2 credit card marketing tactics that make me squeamish
Because I work for a card comparison site, friends and family often assume I’m a credit card proponent. But that’s not always accurate. Because I learn about debt and its consequences all day every day, I accept that certain people should steer clear of plastic. Plus, editing stories about deciphering sales pitches, researching rewards programs and reading the fine print has taught me that applying for a card is a major financial decision that should only be made after much debate.
In fact, knowing as much as I do about credit makes me even more squeamish when I see over-the-top credit card marketing tactics. Here are two I’ve been subjected to recently — and why I find them so troubling.
The “captive audience” method: On a recent flight, I was awakened from a nap by the words “Earn 500 bonus miles!” Was it one of those credit-related dreams I often have? No. It was the flight attendant hawking the airline’s rewards card. The five-minute-long sales pitch emphasized the card’s benefits (free drinks, free checked bags) and dangled the extra reward of 500 bonus miles for those who signed up during the flight (on top of the 40,000-mile sign-up bonus that’s available to everyone). The attendant then walked up the aisle with applications, stopping every few rows to ask who was interested. As we prepared for landing, she added another quick plug for the card just after asking us to make sure our seatbacks were in the upright position. This happened on all four legs of my round trip, meaning that I (and everyone else on similar itineraries) was bombarded with the credit pitch eight times in one weekend.
Why it bothers me:
- The audience of this pitch was about as captive as it gets — 30,000 feet in the air and strapped in. There was no opportunity to compare this airline’s sign-up bonus (which I will admit was pretty good) with that of other cards or to read online reviews. Plus, I just don’t think it’s fair to invite people to make a major financial decision when they’ve essentially endured sleep deprivation torture for the past three hours, thanks to the screaming babies and a lack of legroom.
- The pitch had a time constraint. The 500 bonus miles were promised only to those who filled out an application before exiting the plane. These “for a limited time” sales tactics can lead to hasty decisions. Plus, 500 miles is pretty worthless, considering you need about 24,000 miles to make a round trip.
The “spend more to earn more” method: The online streaming service I use to watch TV and movies has been constantly playing commercials for a card that offers extra points in certain categories. The scenarios differ, but the commercials involve someone spending extra — fighting a friend for the lunch check, taking a date to the most expensive restaurants in town or buying concert tickets for their daughter and her friends. When an incredulous observer asks how they can afford to be so generous, the hero, with a knowing smile, mentions that their credit card is allowing them to earn double points for those purchases.
Why it bothers me:
- Rewards cards should be used for earning a little extra on planned purchases. Encouraging cardholders to go out of their way to earn points can lead to overspending — and interest charges that will likely cancel out those rewards if the balance isn’t paid in full when the bill arrives.
- “Double points” aren’t really worth that much. It depends on how you redeem your rewards, but, in general, a point is worth about a cent. So those double points are worth about 2 cents per dollar. This can really work for you when you’re buying something planned and expensive — such as a large appliance you’ve saved up for. But throwing down your card for extra meals and tickets? You’re earning a couple cents while adding to your balance.
Although sales pitches for credit cards can be problematic, the cards behind them can be both useful credit-building tools and a way to earn rewards on what you’d normally spend money on. If your interest is piqued by a tempting sales pitch, ask yourself these questions before signing up:
- Is this actually good for my credit? If you are already struggling with debt, don’t sign up. If you’re planning on applying for a major loan, don’t sign up — the hard pull on your credit report will ding your score. Credit considerations should come before rewards considerations. In fact, fixing your credit first will actually help you qualify for better cards with lucrative rewards, as Brian Kelly, founder of ThePointsGuy.com points out in a Q&A on travel blog Nomadic Matt.
- Is this card actually good for me? Consider how much you actually fly the airline offering the card — or how much you actually spend in bonus categories. Also consider whether you’ll carry a balance. If so, you’re better off going for a low-interest card than a high-rewards one.
- What is this card trying to sell? And what’s it trying to hide? As personal finance blog The Simple Dollar points out, mailed credit card offers will often draw your eye to what the card issuer wants to you focus on — a giant “0%,” for example, if it’s a balance transfer card. What you need to search for is the larger number (in smaller print) — the interest rate the card will revert to once the intro period ends.
- What else is out there? If an airline card advertisement boasts a huge sign-up bonus, check out what other airline cards offer. If an advertisement emphasizes the card’s low interest rate, try to find a card with a lower one. In a guest post for Man Vs. Debt, blogger and author Adam Hagerman, explains how he paid an extra $750 by failing to check other stores when shopping for suits. The same principle applies to card benefits.
