The Truth About Payment Mentality

We have all seen it a thousand times.

“This can be yours with just 10 easy payments of $99.”

“Get this brand new car for just 48 monthly payments of $239”

We see this and automatically think we can now afford something we wouldn’t have been able to without these payment plans. In reality, this is a huge myth that we have been brainwashed to believe since we began to understand money. It changes our thought process by luring us into thinking that just because we can “afford” something, we should buy it. But, can you really afford it? Do you really need it?

Often times, the answer to that question is no. If we have to agree to payment plans to pay for things, it is a sign that what we want is something we can’t afford. There are few instances like buying a house or a car in which agreeing to payment plans are a necessity but these instances are few and far between. When we agree to payment plans, we often end up paying more for the item than we would have if we bough it out right with cash. Payment plans are essentially small loans that we agree to. All loans come with an interest rate, thats how the banks and loaners make their money. When we agree to payment plans we are agreeing to pay for this product and the interest on it as well and this is why we end up paying more than what it is really worth. So what does that mean for us?

If we want something, we need to budget and save for it. We need to spend money wisely and save where we can so when this item does become available we can buy it out right and avoid agreeing to payment plans. You know you can truly afford something when you can buy it out right and avoid payment plans. I have never been a fan of payment plans and luckily for me the only payment plan I have ever been on is for my car. The one thing this taught me, however, is that I never want to do it again. Having a monthly payment has become very annoying. The next car I buy I will buy out right in cash. The only other payment plan I ever plan on agreeing to is for a house and wouldn’t it be awesome if I was wealthy enough to avoid that in the future as well.

The moral of the story here is that we have been tricked into thinking payment plans are a good thing when in reality they are not at all. You end up paying a lot more than the original cost of item if you agree to a payment plan. Decide what you want, budget and save for it, and then when you can truly afford it you may go ahead and buy it.

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My Story

I watched a pretty disturbing documentary called Food Inc. this past weekend and it really made me think about where I’m getting my food from. Although this is not a blog about food, I do buy a lot of food every week so it is worth mentioning. After watching the documentary I told myself I needed to make a better effort to shop at places that believe in getting high quality food from high quality farmers and at all costs avoid the food that comes from exploited famers and animals. I ended up going to Whole Foods this week and I was very skeptical at first because they are notorious with having high prices. It turns out I spent $20 less than I did the previous week at Safeway.

At Whole Foods I got two cartons of chocolate almond milk, one and half dozen eggs, six boneless skinless chicken breasts, four pork chops, and 4 chicken sausages. All of this only cost me $43! I was so relieved that I could shop at Whole Foods and get what I needed for about the same price as an average Safeway trip (last weeks $66 dollar trip was not normal). What made it even better is the fact that I bought food that is better for my body and will help me more on the field.

As you know, I have been doing a lot of golfing lately and the expenses are starting to add up. In the month of April, because it is my birthday month and my first month with my new clubs, I haven’t really budgeted my golfing nearly as well as I should have, and I have paid for this by having to go into my savings. Starting in May, I plan on budgeting no more than $100 on golf each month. This summer we will be getting more money than we have in the past and that will help. Last summer I took our a small loan because I did not have the time to work. This summer I will do the same even though we are getting more money than we have in the past. This will be my last summer in college and I want to make sure I can enjoy it. I don’t think paying off the small amount of loans I will have after leaving college on a full-ride scholarship will be that hard to pay off.

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My A-Ha Moment

As I’m sure a lot of you noticed, April is National Financial Literacy Month. Hundreds of personal finance and money management bloggers like myself have shared their A-Ha moments during their journeys through personal finance and money management. For me, my A-Ha moments have changed and evolved as my journey has continued.

When I was younger, my first A-Ha moment was money not spent was money I could save. I loved doing chores and putting the money I earned into my savings and watching that grow every month. Even the little bit of interest I was accumulating on that was enough to keep me from spending all my money. At this same time, I had stock in Coca-Cola and it was not performing up to my standards. I urged my dad to take the money out of Coca-Cola and put it in Apple. How did I know Apple was the right choice? Truthfully I didn’t but prior to that move I had done a lot of reading on Apple and liked where they were headed. I had another A-Ha moment when I realized that just like in school, in order to be successful with you money you have to learn about money. This triggered me to continue to read up on money and stocks as frequently as I could.

