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As a resident living fairly close to the Gulf Coast, I’m familiar with evacuating for a hurricane. There’s no way around it — evacuating for a natural disaster is a pain. But, there are things you do to make the process less stressful. Here’s a short list of the things I consider when evacuating.

The most important thing is to have a plan.

Where are you going to go?
My wife’s job requires her to be back to work as soon as the storm blows through, which makes it tricky for us to evacuate &madsh; we can’t go too far away. Our evacuation route is decided based on where we think the storm is going to go. For instance, when Hurricane Gustav came in well to our east, we headed west to my sister-in-law’s house. When Hurricane Ike came in to our southwest, we headed north.

During an emergency, your local government will have an evacuation route that they want everyone to follow, but if you leave early enough you can go pretty much wherever you want to go.

The most economical way to evacuate is to stay with friends or family. This is the best way to go because it’s hard to find an empty hotel when everyone else is evacuating. Just be sure you’re a good guest. Don’t overstay your welcome. If you don’t have friends or relatives that you can stay with and you don’t have money for a hotel, consider a shelter.

What are you going to pack?
For the most part you need to pack like you’re taking a vacation. If you need to evacuate for a natural disaster or other emergency, consider the following:

  1. Clothes and toiletries. Be prepared to be away from home for at least a week — more likely two.
  2. Important papers. I use one of those portable filing boxes to store our most important papers (insurance information, social security cards, birth certificates, employee benefits information, etc.). (Some of these documents may be stored in a safe deposit box.)
  3. Pets. Don’t forget Fluffy. Be sure and take a bottle of water and some pet food. Also, if you have an outside pet, you might want to give a good scrubbing before you load it into the car. I don’t like traveling with a dirty, smelly dog. Washing the dog is my kids’ job.
  4. Food and water. There’s no need to go overboard but it is a good idea to pack some bottled water and maybe a few canned goods.
  5. Computer. This is easy if you own a laptop. It’s important to be able to go online to check in with your local news station and newspaper for important information.
  6. Road atlas. Never leave home without one.
  7. Money. It’s a good idea to have some cash on hand. I usually take $300, which isn’t a lot but is better than nothing.
  8. Phone numbers to your neighbors. I have the cell phone numbers of most of my neighbors so that we can check in with each other to get status reports. One of my neighbors called me to tell me when our power was back on.

Finally, be sure and check on your older neighbors. Are they evacuating? If you have room, take them with you.

What are you going to do with the things you leave behind?
As important as the things you take with you is what you leave behind. Proper preparations can save hassle when you return.

  1. Board up the house. For the first time ever, I boarded up some of the windows of my house. I never did this before because I thought it was too expensive to do. This year I bought six sheet of 1/2-inch plywood and one bag of clips and spent over $114. I then spent an afternoon cutting the pieces to fit my windows and marked each one for storage. When I boarded up for Ike, it only took me a few minutes to secure the boards. [J.D.’s note: Not every disaster requires boarding up, of course.]
  2. Take an inventory of your stuff. My wife went room-by-room and took pictures of everything we owned. Chances are good that you won’t need to use these pictures but you never know. I also have an itemized list of my CD collection.
  3. Unplug all your appliances and electronics. I do leave my answering machine plugged in so that I can check in to see if I have power (if the answering machine doesn’t pick up, I don’t have power).
  4. Pick up loose items in the yard and empty out the shed. One of the biggest problems with hurricanes, tornadoes, and other wind storms is all the debris flying through the air. (And in the case of flooding, there’s plenty of debris in the water.) You can do your part by moving all your patio furniture other loose items into your garage. This is a great job for the kids. Don’t forget that portable basketball goal.
  5. EMPTY THE REFRIGERATOR! For some crazy reason, we didn’t empty our refrigerators for Hurricane Rita. BIG MISTAKE! By the time we got to come back to check out our house, our power had been off a week. I can’t tell you how bad the smell was!
  6. Lock the house. I usually lock the garage doors and unplug the garage door openers.

A little preparation before the disaster can save a lot of headache later.

What about AFTER the emergency?
This is a whole topic by itself but I will say that if your area is hit by a hurricane, tornado, or flood, it could be weeks before you get back power and drinkable water. You have to decide if you’re going to go back and rough it or if you are going to stay away.

Because I’m a big wimp, I always opt to stay away. I don’t have a generator and am not really interested in buying one. I realize that not everyone will have the option to stay away if their job requires them to be back as soon as possible.

You may also be interested in reading The Simple Dollar’s recent guide to surviving a natural disaster.

J.D.’s note: Kris and I don’t have any sort of emergency preparedness plan. Oregon isn’t subject to many disasters, but we do have the occasional flood or earthquake. JLP’s experience is a reminder that advance preparation beats future regret.

Source: getrichslowly.org

Apache is functioning normally

I made $120 for one hour of work last week.

On Tuesday, I participated in a neuroeconomics study at a nearby university. For sixty minutes, I lay inside an MRI scanner while answering questions about money. When I had finished, the researchers paid me $120. In cash.

