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Cash, Credit, or Debit?

When you go to the store, you’re often asked what your payment method will be.  Cash, credit, or debit?  And people are very opinionated about which method is their favorite.  Let’s take a look at the good and bad of each method of spending.

Cash

Good

Well, you can’t overspend.  You either have the money to spend or you don’t.
I know a lot of people really like the envelope method of budgeting.  You have $X to spend each month on all the various expense categories. You make an envelope for each category, and divide the money up between the envelopes.  Not sure if you have money to eat out this week?  Check the envelope.  No need to worry about keeping track of receipts or budget categories, just make sure you’re always spending out of the right envelope.  Easy peasy, right?

Bad

You lose one of those envelopes, you’re out of luck.  Not good at all.
Cash also isn’t the best method for long term savings.  You aren’t earning interest on a box of cash shoved under your bed.  Plus again, it could get stolen or lost or accidentally thrown away.
Finally, some expenses are hard to pay with cash.  While I could go to the power company’s office every month and hand over some cash, I couldn’t do that with my mortgage company, which doesn’t have a local office.
But that leads us to…

Debit

Good

Debit cards are sort of a step up from cash.  It’s still hard to spend money you don’t have.  Some banks will let you “bounce” a debit transaction, others won’t.
Debit cards are also a much safer method of handling your cash.  If you lose your card, you can immediately call and have the card cancelled so there’s less of a chance of someone pulling money out of your account.

Bad

Unfortunately, debit cards aren’t theft proof.  You can still have someone use it without your permission.  Often, the banks will work with you, but the expense can end up frozen until you can prove it wasn’t your expense.  That can make it hard to pay your rent or mortgage if you find your account is frozen.
Being able to just withdraw money from your account at any time can make it exceedingly easy to go over budget.

Credit

Good

Credit cards offer a lot of protections.  If you find an unauthorized charge on your account, you’re not liable for it.  You don’t have to worry about paying for the charge and then getting refunded.  It just gets frozen and then taken off your account.
Credit cards also have rewards programs.  Getting something for spending money?  Awesome.
If you always pay off your account on time, you won’t pay any interest.

Bad

Credit cards are a very easy way to get into financial trouble.  Instead of being limited by the amount of cash in your envelope or the amount of money in your account, you’re only limited by your credit limit, which in my experience tends to be way higher than it should be.  It’s very easy to spend too much and then end up paying only the minimum so you are continually accruing interest on your purchases.

The cards with the best benefits also tend to have the highest interest rates.

Conclusion

So is one of these the best option?  It depends on you.  Personally, I’m a majority credit spender.  It makes the most sense for me because my expenses are easy to track.  I joke that cash just grows wings and flies out of my wallet and I have no idea what I spent it on.  But I am also very careful to keep my spending in check and the card gets paid off every single month.
I have friends who have been very successful with the cash envelope system to get them out of tough situations who have then transitioned to primarily debit card usage.
You can use a combination of all three methods, but it’s all about finding out what works best for you, your financial habits, and your budgeting preferences.  Don’t just do what some random financial adviser on the internet tells you.  Do the research and decide what works best for you.
cash credit debit

Use It Up, Wear It Out

“Use It Up, Wear It Out, Make It Do, or Do Without.”  This was a phrase often heard during the Great Depression.  Times were incredibly hard and everything had to be used to its fullest.  Nothing was wasted because people couldn’t afford to waste.  So they came up with all sorts of creative ways to reuse things.

Now, I’m not saying we should all go back to Depression-style living.  While I could potentially sew my own clothes, it’s better for everyone if I just buy them, for example.  And well… I’m probably not going to darn my socks.  If I wear a hole in a sock, it’s getting tossed.  (Actually, it’s probably getting used as a cleaning rag – a sock on your hand is awesome for dusting window blinds.)

I know that I could be less wasteful, however.  I’m trying to be better about regular cooking, but sometimes, leftovers just end up going to waste.  I know right now, there is some cooked eggplant in my fridge that I just didn’t like, and it’s going to end up getting thrown away.  There are also some green beans that have seen better days.  I also have to do regular clean-outs of the pantry and end up tossing things that have expired.  I should be better about preventing this.  Instead of just shopping, I should plan out my meals and take stock of what I have.

I’m also well aware that I simply have too much stuff.  One strange example is my collection of body washes.  I buy them when they go on good sale, but I only shower once a day!  I don’t need this much body wash!  Of course, I’m not going to throw it out, but I should definitely stop buying more and actually use it up.  I think a lot of people have things like this – some particular consumable item that you have way too much of and yet you keep accumulating more.

I’m also bad about cleaning products.  I have a whole bin of cleaning products in the linen closet, yet I’m always trying something new instead of using up what I have.  Or just going back to the old standards like vinegar and water, which work better than many products.

