Money Obedience

One of our readers is looking to get our input with her financial problem. She wants to take a trip to an exotic destination, and is trying to figure out how to finance it. She has some credit card debt on four different credit cards. She has some cash savings – and she could use it to eliminate that debt, but then she would not have any money left in her “emergency fund”. She’s thinking about eliminating her debt because she thinks that she could have her credit limit increased if she paid off her cards, since that way she would appear to be a good credit risk to the credit card companies. This higher limit, in turn, would allow her to go on an exotic trip overseas with her girlfriends since she could put the expenses for her trip on her credit cards with sufficiently higher limits.

It almost sounds like this plan that could work out, right? Well, I’d certainly advise against it.

Say she goes on the trip, and that she even has a great time. But now back at home she realizes that her credit cards are almost at the upper end of the higher credit limits and she has no savings. In a way, one might say that her finances are back to square one. But I’d say she is even worse off. She’s still carrying debt, and now she has no more cash left over for emergencies or for paying down her debt. I’m not sure how much the trip costs, but if it costs more than her original balance, it will be a lot harder to accumulate cash again and eliminate that debt, since the monthly credit card payments are higher than they were before the trip when she carried lower debt.

The way I think about debt is that I look at the underlying reasons for incurring it. Does she have something new in the skill set? More education, or a new language acquired? Did she decide to stop renting and go into debt to buy a home? Of course, none of this is the case. What does she have to show for the debt? She will have some memories of an exciting trip that lasted for a week or so. Maybe she will have some pictures to remind her of the great time she had, but that would be it. The money she spent on the trip would be gone and she would not get that much back in return. While relaxation is valuable, how much more stress will be added after she returns to face a poor financial state?

I think there is no point in sugar coating such a “financial problem”. If you ask me (and I supposed she did!) I’d say our reader clearly cannot afford to go on such a trip. I think we as a society shy away from saying, “Don’t do it,” but sometimes that really is the right answer. We supposedly make our own individual choices and we have to live with the consequences of our choices.

But the consequences, as bas as they are, are only part of the equation. The other part is our exposure to a general attitude in our society that doesn’t question increased consumption. I think, further, that this attitude is fuelled by very smart advertising that makes us believe that “more is better” (or, in the case of our reader, money should really be spent on this exotic trip). Happily, there is an alternative vision – I’m sure I’m not the only one noticing that journalists are talking about an emerging trend toward taking “staycations”? Tell me, what is your take on this situation?

This is our weekly roundup, where we share some interesting posts written by personal finance bloggers we follow. As always, when we list a post in this roundup we stick with our favorite themes: setting up a budget, household expenses, lower debt, and general personal finance topics that can aid in reaching financial goals. We hope that you enjoy the insights of these blog posts!

Setting up a Budget and Household Expenses

Unplanned Expenses and Your Budget - Flexo tells us how we can include unplanned expenses in our budgets. He also suggests ways to pay for such expenses.

"More Month Than Money: Tightening Your Food Budget While Feeding Your Family Well" - J.D. discusses an e-book called
"More Month Than Money: Tightening Your Food Budget While Feeding Your Family Well" that describes a frugal approach to feeding a family well.

Saving Money The Easy Way. - David tells us how he managed to save money even when his finances were in bad shape in the past.

Lower Debt

Credit Scores Matter More Than You Think - This post lists a few areas (beyond your ability to get credit and affect the interest you pay for any loan) affected by your credit score. You should know that your credit score comes into play when you get an insurance policy, find new employment, or even sign up for a cell phone plan.

How Credit Card Companies And Credit Repair Firms Deceive Consumers - This post shares with us some of techniques harmful to the consumer that some credit card companies and credit repair firms use. It also tells us how to avoid some of the traps some of these companies lay out for us.

Monthly Debt Reduction & Savings Statement - May & June 2009 - “Playing Catch Up” Edition - This blog shares with us the road to a debt free life. It's interesting to follow this blogger's progress, which you can do because he holds himself accountable for what he's achieved since his last update.

Investing

How Turnover in Your Portfolio Affects Performance - Mike tells us why it is better to invest in funds with low turnover ratios.

Your Home is Not an Investment - Don’t Treat It Like One - Jeremy points out that your home may be your most important asset, but that you still should not treat it like an investment. He makes his point by walking us through the financial details of home ownership.