I admit that with the four hour round-trip and the half hour of wait time, my hourly rate drops to something nearer $20, but that’s still not bad. In fact, the experience made me wonder if there might not be similar opportunities closer to home.

Maybe I can’t make $120 an hour, but might it be possible to supplement my income by volunteering for studies at schools in Portland? After all, I work from home now, and my schedule is flexible.

Giving Blood and Watching Porn

My research turned up an article from my colleague Donna Freedman in which she writes about earning extra cash by giving blood and watching porn (though not at the same time):

Medical studies, whether through universities or drug companies, are always in need of test subjects. Personally, I don’t do the “investigational medication” trials, but I’ve donated blood and filled out questionnaires for studies on a number of subjects, including female sexual response (see “porn”, above), Alzheimer’s disease, depression, and airway ailments. I find them through Craigslist and through college bulletin boards and newspapers.

Freedman’s article also includes a short video segment that documents one of her actual trips to participate in a medical study. “It’s pretty good money,” she says. “Thirty dollars for fifteen minutes work.” Plus she gets cookies and juice.

Show Me the Money

Out of curiosity, I checked Craigslist to see what opportunities were available. I found a wide variety in the miscellaneous jobs section. Here are a few (note that these links are sure to die in a few days):

  • Healthy Hispanic adults can make $50 for giving a blood draw
  • $150 paid research for packaged foods purchasers
  • $10 for a clinical psychology study (for 45 minutes and two phone calls)
  • $50 for 40 minutes of voice recording sessions on a speech recognition project for native Spanish speakers

In June I shared a tip for subscribing to Craigslist search results to grab great deals. I could use the same method to keep updated on available medical and marketing studies.

When searching for studies, take care to avoid sales pitches and scams. University research projects are presumably safe, but it’s best to google information about marketing firms before agreeing to participate in their research. A quick search reveals, for example, that The Gilmore Research Group (which is conducting the study in the image above) is perfectly legitimate.

Anything for Science

Obviously, this is no way to get rich (slowly or otherwise). But participating in these studies can be a fun way to make a little extra cash. Flexo from Consumerism Commentary says that before he graduated from high school, he participated in a number of studies at Princeton University’s cognitive psychology lab. “It was just baseball card money for me at the time,” he says. “But it was fun.”

My study was fun, too. I wish I could tell you more about the experiment (because neuroeconomics is certainly an aspect of personal finance that fascinates me), but I’m sworn to secrecy. Maybe in a few months.

“We’re conducting another experiment soon,” the research assistant told me as he counted out six $20 bills last Tuesday. “Your spouse would have to participate, but it is more lucrative. Are you interested?”

Anything for science, I thought. And for cold, hard cash.

Source: getrichslowly.org

Apache is functioning normally

The latest issue of Consumer Reports (October 2008) has an article about the new credit card jungle. The faltering economy and the ongoing mortgage crisis may be affecting your credit cards; issuers are raising rates, changing terms, and lowering credit limits. The magazine notes: “Now is an essential time to do a credit-card checkup to make sure your accounts haven’t changed for the worse.”

I like the idea of a credit-card checkup, but I don’t think it’s something you should do just once in a while. To avoid the dangers lurking in this credit card jungle, it’s important to foster a set of survival skills that will help you avoid danger spots before you blindly stumble upon them. Here are a few:

  1. Learn to read the fine print. Read the legal stuff when you fill out the application, when you receive the card, and on any future mailings. Credit card terms and conditions can be confusing. This credit card glossary can help. If you don’t understand something, ask for help.
  2. Similarly, review your statement every month. Due dates, fees, and interest rates are subject to change. Reconcile transactions and keep an eye out for fraud. Many people — and I’m one of them — actually check their statements online several times a month. By paying attention, you can prevent small annoyances from becoming large hassles.
  3. As always, don’t be afraid to speak up. If you notice something strange on your bill, call customer service. If you want to dispute a charge, call customer service. If you want a rate reduction, call customer service. It never hurts to ask.
  4. Be wary of the special offers your credit card company sends you. Understand the teaser rates. Beware offers to skip a payment. Be suspicious of other products the company tries to push: insurance, fraud protection, etc. Many of these are bad deals for consumers.
  5. Finally, pay your bill on time and in full every month. If you are not yet in credit card debt, don’t start. Don’t rely on credit cards to support a lifestyle you cannot afford. Don’t resort to using a credit card because you can’t afford to pay cash for something — use a credit card because you can.

Remain vigilant against the scourge of credit card debt, the quicksand of personal finance. Credit cards are not a source of free money — don’t treat them as such. Credit cards are tools that allow you to use the money you already have in different, more efficient ways.

For example, I save 1% on my utilities by paying with my cash-back credit card. These are expenditures I’d make anyhow, but the card saves me money. (As a bonus, using the credit card helps with my quest for a paperless personal finance system.)

For more on this subject, check out these past Get Rich Slowly articles:

What do you consider essential credit card skills? What sort of credit card basics do you think people should know?

