My Financial Kryptonite

This hood ornament only cost me $20,000!

This hood ornament only cost me $20,000!

There are so many ridiculous things people buy in this world which makes them less of a person.  There are people that buy cigarettes regularly every day.  These will burn a hole in your wallet as well as your lungs.  Then there are those who get endless subscriptions to magazines they never read, costing them money every month and destroying forests in the process.  There are also the people who sit in idling cars every day to get their daily fast food fix.  This wastes gas and makes you fat and lazy.

There are many more crazy things out there that people spend money on, but there is one object of people’s affection that is my biggest financial foe.  I call it my Financial Kryptonite.  Not because my finances are like Superman, far from it.  But because I want to stay as far away from this purchase as I can because I know the destruction it will cause, not just on my current finances but on my future as well.  And that bane of my existence is:  luxury cars.

When you spend thousands of dollars on something, you want that thing to be very useful and to (hopefully) appreciate in value.  A house, for example, is such a thing.  You and your family can live in it for years and years and have lots of lasting memories.  Many people in the world don’t have a roof over their head, so if you have one, count yourself among the fortunate.  Houses can also appreciate in value over time, hopefully turning you a profit when it comes time to sell.  This, generally, makes buying a house a good investment.

This is unfortunately not true with cars.  Cars certainly are useful.  They allow people to get to work and run errands to keep their house and lives in order.  They allow you to travel to friends houses and new locales to keep life exciting and fresh.  But what they don’t usually do is appreciate in value.  As soon as you sign the contract for a new car, it IMMEDIATELY loses value because now it’s a used car.  Every mile you drive it and each piece of wear and tear will lead to a further decrease in value.  While this doesn’t sound too appealing, cars are almost a necessity for people who don’t live in cities and don’t have access to reliable public transportation.

The luxury curse

Now, are you interested in wasting EVEN MORE of your money for something to get you from Point A to Point B?  Get a luxury car.  Luxury cars are simply slightly souped up models of your every day Toyota and Nissan, and usually only souped up on appearances.  I’m not exactly a car nut (and I’m glad because that’s an insanely expensive hobby), but from some conversations with car nuts I have found out that luxury models and their corresponding mainstream models are almost exactly the same under the hood.  What you’re paying for is strictly appearances, and boy will you pay.  Here are some ways you’ll end up paying more by going with a luxury brand over a mainstream one:

Higher sticker price.  An Internet search found that a 2014 Toyota Camry runs for about $22,000.  A 2014 Lexus RS, which is essentially the same car except shiner and more leathery, is about $36,000.  That means you’re paying $14,000 extra for shiny!

Higher gas prices.  Many luxury car makers say you need to use premium gasoline for their cars.  While this is debatable in some circles, a gallon of premium gas is around 40 cents higher than regular.  That comes to about $5 more per tank of gas for the privilege of driving luxury.

Higher maintenance and repairs.  While luxury cars are almost identical to their mainstream counterparts, many luxury cars use parts that will only work in luxury cars, and those parts are usually more expensive or bought through the dealer.  In any case, you will be paying more for 4 new tires on your Acura than on your Honda.  Even regular maintenance, such as an oil change, costs more with a luxury brand.  Again, paying more for the “privilege” of driving luxury.

Higher insurance.  Car insurance companies will factor in nearly everything to determine your premium, and that includes if you drive a luxury car or not.  Luxury cars are usually more pricier, so it stands to reason that you will pay more to have them insured.  Yet another sneaky increase in cost of ownership of a luxury car.


The higher sticker price should scare most people away from buying a luxury brands, but knowing how much more the cost of ownership is should send everybody running for the hills.  But it doesn’t.  And that’s because the luxury car makers are marketing geniuses.  Luxury car commercials throw around words like “elegance” and “refined” to describe their cars.  This makes people feel good and will get that dopamine flowing once you sit in one for a test drive.  They play to our emotions and desire to be pampered, which keeps people coming back.  As I’ve heard from many people who have bought luxury cars themselves, once you go luxury, you don’t go back.

Now I’m not one to find joy in shaming people’s financial decisions.  While it can be fun at times,  everybody makes mistakes and everybody has purchases that they regret, myself included.  But I will make an exception for luxury car consumers.  If you consistently buy luxury car brands, you’re in need of therapy.  Your money can be used for so much good for yourself, such as paying off debt or investing for your future.  The fact that you’re risking your family’s financial future for some pieces of leather and a temporary pang of superiority shows that you have went off the deep end.  Your Lexus is exactly the same as your neighbor’s Camry, but the difference is your neighbor can afford to drive himself and his family on vacation a few times a year while you can shuffle your car to and from work to make up the price difference.


Personal Finance Perfection


I hope somebody else besides me knows who this is.

