You may contact me at: dimetime[at]dimetime.org (I’ll assume, you know that ‘[at]’ is to be replaced by ‘@’ :-p )
You are most welcome to visit the new Dime Time site.
You may contact me at: dimetime[at]dimetime.org (I’ll assume, you know that ‘[at]’ is to be replaced by ‘@’ :-p )
You are most welcome to visit the new Dime Time site.
This is a part of the series of articles based on the theme ‘financial education’. If you read my ‘mistakes series‘ you’ll know how naive I was about financial stuff. Now I have learned most of the things about money, but I am still learning. This series is in an effort to educate myself about money, and it’s always best to begin with the basics. Today’s issue is on setting priorities.
An important stepping stone toward financial freedom is setting your priorities. Once you know your prioritiess you can act accordingly. Otherwise, you’ll run after one goal to another frustrating yourself at the end. The most immortal steps toward setting up your priorities are: (1) identifying goals, (2) prioritizing the goals, and (3) planning for the goals.
(1) Identify your goals
We all have some goals in our lives — we either dream about them or think about them casually. But in order to be able to fulfill our financial goals we need to modify the way we see them. Make sure that you are not thinking about building a castle in the air. Second, you may have numerous financial goals, but choose the ones that will lead to you to a financially strong ground in future. Always keep in mind that you are not alone in this journey, so include your family in all your goals. Jot down your financial goals first; if nothing comes to your head offhand, here are some ideas: achieving financial independence, paying off credit card debts, saving for kid’s education, saving for retirement.
(2) Prioritize your goals
A twenty something couple should first plan to pay off their own college loan before starting to save for child’s college education. It does not mean that they should NOT save for the child’s education, but their priority should be to pay off their own student loans first — longer you defer it, higher amount you pay for it! So first, list all your goals and identify which ones are most important to you at that point of time. Remember that time is on your side and priorities change with time. There may be several goals which are conflicting with one another (e.g., the example I gave earlier), but you got to resolve the conflicts; in other words, you ought to arrange your goals in order of priority. Whenever you plan for vacation or a big ticket item (e.g. television, laptop, car, home), ask yourself whether it is going to take you toward your goal. If it takes you away from your goal, you should probably cancel the idea.
(3) Plan for your goals
Once your have a prioritized list of goals you should plan how you are going to achieve them. The first step is to focus on your income and spending habit. When you have a clear idea about how much you can set aside after the living expenses, you can plan for your goals. Make a budget of how you are going to spend your money and how much you are going set aside to fulfil your goals.
This is the first week of the blog Dime Time. As I mentioned in my first post, this is about the revelation of my financial mistakes and the lessons I learned from those. This is a mistake series — the mistakes that I made and which caused my financial downfall.
My experience with money
My experience with money was not very pleasant! I was never comfortable using money: I’d always fumble if I had to handle cash. Moreover, I had hardly any financial education. This post is just a summary of how my ignorance about money led me into the dungeon of debts.
This starts with a tone of reminiscence (as with the last one). But this is more about how I interacted with the people around me. I always found it hard to say ‘no’, even when it meant not doing my work and risking my own job. This is about how I learned to say ‘no’ without hurting others’ feelings.
I would use credit cards to buy everything I needed, even when I had money in bank. The habit of using card gradually grew into me like a poison ivy: I incurred a lot of debt. The funny thing is that I am still paying for the things that were gone long time ago! This post is about my realization why credit cards are not our friends.
I had the idea that bargaining is for the miserly people only, and it’s not for a gentleman (like me!). I’d never look at the bill that I paid; neither did I care much about how much actually I paid! Several times I found there were mistakes in the bill. But it was not worth my time to go back to the store and get it fixed! Those were probably the biggest mistakes in my life. This post describes my previous shopping habits, and how I got over that and have become a pro-shopper. Included are the smart shopping tips at the end.
I sometime wonder why I was not given the The Gentleman award! I used to refrain myself from all kinds of things which would defile my gentleman image (I had my own standards!). One of such things was not to care about money at all even when it came to pay for something from my own pocket. I’d rarely look at the amount that I had to pay at the check-out counter (I used to pay by a credit card almost always), and I’d never even think about checking my bill for discrepancy. Then I’d either lose the bill or it would be so much crumpled living in my pocket that it’d be barely readable. Once I found an old grocery-store bill, and out of curiosity I looked into it just to find that I was charged for the same item twice (I was sure that I did not buy two of the same item)! I moved on, considering a trip to the grocery store did not worth my time! I used to think that the people who bargain are either poor or miser. I’d start hating someone at once if he mentioned that he had haggled to get something for a lower price, because I somehow felt that it was not ethical (I had my own standard of ethics too!) and was not gentleman-like. Moreover, I never liked the idea of staying in a shopping mall for a very long time, and as result of that, whenever I saw something that looked good, I’d grab that without much thought and without looking for possible better items with a lower price tag. I was, above all, an impulsive shopper. You should not have any doubt, by now, about me being the Worst Shopper of All Times!
