Careful When Lending Money

Most of us have been in the position where we where have been asked if we could lend some money to a friend or relative.  Many of us have also been in the situation where we might of had to be the ones asking for the money.  Did it change the relationship between the two of you? How did you come to an agreement of paying it back?  Personally, lending money to friends and family are just something I don’t do. 

When I am talking about lending money, we are talking about $100 or more (To me that is a lot of money to loan, but I understand that to some that is not a large amount).If you where the potential lender, think back to that awkward feeling you had while trying to make the decision whether to lend the money or not.  If you did loan the money, think about how the relationship changed afterwards.  Maybe he didn’t pay you back, maybe you had to hassle him for the money.  Whatever the case may be, it is an experience we all hate to have.

My father was a small business owner back when we lived in Mexico.  His business was in all kinds of financial troubles so he started to look into other ways to make ends meet as well.  To pursue these other business interests he need it some money to make it happen so he went to his brothers and cousins for some money that they could “invest” with the promise of payment in full in the future.  As you can guess, my father never payed the money back and his relationship with them has never been the same.  Money became such a divider between them that my father has very little contact with his brothers and cousins.

Due to prior experiences with lending money and hearing so many other people have negative experiences as well with the subject, I have come to the decision to not loan money to friends and/or family.  If somebody I care for finds themselves in a situation that they need help financially and ask me for me money, depending on the circumstance, either I will help them some other other way (educating them on personal finance-If they are receptive to the info) or I will gift them the money with no expectations of getting the money back.

Lending money is a personal issue that can strain and even break relationships.  Some point in time we are all asked and will probably be asked again if we can loan somebody money.  Don’t just think of the amount they are asking for-think about the other effects that it can cause between you and the other party involved. 

Top Money Pitfalls

Back in 2007, I started my crusade on becoming better informed in the world of personal financing.  As I began to read personal finance books, I started to notice that many of this authors had different ideas and solutions for retirement, savings, spending etc.  At the same time though, you can still find many similarities.  Here are some of the four most common mistakes people can make financially:

  • Car payments.  In my opinion, this is one of the biggest money pitfalls people can fall into.  Usually, this becomes the largest monthly expense an individual has other than their house payment.  Imagine what you could invest your money in if you didn’t have to give $300 a month($3600 a year) to a car that is depreciating every time you drive it.  Instead of spending money on a new car, your best bet is to save cash and buy a reliable used car.
  • Rent/House payments.  Many people make the mistake of getting”too much house”.  What I mean by that is that they buy a house that they really can’t afford (Hmm sounds like mortgage crisis).  Basic rule of thumb is that your house payment shouldn’t be any more than 1/4 of your take home pay.
  • Not Saving Long Term.  Start saving now!  It is never too early or too late to start investing in your future.  The power of compound interest is in our sides, especially for those starting off early.  If you don’t have any car payments, you have a reasonable house payment, and you are watching your spending, there should be no reason why you are not saving a little a very month for your future.
  • Not Budgeting.  Having an understanding and a plan of where your money is going is considered one of the simplest, yet most important things you can do with your finances.  It doesn’t matter if you do it monthly or yearly, with software or by pen and paper, the important thing is that you do it.

Knowing what mistakes to avoid financially is very important when trying to gain your financial freedom.  Many times we are told what we need to do to reach our goals, just remember to watch out for those pitfalls that might occur around the way.

I’m curious of finding out what do you consider to be money pitfalls?  Do you agree with the ones I’ve chosen?  How can you avoid them? 

High Yield Savings Account

If you are a regular to any blog dealing with personal finance you will surely run into the great use of high yield savings account instead of your regular savings account at your brick and mortar bank. The term high yield savings account are just like a regular savings account but with some perks to it. These types of accounts usually offer a higher APY (Annual Percentage Yield) which are their most attractive aspect of using one.

The most popular place to obtain one of these accounts has become through internet banking. Online Banks such as HSBC Direct and ING Direct have become very popular due to their higher yield, great customer service, and ease of set up.

