The Myth of the Household Budget

The Myth of the Household Budget

Household financial advice starts with the budget.  Given the stunning amount of household debt that’s around today, we may want to rethink that one.  It’s like using a diet to address the obesity issue.  Not only does it not work, but it suggests that the inability to follow either the budget or the diet is the fault of the client and not the counselor.

There are a few reasons that budgets don’t work:

They give the householder permission to spend up to the budget limit each month, even if they don’t need to

They can’t prepare you for the catastrophes that sink most budgets – like the $3,000 transmission repair

In a lot of cases you simply can’t live within the limits the budget sets out

The savings portion may be too small

In summary, concept of a household budget is just too rigid to accommodate the average family’s complicated life.  Instead you should worry about being further ahead at the end of every month (to adequately prepare for that impending $3000 transmission repair).  And that means every purchasing decision should be reviewed with the monthly goal in mind.

Frugal people think about every purchase, and because they do, they wind up purchasing less.  So at the store, they think about: 1) if they really need something and; 2) how little they can get away with paying for it.

Frugal people save, and they like to watch their savings grow.  They sleep better at night knowing that when the transmission fails that they can pay for it.  More importantly, they know that each moth their net worth increases.  And that increase in net worth is the goal, not staying within the budget.

Checking Out the Savings @ Your Library

Checking Out the Savings @ Your Library

Let’s say that there’s a branch of government that keeps retail hours and gives away lots of cool stuff for free.  Is that something that you’d be interested in?  Your public library has been helping frugal households achieve their financial goals for decades.  Walk in and look around.  In addition to the gangs of teenage thugs monopolizing the Internet terminals and the rummies sleeping it off in the magazine area, you’ll see lots and lots of young families.

Especially early on a Friday evening.  That’s when you’ll see the line-up at the circulation desk packed with young, struggling families picking up some entertainment for the weekend.  Libraries have always been there for this group, and they always will be.  Those people in line will have armloads of bluerays and DVDs, some picturebooks for the kids, maybe some videogames and a few a novels for the parents.  A whole week’s worth of entertainment – all for free.

Well, it’s free if you can get them back on time.  That’s always been a challenge when using the public library.  Those fines can add up in no time at all.  There really is only one way to address this, and that’s to have one night a week as library night.  That way everything gets brought back.  Keep a bookbag at the door and make sure that everything that’s due gets put in it.

If you can manage to keep this up, you’ll save money on movie rentals, console games, books and magazines.  What’s more, you’ll be able to say to your friends, “Oh, no sorry I can’t that night.  Thursday is the night my family and I go to the Library.” 

And deep down, haven’t you always wanted to be the kind of person who could say that? 

Your Money or your Life....Insurance

Your Money or your Life....Insurance

You either need to have life insurance or money and you should never have both.  Life insurance should always be a short-term measure that protects the people that you care about in the event that something happens to you.  While you’re protected by a non-participating, term life policy you need to be saving, so that eventually you will no longer need that insurance.

Term life is dirt cheap when you’re young, and gets more expensive as you get older.  With that in mind, as your net worth grows, you should gradually begin to scale back on the face amount of your term life policies.  

The real savings here are from where you get your term insurance.  The answer is, From anyone except your insurance agent.  Now don’t get me wrong, I love insurance agents.  I was an insurance agent for a while.  A life insurance agent has access to a dizzying array of financial instruments that might be useful to you at different times in your life.  Unfortunately, the life insurance that comes from an agent – even term insurance - is always the most expensive.

So, where should get your term life insurance?  You can get it from any groups that you belong to.  That includes extra coverage from your employer; any professional or trade association that you belong to; any educational alumni association; a service club or fraternal order; automobile associations – the list is endless. 

Yes, everyone should have life insurance, just don’t buy it from an insurance agent.

The Wonders of Cable TV

The Wonders of Cable TV

So, this is going to be more than a little contrarian, but that’s the whole point of this blog.  Cable TV shouldn’t be something high on your list to cut, when you’re trying to economize. 

Now, when I say cable, I’m including satellite services and anybody else that provides content to your TV.  The reason is quite simple, cable TV can provide a quite luxurious level of entertainment at a very low cost.  That is, provided that you follow 2 basic rules:

Continually review your channel line-up and get rid of anything you don’t watch on a regular basis;

No  pay-per-view – ever.

The pay-per-view thing is pretty obvious.  By all means get a movie channel or two and then just wait a few weeks until the new movies arrive.

That luxurious level of entertainment I was talking about – let’s dig into that one a bit further.  Say your cable bill is pretty high -$150 per month.  That means that for $3 per day, your entire family can enjoy an at home an entertainment experience that could cost $50.00 if you were to go out.

And it’s the going out that gets us in the end.  Visit friends and have friends visit you (and your first rate cable package), but as soon as you step into the multiplex or the sports bar the costs come in multiples of that $3 per day.

So, enjoy the flat screen and your cable package, just like you did before.  Except now you can be a little smug about how incredibly thrifty you are.