“Do Without” is a big one that I think a lot of us forget.  We live in a society with such easy access to things.  If I want something, I can go to my computer, click a few buttons, and in a few days, it arrives at my house.  Obviously, I try to be careful about my shopping, but it’s all too easy to think “Oh, I need X for the house, might as well just order it!”  In some instances, this is awesome.  Fewer trips to the store, only getting the one thing I need instead of that thing plus four other things.  But at the same time, it’s too easy to just click “Order now” instead of deciding whether or not it’s something I actually need.

So for the next month, I’m going to actively remind myself of this phrase and see where I can be saving more in my life.  Little things do add up, after all.

use it up wear it out make it do or do without

 

When Home Repairs Break the Bank

When it rains, it pours.  And sometimes that water gets into your house and does some significant damage.

So the home repairs I mentioned in last week’s post have not been going well.  When the contractors opened up the wall, we all realized that the issue was much worse than anyone expected.  Much, much worse.

Thankfully, the contractors I had so carefully vetted can do the work, but I won’t get the new estimate until sometime today.  At this point, I’m not going to look around to see if I can get the work done for cheaper.  While that is typically the smart thing to do, time is also money and at this point, I just need the repairs complete.  I have found two companies that have good reputations, that others have recommended, and who have made a good impression on me.  That’s what counts.

(And for anyone thinking that the company under bid the work, trying to get me on the hook, that’s not the case at all.  We all thought the water was coming in at one spot, based on the interior damage.  No one anticipated that the real issue was improperly installed siding letting water in at a totally different spot.)

I’m not sure yet what this is going to cost, but it’s possible the estimate could total 4 times what I initially budgeted for the two companies.  Some of this is because I’m going overboard.  Rather than just repair the siding issues, I’m having completely new siding installed.  After all, if it was improperly installed in the first place, who knows what else might be going on under there.  I’m also having new gutters installed.  This was something I knew I needed eventually, and they are contributing to the issues, so I’m just having it all fixed at once.

Now to figure out how to pay for this.  My emergency fund isn’t as large as it could be, so it’s entirely possible that it won’t cover the total cost.  I do also have some money in savings that I could pull from.  I don’t love that, but it’s an option.  Worst case, I have some investments that could be sold.  I invest for the long term, not the short term, but the option is there if I need it.

But I’m in a pretty decent situation.  I’m going to have to do some real work to replenish my accounts, but I think I can do it.  What if you’re faced with this and don’t have the money available?

One option that a lot of people default to is credit cards.  Unless you have a zero percent interest card and can pay off the full bill before the interest starts to accrue, this is a terrible idea.   (Though putting the cost on a rewards credit card and then paying it off in full when the credit card bill arrives isn’t a bad plan.)

Someone asked me if I had thought about a home equity loan.  While I do have a good amount of equity in my house, partially thanks to rising home prices, it’s just not something I want to mess with, but it’s definitely an option, especially when it comes to home improvement costs.  However, there are fees that come along with that, so it’s probably really only a good idea when you’re doing something big to your house.

The worst plan is taking money out of your retirement plan to pay for home repairs.  Do whatever you can to prevent this.

Finally, the obvious answer.  Talk to the contractor about a payment plan.  You never know what they will say.  Maybe you can make a solid down payment and then pay the remainder in installments.  It never hurts to ask.

So for now, I’m just waiting to see how bad this estimate will be and when we can get the work scheduled.  I keep telling myself that it won’t be that bad and that it’s just money.  I can repay myself with some hard work and determination.

When Home Repair CostsExceed Your Budget

 

My Emergency Fund Takes Another Hit

Earlier this summer, I talked about having to use my emergency fund.  Thankfully, it was only a hit of about $600, which I replenished thanks to June being a three paycheck month.

Then, as I was cleaning out my home office a week or so ago, I found something weird.  The leg of my desk was water damaged.  That’s unusual.  So I pulled the desk away from the wall and discovered that the drywall and the baseboards were also water damaged.

Not good.

This is an outside wall of a small addition to the house, and I know there are no pipes running through the wall so there was one clear source of the leak.  The outside.  How that water is getting in, I do not know, but it was time to call in the experts.

Unfortunately, a small water leak can easily become a big problem.  Why?  Mold.  I don’t know yet if there is mold in my walls, but I will find out this week when a mold abatement company comes out to do their work.  I also have to have the source of the leak repaired.

So needless to say, my emergency fund is taking a big hit.  But that’s what the money is there for.  Unfortunately, it’s going to take me some time to get the fund replenished, but clearly it’s important that the money is there for my use.  Recently, a friend had to have $400 worth of repairs done to her home and was lamenting how she was going to have to put it on her credit card.  While that’s always an option, it’s certainly not a good option.

Do you have an emergency fund?  And how much should you have in it?

