personal Finance Story

Dave Ramsey is an inspiring financial guru.  While I do not agree 100% with all of his work I recognize that he can have a positive impact on the financial lives of many people who hear his message and follow through with his baby steps.

So whats the endgame for the Dave Ramsey strategy?

If everyone stops buying lattes, Starbucks will close stores.  This one is true enough.  Starbucks is on the ropes and is making cutbacks to support future viability.  600 or so store have been shuttered so far and counting.

Without credit cards, many people tied to the manufacture and support of credit card transactions will be out of jobs.

Is frugal living going to bankrupt the country?  Is not spending money going to usher in the collapse of our capitalist system as a whole?

Well, no.  That would be silly.  Lets look at a scenario or two and examine it not within the convenient vacuum of fear.

No More Lattes is Bad News for Starbucks

Welcome to the new economy where there are many different options for people to purchase their morning coffee.  Even if everyone in the entire country stops going to Starbucks and the company tanks, the US economy will move on.  Starbucks is simply is not a large enough influence on our ecomony to materially matter.

Starbucks’ loss is the gain of Dunkin Donuts and McDonalds everywhere.  They have both moved in to fulfill a need for lower cost without sacrificing quality of product.  Increased competetion for low cost premium cup of joe is capitalism in action.  I will not shed a tear for Starbucks.

No Credit Cards Means Bad News for Plastics and Support Personnel

Dave Ramsey may view credit cards as a horrible financial tool but debit cards are fine.  So if everone uses them, the plastic manufacturers will have to make due.  Demand will drop and with it prices.  Once again capitalism in action.

How about all of those support people?  Someone has to answer the phones and manage the servers.  Well, debit cards need all of that too.  And last I had to call my credit card company, it seemed they were all to eager to fulfill my needs without any actual human being answering my call anyways.

When you follow the Dave Ramsey way, you are going to eventually be saving a whole lot more money than you ever put away while racking up your credit card balances.  That money doesn’t just get stuff under mattresses across the country.  It gets invested.  What would you think is needed to process and support all of those new investors?

You got it, lots of support personnel, fancy servers, computer administrators and more.

Whats in the Dave Ramsey endgame?  Certainly not financial calamity.  You have to look at the bigger picture to avoid missing the forest through all the trees.

The sky is not falling. It just appears so because of media bias.

Yahoo! Finance, while an otherwise trustworthy source of good personal finance tomes, has sunk to a low by printing and then posting on their front page over the weekend, a story preaching the stockpiling of food as a hedge against inflation. The author goes so far as to say that food stores will make better returns than bank accounts in the near future.

Stocking up on food may not replace your long-term investments, but it may make a sensible home for some of your shorter-term cash. Do the math. If you keep your standby cash in a money-market fund you’ll be lucky to get a 2.5% interest rate.

Meanwhile, Costco and Sam’s Club have been restricting purchases of rice to four 20 lbs bags per customer. That’s eighty pounds of rice per customer per trip.

The two biggest U.S. warehouse retail chains are limiting how much rice customers can buy because of what Sam’s Club, a division of Wal-Mart Stores Inc., called on Wednesday “recent supply and demand trends.” The broader chain of Wal-Mart stores has no plans to limit food purchases, however. (source: Associated Press)

Let’s be clear, there is no shortage here in the USofA. Food remains in stock at all local grocery stores here in New Jersey and I have a good hunch that would be the case elsewhere. I went to the store just yesterday and bought a small bag of rice, because we actually were running low in our pantry, not to hedge against the economy.

We seem to have an overabundance of idiots who would rather telegraph the next panic than provide sound financial advice. Food is a horrible place for short term cash. Short term cash should be liquid. You can’t get your car repaired by offering your local mechanic a hefty bag of rice.

There has always been food shortages in under developed countries. Thats one of the many reasons I am glad I live in the United States. Prices may rise, but food will always be on the shelf. That is, unless hoarders get to the store before me.  But that has nothing to do with an actual shortage.

In the news are plenty of opinion articles and blogs about the current commodities crisis. Food inflation running out of control with no end in sight. Crude oil continuing to rise spelling the end of the modern consumer. This makes me wonder if the recent price spike has roots in the stock market correction we have had since last September. It seems to me to be a bubble in the making.

Consumer confidence has taken major hits in the last several months. The stock market has taken a bad dive as well. It would seem reasonable to me that institutional and speculative investors would look for higher returns for their clients. When the technology bubble burst, investors plunged their dollars into other lucrative investments. Real estate was top on their lists and that momentum culminated in the recent housing and liquidity crisis we have now. With another bubble in its death knell, I would not be surprised if price increases in commodities across the board are a result of heavy buying of futures contracts on the mercantile exchange in pursuit of the hot investment du jour.