Source: getrichslowly.org

Apache is functioning normally

When I bought a home three years ago, the economic climate was different from today. Back then, a house would could be listed on Friday and a contract signed by Monday. It was easy to get a loan (too easy, in fact) and you could make every mistake in the book and still find yourself a home.

Despite the market differences, sound financial planning and a handful of smart moves will ensure that you won’t regret grabbing your piece of the American dream. This post isn’t going to go over the merits of buying versus renting or how you should pick a real estate agent. Instead, I’ll focus on the things you should do to prepare yourself before applying for a loan and then buying a home.

Don’t borrow money
Your home will likely be the single largest debt you will take on and represents the greatest risk in the eyes of potential lenders. With lending rules tightening, it’s becoming more and more important that you make yourself look as safe as possible. Safe means as little debt as possible and as little access to credit as possible.

Don’t apply for any new credit cards. They could be offering some hot credit card offers of a hundred bucks to make one purchase or 0% balance transfer, but you must avoid it at all costs. That hundred dollars will cost you thousands, if not tens of thousands, over the life of your loan. Don’t buy a car. Don’t take advantage of 12-month 0% financing “same as cash” offers at Best Buy to get that new flatscreen HDTV you’ve been thinking of.

Don’t make any drastic changes
Don’t shuffle your funds around, don’t change your bank, and most of all don’t change your job. This won’t necessarily affect your credit score (some banks will do a hard credit check, which negatively affects your score) but it will give the lender headaches when they try to decipher all the moves you’ve made.

Making large transfers will bring up questions of fund origins. Is this really your money or did you receive it as a gift? Why are you opening up new accounts and shifting your money when you expect to spend it soon? Such moves will result in more questions for you to answer, which takes energy and will prolong the review process. It’s not necessarily bad — just a pain.

The only exception to the “not necessarily bad” is the part about changing jobs. Lenders like stability; stability equals low risk. If you’ve been working with a company for thirty years (or even five), chances are you’re going to work there for a while. If you’ve been working with a company for three months, there’s no saying how long you will work there. Maybe you have a falling out and are fired, maybe you can’t hold a job, maybe you’re perfectly fine and will have a successful career there. All those maybes make lenders nervous. Avoid changes if you can.

Play house
There are two crucial steps to “playing house” (financially). First, you need to correctly estimate your monthly payment. Remember that your monthly payment will include the mortgage, taxes, and homeowners insurance. You will also probably want to add a buffer for maintenance and repairs, as you likely will have both. In three years, my wife and I have spent at least $10,000 in repairs and improvements (windows, roof, carpeting).

Another bit of information to research is how the recent federal housing rescue bill or how local first time home-buyer assistance programs may apply to you. The federal housing rescue bill offers a 15-year zero interest $7500 loan in the form of a tax credit to new home buyers. In Maryland, first time home buyers get one half of the transfer tax waived, which can be up to 0.75% the sale price of the home. Both of those will play crucial roles in how you calculate your monthly payment.

The second step is actually playing by budgeting for the mortgage. If you are currently renting, deduct rent from your monthly mortgage payment, and transfer those funds to an account that offers high interest savings. A great place to put those funds is in a fund you designate for your downpayment. As the months pass, you will get a feel for how much you can comfortably afford rather than simply guessing.

This also serves another purpose: it will keep you within your house budget. The Realtor will likely want to show you homes that are outside of your price range. It’s always good to see what is a little above and a little below your range just to see what the difference in value is. By playing house, you have a more accurate feeling of how differences in the monthly payment will affect your lifestyle because you’ve lived it.

Sell or donate your junk
Two things will happen when you buy your house:

  • You will be short on cash.
  • You will have to move.

By selling some of your junk now, you get a little extra cash, which will likely go towards all the little things involved with a home, and you have less stuff to move. Your wallet will thank you for the former and your friends — whom you will have bribed with pizza and beer to help you move — will thank you for the latter.

Sell or donate anything and everything you honestly can’t see yourself ever using on your new home. Good stuff to purge includes:

  • Old furniture
  • Books (do you really need to keep your college textbooks?)
  • Old clothes
  • Electronics equipment
  • Decorations and wall coverings

This will require a bit of intestinal fortitude and an honest assessment of your belongings. It’s difficult to sell or give away things with emotional value. That couch you’ve had since college or that poster you hauled all the way from home — they have emotional value. If you can think of a great place in your new home for it, keep it; if you really can’t (where will a ratty old couch go?), give it a new home.

Donation is a great solution if you’re on a time crunch because organizations like Goodwill or the Salvation Army will happily come and haul away your gently used items absolutely free (and you get a bigger tax deduction).

I hope this list of ideas has been helpful, these were some of the tricks I used when my wife and I bought our first home three years ago. Since then, it’s been a wonderful ride. Home ownership truly has been all it’s cracked up to be. You might be buying a house, but it truly becomes your home.