Intriguing sales pitches are useful in that they notify you about benefits you might want. The key is using those sales pitches as a challenge to find something better — not as an excuse to sign up on the spot.
How complex is your financial life?
I spent a lot of time debating getting a second credit card. It wasn’t because the credit line would tempt me. It was because I didn’t want another bill to worry about, another account to manage, another statement to check. In other words, I didn’t want to make my financial life more complex.
Still, you can only do so much to keep your finances simple. Having children, buying a home and owning a car all entail more financial obligations. In fact, at CreditCardGuide, our advice even seems to encourage a fair bit of financial complexity. We recommend having multiple bank accounts, including an emergency account, “fun” money accounts and even accounts designated for special events and goals. We also emphasize the importance of having a variety of credit cards to boost your credit score. And, if you want to put your money to work, don’t forget about rewards programs (the average American adult belongs than more than 20).
So, unless you’re an extreme downsizer, life today requires accumulating a daunting number of financial responsibilities.
Here’s how I keep all my financial obligations straight:
- I keep most of my bills off autopay: I’ve blogged in the past about how I’m wary of having too many bills on autopay. Right now, only the easy-to- forget, non-monthly bills (such as my car insurance, which I pay twice yearly) are set up to be paid automatically. At first, this may seem like I’m making my financial life even more complicated. Yet I’ve found that forcing myself to regularly look at certain bills and account balances gives me peace of mind. My finances always feel more complex when I don’t know exactly how much I owe on my credit card and how much my electric bill cost last month. Because I’m paying bills manually, that information is always fresh in my mind. I’ve looked it in the eye, and it seems more under control.
- I use apps for assistance: Mint’s app lets me call up a screen with all my accounts. I can scroll through and check balances without having to log into each one individually. Seeing all my accounts together makes having several accounts manageable — and it prevents me from forgetting the accounts I rarely use. Several months ago, I withdrew some money from my emergency savings to pay for car repairs. Because I scroll through my accounts almost day, the much-lower balance in the emergency account practically shouted, “Feed me!” on a daily basis until I was able to transfer more money in.
- I set up my phone to nag me: Before I got a smartphone, I marked up a paper calendar with all my financial obligations. Now, I let my phone remind me. I get a noisy, blinking reminder for rent and a reminder for each credit card bill, of course. But what this system is really great for is reminding me to check accounts that are so easy to forget — my 401(k) and my Roth IRA. Every month, my phone tells me to log in to those accounts — just to check on things and make sure I know my password. Twice a year, I get reminders to reconsider my 401(k) contribution amount and send a little money into my Roth. This prevents me from panicking upon realizing I haven’t checked my account in more than a year and scrambling to recover my password.
Taken as a whole, this system has me “visiting” all my accounts and bills regularly. That way, I never get the nagging stress of trying to remember to do something — or the sudden jolt of anxiety that comes with forgetting to do something. And my obligations, although numerous, never seem out of control.
Looking to simplify or take control of your complicated finances? The personal finance blogosphere is full of tips:
- Well Heeled Blog recommends paying down credit card balances and prepaying rent to simplify your finances.
- My 2 Cent Opinion argues that paring down the number of financial goals you have will make you more likely to tackle them.
- Man Vs. Debt suggests some radical changes for financial simplification geared at the downsizing crowd.
- Simple Financial Lifestyle lists some common financial stresses (“ugly ducklings”) — and explains how to streamline them into positive habits (“financial swans”).
- Reach Financial Independence has a game plan for tackling all those financial worries floating around in your brain.
Could you go a year without spending? These roommates are trying
“Spending fasts” and no-spend challenges are a staple of the personal finance advice world. The idea is to cut down on discretionary spending for a certain amount of time (often as little as a day) except for †necessary bills. When done regularly, no-spend challenges can give your wallet a break, help you bulk up your savings and help you build up the willpower to say “no” to small incidental purchases.
Yet it can be difficult to keep up your no-spend endurance for more than a couple days at a time — which makes what these two Canadian roommates are doing all the more impressive. Julie Phillips and Geoffrey Szuszkiewicz, both of Calgary, have embarked on a veritable no-spending marathon that requires them to give up spending over the course of a year.