When I was young, I was always fascinated with shoes but I never had to worry about buying them for myself. My parents would get me a couple pairs a year for school and my birthday. As I grew older, I wanted more shoes and I had to start using my savings to buy them. I started to see my savings dwindle and the happiness I had from having a large savings was not the same I was getting form purchasing these shoes. Another A-Ha moment came when I realized that I was buying shoes just to have them and my money would be worth so much more if I invested it something other than sneakers. Luckily for me, the sneakers I buy do usually go up in value after their initial retail price so I didn’t have to take a loss on all of them but I definitely did lose out on some hard earned cash in this process. Also, instead of worrying about whether or not I have the latest greatest sneakers, I should be more focused on increasing my net worth.

We all experience different A-Ha moments at different times and for everyone it will be something different. The bottom line is that everyone wants to be financially successful and have their money work for them in some way, shape or form. For me, this came with initially saving and then figuring out what the best investment would be for me. I used my savings to make this investment and now I am seeing the returns. This was possible because I educated myself about money and investing. Now I am also realizing that having an extensive shoe collection right now might not be the smartest thing to do.

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Financial Perfectionist

I have always had a “perfectionist” attitude, wanting the best, latest, greatest, coolest and smartest items on the market. More times than not, these items are also the most expensive. This attitude manifested itself in my obsession with buying sneakers. There was a time when I was buying multiple pairs of sneakers every month. In order to make these purchases I had to spend less money on groceries and dive deeper and deeper into my savings account that I had worked so hard to build up. I would get the shoes and they would just sit there in my room. I was content with having them but never wearing them. This made no sense to me. I was buying sneakers because I loved shoes and the sneaker culture but I didn’t want to wear them? I started thinking to myself why this was happening. Was I disappointed with shoes once they came or did I never even really want them but just bought them because I thought I needed them?

Looking back, I think a lot of the sneakers I used to buy I bought just to have them. Just to continue to build my collection of sneakers. If someone were to have offered the cash equivalent of those sneakers to me at the time of purchase, at least 50% of the time I would have taken the cash instead of the sneakers. That is why today, I have been slowly selling off more shoes than I am buying. I still purchase sneakers every now and then but this is only after having an honest conversation with myself and determining whether or not I truly like them and want them. This process has allowed me to earn some extra income on the side so that I can buy the sneakers I want now and get rid of the ones I no longer want.

Being a perfectionist initially was detrimental to me. I was spending unnecessary amounts of money on shoes that I was not wearing. Now, this same attitude is helping me because before every purchase I make I have a conversation with myself to see if this is something I really want or need. I now rarely ever have the feeling of disappointment or buyers remorse after buying anything, and more specifically sneakers. Over the past year my sneaker collection has diminished but the sneakers I do hold now are all ones that I really wanted and I have no feeling of buyers remorse or disappointment with them.

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My Story

After last weeks expenses I had $150 left to spend for the rest of the month. As usual, my only weekly expense after the first week of the month is groceries. This weeks groceries cost me $60! After multiple weeks of being able to decrease my grocery bill or keep it the same, I failed to do so this week. Coincidentally, I went ingot he grocery store this week with no physical list and I think the effects of this are evident with the increase in my grocery bill. I bought four New York strips, grass fed ground beef, one and a half dozen eggs, tri-tip, two cartons of almond milk, and two packs of cheese slices. I think I bought more meat than I will need and hopefully this means next week I do not have to spend as much and can make up some of the overspending I did this previous week.

I have been doing a lot more golfing lately and I have noticed its affects on my cash flow each month. I have made the mistake of going whenever I feel like going and this has caused me to have to dip into my savings a couple times this month to cover those expenses. Part of this is attributed to the fact that I just got clubs and want to use them as much as I can. But as we know, doing whatever you want when you want is not smart in terms of accumulating wealth and advancing on the track to financial success. I need to do a better job of limiting my golf so that I do not have to dip into my savings to play a round. This ultimately will probably mean I need to play less, which is something I will have to live with.

Lately I have been trying to figure out what to do about my car note. I have a good amount of money in the stock market and part of me wants to take that money out and pay off my car while the other part of me wants to continue to pay these monthly payments. After calculating how much I would save by paying off the car early, my mind is still split. I could save a couple thousand dollars in interest by paying it off early but is that the smart thing to do? My focus for these next couple of weeks is going to be figuring out what makes the most sense for me, paying my car off or continuing to pay car notes. If you have any suggestions please leave a comment and let me know!

My 2012 Dodge Charger

My 2012 Dodge Charger

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Is It Really Worth It?

