Category Archives: Intelligent Consumerism

Travel Hacking: Round Two

Travel hacking is a great way to travel for free.  Travel Hacking is the practice of opening premium rewards credit cards to capture the generous initial bonus points that these credit cards offer to new cardholders.  The hack is based on getting the bonus points, closing the card before the annual fee is due, and never paying interest or carrying a monthly balance.

I first learned about travel hacking from reading The Millionaire Educator.  It sounded interesting.  It was not until I attended a Rockstar Finance Meet-Up in New York City that I really got turned on to this practice of traveling for free.

In my post Travel Hacking: Round One, I wrote about my first experience with Travel Hacking.  The first card that my wife and I opened was the Chase Sapphire Preferred Card.  We used the bonus points from this card to buy two round-trip tickets from Newark, NJ to Dublin, Ireland.

As the result of my first experience, I have decided that travel hacking will be a major part of my financial plan.  My wife and I take at least two vacations per year.  Even though I am frugal, we still have the monthly household spending to earn enough points to pay for two trips per year.

The second card that I opened was the Chase Preferred Ink Business Card.  Unlike the Chase Sapphire, the Chase Preferred Ink Business Card is a business card.  In order to qualify, having a small business like a blog or an Etsy store would qualify.  For sole proprietors who do not have a tax id, they could use their Social Security number when signing up for business credit cards.

Another benefit that the Chase Preferred Ink Business Card offers is that it does not count against the  Chase 5/24 rule that Chase has for opening new cards.  Chase only allows individuals to open 5 cards in a 24 month period from any issuing bank, you will not be approved for new Chase credit card.  That also applies for anyone who is an authorized user.  Since it is a business card, it is not counted as being part of the 5/24 rule.

The Chase Preferred Ink Business card offers a very rich benefits program.  After the cardholder spends $5,000 in 3 months, they receive 80,000 bonus points.  When you redeem those points through Chase Ultimate Rewards, 80,000 points are equal to about $1,000 towards travel.

When you open the Chase Preferred Ink Business Card, there is a $95 annual fee.  Unlike the Chase Sapphire Preferred card, that fee is not waved for the first year.  Based on the value of those 80,000 travel points, it is easy to justify the $95 for one year.

On additional spend, cardholders earn 3 points for every $1 in spending.  The 3 points for every $1 in money spent is good for up to the first $150,000 charged.  After that, cardholders earn 1 point for every $1 in spending.

My wife and I used this card for all of our monthly expenses.  We try to put all of our monthly reoccurring bills on the card.  We also use it when we go out to eat at a restaurant or fill up our car at the gas station.  It took us two months to reach the $5,000 in spend to equal the 80,000 points.

So, how did we use these points?  My wife’s birthday is in December.  She does not know it, but I booked a Western Caribbean Cruise.  While going on a cruise is exciting by itself, this cruise departs on December 23rd.  What makes that exciting is that winter is in full swing in Pennsylvania at that point, so we will even appreciate the cruise more.

I wish that I was able to report that I was able to book the cruise for free.  Unfortunately, that was not the case.  Hopefully, I will be able to share a post about taking a free cruise with you in the future.  I have not reached that level of travel hacking success yet.

What I did apply the points towards was our flight.  I have never booked a flight from Pennsylvania to Florida in December.  When I went to book this trip, I was shocked to find out how inflated the prices are this time of year.  After giving it a little bit of thought, it makes sense due to the holiday traffic and snowbirds who are flying south for winter.

The normal cost for a ticket from the Scranton International Airport to Tampa is around $300.  This flight cost $625 per person.  Our flight to Ireland was less expensive.

The total amount of points that were required to cover our two tickets were 112,000 in Chase Points.  At this point, I had 88,000 in chase points from the Chase Preferred Ink Business Card.  My wife and I also had 30,000 in points from our spending on the Chase Sapphire Preferred Card.  By combining the points from the two cards we were able to cover the airfare.

With the remainder of our points, we booked our hotel.  The cruise departs on Sunday, December 23.  We are flying down the day before.  I was surprised, but we were able to pay for one night at a 3-star hotel for only 6,000 points.  That was the only value that I have found so far on this trip.

Even though the flight was expensive, it ended up being free for us since we took advantage of our points from the Chase Preferred Ink Business Card.  Otherwise, we would have had to shell out over $1,200 for a 3-hour flight from Pennsylvania to Tampa, Florida.  It might seem expensive, but I am sure that I will be happy to be cruising the Western Caribbean instead of dealing with at best a wintery mix at home in Pennsylvania.

I am excited about the money that I will be saving on travel as the result of travel hacking.  Even though it sounds fun, be warned that travel hacking is not for everyone.  Travel hacking is only for those who are ridged and hyper-focused when it comes to managing their personal finances.

If you struggle with paying off your credit card bills every month, travel hacking is not for you.  If you do not have enough in normal monthly spend, travel hacking is not for you.  If you have to try to generate artificial spend to try to earn points, travel hacking is not for you.

Please keep your eye out for my next post in this series on travel hacking.  The next post will be about the Chase Southwest Rapid Rewards Premier Business Card.  I look forward to sharing about how I am getting free flights and to share with you about where we are planning on visiting next.

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Customer Service Saved the Sale

Very few purchases are as stressful as buying a new car.  Next to buying a house, a car is the second largest purchase that most people make.  Since it is such a large purchase, it is wise to do some research before you sign on the dotted line.

We recently decided that we were going to buy a new car.  My wife and I live in North East Pennsylvania.  While there are parts of the country that do receive more snow than we do, we start to get snow in November and this year it kept snowing until late April.  As the result of our long snow season, we find that Subaru is our best option.

