Here on bank transfer day*, some people are proud that they are changing their bank accounts to credit unions since it will poke the eye of big banks.
However, while a noble first step, there are other ways that big finance ,Wall Street, and other corporations skim money off you and the economy, and more importantly will hurt your finances. There are other decisions that will also set you up for financial failure.
Follow me below the fold.
1.If you pay interest on your credit card you are already losing
I saw some troubling comments on the front-page diary about moving credit cards to credit unions that people were happy that credit unions offered lower interest rates. If you are paying interest on any credit, you are doing something wrong. Welcome to the law of compound interest :Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal is called compounding" Credit card interest rates are compounded daily.. Since 2010, credit cards have been required to show you much you have paid annually in fees and interest. If you check your Dec 2010 and Nov 2011 statements and you see more than $0.00 dollars, you need to get rid of your credit cards and use cash or debit. If you don't have the money now, you can't afford it.
2. There are only two items you should ever pay interest for. Education and a home loan. Education loans are acceptable if you think it will increase your income, which even today holds true. Look at the unemployment rate and income levels for college graduates vs. those with less education. Even for the younger 25-34 cohort, only 25 percent of Americans have college degrees. Get ahead of the game. Mortgages should only ever be 15 or 30 year fixed interest rates. You are not Nostradumus don't try to guess interest rates and play the ARM game. (adjustable rate mortgage) But what about your car Your car, like your television, and your laptop is a depreciating asset. As the years go down, it goes down in value. If you can't afford to pay cash for your car, you shouldn't get a new car. The price for cars goes down dramatically in the first two-three years and it is always a better idea to get a used car.
3. Pay yourself first. The savings rate has traditionally been dismal for Americans. Many people complain there is nothing left at the end of the paycheck to save. So pay yourself first by saving it. If you have a 401k, always pay at minimum to what ever your company will match. It's free money. Even if you are worried about the volatility of the market, you can always set your 401k to money market/stable value funds that do not risk principal. If you can't save ten percent of your income every month, you need to reduce your expenses. For those who say they can't save money, I have four recommendations that I bet could boost your savings. Stop eating fast food ( see #8), stop buying coffee and lunch at work, lose weight, and stop smoking cigarettes or other stuff and save the money instead. Your lungs, hearts, and kidneys will thank you.
4. If your current mortgage is above 4.5 fixed, and your eligible, you need to refinance. This is free money for you to pocket, and lenders are desperate to keep you and will cut closing costs.
5. Almost everything is negotiable No, don't go to your local supermarket and try to haggle over the price of Wheaties because if I am behind you, I will punch you in the kidneys, but almost everything else is negotiable. If you call your high-speed internet,cable provider, cell provider and threaten to cancel or ask for a discount, you are likely to get one. A lot of chain stores even negotiate as I found out when I was replacing tires at a Firestone Auto Store. You can even negotiate at dealer service and they will discount you if you are aggressive enough. Showing competitive offers are an excellent tactic. You can even negotiate credit card interest rates , although you should be off your credit cards if you are carrying a balance to begin with. see #1. I've seen steep discounts on auto and homeowner policies if you shop around, or bundle them as I recently did. Search online for coupons, and also many items you buy may be cheaper to purchase online, especially when you consider sales taxes Cough, Amazon
6. Walking Away is not a sin Wealthy people and companies do it all the time if a project is underwater. Many McMansions that were occupied by middle to upper income people were the most likely to be abandoned. Morgan Stanley walked away from a real estate investment that was underwater in San Francisco. Go look up your local laws and check to see how you may approach at a different angle depending on whether or not your state is a recourse or non-recourse state, meaning the loan company could come after you if the sale does not recoup the entire cost of the loan. Your home is not an investment, it is a place to live. For the last 150 years minus the housing bubble, housing prices have a real return, adjusting for inflation of 0.
7. You probably don't have some insurance you need , and you probably have some insurance you don't need.
-You need term life insurance if you are a breadwinner for a dependent or a spouse. If no one is depending on your income, lifelong bachelor with no kids for example, you don't need this. There's a nefarious practice of insurance companies selling life insurance to parents for their minor children. Kids aren't breadwinners, you don't need to purchase life insurance for them unless you're (I was going to make a Casey Anthony joke, but I thought it was inappropiate)
- You need disability insurance , even more than life insurance.People have an irrational fear of dying early, but we're far less likely to protect against the far more likely possibility that we'll be sidelined for an extended time by injury or illness. Disability insurance will pay for home assistance and replace your income as neccesary.
http://money.cnn.com/2005/09/13/pf/fears_dieyoung/index.htm">the actuary tables say you are more likely to become disabled before the age of 65, as opposed to dying. This policy is good for all adults, but especially those with dependents,
- You need comprehensive auto insurance, especially if you live in a state with a lot of uninsured motorists or you depend on your car for work. Liability insurance will put you one step away from disaster if you are cash poor and get into an accident that is your fault, hit by an uninsured or underinsured driver, etc.
-You need to insure your property through homeowner's coverage and purchase additional earthquake or flood insurance if you live in areas with a reasonable risk. Higher-wealth individuals should consider liability and umbrella insurance to protect yourself.
-You need health insurance.
- - You don't need all those other stupid insurances and extended warranty (scam) coverages. Universal life, whole life, variable life, or other insurance products that try to mix investing with insurance have high fees and low returns. You don't need some idiotic policies I've heard about like accidental death insurance, travel insurance, mortgage insurance, credit card insurance,cancer insurance, or extended warranties that a lot of devices offer. Did you know if you purchased an electronic with your credit card, most credit companies will double your warranty up to a year?
8. Fast food is not cheap From a pure dollars and cents focus, if you figure out how many meals you can purchase with a weekly trip to the supermarket vs. the equivalent number of meals at even Taco Bell (barf), fast food is not cheap. And that's not even considering the fact that an average meal at McDonald's will give you 3 times your recommended intake of carbs, fat, and salt.
9. If you are paying someone to invest your money, you are losing. Please read the Gottocks Parable by Messr. Warren Buffet. http://www.mymoneyblog.com/... I can't do it adjusting by cutting snippets of it, read the whole thing.
10. Welcome to the Investing Revolution
It has been said correctly, that credit unions have your interest because the customers own the credit union. Welcome to Vanguard, an investment company that is owned by the customers with rock-bottom management ratios. Please learn about the Indexing Revolution.
http://en.wikipedia.org/...
*A shorter version of this was posted on Saturday and is reposted today as a public service as it looks like weekend site activity may have missed a few people.