Is it really worth it? You are out at the mall with some extra cash in hand and you see something you think you want. You start the mental debate in your head trying to determine if this item is really worth it. Determining whether or not you truly need something is a vital step to take on the path towards financial success. There are two simple tests you can perform that will aid in your decision making process.

The “Stranger” Test was created by Zee. Imagine a stranger holding the item you are thinking about buying in one hand and the cash equivalent of that item in the other. Which would you chose? This test forces you to stop and think for a second before making this purchase. Almost every time, people will prefer to take the cash and not the item. In my own life, looking back I can think of many instances where if presented with these options, I would take the cash myself. This goes to show that, at least for me personally, a lot of my past expenses were somewhat of an impulse buy. Obviously, there are items that when presented with the cash equivalent we would still choose the item because they are essentials. This trick really only works for the non-essential purchases we make in our lives.

The “Urgency” Test was created by J. Money. This test is also really only useful when debating the purchase of non-essential items and more specifically clothing or shoes, both because there are various options for you to chose from. When you walk in to your local Footlocker and find 3 pair of shoes you want, how do you decide which one you purchase. In the urgency test, only the pair of shoes that you would be willing to walk out of the store in would be the ones you purchase. If you hesitate at all or could not walk out of the store in those shoes then you should not purchase them. In my own life, this is hard for me because rarely can I walk into Footlocker and get a pair of shoes I want. The shoes I buy are released on a limited basis and can often only be acquired via online or camping out in front of a store.

Both these tests force you to do one thing: pause for a second and think before you make a purchase. For those who struggle with impulse buying, these are great tricks that can help you decrease your amount of impulse buying and increase your cash on hand. Increasing your cash on hand will lead to more opportunities for saving and investing which are necessary for bettering your financial position.

Next time you are getting ready to purchase something, ask yourself, “Is it really worth it?”

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Financial Success

Financial Success. Is it as easy as 1,2,3,…10? In my opinion no. However, there are certain things financially success people have in common. For starters most financially successful people surround themselves with positive people. For me, it is easy to understand how this can help contribute to your financial success. If you are surrounding yourself with people who have positive attitudes, you yourself will be more inclined to have a positive attitude. There is scientific evidence supporting the fact that being positive and having a positive outlook on life can reward you with success. Financially successful people are also not affected by failure. They understand that failure is inevitable and instead of letting it ruin them, they use it as a tool and motivation to continue their ascent on the path to financial success.

Financially success people know how to manage their time correctly. Successful people in general know how to manage their time correctly. We are only allotted so many hours in a day and often times its never enough. Learning to manage your time efficiently can have huge rewards in terms of your financial success because you can focus on doing things that will help your financial success instead of inhibiting it. This does not mean there is never an approtiate time for some fun, but your time is a non-renewable resources and therefore it needs to be treated preciously. Just like a monthly budget gives you a sense of “direction,” financially successful people have a sense of direction for their life. They have established a position in which they want to be in and are willing to do what it takes to get there. Having a budget forces you to live within your financial means. Having direction in your life forces you stay on the path you have created for yourself to achieve financial success.

If financial success was easy, my blog and the hundreds of thousands of other personal finance and money management blogs wouldn’t exist. Financially successful people are willing to do the hard things. They are willing to work longer, harder, and smarter because they know the benefits associated with these actions. They are willing to sacrifice small amounts of happiness today for sustained amounts of happiness and success for the rest of their lives. Most importantly, financially successful people create their own luck. They believe they are in complete control of their lives and act accordingly, waiting for no one to give them a chance but creating their own. In creating their own luck, they are willing to change and adapt over time. They realize that there is always going to be someone out there who knows more and changing or adapting some of this persons strategies can help them achieve financial success.

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My Story

Entering the second week of April I had $260 left to spend for the rest of the month. As always, each new week brings about another trip to the grocery store. This past week I spent $54 on groceries. Last week I bought a different cut of meat for my steak salads but I was not enjoying it as much so I switched back to New York strips which ended up increasing my grocery bill. I bought four New York strips, one and a half dozen eggs, ground beef, mixed greens, a two pound bag of carrots, one carton of chocolate almond milk, and a bag of red potatoes. I had some cheese, eggs and mixed greens left over from the previous week so I was able to not buy as much this week. Again, I made a physical grocery list and this helped me get only what I needed and nothing more.

