Category Archives: Money

Reducing The Expenses That Matter

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The following is a guest post from Wayne at Young Family Finance. He writes to help young families tackle financial challenges, like how to have Cheap Romantic Dates.

Have you ever been annoyed by someone telling you that you should reduce your expenses? I’m not sure if you are like me or not, but I think the idea of reducing every possible expense is a bit overrated. Too many people tell me that I could be saving money if I just stopped to calculate how much I spend. While I do believe it is important to live within my means, I also believe in moderation.

In my opinion, extreme frugality is a waste of my time. The popular ‘latte factor’ (understanding how the small daily costs can add up over time) is great for individuals who have a spending problem. For someone who already has his spending in check, I ask myself a different question: is the savings worth my time and hassle. I want to focus on the big items – the things that will save me the most money with least amount of sacrifice.

Why You Should ‘Sweat the Big Stuff’

I bet you have heard a million ways that you can save money. Stop doing this or start considering this option. It gets old, doesn’t it? Even though saving money can get old sometimes, I have to admit that if it were to save me a huge chunk of cash with little sacrifice on my part, I am sure it would keep my attention. In fact, it does!

After being inundated by the suggestion to increase my deductible in order to save money, I looked at the savings. I currently have a low deductible and so I figured I could save quite a bit of money based on the popularity of this suggestion. When it came down to it, in my particular situation, if I increased my deductibles significantly ($100 to $500 on comprehensive), I would save a total of $12 every six months. Yes, a total of $2 per month. I don’t know about you, but that doesn’t excite me in the least. Instead, I felt like I wasted my time just for considering this option.

Instead of focusing on the small things, I think it is better to focus on the big stuff. The expenses that can really add up. For example, one of my most popular suggestions to young families is to dine at home instead of going out to eat. This may be a huge sacrifice to some, but it can save you a lot of money! Some people eat out 10-20 meals per month, if not more. If you average $10 per meal, that’s a total of $100-200 per month for one person. While this may take a little more of adjustment, talking about a larger impact on my finances makes me more motivated. To make it even sweater of a deal, my wife and I make two big meals on the weekend and eat leftovers throughout the week. There’s no easier way to save money and time than eating leftovers. Less than 3 minutes to have a cheap, healthy dinner for two prepared in the microwave? That’s what I’m talking about!

Other Big Item Expenses

While dining at home is one of my favorite ‘big ticket’ expenses, there are many others that are well worth your consideration:

Daycare: The cost of daycare can lead some families to consider being a single income family because it is so expensive. Finding an affordable option when it comes to daycare is well worth your time.

Cars: Choosing between a new and used car, or even the type of car that you drive can be a huge money saver. A choice between a SUV and smaller car can result in thousands of dollars in savings.

Housing: Choosing to live in a smaller home or apartment can keep tens of thousands of dollars in your pocket. Before you convince yourself that you “need” the house of your dreams, consider how much money you could save if you went for an older or smaller home.

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Demographic Profiling and the Internet

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Why do you think there is an advertisement for fake tanning products in your local hairdressers? Direct marketing has been around for centuries and it stems from the same ilk as demographic profiling – the accuracy of our profiles has dramatically improved alongside the evolution of the internet. But how does it all work?

Social networking sites like Facebook, have become particularly useful as tools for precise customer segmentation. Every time a user ‘likes’ something on the site, they are indicating an interest in that particular subject. Somebody ‘liking’ a lot of fashion related feeds will automatically be categorized into a specific group. That group can then be targeted by digital marketers representing fashion clients and the user will be presented with advertisements for fashion related products.

This is one of the more modern forms of demographic profiling and one that is exploited commercially. There is another, more behind the scenes, use for the practice which is adopted by credit providers to manage customer accounts more astutely.

Demographically segregating account holders into groups who are perfectly capable of repaying, struggling to make ends meet or even teetering on the edge of bankruptcy, can provide lenders with an insight into how to prepare a strategy to ensure they collect the debt they are owed by helping every customer.

Lenders often do not possess the necessary tools for such accurate monitoring themselves, so they rely on the expert credit reference agencies to carry out what can be an extremely profitable procedure. This is not dissimilar to how retailers will employ digital marketers to target customers via Facebook.

Targeting different demographics is not a modern phenomenon, it has just become much more personalized. In effect, there are no demographic groups no more, just demographic identities. The internet has enabled us to upload our own profiles and share these with strangers – the savvy companies are simply picking them up to promote products we, theoretically, should already be interested in or need.

The reassuring thing about it all is that no longer do we have to put up with annoying banner ads, which have no relevance to our interests at all, while surfing the internet. Instead, personal emails and specific offers will be sent directly to us – not just commercial products but solutions to help our personal finances as well.

Some people may see the practice as intrusive but it has always been around – it is just much less ignorant nowadays.

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Planning For Your Family Vacation – The Ultimate Trip Advisor

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It’s the middle of winter. Not all of you are as lucky to live in California, where the weather is a cool 70 degrees today. For those of you living in areas where it’s 37 degrees outside, it sounds like the perfect time to start planning your family’s summer vacation, right?