Miscellaneous

Why Naming Beneficiaries Is Important - Jeff emphasizes that it is very important to name beneficiaries for various assets you own. If beneficiaries are named it is a lot easier to pass assets to the person of your choice, when you die.

A lesson from my German teacher - "Better late than never" is a good adage to apply to your personal finances.

This is our weekly roundup, where we share some interesting posts written by personal finance bloggers we follow. Today, in addition to our favorite themes like setting up a budget and lower debt, we highlight posts about investing. We hope that you enjoy the insights these blog entries provide!

Setting up a Budget and Household Expenses

The bottom line: Frugality is about quality of life, not money - As we have said many times, things like being frugal and having money are only a means to an end, not the end itself. Karen tells us that frugality is her way of living, and it makes her life better and easier.

Preventing Impulse Buys and Combating Clutter - Buying “things” not only costs you money, but it also increases the clutter in your home. So, it is better to save money and space.

Frugal Road Trips - In this post, Jenn gives us 4 basic tips for saving money on a car trip.

Lower Debt

Ten Tips For Dumping Debt - Joe tells us about a couple who managed to pay off large debts within a few years. He gives us a list of ten tips that helped this couple achieve their goal.

Your Credit Card Minimum Payment Costs More Than You Think! - Making minimum payments on your credit card debt prevents you from getting your financial house in order. Therefore, it is very important to pay more than the minimum and to pay off credit card debt as soon as possible.

We’re debt-free!!! – Read this post if you want to get inspired about eliminating debt. This post describes what it feels like when you have reached one of your goals.

Investing

Developing an Investment Policy Statement - J.D. wants to put all his investment accounts under one roof. That is why he is consulting with some financial planners all of whom have asked him about his investment objectives. He has none, but he lets us know that he will update his readers as he defines his financial goals. Following his progress is another good reason to subscribe to his blog.

Investing Mistakes that Will Lose You Money or Make You Cry - In this post, Money Smart Life lists 5 investing mistakes: chasing historical returns, misjudging risk tolerance, listening to bad advice, failing to sufficiently diversify, and listening to media spin.

Improving Your Quality of Life through Investing - Mike discusses three aspects of investing: diversification, passive investing, and benefits of automation.

How to Build Wealth, Ignore Wall Street, and Get on With Your Life - Bill tells us in this post to keep three things in mind when investing. 1. Save for a rainy day. 2. Don’t put all your eggs in one basket. 3. There is no such thing as a free lunch.

6 Reasons Why College Students Think You Should Invest - Kyle sums up the six reasons why students think that you should invest: Be your own Financial Manager, Emergency Fund, Inflation, Retirement, Family Security, and “Grandma you owe me rent!”

Penny Stocks Are Not Cheap Stocks - Pinyo tells us that penny stocks need to be evaluated like any other stock. If you don’t you can really pay big in the end – that is, they are not cheap just because their stock prices are low!

Miscellaneous

Don’t Forget To Live Today While Planning For The Future. - David recommends that we “plan and do. Life is much better that way.” We wholeheartedly agree.

It’s a practice and Good Personal Finance Takes Practice - These two posts talk about personal finance as an ongoing practice. The blogger, “That one caveman,” compares baseball and softball practice with the practice we need to do when it comes down to personal finances.

This is our weekly roundup, where we share some interesting posts written by personal finance bloggers we follow. As always, when we list a post in this roundup we stick with our favorite themes: setting up a budget, household expenses, lower debt, and general personal finance topics that can aid in reaching financial goals. We hope that you enjoy the insights of these blog posts!

Setting up a Budget and Household Expenses

FI$CAL FIZZLE - Saving Money When You’re Always in a Hurry

Moolanomy - College Students Should Take Responsibility For Their Financial Situation

Master Your Card - Financial Maxims: In Your 20s

Fine-Tuned Finances - Are You Handling Your Money Like a Rich Person Would?

Generation X Finance - 8 Small Changes You Can Make to Save an Extra $100 This Month

Lower Debt

Prime Time Money - What Debts Should You Pay Off First When You Get Extra Money?

Gather Little by Little - No credit cards - Here’s why

Investing

The Oblivious Investor - Financial Planners, Volatility, and Asset Allocation

Free Money Finance - Getting Started With Investing

Retirement

Financial Fellow - How I Allocate My Retirement Money

Miscellaneous

OneMint - Citi and BoFA Fail Stress Tests: Time for Bonuses?

the simple dollar - Thoughts on Work, Personal Life, and Frugality
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