Get your Credit vs. Debit Questions Answered on a Network News Interview

Hey all – a network news channel has asked me to join them for an interactive interview. The topic: whether to use credit or debit cards. They are looking to solicit questions from you! So, here’s here’s your chance to shine:

1. What questions do you have about credit cards or debit cards?

2. Have you abstained from using one versus the other based on something that you heard, but weren’t sure if it was true or not?

3. What worries do you have about using either?

4. What other questions do you have?

Please comment with your question, your first and last (optional) name, and your city and state of location.

Thanks for the help! I’ll keep you posted on the outcome.

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Yahoo! Finance: RSS feed not found

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What do you NOT care about spending money on?

Lots of people talk about spending on things you value. But what about the things we don’t care about?

This baby knows something most people don’t: What he doesn’t like

When I wrote An Ode to Jim Blomo, I talked about my friend who’s honed his conscious spending and spends thousands on the things he loves:

Jim has told me over and over that he doesn’t care much about living in a fancy place, so he saves money on that. He cooks at home when he can instead of eating out every day. But he loves outdoor stuff–biking, camping, travel. And so he splurges on those things. He has a top-of-the-line bike. He just got back from a week-long trip to New York, just for fun.

Jim also cuts costs mercilessly on his housing, choosing to live in a place far smaller than he can afford. To him, it’s not important, and he’d rather spend his money elsewhere.

This decision — of what’s important as well as not important — is at the heart of the Conscious Spending Plan I describe in chapter 4 of my personal finance book.

Previously, I’ve written about friends who spend $21,000/year going out and $5,000 on shoes.

But we haven’t focused on what you choose not to spend on.

When I asked friends this, they were quick to answer what they valued — “organic food” or “travel” or “nice clothes” — but almost uniformly found it difficult to answer what they didn’t value. When I asked one friend, “What do you not care about? What would you be willing to buy a lower quality of (or not at all)?” he looked at me blankly. I considered violence.

It’s critically important to be explicit about what you don’t value as much as what you do. By writing it down — on a blog or a notepad or an Excel doc — you can prioritize your purchases and avoid being sucked into spending on things you really don’t care about. As Jeff Solomon writes:

“When I come to work tomorrow I’ve got to figure out what NOT to do first and focus on the single most important item first. No matter how hard it is, I’ve just got to get through it. It’s just too easy to get sucked into the unimportant. There are too many things on my lists that just don’t move the needle or don’t make a difference. At work and at home, some things have more impact than others. And when the lists get long, I’ve got to know what NOT to do before I can figure out what to do.”

What do you not care about spending money on? I’ll start. When it comes to spending, I don’t care about…

• A fancy sports car. I’d rather have a Honda Accord and drive it for 10+ years (more on how I bought a car)
• The type of cheese I eat — Kraft singles are just fine
• Shampoo, etc. They’re all the same to me
• Super-fancy restaurants. I’d rather eat out a lot with friends at a bowling alley than eat at the fanciest places. (Note: This specifically fits into my Conscious Spending Plan by letting me see more people at less-expensive restaurants. If I cared about expensive restaurants, I would eat fewer meals at higher-end places.)

As part of your conscious spending plan, what do you NOT care about spending money on?

for Boomers: The Power to Create Great Wealth

Retirement Planning for Boomers: The Power to Create Great Wealth streaming video on (Don't) Try this at home

All you Need to Know About Limiting your Expenses

Visualeconomics.com recently posted a visual display of the U.S. Bureau of Labor Statistics report that shows where each U.S. household spends their money. Sadly, but not surprisingly, an amazing 51.7% of $49,638 in annual expenses came from two areas: 

• Housing: $16,920 (34.1%)
• Transportation: $8,758 (17.6%)

Other expenses included:

