Financial Help in These Trying Times

With the trying financial times we need to live and manage money smarter. Here are some ideas that you will not see many other places. Too many of the financial gurus are talking about things that don’t help the average American. These items can help most people. Some of them seem trite but they are things I see people doing wrong.

1) Pay on time – avoid late fees.

Late fees are just wasted money. Pay on time if at all possible. If there is an early payment discount this is generally the best option. Many people look at a bill with an early payment or a late payment fee as, “I can wait till the last date to pay.” It can be prudent to wait till very near the net date to pay the bill to allow that money to remain in your account to draw interest, if your Credit Union pays interest on checking accounts. It is prudent to wait and pay the higher amount if the late fee amount is less than the interest you can earn on the money if it is left in your savings account but it is rare that the fee is small enough. In the examples I am using three percent savings account interest which is higher than I am aware of, but it shows this is a bad idea that is even worse at less than two percent that is more realistic. Look at three actual billing examples.

Water bill – $17.86 net (on time) $19.65 late

What the bill doesn’t tell you is what happens if you are late and don’t pay till the next billing cycle which is in this case three months. My understanding is that till they cut the water off the next bill will be calculated with the same percentage on both the new and the old charges INCLUDING the late fee from the first month. If I pay the bill three months late I have nearly $20 to bank for three months (rounding the 19.65 up to 20 to make it easy to figure). At three percent interest a year that will give me 20.00 times .03 ($.60) divided by 12 times 3 or $.15 of interest. I have laid out 19.65 minus 17.86 or $1.79 in late fees to get $.15 of interest that is taxable on federal income tax and possibly state so it costs me $1.65 to pay late each quarter or $6.60 a year. If you think this is insignificant, try doing this with every bill. If you take enough peanuts you soon get an elephant.

Sewer and trash – 166.00 (on time) 182.60 late

If I pay the bill three months late I have $166 to bank for three months. At three percent interest a year that will give me 166 times .03 ($4.98) divided by 12 times 3 or $1.25 of interest. I have laid out 182.60 minus 166.00 or $16.60 in late fees to get $1.25 of interest that is taxable on federal income tax and possibly state so it costs me $15.35 to pay late each quarter or $61.40 a year.

Credit Card – didn’t pay full balance was just under 2100, paid 1900 – let $200 balance for a month. I got dinged for just under $18.00 in finance charges! If I had taken money out of savings to pay it the interest lost would have been $200 times .03 is 6.00 divided by 12 is $.50 interest. They charged me 36 times as much. At this it would cost me about $216 a year. Balances on credit cards are BAD NEWS.

2) Pay extra money on the item with the highest interest.

With credit card interests at levels near 30 percent pay the card off if possible. At this you pay 2.5% a month. Put another way, a balance of $1000 is $25 interest each month or $300 a year. In three years you pay back nearly double. Don’t put extra money on a 6% (or even 8%) home mortgage as long as there is a credit card balance.

3) Transfer amounts to the credit card with the lowest interest.

If you get an offer from a credit card company for a lower interest on a transferred balance, take it. Transfer as much as possible. Even if it is for six months, do it. If you transfer $5000 from a 29% card to a 23% card that is $300 savings a year. But then, pay the 29% card off each month and put the $300 a year ($25 a month) extra on the card with the $5000. Use the money as payoff money, not mad money. Get rid of that debt. One of the financial guru’s on the radio says, “Beans and rice.” What he means is go on a war footing to retire the debt. A stop at Starbucks each day instead of a convenience store coffee shop for a coffee is about a dollar more for just the snob value of Starbucks bitter coffee. It is even more if you want one of their premium drinks. A dollar a working day is $250 a year or a little over $20 you can put on the credit card balance. There are ways to save.

4) Careful with buying in quantity.

Buying in quantity is one of the things that is touted a lot but be careful. First, make sure that the larger quantity really has a lower cost. Unit prices on the shelf are great but make sure you are working with the same units. I have seen green peppers for example have unit pricing one place per pound on one place and per piece the other. If the amount of the discount is only a couple percent and you are not going to use it in let’s say two months it probably isn’t a good idea. I belong to BJ’s and I buy things there but I am careful to not over buy quantities. Remember money costs you what your highest interest rate is on a loan or credit card. If that is 29 percent let’s round that to thirty which is 2.5 percent per month. If you spend an extra ten dollars on an item to buy quantity you will incur 2.5 percent of that in one month in extra interest on your credit card. That is twenty five cents a month. If you don’t need the amount for six months it actually costs you $1.50. Unless you are saving that much or more it isn’t a good idea. If you don’t know how to figure percentages, check for a math primer I will be posting soon.