The all-wheel-drive comes in handy on bad road conditions.  In the past, Subaru did not provide very good miles per gallon (MPG) for the size of their cars.  Now, with the CVT transmission, they average around 30 MPG.  In my opinion, that is good for an all-wheel-drive car.

We decided that we wanted a Subaru Outback.  The Subaru Outback matched our needs.  We like to go to our local lakes and the Outback is rated to tow up to 2,700 lbs.  That is more than enough to pull our kayak trailer.

As a member of the financial independence community, I am extremely frugal.  I don’t like spending money, but when I do, I shop for the best value.  I view salespeople as competition.  That is especially the case for big-ticket purchases like a car.

My approach to car shopping is simple.  I know the make and model of what I want before I head out to buy it.  I know how much I want to spend.  As the result of KBB, the value of my trade in is already known. 

To find a car, I just type in what I am looking for in Cars.com.  It is based on year, brand, model, budget, and I search for certified used.  The distance that I am willing to travel is 150 miles. Based on where I live, the 150-mile distance covers both New York City and Philadelphia where there are high volume dealers that offer better prices.  The last part of my search is to sort by lowest mileage on the car.

After I performed that search, the first car that came up was a 2017 Subaru Outback Premium with 4,000 miles for $24,995.  When I looked at what the average price for the same exact car, the closest that I was able to find was one for $27,500, but it had 30,000 miles.  I am willing to drive two hours to save $2,500 and to get a car with 26,000 fewer miles.

Now that I picked out the car, I reached out to the dealer.  I told them that I wanted to buy the car.  My initial call was on a Tuesday.  I made an appointment for the following Saturday.  They did inform me that they could not hold the car but would reach out to me if it was sold. 

Over the course of that week, I had communicated with the car dealer every day.  There was at least one email per day and a few phone calls.  Friday rolled around, and they sent me an email to verify my appointment.  We were all set.

When Saturday arrived, my wife and I drove down to Allentown, Pa to buy our new car.  The dealer was right off of the highway and easy to find.  I thought that it was going to be a simple process.

When we arrived, I asked for the salesperson who I was dealing with.  When he came out, he had bad news.  He told us that the car was sold that morning.  I was annoyed, and my wife was pissed.  She asked him, why did they not call us?  He apologized and said that they have other used Outback’s and would find us another car.

At this point, I had a feeling that I was not going to buy a car from this dealer.  I looked at their online inventory and they did not have any deals that were as good as what I came down for. The salesman asked if we wanted to see their used inventory and I just played along.

He showed us about 10 used Subaru Outback’s that they had in inventory.  One was $1,000 cheaper than the one we drove down for but had 43,000 miles on the odometer.  That was a no.  Most of what they had were the Limited model that was a step above what we wanted to buy.  They were nice.  The Limited had more features like leather and other fancy crap, but they were $30,000 and higher.  I saw one that I liked and asked if he could get it down to $25,000.  He did not think that he could do it.

At this point, I was already looking for a new car on my phone.  I found a very similar deal in New Jersey.  It was only 40 minutes away and I was ready to drive there.

The salesman knew that we were not interested in what he was selling.  I flat out told him that I drove 60 miles for a specific deal.  We only buy cars every 8-10 years and I am willing to travel to buy a cream-puff used car.

He asked if we were willing to sit in his office while he went and spoke to the Sales Manager.  I was not mad at them for selling the car I came down for.  It is just business.  However, I was not going to pay any more than what I budgeted for and was not willing to accept a car with more miles.

He disappeared and left us in his office.  My wife was already over the experience and thought the deal was a basic bait-and-switch.  I was programming the other Subaru Dealer into Google Maps and ready to drive to New Jersey.

About 10 minutes passed and the salesman came back.  He asked what we thought about buying a brand new 2018 model.  I thought to myself, here comes the bait and switch.  He is going to try to sell us a $30,000 plus car.

He told us that he spoke to his Sales Manager.  The best that they could do was to sell us the exact same car that we drove down for except it was brand new and cost $25,300.  It took me about 1 second to review the offer and I said, “you got a deal”.

The Sales Manager came over and told us that he wanted us to leave the dealership satisfied.  He knew that we drove over 1-hour and he felt that he had to offer us a better deal than we came in for.  He reduced the price on the brand-new car from $29,500 to $25,300.

Even though our initial opinion of this dealer felt shady, they ended up saving the sale.  I wish that I could tell you that it was the result of my negotiation skills, but it was not.  My wife and I were just willing to walk away and never come back.  The Salesman and Sales Manager both knew that.  To save the sale, they had to sharpen their pencil on a new model to close the deal. They did what they had to and it was one of the best displays of customer service that I ever experienced.

I was more than satisfied with this deal.  More importantly, my wife was satisfied.  It is her new car.

Even though they had to drastically reduce the price, they saved the sale.  As the result, they made the customer happy.  Without knowing it, they benefited by me sharing this positive experience with my friends, family, and everyone who reads this blog.

As the result of their excellent customer service, I highly recommend Ciocca Subaru in Allentown, Pennsylvania. They are about 60-miles from Philadelphia and about 90 miles from New York City.  If you live in the Mid-Atlantic Region and are looking to buy a Subaru, I would contact Ciocca Subaru.

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The House We Did Not Buy

Buying a house is a major decision.  For most people, it is the largest major financial decision that they will ever make.  There are many aspects to consider when deciding on a house.  Do you want to live in a city, the suburbs, or in a rural area?  Finding your dream house and neighborhood can be a major undertaking.

My wife and I have lived in our current house since we were married.  She bought the house from a relative before I was in her life.  It is nice house and we live close to many of her relatives.

The house did need some upgrades when I moved in.  It was built in 1964 and much of the house was outdated.  After I moved in, we remodeled the kitchen, bathroom, added a deck, as well as many other upgrades.

