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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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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