5) Shop where possible.

Don’t buy ANYTHING till you shop. I use the internet a lot for that rather than gas. I buy lots or things from E-Bay and Amazon stores. I take a look on the internet or in a store. Look at least two places. Remember to consider shipping costs on internet items and sales taxes on local purchases. Generally I save between 20 and 35 percent on big ticket items nearly that on small tickets. I have bought items on E-bay that item and shipping are less than $6. Usually they are items that I can’t find in a store.

I will not illegally avoid taxes but my attitude is, “Render unto Caesar that which is Caesar’s but not one penny more.” Obama lied when he said, “It is patriotic to pay more taxes.” It isn’t. It is stupid. Check the tax returns of the liberals like him. They don’t pay extra, they take every possible deduction and many they have crafted to allow them to take but you can’t. Washington, Harrisburg, York County Government all are very capable at squandering money. If you give them more, they squander more.

We have a regional liquidator in the area called Ollies. They buy store stocks of closing stores and sell it. Generally this merchandise is priced at about half of what it was on the original store shelf. About 5 years ago I bought CF light bulbs there for about fifty cents each when they were about six dollars elsewhere. A week later they were all gone. Ollies is near other places I go, I check it from time to time. But be careful in stores like this, do not buy with the idea that you might need it.

Check dollar stores occasionally. I bought very nice small LED flashlights last year as Christmas presents for a dollar each. They have turned out to be good quality. I watch them for ear bud headphones and computer cables too. With kids the headphones are high turnover. The dollar ones are almost as good as the $15 ones.

6) Use credit cards for most large purchases.

Some credit cards have insurance on items if they break. This is helpful. But the big thing is deferring the payment a couple weeks, giving you time to let that money make money in the bank. Over time doing this all the time makes some money. You also have a record on what you buy. Also, see the next item on timing purchases.

7) Watch when you make purchases.

If you are buying large purchases, watch the credit card cutoff date. I don’t buy for Christmas till after the twelfth of December. If I buy in the first week of December the items will be on the bill I get about December 16. If I wait a couple days till after the twelfth it will bill on January 16. I get interest for a month on my money in the Credit Union. If there is a great sale, over 5% or more off that ends on December 11 I will make the purchase because the discount far exceeds the monthly interest. I save over a hundred dollars a year doing this.

Careful with schemes that claim to save money.

These are the most dishonest business practices I am aware of and they are legal. I complained to the PA Attorney General (a good guy) about this and got a, “It’s legal. We can’t do anything about it.” Scenario. I was buying a computer printer from an online shop. It was about $78 plus $12 shipping. Walmart was best local, they priced at $90 and I had $5.40 in tax. I save over $5. That is enough unless I need it now. I didn’t. So I placed the order and in checkout there was a box, “Click here for free shipping.” Now I thought I understood “Free shipping.” I thought my total would go from $90 to $78 but it didn’t, it went to $98. I missed the significance and there was another block, “Click here for 10% off on all orders till the end of this year.” I buy about 2-3 times a year from the company so I clicked it. This time I noticed the amount went up to about $118.

I have just asked for free shipping and ten percent off and my bill went from $90 to $118 and I am confused. There were two twenty dollar items on my bill so I blew the order away and started over. Again I asked for free shipping and I got a “Preferred Customer Charge of $20 added to the bill while the shipping went from $12 to zero. Free shipping cost me $8 more! So I decided to play along. I clicked the button to save ten percent. I got a 10% discount, $9 but they added another “Super Preferred customer” charge of $20. Ten percent cost me $11 more! I blew the order away and started over not asking for free shipping or ten percent off and I got the printer for $90.

Although this happened on line, there are deceptive practices every where. If they want you to purchase a “plan” or become a preferred shopper, check how much it costs. A “reputable” department store in this area sells a plan not unlike the one on the internet, pay $20 a year and get five percent off every purchase. You have to buy more than $400 to break even.

9) Check, re-check and check again.

Watch your billings. Look for things that don’t belong. A prime example of this is the phone bill. I have seen a TV special that started out with the premise that brain surgeons and rocket scientists can’t figure out the charges. What makes any of us think we can?

Between the labyrinth of taxes and fees (what is the difference if they go to the government?) phone bills are complicated. Add the regulation that the phone companies helped write or paid to have written and you have chaos on a piece of paper called a phone bill. One thing that helps is comparing last month to this month. Look for new charges or ones that went up significantly. I administered a company phone bill for a couple years that came in a box that was about 12×12x6 inches. You look for changes and then explain them or request reimbursement. Reimbursement demands are the best way to get answers. Not all phone charges are “phones”, some can be pass through where the phone company is a billing agent for other services like confidential mail boxes and even support calls to another company. The phone bill can be more than a phone bill.