They’ll be easing into their zero-spend goal gradually, however. They started the project about two months ago and have divided their journey into three phases:
Phase 1 (Aug. 3, 2013 to Nov. 3, 2013): No consumer goods (for example, clothing and home furnishings).
Phase 2 (Nov. 3, 2013 to July 3, 2014): No services (such as meals out, gas and transit passes).
Phase 3 (July 3, 2014 to August 3, 2014): No food. For the final month of their experiment, Phillips and Szuszkiewicz will not be purchasing any food. They will eat what they can recover from supermarket dumpsters, what friends offer to cook for them and what they can grow themselves.
“Well good for them,” you might think. “But I’m not dumpster diving.”
Even if you’re not willing to go as far as these two, their project’s website is rich in tips you can use in your own (much less exteme) spending fasts. In fact, the entire framework of the plan is based on established behavioral modification techniques that can help you embark on the occasional spending fast or even talk yourself out of the occasional impulse buy. Here are a few you might want to borrow:
- Ease in: Remember those phases from above? If you’re looking to trim your budget, don’t hack off all discretionary spending in one chunk. Instead, borrow Phillips’s and Szuszkiewicz’s phase method. Perhaps you can’t stop yourself from buying new clothing and eating at restaurants at the same time. Consider restricting clothing purchases one month, and then concentrate on cooking and planning meals the next. By dividing a large goal into small but clearly defined steps, you’ll gradually build up the strength and endurance necessary to accomplish it.
- Reinforce good behavior: Rewards enforce behaviors. For example, when you go out to eat with friends, Phillips and Szuszkiewicz point out, you’re rewarded with convenience (you don’t have to cook) and good company, making you more likely to repeat the behavior. So, as the roommates explain, you need to make not spending rewarding, too. List the rewards you’re getting from not spending. Cooking at home, for example, makes you a better chef and helps you eat healthier. Walking to work instead of using gas helps you stay fit and soak up some sun.
- Get social support: Phillips and Szuszkiewicz are blogging about their endeavor, and the media attention their story is getting has given them a sizeable audience that’s rooting for them. That means lots of support — and lots of accountability. So consider telling others about your no-spending goals, asking a friend to keep you company at home on a no-spending day or encouraging your family to cook meals with you. Loneliness can increase the desire to shop — and a lack of accountability can increase the chance that you’ll break down and do it.
- Accept and commit: †Phillips and Szuszkiewicz say they’re using a psychological intervention technique called “acceptance and commitment based therapy” (ACT) on their journey. The center of ACT is mindfulness — accepting negative thoughts (which will undoubtedly occur when you can’t buy food) and then recommitting to a lifestyle that reflects your values. The acceptance factor goes even further, the roommates explain. In addition to accepting the emotional lows, they will accept whatever help is offered to them by others.
Similar mindfulness techniques have been getting buzz for a while now in both the frugality and addiction realms. Acknowledging temptation and pausing to reflect on it can help you refocus your energy on your goal — not the mindless purchase you’re about to put in your shopping cart.
Have you ever undertaken a no-spend challenge? What’s the longest you’ve gone without spending? If you’re about to try a spending fast for the first time, prepare for your journey with these tips from personal finance bloggers.
Krystal Yee of Give me Back My Five Bucks describes her plan for 10 days of no spending — and the amount of planning necessary to pull it off.
Well Heeled Blog has a list of the pros and cons of no-spend challenges.
I Will Teach You to be Rich recommends setting aside one day a week as a no-spend day.
When Life Gives You Lemons Add Vodka points out that no-spending days help only certain types of people — and don’t do much for others.
Lindy of Minting Nickels describes how she made a six-month spending fast realistic and sustainable.
I regret saying “yes” to that store credit card sales pitch
I know store credit cards don’t always offer the best deal for consumers. And I’m usually quick to say no to these cards, even if the clerk offers a special deal.
But recently I was in Dillard’s shopping for a dress to wear to a wedding. It was late, I was tired and it was pouring rain outside. The store was about to close, and a nice clerk offered to wait for me to grab a pair of earrings to go with my dress.
When I went to check out, 10 minutes after closing, the saleswoman offered an additional 15 percent off my purchase if I opened a store card. And she told me the discount would be good through the end of the weekend. I knew my husband needed some new clothes for work, so I thought that with the discount and the huge sale that was going on, we could really save some money.
The total looked good — my dress actually rang up as a sale item — and I was so tired I forgot to check my receipt for the additional 15 percent discount. When I went back with my husband a few days later, a different clerk told me there was no discount for opening a card and that the clerk from the previous night had given me wrong information. I went to customer service, explained the situation and was told once again there was no discount for opening the card. I really felt duped.