If you prefer using a traditional brick and mortar bank rather than an online bank, most national banks offer a high yield savings account. Check with your current bank and ask if they have any higher rate accounts. More than likely they should offer this type account. The most common criteria to open the account would be:

  • A suffeciently large initial deposit
  • Keep a certain balance over time
  • Limit transactions in and out of the account
  • Maintain other banking relationships

For years, I had a savings account with Washington Mutual earning a whoping .25%. When I found out about higher yield savings account, I decided to do some research on them. Washington Mutual did offer an account with a great rate. I believe it was aroung 5.50% at the time (As of May 15 it is 3.30%). The problem was that they did have to many restrictions to open and maintain one of these accounts. As mentioned earlier in the criteria section of this post, they asked for a large initial deposit, you had to keep a certain balance at all times or suffer penalties and fees, and other things that steered me away from opening an account with them.

I decided instead to go with an online bank and chose HSBC Direct. The setup progress is very easy. It takes you about 20 minutes to apply and if you need any help, they have great customer service that can answer any questions you have via phone or email. The initial deposit is $1 and there is no minimum amount you need to keep. There is no monthly maintenance fees and you are not required to have a checking account with HSBC. In all, I have been more than happy with their services. So much that I have multiple accounts setup with them for differenct uses.

With so many options and the ease of opening a high yield savings, there shouldn’t be a reason why one should continue using a crummy traditional savings account. While you are not earning a tremendous amount of money from the interest earned from the account it sure beats what you where earning before. I’m earning more than $200 a year which is much better than the $10-12 I was earning before.

If you are interested in opening a high yield savings account, do some research and find customer reviews for them. I recommend going over to Bankrate to compare rates and their different options. Lets stop letting our money go to waste and lets start watching our money grow.

Self-Discipline and Your Money

Personal finance is much more than just numbers.  A commitment has to be made if whether you want to pay off debt, increase your savings, or become more frugal.  One of the key components to being successful with your finances is self-discipline.

Simply stated, self discipline is the ability to get yourself to do something and to follow completely through with it.

A great example of self discipline is starting a diet to loose weight and sticking with it till you get to your ultimate goal.  But if you have ever been on a diet, you know how important it is to plan for it.  You inform yourself and try to figure out what diet you are going to do.  Nutritionists stress the importance of writing down everything about your diet starting with your goals.  Then, they suggest tracking what you eat for a week before the diet.  The reason is twofold.  They want you to see how much you actually eat and make you conscious about it and to see what kind of changes are needed to be made.  Then a plan is made according to your needs and goals.

First, you start the diet in a slow pace, you cut down on certain high calorie foods and start to work out slowly.  Slowly, but surely you start increasing your work out regimen, your diet becomes better and better and the pounds begin to shed.  In the mean time, you are recording the process and keeping track of it.

This was one of the best examples I could come up because self discipline is something that needs to be build up.  Back to the diet analogy, if you eat nothing but junk food and all of the sudden the next day you are eating nothing but fruits and vegetables and lean protein, you are probably going to regress back to the junk food.  Similarly, if you try going to the gym and lifting 200 pounds on the bench press for the first time, you are most likely going to hurt yourself.  On the other hand, if you take your time, slowly start improving your diet and increasing little by little your workouts, the chances of success and self discipline vastly increase.

Enough talk about diets.  Lets instead use self-discipline in personal finance terms:

Make a commitment.  You have to decide that it is time for a change and that you are going to do something about it. Say it, write it, do whatever you need to do to remind yourself about your commitment.

Track your current spending.  Write down everything, and I mean everything you spend your money on.  You will be surprised at where your money goes and will realize that you need to change.  Maybe you are eating out too much, or that morning coffee you are buying is costing you more than what you think.  By actually adding the total you are spending daily, weekly, and even in a monthly basis, you will have a better understanding of how much money you could be saving.

Make a plan.  I suggest start reading personal finance books, blogs and magazines to educate yourself on the subject.  Ask other people that you might know that are doing well financially.  Get some advice and figure out what works and what doesn’t.  Remember, that most often than not, personal finance is quite simple and boring.  There is no quick way into changing your financial future.  It takes self-discipline and a good solid plan.

Start slow and track your progress.  You have to crawl before you walk.  Make small reachable goals.  Remember that you are committed to change your finances so take it slow and don’t let small hurdles affect your overall goal.

In all, self-discipline is more than what I mentioned above.  for a more in depth look I suggest reading Steve Pavlina post on Self-Discipline.  He breaks it down into five pillars which address the subject in a thorough matter.  By addressing and understanding what self-discipline is, we can use it not only with our finances, but with other facets of our lives as well.   