Source: getrichslowly.org

Apache is functioning normally

Conventional wisdom says that people spend more when they use credit than when they use cash. But is it true? In The Money Answer Book, Dave Ramsey writes:

When you pay in cash, you can “feel” the money leaving you. This is not true with credit cards. Flipping a card up on a counter registers nothing emotionally. If you use plastic instead of cash you will spend 12 percent to 18 percent more. This is money you could have saved.

Though he fails to cite his sources, Ramsey’s right — most people do spend more when they pay with credit. The September 2008 issue of the Journal of Experimental Psychology: Applied contains research into the effect of payment type on consumer behavior [free 268kb PDF of entire article]. From the press release:

The conclusion that cash discourages spending, and credit or gift cards encourage it, arises from four studies that examined two factors in purchasing behavior: when consumers part with their money (cash versus credit) and the form of payment (cash, cash-like scrip, gift certificate or credit card). The results build on growing evidence that, as the authors [Priya Raghubir and Joydeep Srivastava] wrote, “The more transparent the payment outflow, the greater the aversion to spending, or higher the ‘pain of paying.’” Cash is viewed as the most transparent form of payment.

In July, Ari Shapiro of NPR’s Morning Edition talked with Cornell economics professor Robert Frank about why people spend more when using credit instead of cash. Frank echoes Dave Ramsey: “Parting with [cash] is just a more vivid sensation than than abstract act of signing a pledge to pay sometime later in the future.”

During their conversation, Shapiro noted, “When McDonald’s started allowing credit card purchases, the average purchase went from $4.50 up to $7.00. That’s a huge increase.”

I couldn’t find numbers to support Shapiro’s claim; however, I did locate an article that quotes an executive from the company that installed McDonald’s credit-card processing systems. “When an establishment accepts credit cards, the average ticket size goes up,” he said. “We anticipate a 40 percent increase in the average ticket size for those franchises implementing credit card processing for the first time.”

Just being aware of the tendency to overspend with credit can help you apply the brakes. Here are other methods that work:

  • Don’t use your credit card for luxuries. Use it only for things you need, like groceries or gasoline. I follow this rule religiously, and I believe it’s one of the reasons I’ve been able to avoid spending too much.
  • Use your credit card only for big expenses. Kris doesn’t use her single credit card for small, spontaneous purchases such as a nephew’s birthday gift. Instead, she saves it for big purchases, like a food processor or a dishwasher. She approaches these pre-planned expenses differently, and isn’t likely to be lulled into spending too much just because she’s using credit.
  • If you’re headed to a personal “trouble zone”, leave your credit card at home. Don’t take it with you to the mall, for example, if you know you’ll be tempted to use it.
  • Don’t just look at your total bill — pay attention to the cost of each thing you’re buying. When you pay with credit or gift certificates, it’s easy to focus on the grand total instead of the cost of individual items.

Not everyone spends more with credit, of course. Some GRS readers report the opposite experience — they are stingier with credit than with cash. Either way, it’s in your best interest to know yourself and your spending weaknesses so that you control your expenses rather than being at the mercy of your environment.

Source: getrichslowly.org

Apache is functioning normally

We think we know what will make us happy, but we don’t. Many of us believe that money will make us happy, but it won’t. Except for the very poor, money cannot buy happiness. Instead of dreaming of vast wealth, we should dream of close friends and healthy bodies and meaningful work.

The Psychology of Happiness

Several years ago, James Montier, a “global equity strategist”, took a break from investing in order to publish a brief overview of existing research into the psychology of happiness [PDF]. Montier learned that happiness comprises three components:

  • About 50% of individual happiness comes from a genetic set point. That is, we’re each predisposed to a certain level of happiness. Some of us are just naturally more inclined to be cheery than others.
  • About 10% of our happiness is due to our circumstances. Our age, race, gender, personal history, and, yes, wealth, only make up about one-tenth of our happiness.
  • The remaining 40% of an individual’s happiness seems to be derived from intentional activity, from “discrete actions or practices that people can choose to do”.

If we have no control over our genetic “happy point,” and if we have little control over our circumstances, then it makes sense to focus on those things that we can do to make ourselves happy. According to Montier’s paper, these activities include sex, exercise, sleep, and close relationships.

What does not bring happiness? Money, and the pursuit of happiness for its own sake. “A vast array of individuals seriously over-rate the importance of money in making themselves, and others, happy,” Montier writes. “Study after study from psychology shows that money doesn’t equal happiness.”

The Happiness Paradox

Writing in The Washington Post last June, Shankar Vedantam described recent research into this subject. If the United States is generally wealthier than it was thirty or forty years ago, then why aren’t people happier? Economist Richard Easterlin of the University of Southern California believes that part of the problem is the hedonic treadmill: once we reach a certain level of wealth, we want more. We’re never satisfied. From Vedantam’s article:

Easterlin attributes the phenomenon of happiness levels not keeping pace with economic gains to the fact that people’s desires and expectations change along with their material fortunes. Where an American in 1970 may have once dreamed about owning a house, he or she might now dream of owning two. Where people once dreamed of buying a new car, they now dream of buying a luxury model.