It’s probably rare to be given completely incorrect information about a store card. Yet I’m definitely not the first person to get pressured into opening one despite knowing better. Blogger April Dykman of Get Rich Slowly, got “suckered” into opening a Neiman Marcus card even though she had previously written about a survey showing the annual percentage rate (APR) on store cards is usually about double the average of that on regular cards. In her case, the store had some merchandise she really wanted, she was running late for an appointment, and the clerk told her the store accepted only its own card, American Express, cash or check (the store has started accepting other bank cards since Dykman’s blog appeared in 2011).
Even if there is a discount for opening a card, which is fairly common, many experts advise against getting a retail card just for the savings. For example, blogger Trent Hamm of The Simple Dollar says the discount just isn’t worth it and can even encourage you to spend more. I know it did with my husband and I: Thinking we were getting an additional price break beyond the sale, we grabbed an extra shirt or two.
So, what should you do if you decide to open a retail credit card just to snag a discount?
1. First of all, Hamm recommends paying off your entire balance immediately. Otherwise, you’ll pay the exorbitant interest rate and your balance could quickly spiral out of control. With my Dillard’s card, I signed up for an online account and paid my card off right away.
2. Then, destroy the physical card, Hamm recommends. You can cut it up or use his preferred method — throwing it into a campfire. This will stop you from using the card again and will prevent the card itself from getting stolen. (I cut mine up.)
3. Decide whether to close the account. There are pros and cons to both courses of action. Closing the card can simplify your finances. However, keeping the card open increases your amount of available credit, which can improve your credit score if you also keep your balance low. Hamm recommends keeping the account open to avoid any credit fluctuations if you plan to apply for a mortgage, a car loan or anything else that requires good credit. (I decided to keep mine open — for now.) If you’re not going to go loan shopping anytime soon and have excellent credit, go ahead and close the card. Any score damage will rectify itself within a short period of time.
4. Wait to apply for a loan. If you’re planning to apply for a loan, you might want to wait several weeks or months, especially if you applied for multiple cards in a short time. That’s because when you applied for the store card, your credit report was pulled — and that pull could lower your score by a few points. But if you have very good credit, and the store card is the only credit you’ve applied for recently, the damage is probably minimal. Pull your credit scores before applying for a major loan to see where you stand.
How much is lunch costing you?
As I’ve tried to cut my living expenses in various ways over the years, there remains one stubborn habit that’s hard to kick — going out to eat for lunch.
At my worst, I was buying lunch every day (my workplace had a cafeteria) to the tune of about $7 per day. Now, I buy lunch one or two times per week and have gotten in the habit of cooking most of my meals.
Turns out, my habits put me on par with the average American, who eats out about twice per week, according to a September 2013 survey from Visa. The survey has a lot of interesting tidbits about how much Americans’ lunch habits cost:
- Those who make less spend more on lunch. Survey respondents making less than $25,000 per year spent more for each meal ($11.70) on average than those earning more than $50,000. Those higher earners spent 22 percent less ($9.60 per meal). This aligns with my experience — I regularly ate at a $10 lunch buffet when I was an intern, which now makes me cringe.
- Southerners spend the most on lunch ($20 per week), while Midwesterners spend the least ($15.13 per week). Having lived in both regions, the reason is clear to me: We just have really good food down here. Northeasterners, meanwhile, go out to lunch the least often, but spend more per meal when they do (an average of $11.40).
- Men outspend women when it comes to lunch. While women spend an average of $15 per week, men spend an average of $21.
That all adds up to $936 per year for lunch for the average American.† My average spending on lunches ($16 per week, according to my expense tracking apps) puts me at $832 per year. If I were to replace one of those lunches with a brown-bag lunch costing $3, I’d spend $260 less per year.
Granted, there’s the convenience factor: While I’ve found it easy and fun to cook dinners at home by incorporating music and wine, packing a lunch for the next day is just too much to handle on my busiest evenings. Still, looking at the numbers, it’s hard to justify paying an extra $260 a year because I’m too lazy to pack a sandwich and a banana.
If you’re in the same position, perhaps these tips from the personal finance blogosphere will inspire you to save your lunch money.
I Will Teach you to be Rich acknowledges how challenging it is to make a habit out of packing a lunch every day — and has some tips for overcoming the psychological barriers.
