Maternity Leave

My husband and I are getting ready to welcome our third child in the next 3 1/2-4 weeks.  Because of the this and other factors, my life has gotten very busy.  I have made the decision to simplify things as much as possible and put myself on maternity leave a bit earlier than I had originally planned.  I am planning on taking a break for April and May.  Know that I have not lost my passion in the least bit, but there is a time and season for everything and right now I need to focus fully on my family.  I'd be happy to answer any questions you may have in the meantime.  They can be directed to my email (rachel@financesbyrachel.com) or facebook page.

Quotations of the Month March

"Credit buying is much like being drunk. The buzz happens immediately, and it gives you a lift. The hangover comes the day after." Dr. Joyce Brothers


"A creditor is worse than a slave-owner; for the master owns only your person, but a creditor owns your dignity, and can command it." Victor Hugo


"Promises make debt, and debt makes promises." Dutch Proverb


"The crown of the wise is their riches: but the foolishness of fools is folly." Proverbs 14:24

Tip of the Week March 18-25

Why Credit Cards Don't Pay

We've all seen the ads- get cash back, airline miles or bonus points by charging on your credit cards. This sounds like they are just dying to give you free money, right? The truth is that it's a marketing technique to get you spend more and pay them interest in the process. They do research and know that by purchasing with plastic you spend more than you would if you used cash. Adding the facts that you justify spending more (since you're getting rewarded) and the bulk of you not paying your balances off every month; you've been sucker punched by the credit card company.

The credit issuers aren't the only ones who have learned this. Have you noticed that over the last decade everyone and their dog takes credit cards? You might think this is because they want to make it 'easier' to pay for their customers. Yeah it might be easier but they do have to pay Visa or Mastercard 3-4% of the transaction amount. However what companies started realizing is that you spend more if they take your credit card, more so than the 3-4% they have to pay for the transaction. McDonalds did a study and concluded that their average credit card customer spent 40% more on their ticket than cash spenders. This was a jump from around $4 to $7 and the reason why they and all other fast food joints started accepting credit cards. That said, let's do some simple math. According to Smart Money Magazine, the average consumer spends 12-18% more using credit than cash. Even if you were half that conservative at 6-9%, are you really coming out ahead playing the reward program game? NO- because they are only giving you 3-5% on your money.

Homework:
For one month, use cash instead of credit cards to purchase everyday items like clothes, groceries and eating out. This not only keeps you on track with your budget, but you won't be paying for food that is long down the sewer when the credit card bill comes. The trick is to be realistic and that once the money runs out you don't just keep hitting the ATM. For more about this check out my archives about budgeting properly.

Tip of the Week March 11-18

Why Not Use Credit Cards for EVERYTHING?

I get asked this question quite a bit. Why not use credit cards for the cash back, reward points and airline miles? It's free money from the credit company and I pay mine off in full every month, so what's the big deal? To all those who ask these questions I will say, I used to believe that. I was very good about charging everything (including utilities) and then paying it off in full when the bill was due. I literally felt a sense of pride that I was somehow winning and swindling the credit card company out of all this 'free money'. There were a couple of major flaws with this behavior. First, I never felt like we were getting ahead because after the big credit card payment was made there wasn't any money left. Second, when there were unemployment issues, the bill couldn't be paid off in full. Thus being caught in an endless cycle. Sure we had stellar credit but we didn't have any money in the bank.

The truth is that credit card companies know exactly what they are doing by offering the various reward programs they do. These are skilled and very well researched decisions because they know that the vast majority of credit card bills are not paid off every month. They know that because you think you are getting rewarded, you will justify spending more and then not pay it off in full. Think about it, if they were losing money on these programs they would stop them immediately.

Homework: 
This week I want you to go over your credit card statements and uncover what you are really charging. Chances are the bulk of it is everyday spending like gas, groceries, eating out, entertainment and other fun things. Keep in mind what your real cost is for my tip next week. I'll talk more about how you really end up spending more by using plastic versus cash.

Tip of the Week February 25-March 4

What Should You do With Your Tax Refund?

I've been asked this question a lot lately. Since the first refunds should be arriving in the next couple of weeks, I thought this would be a good thing to discuss. As I established last week, it's not so great of a deal on your end if you get a tax refund. Sure it might seem like bonus money but it's either your money that you loaned the government interest free for the year or it's someone else's money. But enough about that, what do you do with the money if you are getting it?

Since I am a Dave Ramsey counselor my advice is the same as his. Start wherever you are in your baby step process. If you haven't started or have no idea what I'm talking about go here for more information. This program is boot camp tough and not for sissies. If you aren't ready, then what I'm going to say won't make a bit difference to you because you probably won't do it anyway. If however you are ready to step out of denial and change your life- keep reading. This is after all more about priorities than anything else.

Homework:
If you don't have anything in savings, start by putting $1000 away for emergencies. Remember it's not if but when you will need this money. Next if you still have refund left and are ready to dig out of your pit, use the rest of your money to pay down your debt snowball. This is not to say that you can't use any of it for having a bit of fun, but this depends on your situation and how serious you are about getting out of debt. If you are going to pay down debt only to run it up again later this year, then what's the point? You're in an endless cycle and you might as well blow your refund.

If you are going to spend some of the money on things other than saving and paying down debt be sure to prioritize. Is it something you really need like getting the car fixed, badly needed house repair, or a big bill that is coming due? Or is it a want like furniture, flooring or a gadget/toy? Maybe you are in the middle of a crisis or see one on the horizon. If this is the case, pile up the money into savings to weather the storm. Whatever your circumstances use prudence when making these decisions. The bottom line is if you don't have a plan or aren't intentional with your money you won't have any and you will always be wishing for that big refund.

Quotations of the Month February

"The hardest thing in the world to understand is the income tax."Albert Einstein


"Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund." F.J. Raymond

"It's income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta." Dave Barry