People out there think that by only using cash, shunning credit cards in the process, they will put themselves in a better position to stay out of debt and control their spending.  They think that simply because cash is a finite resource, they can only spend what they have available and no more.  They also believe that the only form of debt is overextending themselves with credit and credit cards.  Unfortunately for all of these people, that line of reasoning cannot be further from the truth.

There are a couple of misconceptions when it comes to cash and debt.  Both, if taken too lightly or ignored, can be just as dangerous to a person’s financial state as mishandling credit cards can be.

Cash is not foolproof 

The first wrong assumption, and the most dangerous, here is that you cannot get into financial trouble by adopting a cash-only lifestyle.  In fact, this is further from the truth.  Just because you shouldn’t be able to spend more money once your balance reach zero doesn’t mean that it is always true.  There is a little thing called overdrafting, which is a common problem among people who have poor money management skills.  

For the uninitiated, an overdraft is what ends up happening when you make a purchase via check or electronic debit and there is not enough money in your account.  In some instances, the bank will process the payment and allow the account to remain overdrawn, or negative, while charging interest until the balance is brought back to a positive value.  In other instances, the payment is rejected outright.  Either way, your bank will charge you an overdraft fee, and in many cases, they company you paid will also charge you a fee to cover their own returned deposit charge.  

Overdrafting is very easy to do if you do not have a handle on your account balances, or if you try to play games with floating funds–planning on a deposit coming in but hits the account after purchases have been made.  The best case scenario is that only one payment bounces.  The other end of the spectrum occurs when the one creates a cascading effect on a series of payments.  The end result can be a significant negative balance in addition to a serious number of returned item fees and fees passed along to you from the companies you attempted to pay.

Debt is not exclusive to credit cards

The first thing people equate with consumer debt is credit card debt.  That is far from where the line is drawn.  The reality is that debt means owing anyone anything, monetary or otherwise. You may be wondering if you only use cash then how can you end up in debt?  It’s really quite easy to do.

The answer lies in your spending habits.  You’re undoubtedly aware that putting more on credit cards than you can repay is a major cause of debt.  But what people tend to ignore is that even if you don’t use credit cards mishandling your money can also lead to debt.  You may go out on a shopping spree, using just your debit card, but wind up spending more that you originally planned.  When it comes time to send in your payments for things such as housing, auto, phone, power, or any other bill you may not have enough in the bank to pay one or more of them.  What happens next?  You become indebted to these companies.  You are now in debt.

The more out of control your spending is, the further behind you get on your bills.  Debt is not exclusive to credit card users, and as you can plainly see here, it is very possible, and not that difficult, to get into debt even with a cash-only lifestyle.

The information is all there for anyone to see: cash is not as safe as some of the pundits will have you believe.  No matter what the experts and studies say about the psychology of people’s spending habits, no matter how much people will argue that cash makes them spend less, it is very possible to overextend yourself financially using cash.  

This article, Does Cash Really Keep You From Overspending? was originally published by DollarVersity, and may have been used without the owner's permission.

As a financial professional, it’s my responsibility to be able to help people come up with ways to save money, whether it be on their taxes or on day-to-day expenses.  As someone who has financial responsibilities of his own, I read a lot  on the subject for my own benefit as well.  And even though I don’t view myself as being frugal I do read quite a bit on the subject.  What I have found in my research sometimes shocks me: the extent that some people go to in order to save money, even in very small increments, just blows my mind.  I have no problem doing comparison shopping, using coupons, timing my purchases, and other things in order to reduce my expenses, but some of the people out there absolutely refuse anything that isn’t free! 

This isn’t about choosing water rather than soda or alcohol at a restaurant.  This isn’t about alternative options to a gym membership.  This isn’t about DIY projects.   It’s really not about the benefits or drawbacks (depending on whose view it is) of living a frugal lifestyle.  This is simply an observatory piece about the lengths some people will go to save a buck .

Where exactly do I see this transition from frugality to cheapness occurring?