The house was about 1,200 square feet and we wanted a little more room.  We added a nice 320 square foot addition.  That addition is our sitting room and we spend most of our time in there.

The house is almost paid for.  We only owe about $30,000 on the mortgage.  The house was appraised for $226,000 in 2012, so we have a nice amount of equity in the house.

By staying in this house, my wife and I have avoided lifestyle creep.  Having a small mortgage and low taxes enabled us to have a high savings rate.  If we upgraded to a $500,000 house, we would not have been able to save 50% of our gross earnings over the past 10 years.

We are not planning on retiring until 2028.  After we retire, we are planning on buying a house on a lake because we enjoy kayaking, boating, and fishing.  We are planning on staying in Pennsylvania for 9 months per year.  For the winter months, we plan on becoming snowbirds and head south for the winter.

A major life event caused us to rethink our plan.  A close family member recently passed away following a four-year battle with cancer and other major health issues.  Watching him suffer made us think about living more in the present and not focusing on what our life will be like in retirement.

We decided to look at some houses that were for sale on the lakes that are close to where we currently live.  The nice thing about living in the Pocono Mountains is that there are many nice lakefront homes.  The region is also known for private gated communities that attract people from New York City, Philadelphia, and Boston who buy weekend homes in these developments.

We started by looking online.  What I found did not surprise me.  Most of the lakefront houses were very expensive.  Older houses that were lakefront cost $400,000 and needed upgrades.  The newer houses are much more expensive.

Our next move was to look for a house that was not lakefront but had lake rights.  This was a more modest priced market.  Houses that were only 5-years old were less than $350,000.  That was more in our price range because we would be putting about 60% down on the house.

We found a few that we really liked and decided to spend a Sunday looking at these houses.  The first few were nice but way too big.  We do not need or want 4,000 square feet of living space.

After looking at 5 houses we were starting to get tired.  It is fun to look at these houses, but also overwhelming.  Before we called it quits for the afternoon, I wanted to look at one last house.

The last house was a little less expensive.  It was listed at $258,000.  This house was in a private community that is only 8 miles from where we currently live.  It also comes with lake rights to a private 150-acre lake.  It is a serene lake that does not allow outboard motors.  Only sailboats, kayaks, or boats with electric motors are allowed.  It is also a catch-and-release lake that is stocked with bass, trout, catfish, and walleye.

For me, it was love at first sight.  For my wife, she really liked the house, but more legwork was needed before we decided.  We both agreed that we needed to do our due diligence and not buy a house after our first visit.

The next day, I called the realtor to set-up an appointment to tour the house.  The realtor was nice as well as transparent.  She gave me some interesting details about the house.  In 2010, the house sold for $389,000 and is now listed for $259,000.  I did not want to admit it, but that was the first red flag.

I asked why there was such a deep discount on a 10-year old house?  She said that the taxes doubled because of a county reassessment.  There is also a homeowners association (HOA) that charges $2,500 per year.  The total annual cost of the taxes and home owner’s association fees would be $8,200.  We now pay $2,700.

I was not happy about the major jump in taxes and fees.  It was, however, not a deal breaker.  I was smitten with the privately stocked lake.

The next evening, my wife and I decided to take a ride over to see our potential new house.  We were excited.  Our excitement, however, did not last.

We pulled into the driveway and got out to walk around the house.  It was not currently occupied by the owners.  We only took about two or three steps and we saw the neighbors Doberman Pincher as he came barreling towards us.  Luckily, the dog’s owner was in his yard and called the dog back.

The Doberman caused me great concern.  I am not afraid of big dogs, but my wife and I have a little dog.  His safety trumps everything.

I was happy that the neighbor was outside.  He came over and spoke with us.  He seemed like a nice guy.  He was young.  I would guess in his early 30’s.  We spoke about the house and of course what the fishing was like at the lake.  I asked him about the homeowners association.  He said they are not too bad to deal with, but he gets in trouble with them often.  He said that he gets in trouble with the homeowners association for driving his ATV and snowmobile at night.

On our drive home, I was still thinking about fishing on a private lake every evening after work.  At this point, my wife decided that she did not want to buy the house.  She did not say anything to me on our drive home because she did not want to bust my bubble.

That evening, I could not sleep.  My anxiety was out of control.  I did not fall asleep until after midnight.  The house was very nice, and I loved the lake.  Deep down, I knew that it was not a good fit.  All those red flags would not go away.  They kept running around in my mind.  I could not justify all of these issues.

As a member of the financial independence community, I do not like to pay taxes.  I love fishing but hate taxes.  Having my taxes go up almost 200% did not sit well with me.

The second source of anxiety was our dog.  We don’t have children, so our dog is our baby.  He currently has his own two-acre field to enjoy without worrying about being eaten by a Doberman.  I would never do anything to put him in an unsafe situation.

The third warning sign was the neighbor.  He did seem like a nice young man.  However, I am not willing to put up with him driving his ATV at night.

When I awoke, my wife said that she wanted to talk.  She told me that she loved me and wanted me to have a lake house.  I worked and saved for over two decades and she wanted me to be happy.  She just felt that this house was not for us.

I told her that I agreed with her.  There are many reasons why my wife and I have a happy and successful marriage.  We love each other, communicate well, and think alike.  If a situation is not right, it is wrong.  The house was not the right fit for us.

We could have afforded the house.  It might have caused our saving rate to go from over 50% to 40%.  That does not sound like a big deal, but I am more interested in saving and reaching early retirement than owning a lake house at this point in my life.

We have not since looked at any other houses.  It was too emotional of a process for me.  At this point, I think that we are going to stay in our current house until we retire.  I have said this before, once you become a saver, you will never be a spender.  As a saver, I will have to settle for fishing at our local state parks and public lakes instead of a private lake until we retire.  Life can be much worse.