If you are still reading this, you probably know that I’m writing this because I have already gotten over that nature of mine. Of course, it had to happen after incurring a lot of debts. Now I don’t feel the impulse to buy something if I don’t need it; I can even reason with myself if buying something is a good investment at all. Here are the frugal tips from which I learned from my mistakes (after all, to err is human, and one learns from his or her own mistakes) and which I use nowadays (not to mention, successfully):
Now you can see that I’ve become a smart shopper after all!
I mentioned earlier that I did not have a very clear idea about how money really works until a few years ago. You may be surprised, but it’s true, that I did not get to use a credit card until I finished my undergraduate degree and joined a graduate school. I was quite adamant and would not pay attention to any advice regarding money. So when I heard that credit card can help build my credit history, I filed an application for a credit card to my credit union without asking anyone for any advice. I did not even have the slightest idea what credit history is, how it works, and what steps should be taken to build a good credit history. I received the shiny plastic card within a week or so. But I was a little upset that the credit limit in it was a meager $500 and the APR about 15%.
Road to perdition
I started to use my new credit card to buy everything — every single thing that I needed to buy. I used to hate using cash and pity the ones who fumbled with cash in the counter. Cash was too cumbersome for me. But you cannot buy too many stuffs over and over against a credit card with a limit of $500. I applied for an American Express Blue card which too started off with $500 limit but it went up to about $16k in a two years period. After a few months, there was a huge lot of mails flowing in my mailbox everyday with numerous offers for credit cards with low introductory APR. Whenever I received such mails, I would think that it was time for another card, as if, it was a game of collecting cards! I’d even tease my friends by asking,’ Hey, I have these many credit cards, how many do you have?’ It went on and on. After several months, it became really difficult for me to keep track of all the expenses and I started missing the due dates. I’d just forget the due dates although my salary was enough to cover the minimum dues. Consequently my APRs started going up, and that was the time when I realized that credit cards may not be my friends. I already had a debt of over ten thousand in credit cards by then , but the offers for new cards still kept coming. I eagerly filled out and mailed the forms to get a new card with a lower rate; only this time they would not approve my application! “Hmmm, it’s time to pay off the debt then”. I started to pay as much as I could after each month making sure that I paid at least the minimum amount due. But I became really paranoid when I found that after a couple of months they increased my APRs all of a sudden even though I had not missed any due date. “Thery are just trying to take advantage of me!” I requested the creditors to lower the rate, but they wouldn’t listen to me: they were not ready to lower the APRs. I realized then finally that the credit cards are not my friend!
The idea of getting married and making a family probably opened my eyes. I knew that I must pay what I owed. Based on an approximate monthly expense I sketched a rough payment plan which would enable me to get out of debt in another two years (I wanted to be debt-free before I graduate which would be another two years down the lane). Then in the next thirty days I cut all the extra expenses that I’d think earlier I could not live without — including the morning coffee in the nearby Starbucks on my way, lunch in the university cafeteria (surprisingly the cafeteria was more expensive than the off-campus restaurants), another coffee in the afternoon, and dinner at an expensive restaurant. I have never been really addicted to coffee, so giving up coffee was not a big deal. I started cooking at home at night, and eating the left-over during lunch next day. The whole process of cooking took a lot of time at first, but I soon learned how to cook a healthy food in a very short time. I also cut extra expenses in the grocery bills and stopped making unnecessary trips to the mall. At the end of the month I found that I reduced my expenses to less than half! That was a big achievement for me. I fine-tuned my payment plan based on that month’s experience.
The plan that I have been using is nothing very fancy, it just came out of common sense: pay off the one which is charging maximum interest. My main goal was to minimize the amount that I have to pay on top of what I originally borrowed (the interest). I heard about the ‘debt snowball’ method (paying off the lowest amount first), but it does not make sense to me. You may feel good about paying off one card fully, but that may cause you to pay extra money as interest at the end. So far I have paid three fourth of the total debt, and it will be over by another year and a half. Not only that, the card with the maximum interest rate has zero balance now. Yay!