Household/Food Storage

Let’s be honest–these types of things aren’t really a tremendous strain on the wallet (and if they are, you may want to think about how you spend your money). Paper goods, glassware, storage, etc. can be had at relatively low prices particularly if you aren’t interested in high-end products.  But, it is still an expense that some people would rather not have to deal with.

Being frugal

Many restaurants provide you with a great alternative to purchasing expensive food storage containers, and you won’t even mind if you lose or break them since they were free!  I have accumulated a nice collection of containers in various shapes and sizes that can accommodate a wide array of needs just by doing something I do anyway–eat.  So the next time you decide to order in, be sure to toss the containers in the dishwasher so you can use them for future needs.  Restaurants also can provide great things like coasters and glasses, especially special edition beer steins, tumblers and such which are sometimes just given away to customers.

Being cheap

There have been numerous mentions of people reusing plastic zipper bags.  That is just cheap, not to mention unsanitary.  It’s one thing to reuse the bags for storing packaged goods, but something totally different when talking about putting food directly in them, then washing the bags to prepare them for the next use.  For one, it’s a health risk.  There is a reason why food and health experts advise against using plastic cutting boards for raw meats, fish, and poultry–they do not get 100% clean even in a dishwasher.  Is it really worth the health risk to save the few pennies?  Then there are people who stock their cupboards with sugar packets, napkins, toothpicks, etc by stuffing their pockets or pocketbooks with these items off of restaurant tables and bar-tops.

Cars

There is nothing wrong with not giving a crap about the image others may have of you based on your vehicle.  I can say this, because I don’t put a high importance on mine.  Most items aren’t even all that useful, such as a sunroof, spoiler, chrome rims, or other aesthetic accents.  They are mostly just for show, adding very little (if any) performance value.

Being Frugal

Buying used it a good way to keep your initial out-of-pocket expenses to a minimum as is buying new but without all of the high-end factory-loaded options.  Driving your car for as long as you can until the repairs no longer justify the costs is also an option, although to me that borders on being cheap due the hassles presented by doing so.

Being Cheap

Now, on the opposite end of the spectrum are the manics who really neglect their cars for the sake of saving money. Driving around with cracked windshields, doors and trunks that are held closed by ropes or zip ties, dragging exhaust,  roof lining that sags to the driver’s head (or lower), etc goes way beyond frugal. There is a significant difference between not placing high importance on one’s car and coming off as if you don’t take care of your possessions.  It’s important to understand the distinction between this fact and the use of a car as an image enhancer, though.  Additionally, as cars age they lose performance which also leads to a loss of fuel economy.

Energy Bills

Energy bills are one of the biggest living expenses a household has to worry about.  Depending on the location, energy costs can take huge swings as the seasons change, and keeping things manageable takes a little bit of effort and dedication.

Being Frugal

These days many electronic items are EnergyStar compliant, so choosing such items helps a little bit.  Using power strips to centralize power control and turning off unnecessary devices at night or when leaving the house makes a lot of sense, and can save additional money.  So can using digital thermostats to automatically regulate the interior temperature so as to not wast energy when no one is home saves quite a bit more than the other ideas.

Being Cheap

Having a “home” is supposed to be about having a space to live within which you are comfortable and which reflects you as a person.  The comfort factor is where the cheapness comes into this equation.  I cannot believe that some people actually do this, but I have heard of people who go quite far in an effort to keep energy costs down.  Rather than running the heat in the winter months, there are some people who absolutely refuse to do so, instead choosing to layer their clothing.  I’ve even hear of people wearing jackets and heavy sweaters indoors in order to not use any additional energy.  How can that possibly be comfortable, and how can someone possibly be so cheap as to choose wearing multiple layers indoors over running the heat and walking around comfortably inside of their own home?

Social Activities/Entertainment

Possibly one of the most budget-unfriendly expenses for sure, but something that is necessary (at least according to normal, socially-adjusted people).  This is perhaps one of the easiest areas to save a buck or two without going cheap and isolating yourself from friends, family, and coworkers.