Once a month I allow myself to go out to eat at a restaurant. This meal is factored into my budget every month. This month, I went and got sushi (for two) at Sushi Pier 2 which ended up costing about $55. With both these expenses I am left with about $150 for the rest of the month. With two more trips to the grocery store being my only guaranteed expenses for the rest of the month, I can estimate that I will have about $50 to use for leisure activities, investing a saving. Lucky for me, my birthday is this month and it is the day after the Spring Game so I know my parents will treat me to a very nice meal and maybe even give me some extra cash!

Honestly, I am going to use that money to at least play one round of golf. Like I said in a previous post, I recently purchased some golf clubs and have been wanting to get out on the courses more frequently. In the middle of spring ball and the semester closing down it is hard to find the time and energy to do so. A round of gold can cost anywhere from $10 (usually for a 9 hole, 3 par course) to $30 (usually for an 18 hole course). Because of the cost, I have been playing more 9 holes than I have 18 and  I have been enjoying it a lot. I am thinking about investing in a membership to a country club because as much as I plan on golfing this it would be more cost effective to do that versus paying each time I went.

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My Favorite Personal Finance App

There are a numerous amount of personal finance apps out there for you to choose from. My personal favorite is Mint Personal Finance. I have been using this app for over a year, This personal finance app is great because it allows you to track your income and expenses with ease. To get started, all you have to do is log in to your online bank account via the app and it will start downloading your income and expenses and categorizing them for you. You can add as much information about your finances as you want by adding various online accounts the same way you added your bank account. I have it set up so this app knows about my bank account, investment account, and my loans. Mint Personal Finance allows you to create budgets and goals, monitor transactions, view your spending trends and much more.

I have already talked about how creating a budget is a huge step in the right direction to increasing your financial position. This app allows you to create budgets for any category you want. Right now I have budgets for my rent, car note, groceries, utilities, and shoes. Every time I use my debit or credit card, the expense is allocated to the correct budget and if it is not, it is very easy to change the category in which you want that expense to fall in. Mint will alert you when you are close to your budget and once you have surpassed it. It will even tell you how much less you have to spend next month to get back within your budget. I started using this app for this reason alone because I wanted to see where I was spending my money. Now my uses for this app have evolved.

With Mint Personal Finance I can also track my total income each month. It doesn’t very much but just to see my starting point each month helps out a lot. This app is also allows you to edit transactions which I enjoy because we get our stipend prior to the first of the month but I edit that transaction in the app so that at the beginning of every month I get my stipend. It makes budgeting a whole lot easier. This app really allows you to do anything and everything when it comes to monitoring your personal financial situation. I would recommend this app to everyone who is trying to see exactly where there hard earned money is going.

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Carrying Debt Now Has Rewards

Credit cards used to be simple. They were about borrowing money and paying back the borrowed money with interest. Well this time is long gone and now by having a credit card and carrying debt on it you can be rewarded. Thats right, rewarded ! As credit cards become increasingly popular, credit card companies are offering rewards as an incentive for those who choose use their credit card. Today, these reward systems are capable of sending users on vacations for very little money, if any. In 2012, a study showed that 60% of Americans had a rewards credit card.

So why does over half of America own a rewards credit card? Simply because the rewards are that good. The most popular reward people choose is cash back. The reasons are pretty obvious. Who doesn’t like getting money back for spending money? Personally, I have a Wells Fargo College credit card and it pays me 1% cash back on every purchase. I use this card mostly to buy groceries every week. Getting cash back is so popular because cash is flexible. You can use it almost anywhere at anytime with no problems. Similar to cash back cards are point cards. These cards garnish points every time you use them but they aren’t as flexible as cash back cards because you can’t get cash back, you have to choose a way to spend your points.

The next most often used type of reward card is the travel rewards card. There are travel rewards cards that focus on flights and hotels, just flying, and even airline specific flying. These cards can sometimes be better than just generic cash back cards if you travel frequently and can use it both for earning and redeeming points. You can earn rewards by using your travel card to book a hotel room or a flight. The more frequently you book, the more rewards you will get. Once you accumulate enough rewards, you can get free flights and free stays at hotels. Airline specific rewards cards work the same way. Once you accumulate enough flight miles, you can get free flights.

Just like airline specific cards, there are retail store specific cards. These cards reward customer loyalty and are referred to as loyalty cards. These retail specific loyalty cards offer a wide range of incentives for customers to shop at their stores. Gas reward cards are also a favorite simple because everyone is always buying gas. These cards too work just like a loyalty card except the rewards are better because people usually spend more money on gas then they do on shopping at retail stores. Rewards credit cards are here to stay for a long time. Who knows what the future of rewards credit cards will offer, but it is sure to be exciting !

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