• Food: $6,133 (12.4%)
• Insurance/Pension/Social Security: $5,336 (10.8%)
• Health Care: $2,853 (5.7%)
• Entertainment: $2,698 (5.4%)
• Apparel & Services: $1,881 (3.8%)
• Cash Contributions: $1,821 (3.7%)
• Education: $945 (1.9%)
• Misc.: $808 (1.6%)
• Personal Care: $588 (1.2%)
• Alcohol: $457 (0.9%)
• Reading: $118 (0.2%)

Prisoner to our Homes and Vehicles

This data really highlighted to me how much we spend on two things: our homes and our vehicles. Over 50%? When did our spending get this out of whack? It’s no wonder so many people struggle with debt. After paying for these two things, they have less than half of their money left for everything else.

The Silver Lining

There is a silver lining in this data. Forget micro-managing all of your expenses. If you can attack your housing and transportation expenses, then there is not too much need to nickel and dime everything else. In limiting these two expenses, you just may find the secret to personal finance success.

Take-Aways

If you take away anything from any personal finance blog you read – let it be this:

• a. take public transportation, commute, or self-power commute every day.
• b. pay for the bare minimum in living space that you need. If you are single or half of a couple, do you really need more than one bedroom of living space?

Keep it simple.

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5 myths of personal finance (plus: stupid advice)

What are the most common mistakes in personal finance — especially among blog readers?

I recorded a 30-minute interview with Flexo and Tom over at the Consumerism Commentary podcast with extensive notes below. It’s called Stupid Financial Advice + The 5 Myths of Personal Finance.

Stream the interview or download my melodious voice here.

Notes:
[00:00] Introduction from Flexo
[00:50] Interview with Ramit Sethi about stupid financial advice
[01:50] — The Reddit community
[03:27] — Frugality
[05:09] — Big wins
[08:03] — Knee-jerk behavioral change
[09:41] — The “buy and hold” strategy
[13:10] — Financial magazines leading up to the recession
[16:48] — Finding decent financial advice
[19:01] Ramit’s five myths of personal finance
[20:01] — Myth #1: Personal finance advice is only about spending less than you earn

– Sort of meaningless pablum that lets people feel better about themselves but get nothing done
– And you can just see that’s true by asking a few questions: Are you happy with your finances? How much do you spend on eating out and loans? What’s your system for getting ahead? What are your goals?
– Just knowing a fact doesn’t make it implementable. As we say in persuasion, “informational influence is one of the least persuasive methods available”
– Make it tactical: How do you get the right accounts? Dominate your credit card? Automate your money? Pick the right investments? Handle money and relationships?

[21:33] — Myth #2: Personal finance is about more will power

– If I just try harder…
– Reminds me of weight: If I just try harder to diet…
– Every choice has a cost. Trying to save on 50 things vs. 5 things…
– How has that worked for you over the last 1-2 years? 10 years? Most of us are fat and in debt
– It’s about building systems that handle your weaknesses so you can exploit your strengths. Automate, earn more, cut costs

[22:55] — Myth #3: You can’t save any more money

– Yes you can
– We under-report how much we eat, just as we under-report how much we spend
– You can’t out-frugal your way to rich
– Saving: CEO
– Tracking is #1
– Setting goals is #2
– Automation is #3
– Earning more is #4

[25:18] — Myth #4: Everyone is like you

– MSN readers criticizing my frugality tips, saying frugality is about a lifestyle choice
– “Ridiculous to spend $28k on weddings”
– Silo effect: Sites like Reddit make you surround yourself with people who (1) don’t know anything, (2) act like they do, and (3) they ALL have the similarly kooky opinions!
– Solution is to read multiple CREDIBLE sources

[27:43] — Myth #5: Frugality will make you rich

Myth: “I can save $10 by not buying that book! Ha Ha!”
– Pay for value
– Not just sticker price, but value
– Why it’s crazy for people to try to find these extreme deals on books. If you implement even 1 tip, you’ll save/earn 1000x the money
– Same people who don’t pay end up spinning their wheels
– Would it be worth it to buy a $10 book that has saved people thousands? Scrooge for a few bucks/month if it helps you earn $300/month? Or to buy a course at a community college for $500?
– Focus on value, not cost