Conventional wisdom says you should have three to six months worth of normal expenses in your emergency fund.  Not income, expenses.  How much do you need to live per month?  Then you’re covered in case you are suddenly out of work unexpectedly for a few months, which may seem unlikely, but it also means you have money there if your car breaks down or you suddenly discover a leak in your house.

I admit, the idea of setting aside 6 months worth of expenses sounds unfathomable.  Where in the world is the average person supposed to find that kind of money, especially if you’re trying to pay off debt.  And right now, experts aren’t really in agreement on which is more important.  Some say that you should pay down your debt first.  Others say that you should make sure you have an emergency fund.  I don’t know what the answer is, but I do see the logic in paying down your credit cards and hoping that you don’t need the emergency fund.  Worst case, you put the money on that credit card you’ve just paid down, but at least you were paying less interest for a while?  It’s a tough decision and one you should make for yourself.

But if you can, set aside a bit of money for emergencies.  Even if you can only set aside $25 a month.  In a year, you’ll have $300, in two years, you’ll have $600, and maybe you won’t need to touch it. Or maybe you will and you’ll be glad it’s there.

I’m going to have to do some real work to get my emergency fund back into shape.  I’ve been in my house a little over 5 years, and there are some things that were done to get the house sold that are now starting to show themselves as having not been done properly (such as the reason for this leak), and it’s likely this isn’t the only repair I’m going to have to have done in the near future.

EmergencyFundBasics

Can I Make Money Selling LuLaRoe?

Over the past few months, I have seen a lot of new LuLaRoe businesses popping up.  LuLaRoe is a company that sells clothing (mostly women’s, though some children’s and men’s) through home-based parties and internet parties.

I have purchased a couple of pieces of LuLaRoe clothing, both in parties held by friends and parties held through Facebook.  I like some of their stuff.  It’s cute.  But I worry about the number of people getting into the business.  This is most definitely not a quick way to get rich.  Like many small businesses, it takes a lot of hard work and organization.

I think when people think home businesses, they think of things like Tupperware or Mary Kay, which have changed over the years.  Instead of a consultant showing up to your house with product to sell, they have samples to show and items to display, but then you place your order, which either gets shipped to you or the consultant delivers.  This is a great business model because the consultant doesn’t have to spend a fortune on stock, and it’s easier to make back your initial investment.

LuLaRoe is a different model.  Consultants purchase their stock and then resell.  So their initial outlay is a lot better. A bit of research shows me that the initial required investment is $4800 and $6800, depending on which package the consultant purchases.  And while they get to choose the style, they don’t choose the size or the pattern.  So they’re stuck with whatever they get in their order.

I’ve heard both $15 and $18 as the average profit per item sold, so let’s assume the number is in there.  If the profit is $18, that means selling 266 items to just break even on your initial investment of $4800.   That package has 336 items, so that’s when you can start making profit.

Oh wait, but that’s not your only expense.  The consultants I know have had to purchase portable clothing racks for in-home shows as well as a whole lot of hangers.  So many hangers.  Then there’s the at home storage – typically giant Rubbermaid bins.  Yes, hangers and bins aren’t that expensive, but you’re only making $18 per item, so it adds up. The most successful consultants seem to be the ones who host online shows on Facebook, and to do so, they often purchase a mannequin and a backdrop to make their photos look good.  A smart consultant will also buy some sort of additional business insurance to cover the stock in their home, because frequently, your home owners coverage isn’t enough.

But let’s say you still want to do it.  This isn’t some get-rich-quick business.  Anyone who owns a business will tell you that it’s a lot of hard work.  A consultant will need to carefully photograph all of your items. You will need to host parties, either in person or online. Prepping for these parties takes a few hours, and hosting takes a few hours.  You will have to do a lot of marketing to get the word out about your business.  (Oh, and if you’ve got someone willing to host a party for you, you will owe your hostess some sort of hostess rewards, often a percentage of the sales, so that cuts into your profit.)

Of course, like most of these businesses, if you manage to bring someone else into the company, you will receive a fee based on the cost of the items they purchase.

So this all sounds okay.  You’re ready.  You have the time.  What’s the downside?  Well, remember how you can’t pick out the patterns or sizes you get?  What happens if you get items that just don’t sell?  That certainly cuts into your profit.  If you’ve shopped LuLaRoe, you’ve seen consultants with items they’re selling at a discount, typically less popular patterns or sizes.

Now, this doesn’t mean that I think you shouldn’t do it.  But you have to be ready to really work your business.  You can’t just sit back.  While it may not be full time, this is a solid part-time job that can easily take 20+ hours of your week.  You have to constantly be marketing and reaching out to new customers.  And you have to constantly be putting money back into the business to get new patterns and new styles to keep your existing customers happy.

LuLaRoe isn’t a get rich quick scheme.  But with hard work and commitment, it’s a business you can make work.  Just be aware of the risks.

Can I make money selling lularoe?