Being Frugal

There are tons of ways to save money while still being able to experience social and cultural activities.  One of the best ways is to set aside a little bit of money in predetermined intervals like a slush fund in order to pay for such things.  Coupon magazines like The Clipper and Sharp Saver, websites such as restaurant.com, and livingsocial.com, signing up for email promotions like free birthday meals all offer ways of saving money without hiding out in your home like a hermit all of the time.  

Being Cheap

Saying no time and time again when people want you to go out with them gets old, and after a while, they will simply stop asking.  There have even been suggestions out there that people should cut out those who have different spending habits from your life.  That is the ultimate in cheapness–judging people based on spending habits regardless of the quality of their company and your history together.  There are only so many places and events that be attended and taken in without spending a single penny, and doing the same thing over and over without experiencing anything new is not living life, it’s more like surviving until you die.

Of course, there are a number of areas that people can blow completely by frugality and venture deep into cheap territory, but these are some of the most obvious and ridiculous things I have seen and heard about.  Everyone has to figure out what works best for them, and not let others dictate how they should live their lives–not even me 

Do you fall into any of these categories?  Have you ever wondered if what you do would be considered to be cheap rather than frugal?  What are your boundaries for what qualifies as frugal as opposed to being cheap?

This article, There Is Being Frugal And Then There Is Being CHEAP was originally published by DollarVersity, and may have been used without the owner's permission.

This post was featured in Carnival of Personal Finance: The Color Wheel Edition

Do you remember me telling you that advertisements lie, how the marketing people (as well as the product manufacturers themselves) think you’re a sucker and how their goal is to target gullible people who believe everything they see and hear? Well, it’s still true, and nothing is going to change that.  This time, my ire wasn’t drawn to companies claiming to be the “best” or “highest quality” or any other subjective claim.  No, lately I’ve been more annoyed specifically with car companies and their practices for pitching their automobiles among stiff competition.  My beef with them centers on their non-stop talk about how you should buy their cars because of their fuel efficiency ratings.  Contrary to what many people believe and what we are allowed to think, the government doesn’t actually run the tests that determine the fuel economy advertised by car companies

The thing that really gets me is that in all of the advertisements I have seen and heard, the number being used is the estimated highway mileage estimate.  The way it is presented, it is being made to sound like the higher of the estimates is what you can expect to get when you purchase a particular car.  Never mind the fact that a more moderate figure is readily available (the combined mileage estimate), but the big issue I have is that not only do car ads misuse the published estimates, or the fact that they make the figure they throw out there seem like a solid guide, but mostly the fact that most don’t even mention the term “estimate”, nor do they mention the biggest fact of all…

Let’s start with a simple fact: 

The auto manufacturers are the ones that determine fuel economy ratings

Yes, what you just read is 100% true.   There is no independent lab tests or specialized third party firms that do the testing.  It is the manufacturer of a vehicle that creates these estimates.  And, in most cases, the tests are done on pre-production models, and not even on the exact models that come off of the line and to the dealerships–the ones you will actually be buying.  The federal government, by way of a joint venture between the Department of Energy and Environmental Protection Agency, established a website to educate consumers on fuel economy and to help them make informed choices on the matter (as well as maintain their vehicles).  It also provides standardized guidelines for testing, but it’s active involvement essentially ends there.  When they are done with the tests, the auto manufacturers will send their reports to the agency, which then will review only 10-15% of the results.

Faulty assumptions in testing phases

First, this key piece of information essentially results in your having approximately a 1-in-10 of purchasing a vehicle that was verified as having the same fuel efficiency rating as is advertised.  It also means that there can be significant deviations between your actual experiences and those estimates.  The biggest reason is the fact that any number of events can happen between the testing phase and the end of the production process which can change these estimates. Think of it like a movie with bonus deleted material and extended scenes–not everything makes it to the final product completely intact, sometimes things are removed, added, or changed during the production process.  The same can happen during the manufacturing process of any item.  There is always room for change or improvement, and there is no guarantee that the models which are shipped for sale are the exact specifications of the ones used in pre-production testing.