Cell phones are probably a little worse. I have my cell with Verizon Wireless but the others I have dealt with are not any better. I don’t have Verizon land line any more, I got rid of them about 5 years ago and went Vonage VOIP. My phone bill went from $58 a month to $38. You need high speed internet service (cable TV) for this but it is a way to save about $20. Most people save more than I do because I have a second line for a FAX, without that the bill would be $28. And I get as no charge nearly every feature Verizon offers and a couple they don’t like simultaneous ring. That means my cell rings when my home phone rings. I can turn the features off and on from an internet screen. If you try to make this change the ILEC (Incumbent Local Exchange Carrier) in this case Verizon but they are not by any means the worst, will try to scare you that if you are using VOIP you may not be able to make a 911 call. This is true if you are stupid enough to not register your number for 911 service (no charge, they just need your address!) when you take out the VOIP service. If you don’t supply it they ask you for it repeatedly in large red letters! VOIP scares the ILEC as much as Direct TV scares Cable TV systems.

10) Avoid the use on pay on the phone services.

The pay by phone services generally have a fee. I have seen about $15 for the ones I have used. If you pay a bill this way every month that is $180 a year. Use common sense. If you are going to get a late fee or a credit ding that may increase interest rates on your credit cards, DO IT. But try to pay early enough to avoid needing to do it.

11) File receipts, instruction books and warranty information. Be careful to always register for warranties.

Set up a file. I use large three ring binders with alphabet dividers and page savers in it. I put the warranty, the bill and the instruction book in the page saver. If you have the register receipt, include it. I have a few times been able to recover warranty money. Having the instruction books handy is also good. Most warranties can be registered on line. Use this to save $.43 for mailing. Companies make money if you don’t register so they don’t cry if you don’t.

12) Careful on buying extended warranties.

I generally don’t on electronics. I do on a new car. If I have to replace a $50 DVD player when it is six months old I will. A $3000 bill for a major car repair is something I want to avoid. Generally if it is less than $500 I don’t buy one, if it is over I do. Assess your risk and decide what is best but don’t let a clerk scare you into buying it. Make a rational decision.

13) Avoid mailing checks if possible. Have your Credit Union mail payments if they can.

I haven’t used ten stamps in the last year for bills. If you are in Pennsylvania and aren’t using PSECU Credit Union, look at it. If you can’t use PSECU, find another credit union that offers good services. A not so great credit union is almost always better than a good bank in cost of services. I can join at least two other Credit Unions in the area, both offer less services than PSECU (Members First and First Capitol) and both would be better than any bank I have checked. I was paying over $50 a year service fees and it was going up when I moved to PSECU. I haven’t paid a cent, and my ATM withdraws are free unless I average more than eight a month. I don’t ever get close.

With PSECU I go on line a couple times a month, set up new bills (rarely) and change the amounts on the variable ones. Ones like car, house, loan, electric and gas on budget, and my church contribution (no kidding) are set for every month, my water and sewer are set for every quarter and I don’t touch them. I have accounts set for my furnace repairman, the York Rescue Mission, my doctor, my dentist, car insurance, credit card and a couple other entities I pay on an ad hoc basis. Some of them go electronic funds transfer, others the Credit Union mails to the payee. I am sure the envelope for my furnace guy has only my check in it. PSECU pays for the check, stamp and envelope. I am sure some of them like my car payment have other payments in the envelope with mine. This money is PUSHED out of my account not PULLED by the payee. I can stop or alter a payment up to the day it is cut. The ETF ones allow me to pay later and still be on time.

14) Use direct deposit. Your money gets there a day earlier and starts accruing interest for you, not the company.

15) Avoid foolish social action buying.

Green power generally is not what it is claimed to be. If you really think Al Gore is right you have a bigger problem but even so, don’t pay more than a fraction of a cent extra to get green power. If the company is that far out of line in cost you spending your money to support them will not help. They are mismanaged and they are going under. They will be a flash in the pan, not a long term player. In energy we need companies that will be there in five years, not ones that will go under next month.

Shop Walmart and other discounters no matter what the nut cases say about it. At least see if the price is significantly lower. If you are going to save only a few pennies, shop with social action. If it is significant, buy at Walmart and give the difference to some good charity. That will give you an income tax deduction as well. Consider giving the tax savings, most good non-profits make better use of the money than the government.