Note: We are taking a short break from blogging this week and will be re-posting a few of our earlier articles that may not have been read by many of our current readers. If you have already read this article (and those few to come), we apologize for the repetition and assure you that we will have some new material for you soon. Thanks for reading!

Pay Bills Online and Save
(Re-Post: Original post date February 15, 2008)

These days, most companies (including banks and utility companies) have websites and online payment options. Those that don’t often accept payments by phone. If you are still using snail mail to pay your bills each month, you could be saving $60 or more, depending your number of bills, each year by switching to payments by internet or phone. Consider the following example

Our monthly household bills look something like this: electric, gas, water & sanitation, 2 mortgages, cell phone, home insurance, auto insurance, 2 credit cards - an average of 10 bills per month. The cost of a first-class postage stamp is $0.41 ($0.42 starting May 12, 2008), and the cost of a personal check for us is about $0.07. (Since the companies usually provide the envelopes, we won’t count the cost of an envelope.) So the cost of mailing one bill is $0.48. At 10 bills a month, that amounts to $4.80 a month, and a total savings of $57.60 each year. A larger household with children and more bills could save even more than this.

If the company doesn’t have a website, it usually has a toll-free number you can call to pay by phone. Some companies allow you to set up automatic monthly charges to your credit card or withdrawals from your bank account, which could save you a lot of time.

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Note: We are taking a short break from blogging this week and will be re-posting a few of our earlier articles that may not have been read by many of our current readers. If you have already read this article (and those few to come), we apologize for the repetition and assure you that we will have some new material for you soon. Thanks for reading!

Credits Cards Really Aren’t So Bad
(Re-Post: Original post date February 14, 2008)

In every online discussion I have seen about credit cards, there are always at least a few contributors whose only comments are “Credit cards are evil” or “No credit card is best”, etc. This post is mostly for those people.

For several years, we also believed that credit cards were bad, having been thus informed by our stepfather, a compulsive spender who is constantly in debt. But over the past few years, we have learned that credit cards are actually a good thing and provide many benefits and advantages:

• Building Credit History
  If you plan on buying a car or house in future, chances are that you will need a loan, and if you have no credit history, it can be difficult to get a good interest rate on a loan. Interest rates make a huge difference in the amount you end up paying or saving. Credit cards, if used responsibly, are a good and easy way to build a good credit history, which can ultimately save you thousands of dollars.

• Tracking spending
  Credit card statements provide an good way to track and analyze your spending habits. By charging all your purchases, you will have a printed statement of where every dollar has gone, a useful too for budgeting.

• Safer than carrying cash
  If you carry a lot of cash and lose your wallet, you can usually assume that money gone forever. If you mostly use your credit card and carry very little cash though, all you have to do is call the credit card company as soon as you discover the loss and you won’t be liable for any unauthorized charges to the card.

• Backup for emergencies
  Credit cards can be a backup source of funds for emergencies when you don’t have cash on hand. Though these should be true emergencies and not things like “fashion emergencies”.

And best of all, the reason we use our credit cards whenever and wherever we can:

• Credit cards can earn you money
  Credit cards can “make” you money in 2 ways:
  • There are many cards out there that earn you cash back or rewards. Some earn you as much as 5% cash back on grocery, drugstore and gas purchases. If you get a card with no annual fee (there are many out there), use it responsibly for regular purchases (not cash advances), and pay your balance in full every month, you can earn money without paying a cent to the credit card company. We have an American Express Blue Cash Credit Card that earned us over $300 cash back last year.
  • In addition to the cash back, credit cards also earn you money by allowing you keep your money in the bank longer. Depending on your billing cycle, you can charge your purchases and bills to a credit card and your money can sit in the bank earning interest for up to 6 more weeks. For example, our propane bill was due on January 30, 2008. Our credit card billing cycle ends on the 28th of each month. If we charge our bill to our credit card on the Jan. 30, 2008, it goes on the new billing cycle which ends on February 28, 2008, and the due date for that billing cycle is in mid-March 2008. So the money for that propane bill that was due and paid on Jan. 30, 2008 won’t actually leave our bank account until 6 weeks later. That’s 6 extra weeks of interest on money that would have left your account immediately had you paid by cash or check.

These are just a few basic reasons we use and approve of credit cards. However, if you know that you won’t be able to control your spending, then perhaps it is better to not go this route. If you need advice on applying for credit cards, visit your bank or credit union and someone can usually recommend a good card for you and help you with the application.

Continue reading for tips on choosing the right card and a few tips for safe and responsible credit card use.

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The other day I posted a comment about how my sister and I share an AMEX Cash Back credit card on Kevin’s post $327 in AMEX Cash Back Thus Far at No Debt Plan and he emailed me to ask out of curiosity why I share an account with my sister because it sounds so risky. What if one of us decided to go on a shopping spree and screwed things up for the other person?