 

Hand Washing vs Dishwashers

When we first moved to the United States, I remembered asking my mother why she wouldn’t use the dishwasher. She would tell me that while it did save some time, it was expensive to use. The water and electricity that it consume was not worth the 15 to 20 minutes it might save you in time. But dishwashers have come along way since I had that conversation with my mother over ten years ago. So are you better off using a new dishwasher than washing the dishes by hand?

I did a little research and I found this:

The Bonn study proves that the dishwasher uses only half the energy and one-sixth of the water, less soap too. Even the most sparing and careful washers could not beat the modern dishwasher. The study also rated the cleanliness achieved, again in favor of the washing machine (sorry mom). There have been studies before, but this is one of the few that stands (wo)man against machine and it sets itself apart by including a thorough analysis of the effect of half-loads and the whole demand range from your cake plate to the grimiest pots. Surf to research under household technology at U. Bonn’s site for more. :: U. Bonn Household Technology.

Even with the study done, I still don’t know what side of the fence I am in. Here are some thoughts I had after reading this:

  • The study was done by dishwasher manufacturers. How much did they invest on this study? Is it really unbiased?
  • Remember that it is talking about newer dishwashers. Specifically energy star approved models. If you have an older model dishwasher, you are probably better off washing by hand.
  • Everyone has a different method to wash dishes by hand. I know that some people keep the water running while washing while others fill the sink and many other ways. Not all methods where used to compare with the study.

So what do you guys think about dishwashers? Take a look at the study and let me know what you think.

Chrysler’s New Gasoline Deal

Recently, I ran to an article in USA TODAY that caught my eye. Especially because it had to do with the new car selling business. The article talks about Chrysler’s new sales campaign called “Let’s Refuel America” that will give buyers of most of their vehicles a card good for the purchases of gasoline or diesel fuel that locks in the price of $2.99 a gallon for three years. Anything over this price, Chrysler will pay for it.

I’m a big proponent of buying used vehicles rather than new. So when I see promotions such as “no money down”, “no interest for the first year”, and “cash back” they really don’t get my attention. But this one did catch my eye. With gas prices being near or at $4 a gallon and with experts saying that we might be paying almost double in a year or so, this deal is surely enticing.

While Chrysler does have some fuel efficient cars, they are better known for their big powerful engines. Their car lineup includes five models under $20,000 that get 28 miles per gallon or better in highway driving. It also rolled out a lifetime engine and transmission warranty last summer. Chrysler is desperately trying to become a contender in the car market with sales dropping continuously with customers switching over to other companies that offer better fuel efficient cars.

The deal does sound great. But I still think that after crunching some numbers to try and figure out how much you can save, you are still better off paying cash for a reliable used car that is in good condition.

So what are your thoughts on Chrysler’s new program? Is it really worth the money? Are you still better off just paying cash for a used vehicle?

Discovering Your Local Library

 

books

I mentioned in a previous post my love for movies.Going to the movie theatre, or renting movies at a video store can become an expensive activity. While reading other personal finance blogs, I learned about using your local library to not just check out books, but to check out movies as well. So about two months ago, I decided to give it a try.

The last time I went to a library was about a year ago while I was still in college so I didn’t feel “out of place”. It was different though, because the library I was using was the one at the University, so the environment was somewhat altered. As I walked in, I noticed how busy it was. It was a Monday morning, so I didn’t think it would be too busy. There were kids from a local kinder-garden attending a workshop and a group from a retirement home checking out some books as well. The place was surely running.

 I went to the front desk and talked to one of the librarians. I asked her if they had DVDs to check out. She politely told me that they did and showed me to the area where they had them. I was surprised at how many DVDs they had. They had over 7 bookshelves filled with them. They even had them separated by category and alphabetically as well. The librarian told me that their collection keeps on growing and they keep on having to expand it. She said that she remember when they only had enough movies to just fill a bin and they didn’t even bother with sorting them. I looked around and grabbed two movies. I went back to the front and asked the librarian if she could give me the form to fill out so I could get a library card. She gladly did and in less than 10 minutes I was ready to check out.

The next day, I came back again to check out a book. I knew the exact book that I wanted but unfortunately they didn’t have it. I asked the librarian if there was anything we could do about it. She told me that they can order the book in an in about two weeks the book will be in for me to check out. I asked her if that can be done with their movie collection but she told me that not at this time. It was worth a shot.

For the last two months, I have been visiting the library about once a week.  I have become hooked to the library! I just love not having to spend money on books and certain DVDs as well.  At first, I was hesitant about going to the library.  Don’t ask me why, but I fell like it was better to buy a book than checking it out from the library.  How dumb was I.  I am saving money and not filling my bookshelves with books that I will only read once and never pick up again.