I hope somebody else besides me knows who this is.

I’ve been reading personal finance blogs for a few years now and have been writing some posts myself for about a year.  On personal finance websites you can find all sorts of guidelines and advice for almost every financial topic you can think of.  Investing, taxes, saving money on food, credit card rewards and student loans are just a few of those topics.  Reading, and implementing, these words of wisdom is enlightening and is a sure way to improve your financial life.  Most people are putting their current and future financial situation at risk, so it would be a good idea to listen to these nerdy financial bloggers whose passion is learning about money.

But how much good advice can be too much?  Reading all of this advice is great and helpful, but sometimes you can’t help but think every piece of good advice you hear is just another reminder of something you’ve been doing wrong financially.  I realize this sounds incredibly pessimistic and we shouldn’t let our past financial mistakes paralyze us, but I struggle with this myself sometimes.  There are so many different aspects of personal finance that if I’m not able to reach the zenith in each one, I feel I have fell a little short.  Here are some of the great pieces of advice most of us have come to hear about our finances:

-Max out your 401k ($17,500 is the 2014 limit)

-Max out your Roth IRA ($5,500 for 2014)

-Max out your HSA ($6,650 for 2015)

-Get full health coverage

-Get a big life insurance policy

-Get disability insurance

-Eat all of your meals at home

-Start biking to work

-Don’t turn the AC or heat on in the house

-Have at least a 20% down payment for a house

-Buy your cars with cash and make sure they’re at least 15 years old

-Ask for a raise at work every year

-Use credit cards for everything

-Get rid of your gym membership and run every day

-Don’t buy any name brand products of any kind

-Check out the local thrift store for clothes

-Keep trying to get more side income

-and many, many, MANY more!

While some of these examples are a little extreme, I’m just trying to illustrate the fact that there are so many facets of personal finance we can work on, it can become overwhelming to try to chase them all and be perfect at personal finance.  If I don’t buy my cars with cash or I enjoy eating out once in a while, does that mean I have failed as the CEO of my finances?  This is a question I did struggle with at some point, and sometimes still do.  But I’ve realized there is almost no way to reach the max in all of these areas.  For example, I love using credit cards for everything so I can get rewards and keep better track of my finances.  Yet I know people who hardly ever use credit cards yet are doing just fine financially.  Does their decision not to use credit cards mean they are trying to sabotage their financial health?

I’ve come to realize that this is EXACTLY why the subject is called personal finance.  For the same genetic and social reasons that all humans don’t grow up to be the same person, everyone’s financial tendencies end up being a little different as well.  Obviously, the general idea is to spend less and earn more, but there are so many different ways to do that.  Some people love thrift stores, others don’t care for them.  Some people love spending money on new luxury cars, but they don’t care about buying the latest gadgets.  This personal finance journey we’re on is all about finding out what we value and trying to optimize that.

So while I may not be perfect in all aspects of personal finance, I know that I’m a heck of a lot better than I was 5 years ago.  And that personal improvement is what we should all really seek.


The Only 2 Ways to Beat Inflation

Run for your lives.

Run for your lives.

There’s a saying that goes, “If you’re not going forward, you’re going backwards.”  If you take it literally,it makes no sense at all.  I mean if you’re not going forward, you’re just staying still in one spot right?  So chill out what’s the problem!?  The problem is, that while you may be relaxing in your little spot, the REST OF THE WORLD is going forward.  Meaning that if you stay in your little spot, you are moving backwards relative to everyone else.

So now that this little lesson in perspective is over, how does this apply to your financial life?  It’s because inflation will make your money worth less (and eventually worthless) year after year if you don’t do something about it.  For some reason I think of inflation as a big, horrible beast.  This beast that just devours everything in its path with no regard for the carnage it leaves in its wake.  I would like to eventually convince you all to think of it in this way too, because if you’re not paying attention to it, inflation will eat you alive.

(Very) Short history lesson

In order to learn how to beat inflation, we have to know a little bit about it.  It’s a very deep topic with many economic theories pertaining to it, but in general, inflation is an increase in the price of goods and services over a period of time.  This is usually because of the diluting effect of pumping extra money into the economy.  More money available means that you need more money to purchase the same product over time.  This means your purchasing power decreases over time.

The long term average inflation rate in the US from 1913-2013 is 3.22%.  Let’s round it to 3% and assume this is the rate of inflation for every year for the rest of time so I can do math in my head.  That means if an apple cost $1, next year it will cost $1.03.  And it will keep going up 3% every year from there.  This also means that if you make $10,000 in one year, you will have to make $10,300 the next year just to maintain your standard of living.  This is why if you’re not moving forward, you’re actually moving backwards.