Free in 10 Years shares some advice for those who want to pack a lunch — but who don’t have microwaves or refrigerators at work.
Cheap Healthy Good offers some inspiration for sprucing up the boring brown-bag lunch.
When Life Hands You Lemons, Add Vodka points out that bringing a lunch to work will actually save you some time, in addition to money.
The Simple Dollar proposes a fix for those who don’t have time to pack a lunch — cook extra for dinner and brown-bag your leftovers.
Money Relationship recommends storing lunchtime staples (lunch meats, condiments) in the break room refrigerator for those times you forget to pack a lunch.
How often do you buy lunch? Has it saved you money? And how do you prevent packed lunches from getting boring? Tell us in the comments.
Why I check my finances every day
Some personal finance experts recommend checking your finances daily, but I’ve always done it every few days or even just once a week. Recently, I decided to try an experiment — and do a quick review of my money every single day. As it turns out, I really like this method.
For the past few months, this is what I’ve been doing each morning:
- I log in to online banking and scan the balances in all the accounts my husband and I share. I’m making sure that everything looks like I expect it to and no account is low or in the red. If I need to transfer money from one account to another, I do so. We’ve been using our debit card a lot lately, so I’m watching out carefully for any mistakes or suspicious charges.
- I click on our main checking account and look at all the recent purchases made on our debit card. I log each new purchase into the Google spreadsheet we use to track our monthly budget.
- I sign in to our credit card accounts and check to make sure everything looks OK. We haven’t been using credit as much as we use our debit card and cash, so this doesn’t take long. If we have used our card for something, I log it on the spreadsheet and make a payment.
While it takes a little time out of each day, I’ve found checking my finances every 24 hours is a good way to stay on top of my money. Here are four good reasons to try it yourself:
- You catch errors or other problems. Personal finance blogger Jessica Moorhouse, of Mo’ Money, Mo’ Houses, writes that her husband caught a $400 fraudulent charge by checking his bank account frequently.
- †It motivates you to improve your finances. J. Money, the blogger behind Budgets are Sexy, writes that checking his 401(k) regularly and seeing the balance grow inspires him to “kick it up a notch.”
- You might avoid overdrafts. If you sometimes have a low balance in your checking account, it’s especially important to monitor your account daily to avoid getting hit with hefty overdraft fees, according to personal finance blog Look Before Spending. Even if you’ve signed up for overdraft protection, many banks will charge you $10 or more just to transfer your own money from one account to another. But my bank told me that if I catch a transaction that’s about to cause an overdraft and transfer the money myself while the transaction is pending, I won’t get hit with a fee.
- It makes money management easier. When I stay on top of my money, I stay connected to it, and it takes me less time to get my financial chores done. The three steps I outlined take me less than five minutes a day — that’s it. On the other hand, if I wait a week, I have more purchases to wade through and I have to try to remember which purchases I’ve already logged into the spreadsheet. It feels like much more of a chore that way.
Your financial life, with its many obligations, may seem overwhelming, and that’s why many people procrastinate on checking their accounts. But improving your finances is similar to other big goals like running a race or learning a new skill,† such as painting,† computer programming or even cleaning your house: By breaking a gargantuan responsibility up into daily, manageable bits, you’re more likely to keep it up for the long term.
So, consider adding “check finances” to your daily to-do list, starting today.
Is financial independence a requirement for adulthood?
At what age did you become financially independent? If you’re a part of the millennial generation (between 18 and 31 years of age), research suggests you’re more likely to answer that question with, “Oh, I’m still working on that.” Actually, if you’re like a lot of millennials I know, you might answer, “Hey, do YOU want to pay my rent and student loans for me while I slave away in an unpaid internship?”
Financial independence is often seen as a requirement for adulthood. But what exactly is financial independence? And why is it so frustratingly difficult for millennials to attain?
Defining financial independence
What exactly makes a person financially independent? A July 2013 survey from PNC Financial Services asked 20-somethings that very question. The most popular prerequisites were:
- Paying living expenses: 78 percent of the more than 3,000 20-to-29-year olds surveyed agree that paying bills without help was essential for financial independence.
- Getting a “real” job: 59 percent say having a full-time job in one’s chosen field was necessary.
- Living on your own:† 55 percent of respondents claim leaving the nest was crucial for declaring financial autonomy.
- Owning a home: †Just under half (48 percent) say that you’re not completely financially independent unless you own rather than rent.
