8

Carrying Consumer Debt Is The American Way.

In case no one noticed, there is a continually growing debt problem here in this country, especially with the economy the way it is. Americans are putting themselves further into a hole that while it seemed shallow at first, continues to get deeper and deeper the longer unpaid debt racks up interest. There is approximately $2.5 TRILLION in outstanding consumer debt on mortgages, credit cards, auto loans and student loans. That number almost seems fake and I think that is what contributes to the American attitude towards debt; the “we can handle it” syndrome. Well, guess what…we can’t anymore! Here are some of the reasons I think why we are in this sinking hole and how all this debt is going to hurt even more in this economy.

CREDIT CARDS

The average credit card balance in this country is between $6,000 to $9,000, which is normally carried over from month to month, with only minimum payments being made. I think most credit card debt comes from two things….the first one being the “keeping up with the Joneses” routine that is fed into by television, celebrities, movies, music or those glossy magazines on your coffee table, and the second being the high unemployment rate we are facing right now. While the latter cannot be necessarily helped, the former can be. Too many people just say “I will pay with credit! We can pay for them over the next 10 years! I needed the plasma television because my neighbor got one!” Credit cards are great if they give you a reward for using them and you pay off the balance every month. Otherwise they can be a world of trouble, and they might not even be useful as an emergency backup anymore, with credit lines being slashed.

MORTGAGES

I lived in Los Angeles, home of the $850,000 1 bedroom fixer-upper, and yet people were still buying houses when I left. Of course, they were getting interest-only loans for 5 years or ARM mortgages and helped contribute to the decline in the housing market, but hey – “look at my house!”. Just being able to BUY a house does not mean you can AFFORD a house. Overextending yourself just to say “I bought a house” is not the smartest thing in the world, and while you might have a roof over your head today, tomorrow morning you may wake up outside in a tent because the bank came calling and they want their money. Honestly, $850,000 for a fixer? Renting looks more and more attractive every day, and you can just pack up and walk away if need be. I hope this collapse of the market fixes some of these problems, and banks do their job and stop loaning money to people who cannot pay it back.

AUTO LOANS

This one is a tough one, because car prices themselves have gone WAY up in relation to our salaries. I remember when I bought a Volkswagon GTI in 1992..it was $12,000 dollars. And that seemed like a lot back then! But now, a new GTI will cost you about $20,000 – $25,000 depending on options. So, less and less people can actually afford a new car…yet they still buy them. Six year loans, 7 year loans, no money down. Auto dealers and manufacturers are always coming up with new ways to “Get you into that new car today!”…and then you are paying $500 a month for a car that lost $10,000 in value the minute you drove it off the lot. You now are going to have to pay for 6 years in order to pay it off. That being said, its also the consumer that decides that he or she needs the BMW or Mercedes when a Honda or Toyota does the same thing. Its that “Joneses” mentality again. And as for those 0% interest offers that American manufacturers are offering? Most people will not have a high-enough credit score to qualify; they are just advertised to get you on the lot and looking.

STUDENT LOANS

Education is expensive. Very expensive. And in the last 8 years, the government actually took away some low interest loans and grants so that students and their families had to pick up the entire tab. Although I think that a college education is worth the money and debt, I do think that the government should help out those that cannot pay for it all themselves, so they don’t leave newly graduated 20-somethings saddled with $50,000 – $100,000 in student loan debt.

SAVINGS

The savings rate in this country was in the negative and is only now starting to show signs of improvement. So, when an emergency comes along, people have no other choice then to reach for their credit cards, making that emergency even worse! I cannot think of anything more dangerous to your finances then not having any money saved up for that rainy day. I wrote about my brother and how his emergency fund got him through two layoffs, if you need some inspiration as to why you need one too!

What Can Be Done – I think there are several things that can be done to make sure you don’t end up owing a debtor your first born child, the first of which is to try to stay out of credit card debt. You don’t need a plasma TV, you don’t need a 2 week vacation in Australia, you don’t need a new Ipod…those are all wants. If you cannot afford to buy them with the cash you have in the bank, then you cannot afford them. Period. Concentrate spending your money on the things you need like food, heat, shelter, clothes, gasoline. Your money will go a lot further when you use it for the needs in life, rather than the wants. Live somewhere you can afford, whether that is an apartment or house in whatever city you choose to live in. There is nothing wrong with living in an apartment…if nothing else, think of the money you save on insurance and repairs. If you can actually afford a house, good for you! As for cars, again, buy what you can afford. If you are having trouble paying the bills at home, you might want to consider the Honda and put down the BMW brochure. Also, another thing to keep in mind is your car’s MPG…the more miles per gallon your car gets, the less money you have to spend to keep it running! I saw more people in LA with Hummers, living in really bad areas of town, run-down houses, etc…but yet they need their $50,000 gas-guzzling SUV. And lastly, save your money. I wrote a post a while back about paying off our debt and saving money at the same time….give it a read if you are interested in doing the same thing, it worked for us, and it could work for you.

If I can give one last piece of advice, after this long winded diatribe, it is to teach personal finance to your kids. Approximately 75% of college students have credit cards, and most of them have an outstanding balance every month. Don’t force your kids into that debt spiral that so many people get trapped in…give them the tools and advice to keep themselves level and above ground!

8

Don’t Forget To Live Today While Planning For The Future.