So how do we combat this beast that will destroy our finances?  There are only two ways available:  Make more money, or spend less money.

Making more money

This seems like an obvious bit of advice but there are many ways to diversify this.  Here are some down and dirty ways to beat the inflation monster by making more money:

Work more.  A no-brainer here.  If you’re able to work some extra days or take on some extra clients without degrading your quality of life TOO much, you can beat inflation this way.  Just working an extra day per month should be able to accomplish this.  Now of course you can’t continue to work an extra day year after year because you’ll run out of days and your spouse and kids will hate you.  So you need to find some other ways to increase your income.

Work FOR more.  Increasing the rate you get paid, by either asking for a raise or increasing your business rates is probably the best way to beat inflation when it comes to making more money.  This is because any increase on top of that will get you even more ahead of inflation!  For example, if you’re able to increase your salary by 5% each year, not only will you beat inflation every year, but each 5% increase will be compounded on top of the previous one.  So if you were able to get a 5% increase for your $10K salary, you will now make $10,500.  Another 5% increase will net you even more because it will be based on the $10,500 figure.  So your next 5% increase will get you to $11,025.  Eventually, you will leave inflation in the dust.

Getting a 5% raise every year is pretty difficult, but you should always be trying to get the highest raise you can whenever the opportunity presents itself.

Increase your investments.  Inflation needs to be battled not just year to year, but decade to decade.  Things will cost a lot more in 20 years than they do now, so you have to plan for that as well.  You can do this by increasing your contributions to your investment accounts.  If you invest wisely in the stock market with index funds you should be looking at a conservative 5-6% return on investment every year.  This will easily beat inflation, so increasing your investment contributions will increase your net worth and help ensure that you will have enough money down the road.

Spending less money

Being able to keep more of your hard earned money is another way to fight back inflation.  Using those savings to increase your investment contributions can provide a nice double whammy as well.

FrugalitySaving money is awesome.  There are no two ways about it.  It is said that a dollar saved is a dollar earned, but remember that we get taxed TWICE when we buy stuff (first income tax and then sales tax), so saving a dollar will actually save you a little more than a dollar.  It’s important to take a detailed and thorough look at your expenses every so often and see where you can shave off some money.  Reconsider your “necessities”, because a lot of them are just wants.

It’s also important to note that if you can cut your expenses down comfortably by 10% and can keep them around the same level for most of your life, those savings will help you for a lifetime.  By being able to live on less, you are giving inflation a sucker punch that it will not recover from.

Pay less taxes.  Uncle Sam wants his fair share for every dollar we earn.  And for good reason.  There is a country to run and it takes money to run a country.  The country being run WELL is a whole other issue, but the country still needs taxes to function.  But just like we do with our real uncles, we can play some games here.  Uncle Sam has allowed us to hide some of our money from him.  This is what a 401k account essentially is.  We get to set aside some money pre-tax and invest it in what we like (or what our company chooses for us).  We will have to pay taxes on this money eventually, but the hope is that in the meantime we reduce our taxable income early on and that money grows a lot before we have to eventually give our share in taxes.

You can also pay less taxes by making sure you take all of the deductions you are eligible for.  You can read up on these on your own or get your taxes done by a reputable professional.  Most online tax programs like TurboTax will do their best to make sure you get what you’re eligible for also.

There are still some steps to take even if you are wildly successful in saving money and making money.  If you make more money and end up spending it, you have done nothing to beat inflation.  If you save some money but just let it sit there in your checking account, it’s serving as a nice buffer but it can be doing so much more.  The key to bring it all together is to put your savings and extra income to good use by increasing your contributions to your emergency fund, decrease debt and increase investments.  Inflation will never know what hit it.


Navigating Life After Graduation

Times they definitely are a changing.  And it couldn’t be more true for those that are graduating with a professional degree.  Be it a new graduate in medicine, law, engineering, dentistry or optometry (my profession of choice), there is a whole different world to face after the years of living in the university bubble.  And it can sometimes be a new and cruel world.  Now I’m not trying to garner sympathy for these new graduates.  After all they usually end up in pretty high paying jobs with plenty of room for advancement.  But there is also a unique set of challenges that face newly minted professionals that they should be aware of.

Lifestyle inflation.  This is arguably the BIGGEST reason for new professional graduates getting into financial trouble.  To become an optometrist, for example, you have to complete your prerequisite classes in college and get a Bachelor’s degree along the way.  This usually takes about 4 years.  After the grueling process of applying to schools and flying out for interviews, when you finally get into optometry school, 4 years of even more intense studying and clinical work await you.  After completing these 4 years (and passing the nerve wracking board exams), you are finally free to find a job or open a practice and finally start making some money.