[30:26] End

Random notes

BUY AND HOLD

- Unprecedented what’s happened, lot of people to blame (including ourselves)
- But there’s a knee-jerk reaction: BUY AND HOLD DOESN’T WORK!
1. Ok, so what does?
2. The people who pull out of the market now are going to face another, more serious phantom risk: Running out of $. (SEE BELOW)

AVAILABILITY HEURISTIC

- We tend to overvalue what’s easily remembered — so you might say, “VWs are terrible cars” when in fact Consumers’ Reports prove otherwise (I do this)
- People are freaking out and removing their money from the market — driven by fear, not educated moves
- Change asset allocation. Change regular contribution amounts. Diversify. Earn more. But PULLING YOUR $ OUT? Worst thing you could do
- And people will face another fear they don’t know today: Running out of money. Not as obvious as losing 40%, but you can’t do much when you’re 82 and out of $
- Focus on the most important things and work, step-by-step, to hit them

BUY AND HOLD 2

- Compare equity returns to any other measure and you’ll see over the last 70 years have shown equities to return the best. PAST PERFORMANCE IS NO GUARANTEE…
- But I prefer to use data unlike the other handwavy arguments that involve the gold standard, doom and gloom, and tin cans

Listen to the interview here:
Download MP3 here.

Stop reading and start doing. Thousands of people have already bought my book and dominated their personal finances. If you haven’t already bought my book for about $10 (Amazon), take 10 seconds to do it and learn how to turn all this information into a 6-week plan to dominate your personal finances. If not now, when?

(Make sure you forward your receipt to iboughtthebook@iwillteachyoutoberich.com for a bunch of bonuses, including something new coming up soon.)

How Much can My Employer Contribute to my 401k?

I’d like to clear up a very common 401(k) misconception surrounding maximum contribution limits.

Question: The IRS maximum 401(k) contribution limits for 2009 are $16,500. But what exactly does this mean? Does this mean that if my employer matches my contribution dollar-for-dollar that I can only contribute half of the maximum?

Answer: No. The IRS maximum 401(k) contribution is how much you can personally contribute to your 401(k) during the year. What your employer wants to contribute is entirely up to them – but the max on total contributions (employee plus employer) to your 401(k) is $49,000 (or 100% of your salary, whichever is less). Technically, this means that your employer could contribute up to $32,500, if they wanted to, and it would not count against your $16,500 personal contribution maximum .

To the Readers:

• What is your employer’s match?
• Did you think that your maximum contribution was your personal plus your employer’s?
• Are you going to max your 401(k) contributions this year?

If you found this article helpful, you can subscribe to the 20somethingfinance RSS feed, or sign up for free email updates. You may also find the following articles of interest:

IRS Maximum Allowed 401(k) Contributions Increase in 2009

The Most Common Roth 401(k) Misconception

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Wondering what you should do for your retirement? Expert guests discuss important retirement strategies that will get you on track for a worry ...

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5 Ways that Personal Finance Mirrors the Tour de France

The Tour de France has sucked me in over the last few weeks. Yeah, I know, “just guys riding bikes” – I’ve heard it many times before as I keep coming up empty trying to find friends to discuss all of the inner-workings of the Tour with. Surreal beauty, extreme physical pain, high drama, and tradition make the Tour an unbelievable event to follow, once you get past the pre-judgments. Hopefully, ‘Le Tour’ has sucked in a few 20somethingfinance community members as well. In watching the Tour, I’ve noticed 5 consistent themes that have a lot of crossover with personal finance. 