I don’t own a home, but I met the Top 3 requirements at age 22. I was lucky enough to find a full-time job a few months after graduation and find enough temp work before that to pay living expenses and rent.
Yet there are a bunch of smaller milestones I didn’t reach until a bit later: Getting removed from my father’s health insurance, for example. And leaving the family cellphone plan. I also didn’t have a credit card that didn’t have a co-signer on it until just a couple weeks ago.
Millennials slower to break free
While definitions of financial independence (and the paths to it) may differ, a slew of studies from the past several months have all reached the same conclusion: Record numbers of young people are far from reaching it.
- In 2012, 36 percent of 18-to-31-year-olds were living in their parents’ home, according to an analysis of Census data from the Pew Research Center. That’s a 40-year high.
- Fewer 20-somethings are defining themselves as self-supporting. According to the PNC survey, just 17 percent of 20-to-29-year-olds say they consider themselves financially independent — that’s down from an already low 23 percent in 2011.
- Millennials feel that they’re veering off the course toward adulthood. Almost 60 percent of the respondents PNC surveyed say they’re behind the financial expectations they had for themselves, and 44 percent say they’re worse off than their parents were at the same age.
- Young people are pushing back financial autonomy. In February 2013, the nonprofit Junior Achievement surveyed 1,025 teenagers for its yearly Teens and Personal Finance Survey. In 2011, 75 percent of the teens surveyed expected to be financially free by 24 years of age. Now, just 59 percent expect to reach that goal.
There are a variety of factors keeping millennials at home, but the big one is the economy — the specter that’s been hanging over the heads of job-seekers for the better part of the last decade. The PNC report points out that young people tend to have fewer skills and less work experience than older job seekers, preventing them from snagging the job that could steer their lives toward independence. Just 63 percent of millennials have jobs, the Pew Research report points out, compared with 70 percent of their same-age counterparts in 2007, before the recession hit.
Unhealthy dependence or a smart solution for tough times?
Is leaning on Mom and Dad unhealthy? Depends on whom you ask. An August 2013 survey from Coldwell Banker found that millennials and their parents are much more likely than those over the age of 55 to think it’s OK for a child to live at home for five years after college.
While it may be easy to label young adults living at home as lazy and reliant on the hard work of their parents, I know a few 20-somethings who are delaying their independence as a strategic move. Several are socking away money from a variety of part-time jobs to fund a move to cities with more job opportunities — instead of throwing away money on rent payments that would keep them trapped where they are. One of my friends is remodeling his parents’ home in exchange for free rent while he works on launching his own business. Another friend stayed at home for two years, putting $700 a month (what she would have paid for rent) into a savings account for a down payment on a house.
What do you think? Does relying on your parents well into your 20s prevent you from becoming a full-fledged adult? Or can it be a smart money-saving strategy under the right circumstances? Parents, what ground rules would you set for adult children who want to move back home or who need financial help?
Whether you’re a young person considering a move back home, or a parent wondering whether to let an adult child back into the nest, the personal finance blogosphere has some advice for you:
Broke Millennial is glad her parents didn’t let her live at home for free after college.
The Simple Dollar provides tips for asking parents for financial help or a place to stay during a crisis.
To charge rent or not to charge rent: Ready For Zero looks at both sides of the tough choice parents have to make when children move back home.
Well Heeled Blog emphasizes the importance of having a plan to move out of Mom and Dad’s house, even if you do return home for a while.
MoneySmartLife lists some money moves to make so that, when you do move out on your own, you won’t have to retreat back under your parents’ roof ever again.
Make Love Not Debt turns the tables and asks if children should feel obligated to support their parents.
How my husband and I navigate finances as a couple
Over the years, my husband and I have taken turns managing our finances. We’ve traded off mainly because we each think our own way of managing money is best.
I tend to jot stuff down in notebooks because I’m very visual, but my scribblings make sense only to me. My husband, Joe, has always used Excel spreadsheets. They’re easy to read, but he likes to rush through money management tasks, which can lead to mistakes that throw off our finances.
But we recently hit on a new system that works perfectly for us: We manage our money together.
Many experts say it’s a good idea for both members of a couple to get hands-on with finances. For example, according to the finance and investment site The Motley Fool, “Managing household finances is a two-person job.” In its online guide for managing finances with a significant other, it encourages couples to answer various questions together about their attitudes toward money and even create a joint calendar with shared financial obligations.