I found it extremely useful to pay the alloted amount to the credit cards as soon as I get my pay check. Longer you delay, less money you have to pay the debt! I always pay the credit cards online, and I have enabled automatic payment of the minimum due on the third day of each month. At the beginning of each month I look carefully at my budget and decide how much money I’ll have in my hand to pay the debt after paying for necessary things and saving for my emergency fund (this is just a cross check for my plan). Then I calculate how much money I’ll have from that amount after paying the minimum dues (this is also just to check if the plan is OK), and then I change the amount to be payed to the card with maximum APR to include that extra money.
I stopped using credit cards completely. I pay by a debit card issued by my bank, and I am trying to go back to the using the primitive method of using cash. In fact, if you ask my suggestion, I’d say: use cash and no card at all and then you’ll begin to value money.
Don’t close the credit card account even if you have paid the balance in full. It may leave a negative effect on your credit history. Never even think about closing it if you have an unpaid balance; if you close it, you actually close the path to negotiate the APR later. I stashed my credit cards somewhere I can’t easily find. A better idea: hide it inside two blocks of ice and keep it inside your refrigerator.
Sometimes, balance transfer is a better option. I transferred about seven thousand to a card which was offering a 1.99% APR for balance transfer for one year. Before a balance transfer, always consider the hidden charges (e.g. transfer fees which may be as high as 5% of the balance transferred) and the APR after the promotional period ends, and make sure you won’t end up paying more! Even if you don’t find that the total amount that you have to pay after the transfer is not significantly less than that if you did not do the transfer at all, you should give it a second thought because this way (by a balance transfer) you can aggregate all the balance in a single account.
What’s after that?
The last thing I want to do after I’m debt free is burden myself with another debt. I have gotten myself used to a frugal life. I have realized that I don’t need a lot of things to be happy. I’ll definitely save for future big ticket items (and not put them in my credit card), and try to pay by cash as much as I can before burdening myself with another loan (like home or car loans). Next year, I’ll plunge into the market of investment. I’m just making my grounds now. But no more game with the credit cards!
I always had a hard time saying ‘no’ to a person! I used to argue within myself that the person in the front was a human and if he asked for help I should help him/ her regardless of everything else. I still don’t think that I was wrong in that, in fact I encourage you to help the fellow human beings. Isn’t that why we form a society? But there are situations when you just can’t say ‘yes’. No matter what, your work is most important to you, and you should not let anybody just barge into your life and disrupt your work for which you may lose your job and more importantly your peace of mind!
Why I couldn’t I say ‘no’. I would always think that since this person had had asked me for help he/ she must had some genuine reason and he/ she could not do it by himself/ herself. In that case I’d not even think of saying ‘no’ because of the fear of proving myself to be ‘inconsiderate’. If the person was my friend or an acquaintance, I’d fear that I might lose his/ her friendship and moreover I might not even get any help when I’d need some in future. In such cases, I used to convince myself that what they were asking for were more important than what I was doing (which was not true always).
What happens if you are a ‘yes-man’. If you can’t say ‘no’ firmly, people will take you to be granted and they will never have any respect for what you do. They will use you to their own advantage. Needless to say, you’ll have less time for your work and you will lose your focus. Moreover you’ll get frustrated when the people you helped are not ready to return the favor. You don’t want to show yourself to be a ‘yes-man’, do you?
How to say ‘no’ without sounding ‘inconsiderate’. It’s not very easy, but it can be done. You just have to show that you understand his/ her problem and you are concerned about it. Give one and only one ‘genuine sounding’ reason (it doesn’t have to be genuine, but don’t sound as if you are giving an excuse) why you can’t help at that particular time (e.g. ‘My boss wants this done before lunch because he’ll need it for the meeting at 1’), apologize for not being able to help and also tell him/ her to let you know if he/ she needs any help in future. It all depends on how you say those words. Keep your cool, be polite and sound that you consider the problem to be a grave one (it doesn’t matter if you don’t think it’s so).
When to say ‘no’. In most cases you will know when you feel like saying ‘no'( although the problem is actually saying it). First of all, decide which one is more important – your work or what the other person is seeking your help for. In almost all the situations you won’t be able to handle both of them at the same time. Ask yourself the following questions: (1) ‘Is this an emergency?’. If ‘yes’, then (2) ‘What happens if I leave/ postpone my work?’, (3) What happens if I don’t help?’, (4) ‘Can he/ she do it without my help?’, (5) Is there anybody else available to help with the problem?’. If the problem is not an emergency, you can safely say ‘no’. Don’t underestimate your own work. Neither do the same for the work which your help is being sought for. If you find that the person asks for help in several occasions, consider saying ‘no’ as soon as possible. If you don’t like the person or there is no hope of getting any kind of help from him/ her in return (use your own experience with that person), say ‘no’.