After years of schooling and (hopefully) living like a poor student, it’s only natural for one to get in the I “deserve” this mindset right out of school.  As in, I “deserve” a new BMW because of all the work I put in (along with the $700 monthly lease payment).  And I “deserve” a sweet new fancy townhouse since I’ve been living like a pauper the past few years (and the $2500 monthly payment plus maintenance that goes along with it).  The examples are endless.  With inflation eroding buying power over the years and incomes not rising in the same manner, a dollar doesn’t buy you as much now as it did 10 years ago.  This is an essential point to realize, as simply having a certain title doesn’t enable you to get the goods right out of the gate.

Student loan debt.  The issue of the high cost of tuition and subsequent massive amounts of student loan debt is a hotly debated one.  And for good reason.  Tuition is increasingly rapidly year after year, widely outpacing inflation.  College was once thought to be an essential stepping stone for success.  Sky high tuition prices are making many re-think that.  While student loan debt is a big problem for all students, it is an especially big one for professional school graduates.  For the graduating class of 2012, the average student loan debt was $29,400.  This is not an amount to sneeze at, but I probably incurred that much debt sitting through my first 5 classes in optometry school.

While my final student loan debt (undergrad and optometry school) was around $140K, many of my colleagues were well into $200K.  So my student loan debt was almost 5 times the national average.  That’s a huge discrepancy and a problem that needs to be tackled hard.  Many students, myself included, underestimate the effect of student loan debt while in school.  And who can blame them?  With tests every week and sweat inducing clinical practicals to prepare for, who has the time to prepare for life after graduation?

Student loan payments will make up a substantial chunk of a new grad’s monthly payments.  In a lot of cases it can be the largest payment one has to make per month.  And if the banks have their way, this will continue for decades.  That can end up being tens of thousands of dollars in interest payments.  That’s money that you earn but you will never be able to use because it is lining the coffers of the country’s biggest banks.  As if their coffers need lining.  Students and new grads should be prepared for the hit that student loan debt brings and get ready to hit right back.  This means cutting back on your consumption and throwing whatever extra money you can towards your highest interest loan and then moving to the next one (also called the Avalanche Method).  If you can be diligent in this process, you can reduce the time you pay student loans by years and save thousands and thousands of dollars in interest payments.

Building a good credit score.  Unfortunately, the importance of a good credit score is lost on many.  Most people don’t know the difference between a credit score and a credit report, and why they should even bother checking them.  I’ve noticed that this is especially widespread among new grads, as they’re focusing on finding their place in the world and spending their new found money.  Eventually, most people end up applying for a mortgage or a car loan.  Even if it’s not in the near future, it will most likely happen.  This is the best time to improve your credit score, as it can potentially save you tens of thousands of dollars over your lifetime.

Applying for a mortgage or credit card will initiate a credit inquiry by the lender.  They want to look at your past history to make sure you’ll pay them back.  Instead of hiring a private investigator, your credit score gives them this info in a nutshell.  A low score means you’re not a good borrower.  You get the highest interest rate possible on your loan.  A high score means you are a pretty dependable borrower, so you get the lowest interest rate offered.  On a big purchase like a house, the difference between a low interest rate and a high interest rate can cost you potentially hundreds of thousands of dollars.  That’s a lot of cheddar.  Giving your credit score some attention even for just a few years will get it right where it needs to be.

A professional degree isn’t a ticket to a lifetime of riches like it used to be.  Many new grads are falling into financial trouble by not paying attention to these three big issues.  If you can weather the student loan debt storm and resist lifestyle inflation early on in your career, you will be setting yourself up for a lifetime of success.


Student Loan Repayment is a Marathon

I’ll be running (and hopefully finishing) my first half marathon in a couple of months.  Having played sports like basketball for most of my life, I’m no stranger to tough workouts and feeling physically exhausted.  Marathon training is a little different in that it is not collapse to the floor physically draining, but it is LONG and TEDIOUS.  The workouts themselves aren’t tough individually, but the challenge lies in staying focused throughout the workouts and being able to do them consistently day after day.  This reminded me of the effort it takes to pay off my student loans as well.

Besides the fact they both can make you want to puke, there are more similarities between student loan repayment and marathon training:

Both require a plan.  Training for a half marathon can’t be done haphazardly for most mere mortals.  It helps to have a training plan a few months before the race to get your body and mind ready.  At the least you should have an idea of how many times you want to train per week and how you want to ramp up the distances you run.  Not having a plan can greatly decrease your chance of finishing a race.

The same thing is needed to pay off student loans.  You have a certain amount of debt and you want to get out of it as soon as you can.  You can’t just make random payments and hope they’ll be gone soon.  On top of making the minimum payments for all of your loans, apply anything extra to the highest interest loan to get the most bang for your buck.  This is called the Avalanche method and is the only sure fire way to pay the least amount of total interest and get out of debt sooner.  Ready for Zero is also a great program to get you on top of your debts and can even tell you the exact day you will be debt free.