Whether you’re waiting to see exactly how big your tax refund from Uncle Sam will be or you’re the type of person who leaves vacation planning to the very last second – like my friend who decided last week that she and her family are going on a three-week safari in South Africa later this month – it’s never too early to start working out the details for your next family vacation. After all, the average vacation costs roughly $1600, according to Money Magazine; that comes out to more than three percent of the average American family’s household income.

This is a personal finance site, so of course budgeting for your family vacation – getting the most fun out of the least amount of money – is the top priority. It’s also the number one reason why you need to start vacation planning early. If you wait until the last minute, you may lose the opportunity to take advantage of the biggest and best deals out there. I’ll probably have Lauren write about her vacation planning saga soon, you’ll learn that timing is everything!

There are so many factors to consider – and the web can be a fantastic trip advisor, providing you with an untold amount of inside information for just about every destination out there. Here are my top five favorite sites to enhance your family vacation:

  • One of the most critical aspects of vacation planning is the weather. A trip to the beach sounds great, but a trip to the beach during hurricane season? Not so much. That’s where Weather Trends 360 comes in. Founded by a former Air Force officer, the site uses historical data to predict the weather just about anywhere on the globe a full year in advance. Want to make sure there’s actually snow on the ground for your family’s late-March ski trip to the mountains? Check this site first.
  • There’s nothing worse than arriving at your destination, only to discover that every other person on the planet has the same vacation itinerary as you. Want to have the Grand Canyon to yourself? Dream of being the only person on the beach along Florida’s Gold Coast? CheapTickets includes an off-season trip advisor on its website. This way, you can be sure you’ll avoid the crowds while you score a slow-season discount to boot.
  • Travel like a local. The Tourism Offices Worldwide Directory makes it easy for you, providing the contact information for convention and visitors’ bureaus across the globe with just a few clicks of the mouse. Whether you’re traveling to Tuscany or Tuscon, the folks who staff these offices can guide you towards points of interest and special events you may have otherwise missed.
  • I’ve made the mistake of flying to my vacation destination without booking a rental car. This is a no-no. I don’t care how awesome your resort is or how pedestrian-friendly your destination – if you stay in any one location long enough, you’re going to get the urge to get out and explore. But who wants to allot $500 for a rental? One of my top travel rules: never pay full price! Head to Rental Car Momma instead. This site has discount coupons for all of the major rental companies, including Enterprise, Hertz and Avis.
  • Don’t forget to plan for your gas expenses! This is true whether you’re renting a car or driving your own. AAA’s Fuel Cost Calculator lets you map out your route, then gives you an estimate of how much gas you’ll use – and pay for – to get there depending not only on local gas prices but also on the fuel efficiency of your specific vehicle.

What are your go-to websites for family vacation planning?

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With The Federal Reserve Holding Steady On Interest Rates, Is Now The Time To Buy?

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Last week, Ben Bernanke and the folks at the Federal Reserve say they have no plans to raise interest rates until 2014. That means you’ve got at least two years to take advantage of the government’s ultra-low 0.25 percent rate on its Federal Funds.

Sounds like a great time to buy a new home, or take advantage of the low interest rates to refinance your current residence, right?

Well, not exactly.

While it’s tempting to draw a parallel between the interest rate on Federal Funds and mortgage loans, the correlation is shaky at best. It’s true that the Federal Funds rate and the Prime rate compare favorably; there’s also a relationship between the Fed’s rate and short-term loan rates, like a one-year adjustable rate mortgage, or ARM. But just because the Fed’s interest rate is expected to hold steady at that quarter of a percent rate for the next several years doesn’t mean mortgage rates will also stay at or near the historical lows we’ve seen over the past year.

The reason is complex. The most popular type of home loan on the market is the 30-year fixed loan, which has an interest rate that has bottomed out under four percent in recent months. However, even though the length of the term is 30 years, that doesn’t mean homeowners are holding on to their properties for the entire period. In fact, the average 30-year fixed loan is held for just seven years!

It’s because of this relatively short-term lifespan on a long-term loan that loan underwriters determine rates based not on the Fed’s interest rate – which, despite the Fed’s promise to hold the current rate steady for the next 24 months, typically fluctuates multiples times a year – but on five- and ten-year Treasury Constant Maturity bonds, also known as T-bonds. In fact, a comparison of T-bond and 30-year fixed loan rates over the past two years shows when T-bond rates dip, a drop in mortgage rates soon follows. Because T-bonds are less susceptible to the ebbs and flows of today’s turbulent market, the mortgage rates they influence are also largely protected from day to day changes.

Another key element that affects the mortgage market is inflation. Inflation plays a role in your mortgage application because it essentially acts as a financial vampire, stripping the loan’s value in the eyes of investors. For example, if you get a mortgage at a four percent interest rate – in the midst of two percent inflation – the total profit for the investor is two percent instead of the original four. That means when inflation goes down, you’re likely to see a drop in mortgage rates, since investors now have a wider profit margin; likewise, a rise in inflation also leads to a rise in mortgage rates.

Of course, there are other factors at play in the mortgage application process: the delays – ranging from a few hours to a few days – in securing an interest rate, your credit score, the size and length of the loan for which you’re applying, and market issues like supply and demand.

But the bottom line is this: while a low interest rate on Federal Funds is a good thing for a recovering economy, it’s not necessarily a good thing if you’re in the hunt for a new mortgage.

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