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Basic Economic Concepts for Consumers

 

Gone are the days when you just use to go out and shop with very little knowledge of what you are having, we use to have our faith on the salesperson but now, now there is a significant shift in our course of actions.

Modern customers know that the person guiding them about a particular product is getting paid to do what he does, he has to sell their product no matter what and here where people start to question that whether the product is worth buying?

Customers now are more familiar with their power than before and like to know about the dynamics of the product even without leaving home. Several reviews are there on the websites to help the people to make better judgments.

Following are the three concepts that I believe every consumer must be aware of for better economic understanding.

SCARCITY

As a human our needs are endless, one day we may be crying over no food at all, but another day when we have bread we would ask for eggs. The next day we would have eggs and bread, but we would find the milk missing, and this will continue until our own end. The list is never-ending, you may think it would end but it would not, that is how we human work.

The gap between our limited resources and our endless wants is known to be scarcity. Scarcity requires people to list down their needs and wants separately and then to figure out how to satisfy their needs first and only then their wants. British economist Lionel Robbins defined scarcity as

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

There is nothing free in this world. Take breathing as an example, we take breathing as free of cost but give it a good thought. We breathe in this air of industrial revolution with so many poisonous gases all around. These gases expose us to so many diseases that make us end up in a hospital bed, and we all are familiar with the bills that are charged by hospitals. So we end up paying for breathing too. Now as we understand that air is not free also, the government has another thing to invest into with the limited money to invest in. Here is where the government has to decide which thing should be given preference regarding investment.

DEMAND AND SUPPLY

The market works with this phenomena; demand and supply is the key to be found, and you have a properly functioning system to yourself. But make no mistake, a constant check and evaluation is a must.

What happens is manufacturers determine what their products’ demand is and then only they could know how much supply is needed. And the slight shift in the change of the supply can make a drastic difference to your product.

For instance, if you are the monopoly in rice manufacturing or as a group all you rice manufacturers decide to supply lesser rice for a period this will make your price boom in days as people will sense scarcity. But if one of you sells there product with the same or cheaper price than the traffic of customers from rest of the companies will flow your way hence, more demand for you more supply for them.

As shown in the figure, the increase in demand increases the supply and price and the decrease in demand decrease the supply and price

MARGINAL UTILITY

Marginal utility is one of the core concepts in economics because it helps the economist to determine the demand people have and supply producers have to make. The negative marginal utility is when the consumption of a product decreases, and the positive marginal utility is when the consumption of a product is increased.

This concept helps the economists to determine what things and ways people get happy and satisfied and how that affects their decisions for buying any commodity.

Economists also came up with the law of diminishing marginal utility. This phenomenon claims that the first unit of a product holds more utility for the consumer than the second one, like, when we feel thirsty and have a glass of water, we feel satisfied, the next unit of consumption gives us satisfaction but not as the first unit did. And if we keep on drinking, the pleasure will only turn into displeasure.

Economists’ claims that every individual wants to reach the highest level of satisfaction to get the total utility to make their purchase worth it but total utility differ from product to product and person to person.

For instance, maybe a shampoo brand is perfect for me, it makes my hair look good, but when I bought it for my daughter, she ended up with frizzy hair all day. Here I may love that brand but she did not. This is how different our demands can be.

Author Bio: Sarah Smith has been a personal finance author for the last five years. She is also an independent and very passionate finance and investment advisor. She regularly posts at www.personalincome.org.

You Can Live Debt Free

Do you dream of being debt free?  As long as a person has debt, they are working for someone else.  Unfortunately that someone else is a bank.  The ticket to be debt free is to change how you are managing your finances.

Today, debt is as American as apple pie with trillions owed in mortgages, auto loans, and credit cards. Household debt in 2017 stands at $12.35 trillion.  It is only slightly lower than the 2008 figure of $12.68 trillion. The average American household owes a little above $28,535 in auto loan debts, $172,086 in mortgage debt, and $16,000 in credit card debts.

Considering those statistics,  Americans have too much debt.  To improve their financial future, debt needs to be managed more prudently.  To become debt free, people need to be educated that debt makes them a slave to creditors.  The answer is based on becoming willing to change, finding a solution, and following it up with action. 

How to be Debt Free

Most people have similar financial goals.  Most of these goals are about achieving a better quality of life.  More specific goals include becoming debt-free, savings more money, improving personal relationships, and building a secure financial future for their family. 

Of course, everybody who is in debt wants to be out of debt.  They also want to break the cycle that keeps them going back into debt.  The majority of people never learned how to be debt- free.  In high school, students learn how to cook in Home Economics, but are not taught how to balance checkbooks, save money, and invest for their future.

High-interest credit cards are one of the key factors driving people to excessive debt levels.  Wouldn’t you rather pay yourself instead of paying creditors high-interest rates?  It is possible when you implement a couple of simple practices.  By learning a new way to manage money, you will have a brighter financial future.

Steps to Reducing Debt

One option is to consider debt consolidation if you owe money to many different creditors.  This approach allows you to combined many different credit cards or loans into one simple payment.  It also helps to reduce the pressure from collection agencies if you have delinquent debts.   

While it may seem complicated now, reducing debt is quite easy and is the first step in achieving financial freedom. All you need to do is make a few small adjustments to what you are currently doing. Doing this will help shed off the debt holding you hostage to these creditors.  It might also let you pay off your debt much quicker than you thought and prevent you from going back into debt.  Just imagine how much control you will have in your life when you stop paying creditors high-interest rates just to use their money.

Imagine enjoying life instead of joining the more than 70 percent of Americans that are unhappy with their jobs because they feel disengaged, unappreciated, and overworked.  It is time you learn how to manage your finances.  Do you want long-term financial stability?  Today is a great day to change.