1. It’s a Team Sport

There are 9 riders on each Tour de France team, however, each team is typically riding to support 1 or 2 riders along the way. Sometimes multiple riders will burn through their energy just to pace and urge a teammate on. In this Tour, we’ve even seen Lance Armstrong, a seven time Tour de France winner, slow down his pace in order to hold off other riders from catching his teammate, Alberto Contador.

How does this compare to personal finance, you may ask? Ask anyone who is married, in a committed relationship, or who has children, and they will undoubtedly tell you that personal finances aren’t limited to the individual. Without a team effort, finances can often be divisive, as married couples often cite financial problems as one of the top reasons for marital problems. Be open, honest, and transparent about your personal finances, and you’ll have a happy team at home. Launch ’surprise attacks’ (like Contador did in team Astana), and there’s bound to be some tension.

2. Be Strong in Every Area

In the Tour, you’ll notice a lot of little races inside the race. There’s a yellow jersey for the overall leader, but also a green jersey for most sprint points, polka dot jersey for mountain points, and white jersey for best young rider. The sprinters fight over the green jersey and the climbers battle over the polka dot jersey. That being said, it’s the overall Tour winner who walks away with the fame and glory and the true contenders for that title are truly good in every aspect of the sport – time trials, sprinting, and climbing.

Personal finance works in the same way. If you’re really good at earning a high income, but don’t have the knowledge about how to protect and grow that income, you’re in trouble. If you no everything there is to know about insurance and investing, but have no money to protect and invest, you’re also in trouble. You must be well rounded in income earning, investing, insurance, credit, and long-terms savings if you want long-term personal finance success.

3. You will Feel Some Pain Along the Way

I don’t know how those guys do it. 21 days of cycling and 3,500 kilometers, with many stages starting in valleys and ending up thousands of feet higher in elevation. Undoubtedly, every cyclist in the Tour experiences extreme mental and physical fatigue and pain along the way. They may get fall off their bike, feel horrible along the way, and have very disappointing days.

The key, and it’s the same in personal finance, is despite personal tragedy, setbacks, pain, and disappointment, you have to have a long-term plan, stay positive, and keep on moving forward, because you never know what the next day might bring. How many people lost 50% of their investment value in the last year, only to pull out and abandon their long-term investing strategy, and then see the market rebound 30% almost immediately?

4. There’s a Whole Lot of Noise – Avoid it

The Tour has more subplots and points of drama than a soap opera. Cases in point: Contador not following team strategy and attacking Lance (his teammate), team Garmin stealing the yellow jersey away from George Hincapie – and gaining nothing in doing so, and Mark Cavendish sprinting past everyone. There’s a ton of talking from the teams, team managers, and media along the away. Ultimately, the teams and individual riders that can get past all that drama are going to be the ones who win – the Tour seems to be at least equal part mental as physical.

In the personal finance world, we’ve all heard about the next great stock. We’ve also heard about all of the bad things going on in the market. And we’ve all been tempted to take a little extra risk when everything is going great. However, letting ourselves be influenced by these external forces rarely results in a winning investment strategy. Those who stay the course on a smart long-term investing strategy typically prosper over those who don’t.

5. Start Young

Seeing 24, 25, and 26 year-olds dominate the sport is disheartening in that I’m just now becoming very interested in taking cycling seriously on a personal level, yet I’d already be considered a geezer in that world – no professional hope for me! Even though they may be in their mid twenties, many in the field began their professional careers in their teens and have been riding for a decade or more. Lance Armstrong, at age 37, is considered to be an elder statesmen.

Most good personal finance foundations are often set an early age. Digging a deep hole of debt, neglecting to save, or not taking your education and career seriously, can result in exponentially more personal finance hurt later in life. Even the best efforts, if not started until the mid thirties or forties, may end up with lackluster results. Start early, and you have a shot at being world class in personal finance.

To the Readers:

• What other comparisons do you see between the Tour or other sports and personal finance?
• What’s your favorite Tour moment?
• What’s your favorite personal finance moment of glory?

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