“People are wedded to the idea that more money will bring them more happiness,” Easterlin said. “When they think of the effects of more money, they are failing to factor in the fact that when they get more money they are going to want even more money. When they get more money, they are going to want a bigger house. They never have enough money, but what they do is sacrifice their family life and health to get more money.”

The irony is that health and the quality of personal relationships are among the most potent predictors of whether people report they are happy — and they are often the two things people sacrifice in their pursuit of greater wealth.

Why aren’t rich people happier? Perhaps it’s because many of them are workaholics, because they’re more focused on money than on the things that would bring them joy. A brief companion piece to The Washington Post story notes that researchers have found that “being wealthy is often a powerful predictor that people spend less time doing pleasurable things, and more time doing compulsory things and feeling stressed.”

In general, rich people aren’t much happier than those of us in the middle class. Yes, money can buy happiness if it elevates you from poverty, but beyond that the benefits are minimal. So why do so many people believe that money will make things better?

Stumbling on Happiness

In 2006, Harvard psychology professor Daniel Gilbert published Stumbling on Happiness, a book about our inability to predict what will really make us happy. Here is is a 22-minute video of a presentation Gilbert made at TED 2004, in which he compresses his ideas into bite-sized chunks.

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Gilbert says that because humans can plan for the future, we naturally want to structure our lives in such a way that we are happy, both now and later. But how do we know what will make us happy? We don’t. In fact, we’re surprisingly bad at predicting what will bring us joy. Gilbert asks:

Which future would you prefer? One in which you win the lottery? Or one in which you become paraplegic? Which would make you happier? […] A year after losing their legs, and a year after winning the lotto, lottery winners and paraplegics are equally happy with their lives.

The problem is impact bias, the tendency to overestimate the “hedonic impact” of future events. Put another way, the things that we think will make us happy usually don’t make us as happy as we think they will. Winning the lottery isn’t a panacea. Having an affair with your hot new co-worker won’t be as thrilling as you imagine. And losing a leg isn’t the end of the world.

It turns out that humans are able to synthesize happiness. Many people look outside themselves for fulfillment; they expect to find it in things, or in relationships, or in large bank accounts. But true happiness comes from within. True happiness comes when we learn to be content with what we have.

13 Steps to a Better Life

What does all this mean to you? If money won’t bring you happiness, what will? How can you stop making yourself miserable and start learning to love life? According to my research, these are the thirteen actions most likely to encourage happiness:

  1. Don’t compare yourself to others. Financially, physically, and socially, comparing yourself to others is a trap. You will always have friends who have more money than you do, who can run faster than you can, who are more successful in their careers. Focus on your own life, on your own goals.
  2. Foster close relationships. People with five or more close friends are more apt to describe themselves as happy than those with fewer.
  3. Have sex. Sex, especially with someone you love, is consistently ranked as a top source of happiness. A long-term loving partnership goes hand-in-hand with this.
  4. Get regular exercise. There’s a strong tie between physical health and happiness. Anyone who has experienced a prolonged injury or illness knows just how emotionally devastating it can be. Eat right, exercise, and take care of our body. (And read Get Fit Slowly!)
  5. Obtain adequate sleep. Good sleep is an essential component of good health. When you’re not well-rested, your body and your mind do not operate at peak capacity. Your mood suffers. (Read more in my brief guide to better sleep.)
  6. Set and pursue goals. I believe that the road to wealth is paved with goals. More than that, the road to happiness is paved with goals. Continued self-improvement makes life more fulfilling.
  7. Find meaningful work. There are some who argue a job is just a job. I believe that fulfilling work is more than that — it’s a vocation. It can take decades to find the work you were meant to do. But when you find it, it can bring added meaning to your life.
  8. Join a group. Those who are members of a group, like a church congregation, experience greater happiness. But the group doesn’t have to be religious. Join a book group. Meet others for a Saturday morning bike ride. Sit in at the knitting circle down at the yarn shop.
  9. Don’t dwell on the past. I know a guy who beats himself up over mistakes he’s made before. Rather than concentrate on the present (or, better yet, on the future), he lets the past eat away at his happiness. Focus on the now.
  10. Embrace routine. Research shows that although we believe we want variety and choice, we’re actually happier with limited options. It’s not that we want no choice at all, just that we don’t want to be overwhelmed. Routines help limit choices. They’re comfortable and familiar and, used judiciously, they can make us happy.
  11. Practice moderation. Too much of a good thing is a bad thing. It’s okay to indulge yourself on occasion — just don’t let it get out of control. Addictions and compulsions can ruin lives.
  12. Be grateful. It’s no accident that so many self-help books encourage readers to practice gratitude. When we regularly take time to be thankful for the things we have, we appreciate them more. We’re less likely to take them for granted, and less likely to become jealous of others.
  13. Help others. Over and over again, studies have shown that altruism is one of the best ways to boost your happiness. Sure, volunteering at the local homeless shelter helps, but so too does just being nice in daily life.