The Debt Snowball Strategy

The debt snowball strategy is perhaps the oldest practice for getting yourself out of debt.  It is a simple plan and it works. This popular strategy is based on ranking your current debts based on interest rates.  Focus on paying off your high-interest debts like credit cards or payday loans.  Next, pay down auto loans and student debt.  Last focus on mortgage debt.  As soon as you pay off a high-interest debt, add the same payment amount to the next loan, and continue the process until you are finally out of debt.

To find extra money to pay down debt, you have to drastically cut expenses.  This includes cutting off excessive spending on items like coffee, dining out, and vacations.  All of the money you save must be applied to deb.

This approach also requires you to stop funding retirement accounts.  Only contribute enough to capture the match that your employer contributes.  You do not want to miss out on free money.  Once your Debt-to-Income Ratio is brought down to 25%, you should start ramping up the amount that you contribute to retirement accounts.  

To calculate your Debt-to-Income Ratio, see the formula below:

Debt-to-Income Ratio = Monthly Debt Payments/Monthly Income x 100

Example: $1000 in Monthly Debt Payments/$4000 in Monthly Income x 100 = DTI Ratio of 25%

When you combine the money that you have from reducing expenses with what you were contributing to retirement accounts, you will soon realize that you can make double monthly payments high-interestst debt as you make minimum payments to other loans. 

Advantages: The snowball debt strategy works as people can free up money and pay off their debts once they follow the plan. It is also a good way of strategically reaching your desired debt-free lifestyle.

Disadvantages: The strategy requires that you reduce your contributions to your retirement accounts and sacrifice the quality of life to pay off debt. It also has a very low success rate because most people are unwilling to give up the small pleasures of life for years.

Create an Emergency Plan

When you take all that money every month and sink it into paying debts, you will be making a noticeable step towards achieving a debt-free life. However, when you run into a financial emergency or hardship, the first place you will want to turn to is to use credit cards and loans. 

Rather than using all your available money for paying debts, work on saving up three months of living expenses in an emergency fund.  Start by putting $25-$50 per week to the side.  keep this money in a checking or savings account.  By having an emergency fund, it will prevent you from using credit cards and going into debt.  Whenever you require money for an unforeseen expense, you just withdraw the funds from your bank.

Write and Follow a Plan

Write a financial plan.  Stick to your plan and use it as a guide.  Let it guide you to escape debt. It might be hard at first.  You are modifying your lifestyle.  Change is not easy, but it is necessary to make progress in your financial life.  Your written plan should spell out the steps above and include additional layers including investments, insurance, and education to make the most of the opportunities that you will be able to take advantage of after you pay off your debt.

Conclusion

While this sounds simple, it is not easy.  This is common sense information that you might have heard before.  Your debt reduction plan is your ticket to becoming debt free and it will also increase your retirement dollars. The best time to get started on this life-changing financial adventure is now.

Wearing Success on Your Sleeve

“Wearing success on your sleeve”.  That is an interesting phrase.  My close friend Chris told me a story about when he was a teenager. When he was 16, he had a job working at Burger King.  With his first paycheck, he bought a 14-ct gold bracelet.  When his dad saw the bracelet, he asked Chris why he wanted to “wear his success on his sleeve”.  Chris was just a teenager and wanted to be cool.

Chris’s dad is a highly successful personal injury lawyer.  He earns over $400,000 per year, but you would never know it.  He drives a 5-year old Toyota Camry and lives in a modest house that was built in the 1960’s.  He suggested to Chris that it is not wise to display your wealth for others to see.  He said that it just stirs up economic envy in people.  In other words, don’t make yourself a target.  There are people who find it easier to rob you than to work to buy their own stuff.

Over the past year, I have read a few articles on Stealth Wealth.  There is a great post on The Retirement Manifesto as well as Financial Samurai about this topic.  Both articles provide some tips as to why you should not wear your success on your sleeve.  Below are the reasons why I feel that it is smart to be stealthy when it comes to your success:

Be Classy

In my opinion, it is not classy to talk about how much money you have or to put it on display.  It is like talking about religion or politics with other people.  It is polarizing.  Even if you have a college education and a professional career, it will not make you more popular at work, with friends, or relatives for them to know that you can afford to buy fancy stuff.  It will just make others feel envious while you pump up your ego.

Are You Wealthy

To be considered wealthy, you need to have zero debt and have 25 years of living expenses in savings.  Yes, you might have a good job and a large salary.  Don’t confuse a healthy income statement with a healthy balance sheet.  If you do not have 25 years of living expenses in savings, you should be focusing on acquiring wealth and stop pretending to be something that you are not.

It is None of Their Business

I am a private person.  I have a few close friends and relatives who I chat with often.  I have learned that they do not need to know my business.  It is fine if they know that I am passionate about personal finance and ask me for financial advice, but they do not need to know the details of my situation.  Maya Angelou wrote that “only equals make friends”.  If they know that we are in similar income brackets, but I have more money than they do, it could only hurt the relationship.  I value these relationships too much to put them at risk over something like that.

Safety

I do not want to be robbed.  Big houses, fancy cars, and other forms of bling will draw attention to you.  As a fisherman, I know that shiny lures attract predator species of fish.  Humans are not different.  Shiny objects attract predator species of people.

By driving a modest car and living in a modest house, you are more likely to not be detected by criminals.  You and I might know that people who lease European luxury cars and live in upscale housing developments tend to not be wealthy.  They just appear to be wealthy due to their financed success.

Odds are, most criminals do not read personal finance blogs or books.   They do not know who the true millionaires are. They just see people with fancy stuff and want to take it.  A criminal would be much more interested in jacking the BMW X5 that my neighbor drives than my Subaru with 130,000 miles on the odometer.