Take one day at a time.  One of the more frustrating parts of running for me is the monotony of it.  I could play basketball for 10 days in a row and have a different experience each time.  But with running each day is more or less the same, especially if you use a treadmill.  But it’s really important to remember to take one day at a time and focus on making a great effort on that day.  That’s because every day of training will contribute to your success (or failure) on the day of the race.  If you give a consistent good effort on each day of training, you will most likely be able to finish the race and run well.  Each day you run well prepares your body and mind a little more for that race.  It may be tough to detect on a day to day basis, but your heart will work more efficiently and your muscles and tendons will be able to handle all that pavement pounding a little bit more.

Keeping the big picture in mind is also important when paying off student loans.  Even if it’s going to take a few years to pay off those loans, realize that some lenders want you stuck paying minimum payments for 25 years!  It’s definitely tough seeing that big balance go down slowly, but each payment you make will get you that much closer.  Since most of your payments early on will be paying a lot of interest, it seems that the principal is not going down that much.  But for every payment you make the principal goes down which means you will pay less interest on the next payment.  Each payment is definitely making a difference so it’s important not to get lackadaisical and miss some payments here and there.  As time goes on you will see that principal go down faster and faster, which will hopefully motivate you to make some more money and pay the damn thing off!

The end will be oh so sweet.  When training for a race it’s important to visualize yourself finishing the race and how good it will feel.  If any of you have trained for a race and finished it, you know what I mean.  It’s a great idea to try to bottle that feeling and go to it whenever you lose motivation or decide you want to take today’s workout a little easy.  It’s also important to celebrate your accomplishment.  Go out and get something nice to eat and relax for the rest of the day.  You’ve earned it.

I imagine making my last payment on my student loans.  There will be fireworks and fan fare and a marching band.  Or I will just click the mouse and quietly ride off into the sunset.  In either case, it will certainly be a great feeling that I can’t wait to experience.  Though it may seem far away, having a plan certainly helps because I know each months payment will get me closer and closer to that fateful day when the heavens will open up.  Keeping that day in mind keeps me going on my plan and wanting to get rid of these loans even faster.

That’s my latest installment of me finding ways to equate sports and finances.  If you just can’t get enough, check out my other posts about baseball and soccer.


Congress: Here’s How to Stimulate the Economy

What "stimulating the economy" really means.

What “stimulating the economy” really means.

All politicians love talking about certain issues over and over.  Be they Republican or Democrat, they all want to “stimulate the economy”, “create jobs” and “find ways to screw the citizens over as long as our political donors and friends make out like bandits.”  You might not hear that last one spoken in public but just videotape Mitt Romney secretly and you’ll eventually get it.  In any case, they make all of these platitudes and have their own party line ways of solving them.  Increase regulations on big businesses (while others say decrease).  Increase the minimum wage (while others say decrease).  Close tax loopholes (while others say make more).  But there is one area nearly all politicians don’t want to fix but would definitely help solve a lot of the problems the economy suffers from:  student loan debt.

A few days ago I heard a little factoid on the news which stated that home ownership among those under the age of 35 is at its lowest point of ALL TIME.  Think about that for a second.  There are a decent amount of people under the age of 35 in this country, yet most of them aren’t owning homes.  It would seem that by 35 most people would have their act together and be able to swing a modest mortgage.  After doing some hard core research (Google) to find some real numbers, this article by NPR laid it out nicely.  It states that while the housing market as a whole is improving, the home ownership rate for those under 35 is steadily declining.  They state that the home ownership rate for those under 35 is 36%, when just 10 years ago it was 43.6%.  This seems like a huge difference in just one decade.

The article goes on to list 4 main reasons why this may be happening: it’s tough to find jobs, people are getting married later, low credit scores, and, my bitter enemy, student loan debt.  I would argue that student loan debt actually causes the other reasons, and that should be the focus of any action by Congress to stimulate the economy.  When the housing market’s bubble burst, Congress was in a frenzy, ordered a bailout of all the greedy companies which caused all the trouble, and then tightened the standards to get a mortgage.  With the effect that student loan debt is having on the economy, it is astonishing to see that Congress is not in a similar frenzy (though if you recall the previous statement about friends making out like out like bandits, you can understand why).

You would think that with reports like the NPR there would be more of a push for reform.  If people under 35 aren’t buying houses because of student loan debt, they’re not buying other things that can stimulate this consumer based economy.  And people under 35 like buying stuff, trust me.  Personally I would use the extra money to pay off more student loans or increase my savings rate, but most people would buy more stuff which is what the economy wants.  If a report came out that talked about the effects that student loan debt is having on all the different economic sectors (aka how companies could make more money off of young people with money), maybe big reforms would be on the horizon.