Remember: True wealth is not about money. True wealth is about relationships, about good health, and about continued self-improvement.

Related >> Is it More Important to be Rich or to be Happy?

Source: getrichslowly.org

Apache is functioning normally

True or False? Credit card companies lure you in with big promises, but bury the nasty stuff in fine print.

It would be hard to find many people that disagree. Unfortunately, when the consensus is that card companies are out to get you, you might be tempted to throw up your hands and give in, saying “What can I do?” If that’s your attitude, you can be sure they’ll take full advantage.

Because you read Get Rich Slowly, though, I’m guessing you’re a little more savvy, a little more proactive about your finances, a little more likely to look before you leap. So, let me give you five specific things to watch out for, both when getting a credit card and when using the card you have, and how to avoid each trap.

Promise #1: “As Low as 9.99% APR!”

The Trap: Your interest rate could be as low as 9.99%… but it could also be as high as 20.99%, or whatever the card company has put in the fine print.

Your Plan: Read the “Schumer box” (where the interest rate is shown in larger type, usually on the reverse side of an application) to see if the card company has allowed themselves the luxury of giving you any interest rate they please. If yes, either consider your credit history and go in with your eyes wide open to the possibility of a higher rate, or choose a credit card that offers a single take-it-or-leave-it rate. In that way, you’re either approved or rejected, but you don’t come away feeling fleeced.

Promise #2: “Up to 5% Cash Back!”

The Trap: Several. The card may offer you much less than the 5% rebate until you spend a certain amount per year. On the flip side, it may give you a 5% rebate for the first $300 in purchases each month, then drop the rebate down to 1% or less.

Your Plan: Stay away from cards that market a rebate “up to” a certain percentage, and go for those that promise a “full” percentage. And check the fine print for caps on monthly or yearly rebates.

Promise #3: “0% APR on Balance Transfers for 12 Months!”

The Trap: Two-fold. First off, it’s almost impossible these days to transfer a credit card balance without paying 3% of the balance upfront. Transfer $5000 and you’ll pay $150 before we even start talking about paying down the balance.

Second, almost all card companies take your payments and apply them first to balances with the lowest interest rate. Say you transfer $1000 to a card at 0%. The card’s interest rate on new purchases is 13.99%. This month you buy $500 worth of stuff with the card, then pay $500 when the bill comes. Do you still have a $1000 balance at 0%? No, you have a $500 balance at 0% and a $500 balance at $13.99%! Why? Because your $500 payment went toward the balance sitting at 0%, not toward the balance sitting at the 13.99%.

Your Plan: A couple of options. The easy thing to do would be to swear off credit for a bit — transfer the balance then don’t use the card until it is paid off. (You’d stilll get hit with the 3% fee, but it might be worth it if you had a high interest rate on your old card.)

If you have decent credit and a little more self control, you could get a new credit card that offers a 0% rate on purchases for 12 months, then use it while you pay off your old card’s balance. By doing so, you focus on paying off your high-interest debt while floating new purchases at 0%. If you follow my logic, this is very similar to transferring your balance at 0% but without the fee. Either way, recognize that the 0% rate doesn’t last forever and the bill eventually comes due.

Promise #4: Your Card Has a Credit Limit of $3000.

The Trap: While logic would tell you that your card company won’t approve purchases beyond the limit, the reality is that they will let you charge beyond your limit, then slap you with a $39 fee to penalize you.

Your Plan: Don’t think of your card company as a caring parent who cuts you off when you overspend. It’s up to you to keep track of when you get close to your limit. (By the way, you really should not be getting that close to your card’s limit. It’s hell on your credit score.)

Promise #5: “Any Time for Any Reason”

The Trap: Unlike the other promises, this one’s too nasty for the issuers to put a positive spin on, so it stays tucked away. In short, in almost every card agreement, the card issuers give themselves the right to change your interest rate at any time for any reason, even if you’ve done nothing wrong. And they only have to give you 15 days notice, so you could find yourself scrambling if it happens to you.

Your Plan: Have a second credit card before this happens instead of waiting until you’re in trouble. You don’t ever have to use the second card, but the last thing you want is to have your interest rate jacked up to 25% with no recourse if your credit card issuer decides to play hardball.

Credit cards ain’t for fools. If you’re going to carry one, then take responsibility for understanding what you’re getting into, and fight fire with fire when your card company decides to play rough.

Source: getrichslowly.org

Apache is functioning normally

Two years ago when I bought my People 150cc scooter, I was teased ceaselessly by my car-loving friends. It wasn’t so long ago that gas was under two dollars a gallon, and the need for more efficient wheeled transportation wasn’t as “in your face” as it is now. Today, when my friends talk about my scooter (or my wife’s) it’s to ask where I got it, for how much, and how much we save by having them.

J.D. recently mentioned he was thinking of forsaking his dream of a Mini Cooper for a scooter instead, but he had some questions. How much money would he save? Could we quantify with some certainty the impact of a scooter on one’s budget? Here’s my attempt based on my experience.