Secondly are the ways that the tests are conducted: inside a lab, with the car on a dynamometer simulating “typical” trips.  All this means is that they put the car on rollers while the car is being driven at a speed determined by the simulator program.  Variables such as temperature, wind resistance, and more recently the use of air conditioning are then accounted for by the use of mathematical supplementation.  It is a purely speculative means of testing, while at the same time giving consumers false expectations and incomplete information since much of this is not common knowledge.

Impact on you as a consumer

What does this mean for you?  Well, for starters, it means that you will most likely never experience the same mileage ratings in terms of fuel economy that the window stickers claim on new cars.  In fact, since the testing methods changed in 2008 which lowered estimates across the board, it became even more difficult to shop for used cars which were tested using old, outdated standards.  The reasons for variances between actual and estimated fuel economy are significant and very important to understand.

The basic premise of these fuel economy estimates is a 55/45 split in terms of the percentage of highway/city driving.  In essence, these numbers can skew the picture greatly depending on where you live.  People who live in metropolitan areas with heavy traffic during most of their drive time will see greatly reduced results whereas those who do most of their driving on open highways with little impediments will see opposite results.  Fuel is burned more efficiently at constant speeds rather than continual stopping-and-starting, so the traffic patterns play a significant role in the results one would see in real world scenarios.

Another factor that is not specifically factored into the estimates is the style of driving.  Those who have what is known as a “heavy foot” will see reduced fuel economy as the amount of gas used to accelerate at an abrupt rate is greater than a gradual increase in speed.  Also of importance to fuel efficiency is manner of activity.  Those who make frequent stops to complete driving tasks requiring the disengaging, then reengaging of the engine will also see diminished fuel efficiency, as an engine burns fuel more optimally when properly warmed up.

Weight and accessories play increasingly important roles in fuel efficiency as well. With more and more electrical components being included in cars, such as large displays, touch screen navigation, built-in monitors, etc. the less efficient fuel will be used.  Even carpooling can have a negative impact on fuel economy.  While being touted as an environmentally friendly transportation method, it may be more costly to the individual doing the majority of the driving, as increased weight requires more fuel to move the care at the same rate of speed as when driven alone.

Solutions to the problem

It’s pretty difficult to return a car if you realize it is not getting the fuel economy you thought it would when you originally bought it.  There is no way to take it home for a 30 day home trial like you can do with some other consumer products.  Fortunately, there are a few ways to protect yourself.  One way is to check out what others are saying about their own fuel economy results.  This resource is provided for people to report their own real-world results, and edmunds.com states that the reports are fairly accurate and reliable.  Another way to go about it would be to check out independent research authorities like Consumer Reports, or auto & financial magazines that run their own tests on vehicles.  Along those same lines, you can ask people who have purchased the same vehicle you are considering.  Although the last two methods still leave room for error, as personal driving styles will vary it is still better than not having any other resources other than the figures the auto manufacturers provide.

This article, What You Thought You Knew About MPG Ratings Is Probably Wrong was originally published by DollarVersity, and may have been used without the owner's permission.

This is a special guest post from David Bakke, who writes about small business, careers, and money management skills on Money Crashers Personal Finance.

If your email inbox is anything like mine, it is probably chock-full of offers to go paperless from a lot of the companies that you do business with.  Some of them may appeal to you out of concern for the environment, while others are appealing from a financial standpoint.  While it may seem like a no-brainer to go paperless, there are some things to keep in mind before making that leap.  Here are the pros and cons of paperless billing.

Pros:

1. You Can Save Money. I have received bill credits, gift cards, and other discounts by switching to paperless billing.  Plus, some companies now charge you to receive your statements via postal mail.
    
