking on more debt; I’m just changing the interest rate and to whom I’m repaying the loan. Besides, by having the loan with my credit union I can be “gazelle intense” in paying it off since I’m reminded of the debt every time I sign in to online banking and I can make extra payments with a couple mouse clicks. Truthfully, this is my real intent.
At first I was uncomfortable with giving my truck title back to the credit union since I had never heard of a loan like this. I wondered how it’s any different than an auto pawn business. In retrospect, it’s probably no different; however, the interest rate is much better than I could get with a pawn broker and I do have a lot more trust in my credit union.
Why is it that we always think the worst? “If I miss a payment, they can repossess my truck,” that voice in my head told me.
“You haven’t missed a payment on any loan for over ten years dummy; your truck won’t be repossessed,” the glass half-full voice responded.
I followed the voice of reason. As a result, I was able to borrow the same amount of money I owed on my other loan but at a much lower interest rate. The other loan was 18% interest and would have taken me another four years to pay off. The rate on my new loan is only 2.5%. The monthly payment is about five dollars more per month and if I make only the minimum payments each month, the loan will be paid off a year earlier. However, my wife and I are committed is to making double payments and paying the loan off completely by the end of 2013.
Provided we continue to be blessed with steady income and no big unforeseen expenses, I’ll have the title for my truck back in a year and we’ll be that much closer to our goal of being debt-free. Works for me!
When I bought my daughter a new phone at Verizon recently, I was asked if I wanted insurance on the phone. The insurance would offer a replacement phone in the event it was damaged beyond repair.
As I began to do the quick math in my head, that little voice of reason that I’ve been hearing from a lot more lately promptly gave me three reasons to say no.
Image courtesy of insuranceinfonews.com
1. Monthly Cost
The upfront cost for the insurance is $7 per month, or $84 a year. If the need arises, we can likely replace the phone with a used model from an Ebay seller for under $100. So unless she destroys the phone in the first two months, the insurance math just doesn’t add up.
2. Deductible
In addition to the monthly premium, if we need to use the insurance, there is a $100 deductible to get a new phone.
3. Obsolescence
The model of your phone will likely be obsolete by the time you need to use the insurance. Earlier this summer my daughter’s other phone gave out. Verizon didn’t have a “comparable replacement” so we ended up buying the exact model on eBay for about $60. We took it in to get the contacts transferred over and she was back in business.
There was a time when we felt it was worthwhile to pay for insurance cell phones. That was when the whole cell phone craze began and we had this fear of forking out a bunch of money just to maintain the ability to use our service. Now that cell phones are plentiful and we have been using them for a long time with no issues, I just can’t justify the cost of insuring them.
If you have you been thinking about trying to post something for sale on craiglist.com but have been hesitant because you don’t know how to go about it, read on.
In 2012 I sold no less than two dozen items using Craigslist. To date, I have a 100% success rate. I also have a bachelors degree in advertising, but my advice here comes more from my actual experience using Craigslist.
Craigslist is a free website you can use to sell items around your house.
1) Write to an audience of one Knowing and writing to your audience is key to success for any ad. Since you likely only have one item for each ad, you don’t need the type of door buster ad that we see around Thanksgiving. In most cases your target audience is just one person out of a hundred or so that will see your ad. What does that one person need to know about the item you’re selling?
2) Keep it simple Use simple language. Keep your sentences short; a bullet pointed list is more effective than sentences. Tell as much as you can in the title: brand, color, model, year, etc. This helps people find your ad when they perform a search.
3) List the price In the world of Craigslist, price is a big motivator. Unless you’re selling something so unique that it can’t be found elsewhere, your ad will likely flop if you don’t offer the item(s) at a bargain price. If you don’t tell them your price, potential buyers are more likely to skip on to the next seller’s ad. Based on my experience, Craigslist buyers aren’t as likely to haggle as garage sale or old-school classified ad shoppers. So you don’t need to price it higher than you really want to sell it for in order to give yourself wiggle room.