Personal finance experts have told me that approach is smart for many reasons — including the fact that if something happened to one partner, the other one would need to get quick access to money and start making financial decisions right away.
Here’s how our new system works:
- We meet on the last day of each month to plan the coming month’s finances. We each put the meeting on our iCal (with a reminder) to make sure we don’t forget. At that meeting, we make a budget and talk about any anticipated big purchases or expenses.
- We use a Google spreadsheet that both of us have access to and can change at any time. At the monthly budget meeting, we each use our own laptop to go over the budget and make changes to the spreadsheet. When one of us makes a change, it pops up instantly on the other’s screen. This is great because neither of us has to depend on the other to clarify what’s happening with our finances.
- We also discuss our savings goals for that month and revisit our long-term plans — such as house remodeling or vacations. This keeps those goals fresh in our minds. The Motley Fool recommends that couples meet at least quarterly about big-picture money goals and that they discuss money in concrete terms. For example: Instead of saying you’re worried about money, tell your partner you’d feel more secure with a $3,000 emergency fund.
- During the month, I check our bank account and credit card accounts online and make changes to the spreadsheet daily, recording what has been spent in each category. If I have questions about a charge I don’t recognize, I immediately send a message to Joe to ask about it. That also will help us spot possible fraudulent charges quickly — something we’re concerned about after a criminal tried to use one of our credit cards a few months ago.
- We use the same system, with a separate spreadsheet, to manage any special projects or goals for which we have a budget. We’re doing this for our current house remodel, and it’s helping us prioritize and make trade-offs.
Certified financial planner Ginita Wall, writing for WomenSpeak.com, recommends that couples set goals together, create a savings plan and start now. If one member of the couple has less interest in dealing with money, Wall recommends breaking financial goals into small, manageable tasks — and learning about money together. She writes, “You will become more familiar with money, and that will make it more interesting as well.”
Study: Being poor hijacks your brain
Think about how well you function after a night of no sleep. Chances are, your day will be filled with slip-ups, forgotten tasks and an inability to concentrate on more than one thing at a time.
Being poor, new research from Princeton University has found, affects you the same way.
The paper, “Poverty impedes cognitive function,” was published Aug. 30, in the journal Science. Researchers studied people at a mall in New Jersey and on sugarcane farms in India and detected the same phenomenon — the less someone earned, the worse they perform on cognitive tests when faced with financial problems.
Here’s how the experiments worked: Subjects with a variety of salaries were given various “financial problem” scenarios to ponder. Some problems were more difficult (a major car repair or health emergency), while some were easier (a small, unexpected expense). After receiving their scenario, participants were given intelligence and cognition tests.
When the stakes were low and the financial scenarios easy, those who earned a lot of money and those who earned very little performed equally well on the intelligence and cognition tests.
When the financial scenarios were difficult, however, a gap appeared between the rich and poor participants. Wealthier participants had no difficulty with the cognitive tests, while the poorer ones struggled. Based on results, poorer participants experienced a 13-point drop in IQ — the equivalent of a night without sleep.
That’s because of the brain’s hardwired crisis-response reaction to scarcity. Scarcity hijacks our cognition, diverting all mental capacities to it. As a result, when we don’t have enough of something, whether it’s time or money, that scarcity, as the study’s authors describe it, consumes “mental bandwidth,” leaving nothing left over for other responsibilities.
This is not the same as stress, the authors emphasize. Stress can actually help us perform better under pressure and juggle multiple tasks. Just think about the focus that floods your brain during a particularly stressful situation. Our reaction to scarcity is much more malicious, as it renders us incapable of handling the things we usually find easy.
In a blog for The Billfold, Isa Hopkins, describes the mental take-over of poverty like so:
“Being poor means that every day involves sorting out a new catastrophe: late buses and food stamps reporting and overdraft fees and fixing everything yourself, because who the hell can afford a replacement? Itís a strange combination of dependence and insular self-reliance, this condition known as poverty, and for those of us inside of it, sometimes putting one foot in front of the other is all we can muster.”
So what does that all mean for personal finance? Well, if your brain is consumed by scarcity, it’s not reminding you to pay bills and make your weekly work deadlines. That can lead to late fees (which exacerbate the scarcity problem) or a loss of income (ditto).
With your mind so overcome by poverty, forget being able to perform the complicated tasks that could get you out of your situation. If participants struggled with intelligence and cognition tests during the study, how well can they be expected to perform the complicated dance of securing government assistance? Or handle the complicated maneuvers necessary to pay off debt, handle bill collectors and repair credit damage? Suddenly, payday lenders offering a quick and easy way out might seem like a good idea.