There’s an Accounting Coming

I am a big fan of the TV Show Fargo.  In episode-4 of season-3, there was an exchange of dialog between the antagonist V.M. Varga and the victim Emmit Stussy that captures the importance of stealth wealth in a way that is based in both fantasy and reality:

V.M. Varga: You see it, don’t you?  Millions of people bought houses they couldn’t afford, and now they’re living on the streets.  Eighty-five percent of the world’s wealth is controlled by one percent of the population.  What do you think is going to happen when those people wake up and realize you’ve got all their money?

Emmit Stussy: Hey, I just charge for parkin’!

V.M. Varga: You think they’re going to ask question when they come with their pitchforks and their torches?  You live in a mansion.  You drive a $90,000 car.

Emmit Stussy: It’s a lease, through the company!

V.M. Varga: Look at me.  Look at me. This is a $200 Suit.  I’s wearing a second-hand tie.  I fly coach.  Not because I can’t afford first – because I’m smart.  So, look at you, look at me, and tell me who’s the richer?

Emmit Stussy: Well, I-I feel like this is a trick question.

V.M. Varga: There’s an accounting coming, Mr. Stussy, and you know I’m right.  Mongol hordes descending.  Now what are you doing to insulate yourself and your family?  You think you’re rich.  You’ve no idea what “rich” means.  “Rich” is a fleet of private planes filled with decoys to mask your scent.  It’s a banker in Wyoming and another in Gstaad.  So that’s action item one, the accumulation of wealth, and I mean wealth, not money.

Emmit Stussy: What’s action item number two?

V.M. Varga: To use that wealth to become invisible.

Does life imitate art or does art imitate life?  I think that it is a little bit of both.  The Mongol hordes are not the second coming of the Bolsheviks.  These hordes are already here.  Some might be closer to you than you realize.  They are people who want to take what you have.  They are the ones who confuse your effort, sacrifice, and intelligence for luck.  They feel entitled to judge your financial success and see it as a negative.

No, the author of The Financial Journeyman has not become an extremist.  I am as moderate and apolitical as ever.  My goal is to reach financial independence and to help you do the same.  To reach that goal, we must make both smart and safe decisions along the way.

I do, however, love the great dialog that the Coen brothers produced in Fargo.  The above dialog from Fargo is meant to drive home a point.  That point is to focus on building wealth, protect yourself, and don’t buy things that will draw negative attention your way.

Conclusion

Wearing success on your sleeve is not a good idea.  It can alienate you from the people who truly matter to you.  It also draws attention from undesirables.

Instead of wearing your success on your sleeve, practice stealth wealth.  The best way to do that is to assimilate into your community.  Always try to blend in.  Be unassuming.  It is better when people do not give you a second look.

It is also helpful if people like you.  Gain popularity by being humble.  Show empathy for others.  Develop a positive reputation by volunteering, being charitable, and by being a good neighbor.

You had to be prudent to build your wealth.  You also have to be prudent to keep it.

Please share how you practice stealth wealth in the comment section.

I am Frugal, not Cheap

While my wife likes to tell people that I am cheap, I am just frugal.  I don’t like to spend money.  When I must spend it, it is like saying good-bye to a close friend.  Well, that might be a bit dramatic, but it honestly does sting some when we part ways.

When I do spend money, I seek out value.  I want the best quality product at the lowest price.  In the past, there have been times when I bought the lowest priced product, but the quality was not there.  Most of the products that I bought based on being the lowest price did not last long and had to be replaced.  I follow the German phrase: Weniger aber besser.  In English, that translates to: Less but better.

The internet has made finding value easier.  I am a big fan of reading product reviews.  I find that Amazon is a good starting point for most products because they seem to sell almost everything.  Amazon also tends to have the best price on many items.  When I am looking to buy a product,  I like to read 10 or 15 reviews and try to verify that the review was made by someone who bought the product.

I am a brand loyalist.  After I find a brand or product that I like, I stick with it unless they make changes that reduce the quality.  Two areas of where I display frugality by shopping for high quality at the best price are cars and clothing.

Since I live in Pennsylvania and use my car for work, I need a high-quality vehicle that is good in all weather.  A few years ago, I was in the market for a new car.  My Honda Civic had 212K miles on it and the clutch was shot.  I decided that I wanted to buy a Subaru Legacy.

When I started looking, I knew I wanted a certified used car, so I would not get hit with the depreciation costs.  I searched a 25 miles radius from my zip code on Cars.com.  One-year-old Premium models were selling for $24K with over 25K miles on them.

I decided to expand my search, I changed the search radius to 150 miles.  I found a one-year-old certified Legacy at a dealer in Philadelphia for $19,500 and it had only 9K miles on it.  We drove 2 hours to Philadelphia and traded in the Honda for the Subaru.  That car now has 130K miles on it and I will keep it for 3 more years.

I am not a clothes horse or a fancy guy.  My job requires that I dress business casual.  My position involves interaction with the public at career events, universities, and health care centers.  I don’t have to wear a suit, but I do have to look presentable.

For shoes, I have found that Johnson and Murphy are my favorite.  If you are not familiar with this brand, you might get sticker shock when you see the price.  However, I only buy them when they are on sale or at the discount outlets.  I will pay up to $100 for shoes that retail for over $150.  The reason that I am willing to pay $100 for these shoes is that they last.  I get 5-6 years out of them and they are comfortable.

For pants, I like Eddie Bauer.  I will not pay full price at the retail store.  Their website frequently has good sales on the athletic cut that I wear.  Just like with Johnson and Murphy shoes, these pants last a long time.  I don’t mind spending $50 on a pair of pants that will last 7-8 years of frequent wear.