Big reforms along the lines of limiting the amount college tuition can increase or a substantial decrease in student loan interest rates.  Not only do we see nothing of the sort, we see bills like the one President Obama signed recently which allows more people to be eligible for the “Pay as You Earn” program which says that student loan payments can’t be more than 10% of one’s income.  I appreciate that this president is at least trying to make some effort when it comes to student loan debt, but this measure will help a small subset of borrowers, and will be a small help at that.  Unfortunately the only thing that motivates the lawmakers in this country to action is a disaster.  I don’t predict any real change until student loan borrowers simply stop making their payments in droves similar to what happened in the housing market.  And that time may be sooner than most think as the latest student loan default rate stands at about 10%.

Well to repeat the question most Americans eventually end up asking themselves, what can I do about this situation since Congress is doing nothing?  The only person that cares about your financial health is you.  Lawmakers don’t, and this is not a surprise to anyone.  If you’re thinking about applying to college, find ways to lessen your student loan burden either by working part time or even delaying college.  Yes, I think it has gotten bad enough where people should consider delaying going to college in order to be in better financial shape in the future.  If you already have a mountain of student loan debt, start paying it off by throwing what you can at your highest interest rate loan and work your way down.  This means cutting back on useless expenses and concentrating on getting rid of that debt.  Hopefully by being diligent and recognizing student loan debt for the disease it is, we can open the path to financial freedom a little quicker.


It Might be Time to Cut the Cord

I admit, I am slow to change.  A big reason is that I take a long time to decide when comparison shopping anything.  Not one of my best qualities but it has saved me a few dollars along the way.  I didn’t get my first smartphone until about 2 years ago.  I was obsessing over two particular phones, so much that my tech loving brother didn’t want to be around me anymore because of my persistent questioning (I made the right choice though since the other phone was found to be buggy and became obsolete quickly).  But eventually I can make the plunge, and I think the time may be coming when it comes to cable television.

Cable TV has been a staple all my life.  I had it growing up as a child and throughout college.  Even when I was in graduate school, my roommate and I found a way to get cable TV without paying for it (I think the last tenant never cancelled theirs).  Watching the latest highlights on ESPN has always been a habit of mine.  Being exposed to cable TV all of your life is not necessarily a good thing, but it’s what I’ve had all of my life.  Given my tendency to over think any type of change, it would take some time for me make plunge into a cable-less world.  There are a few reasons that are pushing me to make the inevitable switch sometime soon:

The wide availability of streaming.  Netflix is awesome.  There’s just no two ways about it.  The current price of $7.99 a month will most certainly increase as time goes on, but it beats the pants off of the $70 per month for cable TV.  And after doing some unofficial analysis of my family’s TV watching habits, the vast majority of the shows we enjoy are on Netflix.  There are only a couple of shows that we watch on cable TV, but that’s hardly a reason to keep it around.  With a little bit of searching on the internet (or by using another streaming service), pretty much any show can be watched online.

One thing I recently came across really shows the staying power of streaming TV.  Amazon is in it now.  They have had their streaming service for a while, but they now have a device called Amazon Fire TV that is an all in one streaming device.  You can watch Netflix, Hulu, Amazon Instant Video and a bunch of other apps all on this one device.  We currently use a Playstation 3 for streaming purposes, but the fact that Amazon has fully committed to the world of streaming video shows that it is here to stay.

Not difficult to get HD local channels.  I’m a huge NBA and NFL fan.  And this is probably the biggest reason I hesitate to get rid of cable.  It would be tough to miss the big playoff games.  But reading reviews about the HD antennas out there, it looks like I should be able to watch most of the big games on the local channels.  Gone are the days of the bunny ears and fiddling around with them to get good reception.  Reviews for these products have been great, so it’s exciting to know that I shouldn’t have to give up TOO much sports watching.  Besides, having a toddler has greatly reduced my sports watching capability as it is.

Saves money.  Getting rid of cable and relying on streaming TV should free up around $70 per month.  That’s not a tremendous amount, but if this experiment sticks, that’s money that we will be saving every month for the rest of our lives.  It is definitely more important for me to pay off  my student loans faster than it is to watch a few TV shows, so I can use that savings to do just that.  Or to pad our emergency fund.  Whatever I choose to do, it will only be a financial net positive which is great to know.

These are just a few of the reasons to ditch the cable.  If this experiment doesn’t work and our lives are miserable because of it (which sounds really selfish), I can always come back to cable.  All the cable companies in the area run good deals from time to time, so I can just sign on when I see one.  It’s always good to find a way to cut down monthly costs and help yourself in the process, and cutting cable seems like just the thing.  I will report back about my life without cable after a few weeks.