So give your local library a try.  Just be forewarned.  Once you checkout once, you may never stop.

Choosing a Mechanic

While driving home from work, I looked down on my dashboard and realized I have reached 160,000 miles.  I started to think about it, and I realized how important our mechanic has been in assuring that my car has continued working for 10 years.  More importantly, he saved me some big bucks on the way.

So what are some of the things we should look for when choosing a mechanic?  How can we find them?  Here are some basic information that can help you get started:

  • Use word of mouth to find a mechanic.  This is similar to when looking for a doctor.  Ask friends and family if they have anybody they recommend and what is their experiences with them.
  • Use the  service center at a car dealership.  While this will probably the most expensive place to take the car to get repaired, you will know that the shop will be familiar with your car model and that they have access to the authorized parts for it.  A mechanic working at a dealership will also be updated with any problems that have been known to be common in your particular car model.
  • Make sure that they are certified.  Any legitimate car mechanic should be certified to be able to work on cars.  Having a certification does not guarantee expertise or experience.  What it does show is that they have taken classes to learn and understand their craft.  Also check to see if they are recommended by the BBB (Better Business Bureau).
  • Make sure that they speak English and not Car Jargon.  A good mechanic should be able to explain what’s the diagnosis for your car without intimidating or scaring you into repairs.  They should also give you a list of options you can take rather than just giving you the most expensive one.
  • Choose a mechanic that works on clock time and not repair manual’s estimate.  Car  Dealerships tend to charge labor fees on what is in an industry standard book.  This manuals take into account the time it takes to complete the repair.  The problem with this is that most of the repairs take almost half the time to complete, which means you are overspending on repairs.

I can’t stress the importance of having a trustworthy, reliable car mechanic to ensure that your car stays on the road.  Your mechanic can also save you $1000’s of dollars as well.  I remember having some car problems about five years ago.  The engine light came on so I feared for the worst.  I really didn’t have a clue how to repair it myself so I took it to our mechanic.  Luckily, it was just a fuse that had burned out that need it replacing.  Total cost=$5.  Now he could of used all type of car jargon and told me that my car was going to fall appart-and I would have probably believed him.  His honesty and quick service has made me a customer of his for more than 8 years(Thankfully, I haven’t had to see him too much).

Happy Driving!

The Little Redbox

Me and my fiancee are big movie watchers. We don’t like going to the movie theatre due to the bad customer service, annoying movie watchers, and more importantly the cost. Going to the local Blockbuster is not that cheap either. We had started using the local library which has been great. You just can’t beat the unveliable price of free. But there is a problem. The movies in our library are not the most recent movies out. So if there is a certain new movie we want to see, we are out of luck. Not if you use a Redbox kiosk.

Redbox kiosks are popping all over the place. You probably have seen it around McDonald’s or a grocery store. They are basically vending machines for movies. You swipe a credit/debit card, enter your pin if you have one, zip code and email address(optional) and you are ready to rent a movie.

Quick info:

  • The price is $1.00 plus tax for a 1 day rental
  • You are charged an additional $1.00 for every day extra
  • The rental period ends the following evening at 9pm
  • Redbox focus mostly on new dvd releases
  • Only regular DVDs. No Blue Ray or High Def.

At Friday, I drove to the McDonald’s by my house, rented two movies for a whopping $2.00 and enjoyed a relaxing movie night at home. Sure beats spending $20 for two at the movies or $10 at blockbuster. And if $1.00 still sounds like too much money. Go to Redbox and sign up for a free rental. If you search around the web, you will find many of this free rental promo codes passing around. (I have only tried using the promo code you get directly from Redbox).

A note of caution: While researching Redbox I stumbled around this article talking about possible identity theft in Redbox kiosks. just like going to an atm, watch your surroundings. If anything looks suspicious, stop and go somewhere else. Better to be safe than sorry.

The 151st Edition of the Carnival of Personal Finance

As I try to increase my readership, I have begun entering posts into blog carnivals. The latest entry I have given is Money Management in Marriage.

Here is the link to where my post is being showcased:

The 151st Edition of the Carnival of Personal Finance hosted by Kimberly Palmer at Alpha Consumer.

I have been given the editors choice, which I feel very honored for getting.  In the mean time, take a look at some of the other great articles that are been showcased.