Based on their results, the study’s authors concluded that many of the things we blame poverty on (personal failings, lack of education and unsafe living situations) aren’t the root of the problem. Poverty itself fuels poverty, and our own brains perpetuate the cycle. And that means there’s no easy way out.
The personal finance blogosphere also has a lot to say about being poor, as many have experienced it firsthand. Here are several of their unique takes:
The Frugal Girl responds to Internet commenters who think they have it all figured out when it comes to escaping poverty.
Sandy of Yes, I am Cheap recounts immigrating to the United States as a child and, with very few resources, building a life she’s proud of.
The Simple Dollar argues that there’s a difference between being poor and being broke.
Our Freaking Budget wonders if frugality can sometimes be perceived as being poor.
Len Penzo points out that the health problems, life upheavals and bank fees that go hand-in-hand with being poor make poverty quite expensive.
I turned down car rental insurance at the counter. Bad idea?
I don’t rent cars often, but when I have, I’ve always responded “sign me up!” when the agent got to the part about insurance. But when I picked up my rental early this morning, I said, “Thanks, but I’ll pass.” The reason? My new credit card’s rental insurance protections.
My boyfriend and I are making a 500-mile round trip this weekend for a special event. When I think of taking my aging car, I immediately imagine us stranded on the roadside in our fancy clothes in 100 degree heat. My boyfriend’s car broke down a few days ago, so it’s not going anywhere. Therefore, we’re renting a car.
If you’ve rented a car, you know how it works: The rate quote you get online looks downright cheap — until you get to the counter. Suddenly, the agent is using scare tactics to get you to buy the rental company’s insurance. In our case, insurance ($20 per day) would have doubled the cost of renting the car.
My card’s coverage
I just got a credit card that has rental car protection. So I immediately took a look at my contract to see what it covered — and didn’t. The card I have offers what’s called secondary coverage. That means it kicks in after my regular car insurance pays out — and would pick up the $1,000 deductible I have for my collision and comprehensive coverage.
To be covered by my card, I had to waive the insurance offered by my rental car company and pay the entire cost of the rental with my card. I also can’t use my car to commit a crime, or take part in a riot or a street race — but I don’t think it’s going to be that kind of weekend anyway.
I called both my auto insurance company and my credit card provider to make sure I didn’t miss anything in the small print. To know what to ask, I used the list of coverage considerations in this blog on U.S. News & World Report from Gary Foreman, founder of TheDollarStretcher.com.
After talking with my insurance company and credit card provider, I discovered a few costs that neither will cover. Rental car companies tack on a slew of fees if you damage a car, as this post on the BudgetTravel blog points out, including:
- Loss-of-use fees: If the car you rent has to be repaired, the rental company will charge you to make up for the money it could have made by renting out the car while it’s in the shop.
- Towing: If the car needs to be towed, we’ll be footing the bill.
- “Administrative” fees: The rental company has carte blanche to tack on whatever it wants to when it comes to the car’s diminished value after the accident or the cost of processing your claims after an accident.
There’s one more detail hiding in the fine print: Additional drivers are only covered under my auto insurance protection and my card’s protections if I add them as approved drivers. I booked the car with my card, but my boyfriend will be sharing the drive — so we ate the $10-per-day fee to add him to the rental contract.
Keep in mind, there are a bunch of vehicle types excluded under most credit card rental insurance coverage — including trucks. We’re renting a compact car, so we’re definitely covered. But Michael Pruser, who wrote about his rental truck nightmare on the Dough Roller, wasn’t so lucky.
If you need help combing through your card’s coverage documents for gotchas, travel blog BoardingArea has a step-by-step guide — and some humorous, plain-English translations of contract jargon.
Although I won’t be covered for the fees listed above, I decided to waive the rental company’s coverage. The price they quoted for four days of insurance was twice what I already pay for my monthly car insurance premiums. The amount I’ve stashed away in my emergency fund was certainly another factor in my decision to risk the loss-of-use and other fees if I get into an accident.
Insurance matters are always a bit of a gamble. Making sure you’re covered for everything (including things that probably won’t happen) entails paying a lot of money. Yet if that thing that probably won’t happen does happen, and you’re not covered, you could pay much more.
Road warriors, what do you think? Did I make a mistake? Also, please share your car rental horror stories in the comments.