For shirts, the Jos. A. Bank wrinkle-free travelers are my favorite.  Again, I will not pay full retail.  I wait until they have 3 for $99 and buy them then.  $33 for a wrinkle-free dress shirt is a good price.  These shirts are also long lasting and do not have to be ironed.

There are many other examples of how I am frugal and not cheap that I could write about.  For big-ticket electronics, I try to wait until Cyber Monday.  For sporting goods, I buy out of season.  For groceries, my wife used to cut coupons, but now we shop at Aldi.  For investing, we only use low-cost index funds.

While I have always been frugal, I am always looking for ways to get more for less.  By nature, I like to optimize.  Since I have officially joined the financial independence community, I have become even more motivated to reach financial independence by stretching our money even further.  The next frontier that I am planning on studying and implementing is travel hacking.

Please check out the “Frugal, not Cheap Challenge” chain gang:

Why I Paid Down My Auto Loan on a Used Car as Fast as Possible

Cars are a necessary expense for most Americans.

Unless you are lucky enough to live near a good public transportation system or in a major urban area, you will likely need a vehicle to accomplish tasks of daily living, such as getting to work, buying groceries, or going out to dinner. Buying a car can be expensive, and having a car loan can be a pretty steep financial burden, particularly on top of student loans, a mortgage or rent and other obligations.

That is why it makes sense to buy a quality used car whenever possible — and to pay off your car loan as soon as you can.

My Story

For me, buying a used car just made good financial sense. As a father of three young kids who is still working on paying off my student loans while saving for their college, I don’t have a lot of extra cash to put towards the latest and greatest vehicle. And while having a new car can be great, it’s no secret that a car is a terrible investment, as a new car starts to lose value the minute you drive it off the lot.

So when it was time for me to purchase a vehicle, I looked for a solid used car that was safe, reliable and a good deal. Then I got to work paying off my car loan as quickly as possible.

Why I Chose to Pay Off My Auto Loan Faster Than Required

Many people accept car payments as a fact of life. For me, not having a car payment represents financial freedom. Car loans can often have high-interest rates, particularly if you arrange to finance through the dealership. Loan rates may be as high as eight or ten percent.

Car loans may also be sold by a lender to a different bank, and if it has a variable interest rate, it may become more expensive over time as rates change. For these reasons, it makes a lot of sense to pay off your car loan as quickly as fast as you can — and avoid car payments entirely.

Saving Money

Of course, there are other benefits to paying off the debt on your car. When you pay off your car loans ahead of schedule, you will save significant money on interest. Interest on your loan — even if it is at a relatively low rate — can add thousands of dollars to the total amount of your loan.

By adding even a small amount of money each month onto your car payment, such as $50 or $100, you can shorten your loan term considerably and pay hundreds or even thousands of dollars less on your car loan. A number of online calculators are available to help you determine how much you can save by paying off your loan early.

Freeing Up Money to Use Elsewhere

The money you save by paying off your car can then be used to start saving for your next car. Unfortunately, unlike a house or a college education, a car will not last a lifetime. By buying a less expensive car and paying off your loan early, you can set aside money for a down payment on your next vehicle. That will help you get ahead of the game for your next car purchase — and perhaps even avoid the need for a loan at all.

Reduce Insurance Costs

Paying off your loan may also reduce your car insurance costs. When you have a car loan, the lender will require a certain level of coverage. Once you have paid off your loan, you can reevaluate your coverage. You may not want to dip below a certain level of coverage, but you might be able to save some money by lowering the amount of collision or comprehensive coverage for your policy.

Boost Your Credit Score

Finally, paying off your car loan will boost your credit score. Without a car loan on your credit report, your debt to income ratio will improve (in other words, you will have less debt in relation to your income). This will make it easier for you to be approved for major purchases and to get lower interest rates on mortgages or refinancing your student loans — which can save you even more money and help you reduce your overall debt.

Closing Thoughts

While it may be more fun to drive a flashy new car or to always have the latest car, it makes good financial sense to pay off an auto loan on a used car instead. By making that choice for myself, I am helping my family reach our financial independence — and achieving more security for our future.

Josh runs a parenting, faith, and personal finance blog over at Family Faith Finance. As the father of 3 children, he is always looking for ways to save a few extra bucks for his family.

The Aldi Experience

The first time I ever visited an Aldi grocery store was when I was 16 years old.  I just passed the exam for my driver’s license.  One Saturday, I wanted to borrow my grandmother’s car to go cruising with my friends.  She agreed to let me borrow the car for a few hours, but I had to work for the privilege to use it.

My job was to go to the market for her.  My assignment was not to go to any random supermarket, but to go to Aldi.  I have never been to Aldi before.  I knew where the store was located, but did not even know that it was a grocery store.

Aldi is not like any regular supermarket.  You need to bring some supplies with you.  My grandmother armed me with a single quarter ($0.25) as well as 6 or 7 cloth bags.

At Aldi, customers must put a quarter in the shopping cart to rent it.  By renting the cart, shoppers have an incentive to return the cart back to the rack after they are finished shopping to get their quarter back.  This reduces labor cost because the employees do not have to go around the parking lot to round up the shopping carts.  Plus, Aldi only has a few employees staffed per shift.

Aldi does not have grocery bags.  Customers must bring their own.  They were green and environmentally friendly before it was a trend.  This too is a cost saving measure because they do not have the expense of providing plastic or paper bags for customers to use.

I was only a kid at the time and did not exactly know how much groceries cost.  Even though it was a new experience, I was impressed with the amount of food that I could purchase for $35.  I had those 6 or 7 bags filled with groceries.

When I delivered the groceries to my grandmother, I asked her if there is a big difference in price between Aldi and the other local stores.  She said yes.  A shopper saves about 30% by buying their groceries at Aldi.