Tip: my 100% success rate with Craigslist ads is due in part to my willingness to drop my price (if necessary) over a number of weeks until the item was attractive enough to a buyer.
4) Post pictures Many Craigslist shoppers won’t even open your ad if they don’t see the image icon next to your title. Craigslist now allows you to upload as many as six pictures per post. Use that to your advantage by showing the item(s) from many different angles. Since the first image you upload is the one that shoppers will see first, make sure it’s the most representative picture. Don’t hide the flaws though. Showing imperfections up front will make the transaction go much smoother when the buyer shows up at your house with the cash.
5) Give your phone number This is critical. Craigslist buyers tend to be spontaneous. They feel like they need to strike quickly in order to get a good deal and won’t take the time to send and manage a number of emails. Be prepared to delete your ad as soon as it sells so you can eliminate unnecessary calls or text messages.
Tip: It’s best if you give a cell phone number and mention that they can call or text you. This works better for you too, because you can answer or respond to calls if you’re away from home.
Follow the five tips above and you’ll be selling your stuff on Craigslist with the best of ’em in no time. It’s a great way to turn unwanted items around your house into cash.
For examples of what not to do when you write a Craigslist ad, see these OMG Craiglist ads (intended to be humorous).
In 2012 my family of four decided to chase after the notion of financial peace. It was a decision that my wife and I made, but we made sure to include the kiddos in on the plan so as to explain why some things would be changing around the house.
This medium quality indoor/outdoor HD antenna cost about $40 and delivers all the network and local channels in high definition.
Although I didn’t earn any popularity points for this one, I made the executive decision that we would be cutting DirecTV out of our budget after about fifteen years of loyal subscribership. It wasn’t easy at first but we’ve adjusted, and now we rarely miss the hundreds of channels we had access to but rarely watched.
How we did away with satellite TV
Since we already had a HDTV, I purchased a medium quality digital antenna for about $40 that I mounted on the side of our house nearest the radio and tv antennas perched atop South Mountain in Phoenix. After running the channel scan, we ended up with about 40 channels that are viewable; however, roughly a quarter of them are Spanish only stations and another quarter program content we would consider only on the most sleepless of sleepless nights. We do get all of the majornetwork channels that accounted for about 80% of our viewing when we had satellite. Most of the channels we watch now are in high definition, so we’re actually getting a higher quality picture than satellite at no cost.
Stretching our dollars with technology
So as to make sure we could watch the shows we want when we want (a habit we developed thanks to the DVR satellite receiver), I did spring for a Tivo box at a cost of about $70 and a $20 monthly service fee. I also pay for high speed internet from the local cable company and have the internet connection wired directly to the Tivo box. The internet connection means we can stream videos from Netflix ($8 a month for unlimited movies and programs) as well as free videos and programming available from YouTube and Tivo.
For music channels similar to the satellite radio stations on DirecTV, we now stream our favorite Pandora channels. We can also now surf the web, shop or play games with others around the world on the Wii console that’s also wired to the tv.
There are still moments when we really miss some of the stuff we used to watch on channels we no longer get. For instance, my wife and daughters used to love watching Dance Moms. When Superstorm Sandy battered New Jersey and New York, I really wished I had The Weather Channel.
Update (Jan. 1, 2012): I may be a little slow, but I just discovered that we can watch ESPN and a number of cable networks on the iPad, thanks to the growing number of available apps.
Bottom line
We gave up a monthly satellite bill of about $80 in exchange for our current cost of $28 (Tivo and Netflix) – a savings of $52 a month. That’s over $600 a year we’re saving for giving up very little. It may not be worth it to a lot of people, but we are laser focused on cutting our expenses and paying down debt.If it sounds good to you, I would suggest you try pulling the plug on cable (or satellite) and see how much you can save too.
Paul Fiarkoski 