In my last post I mentioned that I used to be a kid even a few months ago, and I had helped people without thinking about what I should get in return till then, because I was ‘kind’ in my heart (hehehe!) and moreover I lacked the ability to say ‘no’. As a result, people would just use me, my time and my resources to get their work done. When I decided that I got to stop that, I started saying ‘no’ when I didn’t feel like helping. They didn’t think I was inconsiderate (but just busy), and I haven’t lost any friend so far!
I was a kid until a few months ago! I was being supported by my dad until the day I graduated from college. I never tried to experiment with money because I never had much of it of my own to experience with. I never worked while I attended college, partly because the course-work was too heavy (that’s an excuse), but mostly because my parents did not want me to work (because they were concerned that I would not do well in my studies if I worked). I had a very vague idea what money actually is and how exactly it works: “Go to work, get paid after each month and spend all the money before you get the next month’s salary: only old people save for the future!” I was so wrong!
When I joined graduate school I started getting paid and I stopped asking my parents for money. After I got my first pay-check, I jumped into a shopping spree. I bought a new cell phone with features which I did not need and there was not the slightest possibility that I’d use those soon. Along the line came a TV, a DVD player, a music system, three cameras, a piano keyboard, a guitar, a desktop and a laptop PC, and before the end of the semester – a car.
Once I had a car of my own paid from my own pocket, the world seemed to lie under my wheels. I would be out driving my car in a speed which is way over the posted limit all the time except when I had to be at school. I did not care much about the gas (‘it’s just a percent of my salary’). I would soon get bored with the things that I possessed, for example, I did not know how to play a guitar but I bought it with the hope that I’d learn it someday; I practiced the basics for first couple of weeks then just gave it up, and it has been just hanging there on my wall since then. I bought my second camera just because my roommate was planning to buy one which was better than my first. After a year, I saw a deal for a canon which was going at a rate of 20% off of the original price and I just bought it immediately (my third camera). After another month I learned that the price of the same dropped to another two hundred dollars. The same thing happened to my laptop too: I first had a desktop PC, but since all my friends had a laptop, I convinced myself that I too need one. I bought a dell, and after two months I found that the price dropped to half.
I used to go out almost every weekend for a vacation (as if my work was so hard that I needed a break every weekend!). It was hard for me to stay in the university town after the school had closed at five. I would pick up some friend, stay in motel, drink in some good restaurants, and come back very late on Sunday. None of my friends offered to share gas and sometimes I had to pay for their lodging and meals as well. I was too shy to ask the the money back!
I lived just within a 15 minutes walking distance from my school, but the distance seemed insurmountable at the time of lunch. So I would eat either in the university cafeteria or nearby restaurants and often pay for the friends who accompanied me. Some days (which would be very often) at night, I just felt not like cooking at all: I would ask for pizza delivery or go out to eat in a restaurant, and since I would not feel like going alone I’d take my roommate or some other friend(s) (whose dinner would be paid by me).
By now, you might be wondering how I could manage those with such a meager salary of a grad student! The answer is very simple: I have ten credit cards. Whenever I received a mail with an offer for %0 APR, I would have to take that offer. I would keep buying stuffs against it until it was maxed out and then I’d go for the next card. If I put a five grand in a card I would convince myself that it was not big enough because I could pay it off in less than five months with the salary that I would get! It was partly true, but I forgot the fact that in order to be able to do that I had to restrain my spending habit.
Love and life
I met the most beautiful girl in the whole universe last year. She lived in a different country; so when she was not with me I would call her and we’d talk for hours – four to five hours in an average in any given day. Soon we decided that we should get married. Wow! But when I looked carefully into my whole financial situation it did not look like so wow: I had about fifteen grands of debt and I had been paying about a grand each month to make those phone calls! Moreover the credit card companies took a vow to nail me down by increasing their APRs. I know that fifteen grand may not be too high a debt to some of you, but it is super high for a grad student (and it’s way over the national average of $8000).
I realized that before I got married I had to restrain my ways because after marriage it wouldn’t be just me! I took a day off, sat down with an excel sheet and figured out a plan. I am good at math and so it did not take a long time to come up with a nice plan that would suit a married grad student’s salary. I tracked every penny that I spent for a month, and then adjusted my plan in accordance with that. I did not tell her every detail of it, but I let her know my actual financial position. We got married soon. We have been living a happy married life since then. But it would have been happier had I been more careful with my money earlier. It should be another year before we are debt-free, but the plan that I chalked out seems to work fine. I’ll never make such mistakes again. Never ever!