Safety First

First, I’d like to talk about a few misconceptions. Scooters are not necessarily slow-moving vehicles. Your speed depends on your engine size. I’d think of them more generally as small motorcycles. You’re exposed to the elements (more so than a car), and you’re giving up the “safety” of a steel box, but you are getting a more maneuverable vehicle.

I’d strongly encourage anyone riding a scooter to take a motorcycle safety course, such as the one given by the Motorcycle Safety Foundation. Safety, either in a car or a scooter, depends greatly on the operator. In my opinion, driving a scooter is no different (in terms of safety) than driving a motorcycle.

In my four years operating a scooter, I have not been involved in any accident. I’ve been able to avoid unsafe motorists better than I would be able to in a car. I don’t feel any more unsafe operating my scooter, but I’ve had many years of experience, and that confidence can create a noticeably different ride. I would expect first-time riders to be much more nervous.

Pinching Pennies

But the big question here is: How much can one save if you go from a car-centric lifestyle to a scooter-centric lifestyle?

First, purchasing a scooter will cost significantly less, even for models that can keep up with highway traffic. The average new four-door sedan costs about $20,000. A scooter that can achieve a constant speed of 70mph and legally be driven on interstate highways will cost around $3,000. Costs for used vehicles of both classes can vary by large degrees, but the scooter will always be an order of magnitude cheaper. Thus, a scooter can more easily be financed directly out of pocket, avoiding an expensive car loan.

Operating a scooter — gas, insurance, maintenance — is also much cheaper than operating a car. Astonishingly enough, the difference in just one year represents a brand new Buddy 125 (a scooter I highly recommend).

Not Quite Car-Less

However, transferring to a scooter is just one lifestyle choice. We can choose to locate ourselves so that we can walk to work and shop using a rolling cooler. We can locate near bike-friendly areas and strap storage racks to our bikes. We have many choices. None of these choices allows for long-haul, heavy or large lifting, however.

My wife and I have a car, along with our scooters. While seldom used except for long trips and large item hauling needs, we do need a car for those purposes. But we are better off using our scooters, bicycles, and legs for daily commutes and grocery store visits.

J.D.’s note: After our discussion of high gas prices and alternative transportation, not only did Stephen volunteer to share his experiences above, but Bev Brinson sent me a copy of her book, The Complete Idiot’s Guide to Motor Scooters. It’s a great introduction to the subject. If, like me, you’re interested in scooters, but don’t know where to start, borrow a copy from your library.

Source: getrichslowly.org

Apache is functioning normally

With home prices down, foreclosures up, there’s an influx of great homes on the market with less competition vying for them. The next year or so may present some prime buying opportunities for those willing to do some homework, and who meet the prerequisites of home ownership. Although it may seem counter-intuitive, one of the most important things to ask yourself when you start looking for a house is: “How easy will it be to sell this thing?”

Sound personal-finance decisions usually involve thinking one step ahead. You should not be content just to get into a house that you emotionally fall in love with; rather, you should be looking to buy a house that you can get out of quickly, easily, and at a profit should life happen to throw you a curveball that will force you to move.

What characteristics lead to a house being highly “marketable”? Granted, there’s not an exact set of criteria that will be ideal for all people in all situations and markets, but the more factors you have working in your favor the better. We’re not talking about buying a house for the purpose of flipping it. We’re simply talking about buying a house that you can live in, put some sweat equity into over time, and then sell for a profit.

Unexpected Moves Can Happen to Anyone

When I purchased my first home 3-1/2 years ago, I was thinking I would be in it until I was able to pay off my mortgage. I loved the location, the house, and the neighbors. My wife and I both had solid jobs. It was also a house that we could grow into: 3 bed, 1.5 bath, 1,500 finished square feet, full basement, and a nice yard — all in an area with a low cost-of-living and high quality-of-life.

Fast-forward 2-1/2 years: a fantastic job opportunity presented itself. We decided it would be best for us to sell and move two hours away. Thanks to some smart thinking before we bought the house and some elbow grease, we were not only able to sell the house in just three months, but make a 10% gain on it in a horrible market. Additionally, we were able to do this via “for sale by owner”.

As you shop for a home, keep in mind these characteristics that not only make it appealing to live in now, but will make it have greater equity in the future (thus making it easier to sell).

The Right Size

You need to not only look for a house that fits for you, but also that fits for the majority of the population. Here’s what the majority of households are looking for or are able to adapt to:

  • Look for a minimum of three bedrooms and a maximum of four. Two bedroom homes mostly cater to single people or couples that do not or will not have children (and aren’t concerned with selling their house). At the same time, homes with five bedrooms or more cater to those who have a healthy number of children, or plan on having them in the near future. That makes three- and four-bedroom homes the perfect size for the majority of the population, with three bedrooms being ideal. If you haven’t noticed, large suburban homes that are energy drainers are quickly going out of style.
  • In terms of number of bathrooms, 1-1/2 or 2 will make the home more desirable than just one. If you’re looking at a house that could cheaply add another half or full bath, you might have a good find.
  • Square footage is important, but not quite as much as the number of bedrooms. Typically, you’ll want more than 1,000 (with room to expand) and less than 2,000 for a home to be comfortable and efficient for the majority of the home-buying population.