I emailed him back explaining our logic, and while it may be unconventional, for us it is a convention we have practiced with success for many years. Ever since our high school days when our parents would give each of us pocket money for lunch, the bus, pay phones, etc. we have always regarded our money as literally “our money.” When one of us didn’t have any cash and wanted to buy a drink or snack at school, we would just ask the other person for some. And to the shock of many of our friends, we would just give each other the money. We never had a distinction of “my money” and “your money”.

Perhaps this had to do with our always having been somewhat unconventional people, even as kids. While our friends went to the mall, movies or shopping, we preferred to go to the library, karate class, or stay at home and read or play with our pets (we had dogs, cats, 20-30 rabbits, guinea pigs, birds, fish, mice, etc.). So for us, money was never really a means for pleasure but living - taking the bus home from school, buying lunch or an occasional snack or buying pet supplies. Because we didn’t habitually spend money, our parents didn’t put us on allowances and would just give us money when we needed it. (This could explain why we still live on a No-Budget System.)

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Back in the day when Madoline and I were concerned (or maybe obsessed is a better word) with weight loss and weight control, we would set restrictions for ourselves - daily caloric limit, no fat, no sugar, no carbohydrates, no wheat, etc., depending on the type of diet we were on. We were never really that overweight to begin with but were obsessed with being thin. From the year after graduating from college up until around 3 years ago (about a 4-year period), we lived in a permanent state of deprivation and craving. And when we fell off the wagon, we really fell off. For example, we would buy a bag of chocolates and eat it all in 1 or 2 days. We’d bake a cake and eat half in one evening.

There was a period when we limited ourselves to 1,200 calories and ran 5 miles a day (after working 8-5), then sit around the rest of the evening looking for things to eat until we were up to our daily quota, and then sit around still hungry, wanting to eat more and planning what we were going to eat the next day when the calorie count started at 0 again. Sometimes we went over the 1,200 and had 1,300 instead and guilt-tripped about it all night. We did lose an impressive bit of weight during that time (which we gained back plus more as soon as we ended that diet), but we were also miserable, hungry and food-obsessed.

Then, a few years ago we decided that a life of deprivation and restriction was not how we wanted to live for the next 60 or so years, so we opted to try the “no-diet” system and eat what we wanted in moderation. And we have never looked back.

So the point of all this and how it has to do with finance? It works the same way. This may not be true or may not work for everyone, but I believe that it could for certain types of individuals. There is something about a restriction that creates a tendency in human nature to go right up to, and sometimes test, the boundaries. If one receives a budget or allowance for something, the natural tendency is to use it all up and then wait for and start planning the various ways in which one is going to spend the next month’s allowance. How often has the thought, “I have $___ left. What can I buy with it?” come into your head when given an allowance to spend on something?
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I would like to introduce to you today the foremost of money saving tips: staying home. I am not talking about staying in instead of going to a movie on a Friday night, but something much more fundamental and often overlooked. Allowing this philosophy and the following ideas a permanent space in your consciousness is the vital first step in succeeding in a life of frugality. I grant, some of these ideas may seem far-fetched, but keep an open mind and you will learn how thinking forwardly as well as laterally can help you to save even more money. In fact, this concept should apply to all aspects of life besides the financial.

Every Little Bit Adds Up

First I will remind you, as I mentioned in my first official post “Frugality 101,” that every little bit adds up and makes difference in the long run. While one small action seems insignificant in the long scheme of things, if frequently repeated, it will have a long-term impact whether good or bad.

I will use smoking as an example: smoking a single cigarette may not harm you, but smoking cigarettes on a regular basis over the course of many years will significantly impact your health (even if not visible to the eye, there is a consequence.) Likewise, all things we do, no matter how small, will have a consequence of some sort. So now to my point.

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Do you have a daily indulgence that seems so trivial in cost that you see no harm in continuing to … well, indulge in it? Perhaps a Starbucks habit, eating lunch out, a pack of cigarettes, a candy bar, buying a daily newspaper from a newstand, etc.? Or not even a daily habit but a frequent one?

Consider this. Say you have a latte from Starbucks everyday, which only costs $3.00. But think about that $3.00 a day put into a savings account for x number of years, say until retirement. Ever wonder how much that $3.00 a day can be worth?

I used the Future Value Calculator below with the following figures: $0 initial investment, $90 monthly addition ($3 x 30 days), and the savings account interest rates from my current credit union savings account: .80% for balances under $999.99.

Firstly, keep these points in mind:

• This calculation is based on a regular credit union savings account interest rate and there are other high-interest savings accounts with higher APYs.
• There are savings accounts for which interest rates increase with the balance (but I only used the original .80% rate throughout because it would’ve taken me a really long time to figure it with changing rates and balances.)
• In this calculation, the interest is compounded monthly, but there are accounts that compound interest daily (such as my credit union).

So, in actuality the total savings and interest would be higher than below, but I think these figures would sufficiently illustrate my point. (more…)