Fast forward a couple of decades 

I have recently read a few articles about Aldi.  Their business is booming.  They are currently working on building over 450 new stores.

There is also a ton of buzz around shopping for groceries at Aldi in the financial independence community.   I read that PoF from Physician on FIRE  shops at Aldi and there was a review of Aldi on The Wall Street Physician.  All the buzz motivated me to give it a try.

My wife and I normally go to the grocery store once per week.  We do an inventory and create a list of what we need to purchase for the next week. Our orders are generally the same every week.  At our local Shop Rite, we spend about $110 per week on average.  We are price conscious shoppers and try to only buy what is on sale.  We are also health conscious and mostly buy healthy foods such as fruit, vegetables, lean meats, whole wheat bread or pasta, and fat-free dairy products.

When we went to our local Aldi, it was under construction, but still open.  They are doubling the size of the store.  Other than building new stores, Aldi is also expanding the size of many of their current locations.

The layout of the store was just as I remembered.  Like every grocery store, the aisles are broken down by category.  Being new to the store, it took us about 5 minutes to find out where everything we needed to buy was located.  It was easy to find what we were looking for.

We were in the store for about 10 seconds before I started noticing the prices.  It did not take long for me to pick-up on the major difference between our local Shop Rite and Aldi.  When we checked-out the amount owed was $75.  That was for our full weekly order that normally costs $110.

Conclusion

After reviewing the Aldi experiment, we will be shopping there from now on.  On our first visit, we saved $35 compared to virtually the same order at our local Shop Rite the previous week.  That was a difference of more than 30%.

Most of the products at Aldi are their own brand.  When we shop at Shop Rite, we also buy store brands when available.  Aldi also sells some name brands.  The price for name brand products at Aldi still cost less for the same product at our local grocery store.

If we can save $35 per week by shopping at Aldi, that would be over $1,800 in savings per year in our grocery bill.  That $1,800 in savings is just for a household of 2 adults.  Shopping at Aldi would provide even greater savings for a larger household with more members.

If you are interested in finding the store closest to you, go to their website www.aldi.com.

What is nice about their website is that they provide the weekly sales flyer online.

Have you ever shopped at Aldi?

If you have, please share your experience.

I Bought a Lemon

 

The first time I took on debt was the spring when I graduated from high school.  When I was a senior in high school, I was not 100% sure what I wanted to do with my life.  I knew that I would ultimately attend college, but I was not mature enough yet at the age of 18.

After talking about it with my parents, we decided that I was going to work for a year or two before I went to school.  They were not thrilled with the plan, but also did not want me to just go to college without a solid direction.  Looking back, I still think that was a good idea.

Since I was going to get a job, I needed a means of transportation.  I grew up in a part of Pennsylvania where public transportation was limited.  To get to work, I needed a car.

It was 1995, so all the online car buying resources were not available.  At that point, there was Consumer Reports and Edmunds.  As you will find out, I did not read those magazines.

I decided that I wanted a Jeep Wrangler.  I started shopping by looking at the classified ads in the newspaper.  After looking for about one week, I spotted a 1991 Jeep Wrangler with a hard top.  My dad and I took a ride down to this local used car lot to test drive it.

The Jeep was nice, but when we were at the lot, a different car caught my eye.  The other car was a 1986 Audi 5000 CS Turbo.  The salesman called it a 4-door Porsche.  We test drove the car and we really liked it.  It was a solid driving car.

At the time, I had zero credit.  My dad agreed to co-sign for the loan.  He had one condition, he said if I missed a payment, he would sell the car.  I agreed to his terms and bought the car.

The car had less than 60K miles and only cost $6,500.  The loan payments were around $165 per month.  Because that it was a turbo, the insurance was higher than the car payment.

 

I had the car for about 2 months before the trouble began.  There were many issues, but the major issue was that if I was not driving with my foot on the throttle it would stall and not start back up.  When I was at a red light, I had to slip the car into neutral, put my left foot on the brake, and keep my right foot on the gas pedal.  Yes, very dangerous.

I took the car to a few different local mechanics and they did not know how to fix it.  I took it to a mechanic that specialized in European auto repairs.  He was not able to pinpoint the issue.

After I owned the car for about 4 months, I had to sell it.  My Mother was driving it on a major interstate highway when it stalled and would not start back up.  She was lucky to not have been injured or even killed.  The state police came and they called a flatbed to tow it away.  The car was simply not safe and had to be sold.

I took it to a dealer to find out what it was worth on a trade-in.  The dealer offered me $2,500.  I owed over $6000.  I did not want to lose $3,500.  At that time, $3,500 was a fortune because I was broke.

On my way home from the dealer, the car stalled at a major intersection.  I tried to start it for 15 minutes, but it would not restart.  This time the state police were not needed, but a flatbed was.

The car had to go.  I spoke to the owner of the car lot who offered me $2,500.  We worked out a trade for a 1986 Honda Accord with a bent frame and 115,000 miles.  The salesman told me to be careful with the car because it had a bent frame that causes it to drift to the right.

This whole situation truly had me upset.  I was not upset about losing the Audi.  What had me worried was the amount of Debt that I now had.  Plus, I felt that I had very little to show for it.

For the next four years, I had to make monthly payments on a $6,500 loan, but drive a $2,500 car.  This experience left a bad taste in my mouth when it came to debt.  I never missed a payment and paid the loan off.  I told myself that I would never get another car loan again.

The Honda lasted about 8 years.  My next few cars were hand-me-downs with well over 100K miles on them.  I received one from my parents and one from my wife.

I did not buy another car until I was 35 years old.  This time I did my due diligence and did some research before making the purchase.  That car was certified used Subaru with a 100K mile warranty.  I also paid cash.

Have you ever had a negative experience with debt?  If you have, please share your experience and what you learned from it.