Curb Appeal That is Ripe For Improvement

When it comes to selling a house, the biggest challenge is getting people in it. The key is to find an attractive home from an architectural perspective that needs aesthetic upgrades. Consider yourself lucky to find a home with an ugly paint color and really poor landscaping. These are two things that you can spruce up on the cheap with a little sweat equity.

If you’re willing to get up on the roof, a home with a poor roof may present an opportunity to get a credit during the bidding process (with a recommendation from an inspector) that is worth the price of a professional doing the job. You can then turn around and buy the materials and do it yourself, while pocketing the remainder of the money to apply towards your loan or other projects. Our current home has an older roof with a few warped pieces of wood sheathing. We were able to get a $6,500 credit for a project that is costing just $2,000 to do on our own.

On the extreme end of things, our current house had an ugly asphalt driveway that was falling apart. What was attractive about this is that the driveway is only about 25 feet in length so tearing it out and replacing it only cost us $1,700. Now, it looks great!

Here are some other cheap ways to improve a home’s curb appeal before you sell it:

  • Paint the shutters
  • Power wash everything
  • Refinish the porch
  • Add landscaping that looks great year-round
  • Water the grass until it’s the greenest on the block
  • Add a nice new mailbox and address numbers

Good Structure

When it comes to buying a home, you want to avoid major structural issues that will cost you big money to fix or will diminish your leverage when it’s time to sell if you haven’t fixed them. Here are a few of the biggest culprits:

  • Do not buy a house that has issues with the foundation. If you see large cracks in the foundation outside or on the basement walls, or the walls look like they are caving in some spots, kindly leave the house and look elsewhere.
  • Termite or carpenter ant damage is common in some locales, and it may be hard to find an older home that hasn’t had a little damage at one point or another. The key here is to find a home that does not have major structural damage and has no signs of current issues. Some home inspectors will actually insure for a year or more that there are no current signs of infestation, and if they appear, they will cover the costs to terminate.
  • Have you ever walked through a house that makes you feel claustrophobic or just didn’t feel right? Odds are that other people feel that way in the same homes. Don’t buy them. This may be remedied by knocking down a wall or two in some homes, but that can be an expensive project and you may be risking structural damage.
  • Avoid buying a house that has signs of mold or water damage. They can be very expensive to fix and usually are signs of larger foundational or roof issues. Here again, a good home inspector will be able to test or look for both.
  • Beware problems with the electrical and plumbing systems. These are a home’s lifeblood, and replacements are costly.
  • If you buy a home with an ancient furnace, you may want to have it checked out beforehand. Any home with steam radiant heating may cost you a pretty penny to heat or replace.

Easy-to-Improve Internal Aesthetics

As with structure, making major changes to the interior of a home can be costly, but there are some cheap projects that can really change the perceived value and quality of a home. One summer’s worth of weekends spent on the following projects can not only improve the marketability of your home, but make it much more enjoyable for you to live in. Look for a house that will allow you to do most of the following, as one with all of them done already will probably be selling for a premium:

  • Add nice, modern-looking light fixtures
  • Add fresh earth-tone paint
  • Replace beat-up light switch covers
  • Re-finish hardwood floors
  • Replace linoleum with tile
  • Add a backsplash in the kitchen

Here are some of the features most people want, but won’t be cost effective for you to add:

  • Central air conditioning
  • Nice kitchen cabinets (or cabinets that will be nice when refinished)
  • Fireplace
  • Garage
  • Energy-efficient windows

An Under-Priced Location

It seems that more people are looking to purchase in nice urban areas that are close to work versus suburban McMansions. Not only do these homes save commuting time and money, but they almost always have a lot more character and are much more structurally sound. In my most recent home-purchasing experience, I looked at a few houses built after 1999. All had large foundational cracks and cheap materials throughout.

Another bonus to purchasing a home in a more densely populated area is foot and car traffic. My first home was located just off the corner of a highly trafficked street. Because of this, I could put up a ‘for sale’ sign pointing towards my house. I ran through 20+ flyers a day and ended up selling the house to someone who drove by it. You don’t get this kind of exposure in the ‘burbs.

Highly desirable locales are going to cost you a premium, but you may be able to sell a home quicker. What I have searched for in my first two home purchases are areas that are relatively cheap compared to highly desired areas, yet have most or all of the same features. Others will realize the same thing when searching for a home.

Good School District

Even if you never plan on having children, it is important to look within areas that have a reputation for having good schools. Do it for the kids. If not yours, for the kids of the people buying your house from you.

The more desirable characteristics you’re able to find or add to through inexpensive sweat equity will improve your chances of not only selling your home, but selling it quickly and for a premium.

What characteristics and specifications would make a house more appealing to you?

Photo by Nate Steiner.

Source: getrichslowly.org