If anyone would like to share something about their cable-less life or let us know about any tips or ideas, please feel free to comment below.


4 Smart Ways to Spend your Tax Refund

Tax season is in the air.  TurboTax and H&R Block commercials can be found everywhere, Liberty tax has costumed employees at every street corner, and people all over the country are swimming in tax refund money like Scrooge McDuck.  But what to do with all that money?  Get iPhones for the whole family?  Season tickets to the Pelicans (yes that’s a real team)?  Or go out to dinner 200 times this year?

The fact is, all those choices are terrible.  But spending your tax refund money on consumer things is usually a bad idea.  I’m not a fan of preachy personal finance articles telling me I’m doing something wrong.  Unfortunately, this is one of those articles.  And if you’re spending your tax refund money on consumer goods that you can live without, it pains me to say that you’re doing it all wrong.  So here are four correct ways to spend your tax refund:

(Disclaimer:  Any monies received from a tax refund were your monies all along!  Contrary to popular belief, it is NOT a bonus from the government for a job well done.  It is your hard earned money so it should be treated that way.)

1.  Get rid of high interest debt.  This definitely includes credit card debt and can also include debts to family members, car loans or student loans.  My threshold for “high interest” debt includes anything above and uncluding 5%.  But others might have a different tolerance.  But get rid of the credit card debt.  That definitely has got to go.

2.  Contribute to an IRA.  The Roth IRA contribution limit for most broke professionals is $5,500.  Many people get enough tax refund money to cover a full contribution or at least most of it.  Take advantage of this and let the money grow tax free.  A much worse option would be to buy a TV for thousands of dollars and see your money depreciate right before your eyes.  Literally.

3.  Invest in yourself.  This can potentially be the best investment you could make.  Take a course relevant to your field to increase your skills.  Take your boss or a co-worker you admire out to lunch and pick thier brain on any topic.  Or even get some exercise equipment and some videos and start getting into shape.  Investing in yourself the right way can produce crazy results if you stick to it.

4.  Fine, go ahead and buy something you want.  But just one thing.  If you have done the previous three suggestions and still have some cash leftover, go take a nice weekend getaway or have a few nice dinners with your family.  If you’re working too hard, this can be detrimental to your health and wealth in the long term, so sometimes a nice break is what’s needed.  Just please don’t get into more debt.

These are 4 great ways to spend your tax refund money, or any money for that matter.  People do weird things when they get a windfall, so if you have some crazy ideas, just put the money into a savings account and sleep on it.  If you consistently get tax refunds every year, using that money wisely can provide a huge boost to your financial well being.


Big Tax Refunds are Great! Right?

There are all sorts of unending debates in the world of personal finance, with rabid followers on each side.  Rent versus buy?  Emergency fund or no emergency fund?  Paper or plastic?  Yes, some personal finance writers will go into a strange amount of detail about that last one.  One other burning question:  Tax refund or no tax refund?  Or big tax refund?  Or little tax refund?  There are actually more than one answer and as with many things in personal finance, it can depend on your situation.  But let’s talk about it and find out who the winner is anyway shall we?

The 2014 tax season (for the 2013 financial year of course) is in full swing.  People are waiting for the steady stream of tax papers in the mailbox (luckily you can download a decent amount of them nowadays) and deciding how they want their taxes done.  You can go to a local accountant, a big box one like H&R Block or just do it yourself with tax prep software like TurboTax.  I usually use a local accountant but am heavily leaning towards doing it on my own this time since computers make everything so easy.  There are lots of choices to make during tax season.  And there are two main things Americans want to accomplish after doing their taxes:  make sure the IRS will not be breathing down their neck in the future and to get the highest refund possible.

You can see it in advertising everywhere.  “We will get you your highest possible refund!”  There are promises of getting you your refund the quickest.  There are even some less than reputable establishments that will give you money even before receiving your actual refund, as long as you pay them back with your actual tax refund money.  Along with a big fat interest rate.  The fact is, getting a nice big refund and getting it fast seems to be the ideal situation according to the ads.  The average tax refund for 2013 was around $3,000.  That’s nothing to sneeze at.  I mean, who doesn’t want a big wad of cash delivered to them all at once?  That just sounds awesome.  But it’s not THAT awesome if you look at it objectively.

Getting a tax refund is nice, but it just means the government is giving you back money you rightfully earned in the previous year.  They thank you for the free loan.  Getting an average refund of $3.000 means that you could’ve gotten that money throughout the year.  That averages to $250 a month.  This can be helpful in paying down debt, especially high interest debt such as credit cards or student loans.  This is the main benefit of not getting a large refund.  If you can funnel that $250 every month towards debt or even just an online savings account, you will be ahead, maybe even far ahead, compared to just having that money held by the government until it’s time for your refund.

