Personal Finance Advice

There are a few things that are bad ideas when it comes to your personal finances. Any time you put money toward something where you don’t get something back can be the wrong financial move.  For example, you pay money for food because you need nourishment.  You buy gasoline because you need your car to go.  On the other hand, when you spend money with getting nothing in return - unless, of course, you’re donating to charity - then you’re not making the best financial decisions.

There is a big difference between the different forms of gambling.  Some people gamble once in a while for fun, knowing full well that they probably won’t ever see a return on their money.  A few people gamble as a profession because they have mastered whatever game they indulge in and have learned to accept the risk associated with gambling.

Then there are the other gamblers.  These don’t have to be people throwing dice in dark alleys or meeting up with bookies to bet on a sporting event.  Gamblers can be people who incessantly buy lottery tickets with the hopes of someday hitting it big, or people who go to local casinos quite often using the excuse of indulging in a buffet but instead wind up at the tables spending next week’s paycheck.

Not all people who spend too much money gambling are considered gambling addicts.  Some folks lose a great deal of money in a single bet and then decide to not ever gamble again.  The point is that people need to remember three important things about gambling:

1.  The odds of you actually winning are usually quite slim.

2.  If you don’t have any fun gambling then you’re not getting entertainment from the act, and therefore there is no redeeming value to the purchase.

3.  If you do have a lot of fun gambling, but you spend a substantial amount of money on gambling frequently, then the financial folly has exceeded the benefit of the entertainment.

Look at this example: Bob buys $10 worth of lottery tickets every week.  Once in a while he’ll get a small return on his investment by winning $20 or even $50, but for the most part he’s throwing his money away…especially considering his odds of winning the jackpot are about twenty million to one or more.

If Bob instead puts that same $40 into an interest-bearing savings account every month by the end of the year he’ll have almost $500.  Keep putting the same amount away every month for a total of ten years and with compound interest he’ll have over $6000 sitting in an account.  Double that to twenty years and Bob has a nest egg of almost $20,000. 

$10 a week can be thrown away on lottery tickets, or instead can be used to save for the future or even pay down debt.

Yes, it’s true that people do win the lottery.  Maybe Bob will someday hit it big.  The probability of him making at least the same amount of money from the lottery that he would by putting the money into a savings account, however, is really, really low.

Plenty of personal financial experts tell customers to chop up their credit cards - sometimes with a big, dramatic flourish - but the problem is that merely chopping up your credit cards doesn’t magically make the problem disappear.  It doesn’t matter if you snip up your plastic with scissors or if you send you cards through an industrial shredder.  There is much more to solving your debt problem than cutting up your credit cards.

Cutting up your credit cards can help you in a few ways.  Not only do you lose access to the account, there is also the psychological impact that the act can have.  If you can build up enough anger toward your credit cards that you destroy them then maybe you can make the decision to stop piling more debt onto the credit cards.  It can be incredibly powerful to make the bold statement of cutting up your cards because you’re saying that you’re through with them.

On the other hand, your newfound initiative shouldn’t stop there.  Simply cutting up your cards is only the beginning.  There are other steps you need to take to make sure that this step actually winds up helping you.

1.  Pay off the balance.  Although you’ll find that it is much easier to pay off your credit card account if you aren’t piling more debt on the account, you may have to make a concerted effort to actually get the whole thing paid off.  Don’t chop up your card and then let the balance linger…use your new resolve as a catalyst to pay the balance off completely.

2.  Close the account.  Closing the account before you pay off the balance can be bad for your credit score, but if you need to close the account before paying it off because you fear you’ll start using the account again, then do it.  The point is to get the account paid off and closed.  Whatever method you have to use in order to make that happen, you should do so.

3.  Don’t get any more cards.  You chop up your cards, pay off the balance, and close the accounts.  Your next step certainly shouldn’t be to go out and get some new credit cards because you will more than likely fall back into the same patterns that got you into financial trouble to begin with.  This should be the beginning of a change to your personal finances instead of an opening to more issues.

This is certainly not to say that everyone should chop up all their credit cards and never get any other credit cards forever.  On the other hand, people who have gotten to the point to where they need to cut up all their cards really shouldn’t start eyeing more credit for a while.

In most cases, I usually urge people to save money wherever they can.  If you’re buying groceries, take some coupons along.  If you’re buying a washing machine, haggle with the salesperson for a discount.  On the other hand, there is one instance where searching for the cheapest deal may not be the very best route to take: Insurance.

By definition, insurance is designed to pay for covered events.  For example, auto insurance covers the policy owner in the event of an accident or theft.  Homeowners insurance covers the policy owner in the event of a natural disaster.  Health insurance covers the policy owner when medical attention is needed.

Is this really something you want to scrimp on?

It’s easy to bargain shop for insurance when all is well.  When the car is running well, the house is still standing, and you’re in good health it may start to feel like you’re wasting your money each month on insurance payments.  After all, if you have never had to make a claim then you might look at all the money you have sent your insurance company over the years and start to get a little annoyed.  Keep in mind, however, that you’re making your payments just in case.  In other words, you’re saving yourself from financial disaster by making the payments right now.  If your home was to fall to the ground right now chances are your insurance company would wind up paying out much more money than you have ever sent them in premiums.

Don’t stop making insurance payments because you decide they are a waste of your money.  By the same token, you shouldn’t buy the cheapest insurance possible in an effort to save money because the cheapest insurance is pretty close to no insurance at all.

There is a big difference between buying the cheapest insurance possible and finding the least expensive adequate insurance coverage.  When you simply buy the cheapest insurance then you are risking having inadequate coverage.  Some people have purchased policies from the cheapest insurance companies they can find only to discover that when the time came to make a claim they were either not covered for the loss or - worse yet - they discover that the so-called insurance company had closed up and left town.

By all means, do some comparison shopping when looking to purchase insurance.  When you’re conducting your comparisons, however, don’t look only toward the dollar amount you’ll pay each month for the policy.  Examine the coverage offered through the company to make sure the policy is adequate for your needs.  Make sure the deductible isn’t so high that you wouldn’t be able to afford it.  Also make sure that you use a reputable company with high ratings so you know the company will actually be around when you have to make a claim.

After you have found a few companies that fit all these descriptions, only then should you start comparing the costs among the companies to find out which policy costs the least amount of money.

You should consider adequate insurance coverage to be just another facet of your personal financial health.  Without insurance coverage you’re asking for trouble.