2. Environmental Impact. If your bill is sent to you electronically, you will save trees and lessen your carbon footprint.
    
3. Faster Access. Your bills will get sent to you in a more timely fashion than if they were sent through postal mail.
    
4. Searchability. After I got over the “growing pains” of going paperless, I found that researching charges online is actually much easier.  Instead of fishing through a filing cabinet to follow up on a questionable charge or billing amount, I can now simply point and click on a billing period.
    
5. Identity Protection. One of the most common methods of identity theft is through stealing postal mail.  By transitioning to paperless billing, you will no longer need to worry about this issue. 

Cons:

1. Organization Is a Must. If home office organization is not one of your strong points, you may want to re-think switching to paperless billing.  You will no longer be receiving paper bills, so you will have to keep a closer eye on your email inbox.  A while back, I switched to paperless billing for a utility bill, and then I completely forgot about it.  The result?  I nearly had my lights turned off! If you still decide to make the switch, make sure you add your billers to your contact list, so your billing statements don’t accidentally end up in your Spam folder.
    
2. Identity Theft Is Still a Potential Threat. By switching to paperless billing, you eliminate the possibility of someone getting your sensitive information through the postal mail.  However, your online accounts are still at risk for these thieves.  Should someone breach your online account though hacking or phishing scams, having a paper statement available to show what funds were originally there is nice to have.
    
3. Reliance on Email. How often do you check your email right now?  If you check your email at least once daily, then you should be fine.  But if checking emails is just not a priority for you, you may want to hold off on changing to paperless.  If you don’t frequently check your email, you run the risk of missing a time-sensitive payment.
    
4. Additional Passwords to Remember. I now have so many passwords to remember that I have them saved in a document on my desktop.  That is about what you can expect if you switch to paperless billing.  You will need separate accounts for each biller, and it is recommended that you have a unique password for each account – not to mention that your username will likely vary depending on the requirements of the website.

Final Thoughts

Going paperless is not as simple as it seems.  It has its advantages, but only when done under the right set of circumstances and protections.  Be sure that you take the steps necessary to make an easy transition to going paperless.  For example, you should set up some sort of organizational system on your computer where you store all your data, and I would seriously consider installing a second hard drive on your computer.  This will protect your information against an unexpected computer crash.  If you don’t want to spend the money on that, at least invest in an external hard drive or backup service so you can transfer all of your statements off your computer completely.

Also, make sure you continue to review all e-bills in the same way (hopefully) that you review your paper statements.  Especially keep track of due dates, as credit card companies will change these on you from time to time.  By putting these steps into place and going paperless, you should be able to save trees, time, and money!

What are your thought on going paperless?

Photo credit: © All rights reserved by Prozac74

This article, The Pros and Cons of Paperless Billing was originally published by DollarVersity, and may have been used without the owner's permission.

Today marks the first day that I do not have to think about preparing peoples’ tax returns.  This was a particularly difficult tax season as one of the partners in the firm had a brain tumor removed in December and didn’t play a large part, essentially leaving the bulk of the work to myself and the other partner (plus a temp for a couple weeks, but he really sucked and we had to redo most of his work anyway).  It’s a pretty nice feeling to have taxes behind me for a little while, and I have to admit that the day does seem a little brighter, although this is South Florida and it’s supposed to be sunny anyway!

In celebration of this large burden being over for now, I’m giving $100 cash to some lucky reader out there.  Will that lucky someone be you?  It won’t be if you don’t enter, so go ahead and get as many entries as you can to increase your odds!

And, while you’re here, why don’t you browse the site a little bit.  I’m sure there will be at lease one article you find interesting.  On the off chance there isn’t, please, please, please send me a message and let me know what topic(s) you’s like to see covered and I’ll get some related content up for you.

Good Luck To All Who Enter!

a Rafflecopter giveaway

This article, Done With Tax Returns And Giving Away $100 was originally published by DollarVersity, and may have been used without the owner's permission.