Retirement, Emergency Funds, Education, Health Care, Life Insurance – the worrying never ends, does it? Most people spend so much time focusing on the future that they forget that their life is happening right now…not tomorrow, not in 20 years, but right now. This is it – this is your life. There are no second chances, no do-overs, no mulligans; so why are you only concentrating on the future instead of living your life today? I am all for trying to make sure I can survive comfortably (both financially and in health) to a nice old age, but I am not as concerned as some people I run into. A few years back I realized that while I was trying to plan for “then” and amass stuff and cash, I was missing out on actually living in the present. “Life is what happens to you while you’re busy making other plans.” That was me, and at some point I decided I didn’t want to miss it.

I have a friend who has put off doing the things he loves because he is “saving for the future”. I asked him what would happen if the future never came, and he said he cannot think about that…he just wants to be ready for the future when it arrives. He has many hobbies that he would love to do, but he says he cannot afford them because he needs to save more money. Mind you, this is not a guy who is struggling to get by – he makes a very nice salary. But he is so concerned with tomorrow that he is forgetting to live today. And I think that someday he will look back at all the time he wasted preparing and regret it!

I will sign up for that class next semester.

I will take my kids to the park next weekend.

I will get to my woodworking project next month.

I will get to X, Y, Z sometime later.

These are the types of things we tell ourselves day in and day out – and believe me, I know the habit well! It’s a tough one to break, that’s for sure. But it’s a worthwhile one to try to get rid of. If you spend your entire life planning for “when” and not paying attention to the “now”, you are going to miss out on some spectacular stuff. So don’t get caught up in putting all your effort into tomorrow…as you are living here today. Try to find a happy spot in the middle to work with – plan AND do. Life is much better that way. πŸ™‚

6

New Passport Requirements As Of June 1, 2009.

As of June 1, 2009, passports or new passport cards will be required for land and sea, as well as air, travel to and from the United States. (Passport cards not acceptable for air travel) This includes visits to Canada, Mexico, Bermuda, most of the Caribbean and 16 other countries. You used to only need one for air travel, but now you need one of these ID’s for driving and or arrival by boat. I am a firm believer in having a passport even if you are not planning on traveling, as you just don’t know what kind of circumstances will come up, and it can take up to 2 months to get your passport approved. Just a friendly little FYI!

1

Finding Salvaged Goods To Save Money On Remodeling Your Home.

Why pay new in-store prices for something that you can get at a fraction of the cost at a salvage store? Remodeling your house can cost a fortune if you are not careful with your budget, and in addition to the tips I mentioned a while ago about frugal redecorating, one place you should definitely check out for some of the bigger ticket items is a local salvage store. When other houses get remodeled or torn down, many times the deconstruction company takes the goods that are still in good shape to salvage companies, who then resell them back to the general public at a very reduced rate. Things like sinks, windows, light fixtures, cabinets, doors, and toilets often end up just waiting for reuse in someone else’s house. Not only do these types of places keep this stuff out of the landfill, but it also saves you money in the process of your remodel – something anyone who done this kind of work can vouch is very important!

Although I don’t own my own home to remodel, one of my favorite places to go for salvaged goods for my projects in my garage is the Habitat ReStore. Here is what their website says about the materials they sell:

Habitat ReStores are retail outlets where quality, used and surplus building materials are sold at a fraction of normal prices. Proceeds from ReStores help local affiliates fund the construction of Habitat houses within the community. Many affiliates across the United States and Canada operate successful ReStores””some of which raise enough funds to build an additional 10 or more houses per year. Materials sold by Habitat ReStores are usually donated from building supply stores, contractors, demolition crews or from individuals who wish to show their support for Habitat. In addition to raising funds, ReStores help the environment by rechanneling good, usable materials into use.

I tend to go to the ReStore at least once or twice a month just to poke around and see what they have. I have brought home windows I have turned into mirrors or frames, plexiglass sheets for various products, blocks of wood for wood working, and even an old table I use on my porch. I bet I have spent less than $50 for all the stuff I have brought home from there, and I am so glad to know that A. I am reusing instead of buying new and B. I am not spending a lot of money on my house and hobbies. Can’t beat that combination!

According to Cost Helper, a minor kitchen remodel can cost between $17,000 – $19,400. That’s a lot of dough for a minor kitchen remodel! Bump that up to a major remodel and then throw in a bathroom remodel, and you are talking about a lot of money. But that cost could be reduced if you bought some of your materials from a salvage company, so be sure to check one out before you buy new. Here are a few to get you started:

Habitat ReStore
Old House Parts
Architectural Salvage
Historic House Parts
Olde Good Things
Recycler’s Exchange

Have you ever used a salvage company to buy things for your home? Let us know your experience and who you bought from in the comments!

2

Free 60-Day Pass To BJ’s Wholesale Club.

While I have written about wholesale clubs before, and am still not sold on the idea for my needs, BJ’s Wholesale Club is currently offering 60-day free passes to try out their membership club. Like Costco and Sam’s Club, BJ’s offers tons of stuff in bulk and some at discount; my mom swears by her membership there. If you want to give a wholesale club a try for a few months without paying the membership fee, visit BJ’s Free Pass page and print out your copy of the pass. Here are some benefits that they say you get with a membership:

  • Save more than 30%** off supermarket prices on favorite brands
  • Multiply your savings with manufacturers’ coupons “” BJ’s accepts them all
  • Find more of the family-friendly sizes you use every day
  • More payment options “” BJ’s offers convenient ways to pay: cash, checks, major credit cards, EBT and debit cards

If you try them out, let me know what you think! I still am not sure that I need to join any of these, and even if I did, the nearest one is about 70 miles away – which kind of defeats the purpose saving money!


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