Even if my hunch is true, it means very little to the family drowning in consumer credit and living paycheck to paycheck. I guess that means that being frugal, living within your means, and investing for the future isn’t such a bad idea after all. Those of us out there with margin in our budget will be able to weather the storm.

I got another disappointing item in the mail. I’m used to seeing the credit card offers along with a healthy dose of targeted advertisements. However, there is a line out there that is sometimes crossed. This is a prime example of just such a case.

Now if I wasn’t absolutely sure that my car payments were on time every time thanks to online banking, I may have been seriously panicking about now. This envelope is down right scary.

VEHICLE FINANCE TERMINATION NOTIFICATION

FINAL NOTICE

All in red. It looks official, but when you look inside…

It’s all a ploy to make sure that you open the damn thing instead of tossing it away with the other ten pieces of commercial garbage each and every day. I am in good shape financially but for anyone who does not have my good fortune or who may be in the middle of digging themselves out of debt, this type of advertising can be very emotionally taxing. The initial reaction to seeing this in your mail

What would a neighbor think if they happened to see you pulling this out of your mailbox? Unless they had received exactly the same thing that day, then they would jump to the most reasonable conclusion. That’s not the way to do business.

I’m not against advertisements. They are a fact of life. Our daily lives are filled with advertisements and part of being a good frugalist is learning to ignore most of them. However, most advertisements we see throughout our day are for the most part in good taste. You know they are an advertisement when you see it. This particular brand of deceptive marketing is disappointing.

Shame on you Nissan, you should know better. If your products were as good as you say they are, you would not need to resort to the low road just to make sure your ads reach a few more sets of eyes.

I got the mail this afternoon and just had to share.

It looks official and has the Chase logo on it, it must be something important. That and I like money, who doesn’t? The temptation and lure of an easy pay day hits you immediately. Check Enclosed? I don’t remember anything that would lead me to expect a check in the mail from Chase but gosh darn it, I deserve some extra dough! Lets see whats inside.

It’s a check alright. A measly $8.25. Thats not even three gallons of gas at todays prices. But it is a real check. That money should be mine, right?

But wait, lets read on. Turns out that by cashing in I’ll be signing up to their Hot-Line everyday savings service. And from what I see in BIG BOLD LETTERS is that I can save even more money! Fantastic! In these troubling times, all I need is gracious opportunities like this one. Hey, whats all of this fine print say?

And now the nitty gritty comes to light. It states that by signing up for their program, they will refund me 2% of my credit card purchases up to $100 each and every year. The cost of the program is $59.99. At firts glance, this is an easy decision. All I have to do is make sure I spend $5,000 on my card in the next year, and I make out like a bandit.

It is this kind of greed combined with careless reading that I am afraid will lead many into this trap. The cost is actually bi-annual. You are paying twice a year. That works out to you paying $119.98 to get $100 back at the very end of the year.  And that is if you spend a full $5,000 and if you actually remember to submit your Chase credit card receipts during the appointed rebate period.

This is shameful. The entire purpose of this mailer is to fool the unwary into paying into a subscription program they don’t need. I get this kind of crap at least once a month, maybe more.

Leave a comment if you have had a similar experience.

My fiance and I were watching the news today and major headlines were being made concerning the state of the economy. There is a lot of scary stuff going on. Investment banks are collapsing. Gold and oil are reaching new highs. My fiance started thinking about what would happen if one of us lost our job.

I feel very fortunate that my job is very secure. Assuming I don’t punch my boss in the face sometime in the near future, there is little to no chance of me losing my job. It is a strange situation to be sure, but one I am glad to be in.

My finace is not that lucky. Although I think she is a highly valuable employee, she feels that a sudden downturn in business could lead to layoffs.

So we sat together and pulled up our budget. Assuming her income goes to zero, could we survive?

The final answer was yes, but barely. My income could shoulder her share of the apartment expenses as well as her student loans, car payment and insurance. We would have to cut back on eating out and entertainment as well as forgo saving for a house, but we would keep all the bills paid.

I think we could do better though and here is how.

Pay Off the Cars

By paying off our cars, we would save $500 a month together. This is a very achievable goal. I only have a little over $3,500 left on my own car loan while my fiance has around $5,000. With a little bit of intensity, we could knock off both of those debts in a few short months.

Pay Down the Student Loans

Student loan debt eats another $400 from us each and every month. This would be a challenge though. We owe almost $40,000 together. But somehow, I just don’t see myself still paying for our student loans the same time we are starting a family.

Combine our Emergency Funds and Build it Up

Losing a job is just the kind of tragedy an emergency fund is designed to handle. History tells us that most economic downturns last less than 8 months on average. Stashing more money away in a dedicated do-not-touch account will provide ample cushion in the event of an unforeseen financial downturn.

By reducing our bills we would be better able to make it through a tough time unscathed. We have been very blessed so far in life but we have to be prepared for whatever life throws at us. As Dave Ramsey would say, “I’m positive, it’s going to rain.”.