What about the case for getting a large refund?  Is there even a case?  There might be when psychology comes into play.  Emotions and psychology SHOULDN’T interfere with personal finance decision, but they do.  Some people are savers, and some people are spenders.  If you don’t do anything positive with that extra $250 a month and just let it sit in your checking account and increase your spending, then maybe allowing yourself to get a nice refund will be a kind of “forced” savings (though an automatic contribution to an online savings account would work just as well).  In any case, if you’re the type that might spend $250 a month without thinking about it but will be sure to spend your $3,000 refund on reducing debt or increasing savings or investments, then getting a big refund might be for you.  Ramit Sethi wrote a pretty good post a few years ago about this.  Though he assumes a tax refund of $600, well below the average.

My take?  I would opt for a refund as close to zero as I can get, but that’s because I have student loans to pay and it’s easy to tack on that extra $250 to my highest interest loan.  I would much rather use that increased monthly income to cut down on the amount of lifetime interest I pay on those loans.  But I won’t shout down those people who like big refunds and spend it on positive financial actions such as paying off debt or increasing savings.  I will, however, shout at those people who spend that big refund on a vacation or consumer goods.  If that vacation was something you wanted to do anyway, just stash that money into an online savings account.  You’ll at least earn some interest on it and will be able to use it in case an emergency happens.

As usual, this discussion on a hot personal finance topic ends…inconclusively.  Though I would lean towards having a smaller refund so you can use that money on something positive throughout the year, it’s not a HUGE deal if you go the other way.  People can do stupid things with large amounts of money, so be very careful when you do get that nice refund.


If you’re already Drowning in Debt…Just Say No

When I look back at my time in optometry school (it’s already been almost 5 years??!!), it seems like it went by in a blur.  Those 4 years seem to kind of blend together in a whirlwind of studying, lab practicals, and board exams.  Sometimes I am still utterly grateful I got through all of that.  But thinking back to my mindset when I was actually in school, it seemed like it was taking forever!  Four years of this stuff?  It felt like an eternity at first.  Many of my fellow students felt this way also.

What does this reminiscing have to do with drowning in debt?  A lot actually.  When the end was finally approaching, many people were understandably very relieved, and started thinking about their life after school.  We could finally call ourselves eye doctors, and that should come with all the trappings am I right?  Should I get a Lexus or a Benz to drive to work?  I can’t wait to move into that swanky apartment downtown and get the best furniture available!    The problem with a lot of these “trappings” is that most people will have to incur a lot of debt to get them.  Did I also mention that many optometry students graduate with upwards of $200,000 in student loan debt?

A lot of freshly graduated students quickly get themselves into the unholy tri-fecta of debt: car loans, mortgages and credit card debt.  Each one of these is a sucker punch right to the gut.  Add this to the already burgeoning student loan debt, and you’re likely to be knocked right out.  Just because you can “afford” the monthly payment, it does not mean that you should get that shiny new BMW right out of the gate.

Hopefully, right out of school is the point when you will be making the LEAST amount of money in your career.  Advancing in your company or growing a successful business will increase your income with time.  So there is definitely no need to rush out and get the new car and house right away.  Banks will most likely be here until the end of time whenever we want to borrow money.  If you are in significant student loan or credit card debt right out of school, it would be best to eliminate that first or at least whittle it down to a manageable level until you take on any new debt.

Waiting just a few years to take on new debt will put two things in your favor.  One, your income SHOULD be increasing, so your debt to income ratio should be looking better and better.  You might even be able to save up some of your income to make a good down payment on that house. townhouse you’ve been eyeing.  Two, if your income is increasing, you should also be increasing your debt payments.  This will get rid of your debt much faster than just making minimum payments, which the banks would absolutely love for you to do.

Another reason to consider just saying no to new debt right out of school is that buying a car or a house is a really big decision and a really big investment.  It’s not a decision to be taken lightly and requires your due diligence all the way through.  Your education was also a big investment which I’m sure you thought about thoroughly.  It usually takes a few years for people to decide what they want to pursue after undergrad.  So you should also take your time to really evaluate your needs and make the best choice possible when making yet another big investment.  Buyer’s remorse is very real, and it can suck.

For those people who are reading this while still in grad school, it may feel like it’s taking forever now, but it will be like a blur when it’s all over.  Take your time to decide when taking on new debt, since many new grads will be paying back lots of student loan debt at the same time.  There is nothing wrong with driving your old Corolla a few more years while you hack away at your current debt.