Is that really saving you money?

money_down_toilet 2In keeping  with the theme of this blog, I wanted to discuss money saving techniques that do not cause major disruptions in lifestyle or create major inconveniences. Often, I find people who are going out of their way to do things that they believe are saving them money but in fact are costing them. Typically, I find that they have the problem of overgeneralizing standard financial wisdom without truly thinking about how it applies to their situation. Other it is the inability to think about costs over the long term as opposed to the upfront costs. I would like to take some time to discuss a handful of these practices that cost people money and make their lives more difficult.

One of the easiest ways to spot a money wasting habit is to look for any hard and fast rules that you set for yourself. There are very few rules that work 100% of the time. The real trick to saving money is the ability to evaluate situations as they arise. One of the most common money wasting habits I see is people who believe it is always going to be cheaper to cook for yourself than to buy prepared food or go to a restaurant. In general, it is going to be cheaper to cook a meal than to purchase it prepared if all of the ingredients are things that you use on a regular basis. However, when you are buying multiple perishable products like cheeses or vegetables for a specific recipe that cannot be purchased in small quantities, or you must purchase rare spices that you don’t intend to use again, you can often find the same meal prepared somewhere for the same price or cheaper. The opportunity to save money by buying prepared or restaurant food arises most frequently with ethnic foods. These foods typically have a large number of rarely used and often expensive ingredients. These same foods are often very cheap in authentic restaurants.

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Don’t know where to invest your cash? Join the club…

LendingClubPeople always ask me, “What is the best way to earn a high steady return?” Lately it seems that just keeping up with inflation is a monumental task. Actually growing your money sometimes feels impossible. However, there is still one great option for consistently high yield. For the past 5 years LendingClub has been delivering solid returns to investors. LendingClub is a peer-to-peer lending platform that allows individuals to take out loans from other individuals. The concept of peer-to-peer lending is to cut out the middle man (banks) and allow borrowers to receive lower than market interest rates while lenders receive higher than market returns.

At this point, it is no longer appropriate to call LendingClub a small startup. While the field of peer-to-peer lending is still young, LendingClub has quickly become the dominant player in the industry. Since 2007 LendingClub has issued about $1.6 Billion worth of loans. Currently, they are experiencing very rapid growth and issuing loans at a rate of more than $120 million per month. What’s more, they have recently added several very high profile members to their board of directors including Larry Summers. 

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Too Greedy to Pay Full Price? Part 1

giftcardOne thing that differentiates this blog from most personal finance blogs on the internet these days is that I do not preach an extreme minimalist lifestyle. Instead, I teach people to get everything they want out of life through intelligent financial decisions. In that vein, I have decided to write a series entitled “Too Greedy to Pay Full Price.” This will be a series that provides easy but seldom used techniques to save significant money on your purchases, which will allow you to maintain your lifestyle at a fraction of the cost.

For the first article in this series, I would like to discuss purchasing discounted gift cards for stores that you plan to visit. This could be used for a one-time, large, planned purchase, but it can be more easily used to save money on routine purchases like clothing, groceries, restaurants and gas.

The gift card strategy is very simple to use. You simply determine how much you plan to spend at various stores in the future. Then you find the cheapest way to get a gift card for those purchases. There are many ways to get a great deal on gift cards.

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How to have a Greedy Emergency Fund

Emergency FundAlmost every personal finance blog you will come across recommends having an “emergency fund” that is very safe and liquid and can sustain you in times of need. This will cover your expenses when unexpected events such as layoffs, natural disasters, car troubles, medical  emergencies, etc. occur. The recommendations for the size of these funds can vary quite a bit. Some of the more aggressive personal finance bloggers recommend only keeping a few months of cash on hand. Other, more aggressive bloggers suggest keeping a year or more worth of expenses sitting in an FDIC insured savings account. Much of the variation in recommendations is based upon circumstances. If you are a 1 income household with high fixed costs then it is advisable to be better prepared for an unexpected shock to your cash flow than if you have multiple income streams and low fixed costs.

While I do believe it is important to be prepared for emergencies, it pains me to think of people who are just starting down the road to financial freedom who are working for months or years to build up 6 months worth of living expenses and then parking it on the sidelines indefinitely. It simply does not make sense to tie up a large percentage of your net worth waiting for an emergency that may or may not ever happen. The greedy way to set up an emergency fund is simply to multitask those funds. It is possible to have ample cash available on short notice, while also earning solid returns on those funds. It is even possible to earn tax-exempt returns on your emergency fund. The solution is to use a Roth IRA.

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Do Upromise?

As my first post, I wantedupromise to discuss what I believe to be one of the best kept savings secrets on the web. Many people have never heard of Upromise. People who have heard of Upromise often don’t understand all of the great ways in which it can help you earn money.

Perhaps the most well known aspect of Upromise is that all of the money that you earn can be applied towards any Sallie Mae student loans that you may have. What many people don’t know is that you do not need to have any student loans at all to reap the rewards of using Upromise. Anyone can sign up for an account and earn an unlimited amount of money.

Through Upromise, you earn money by shopping for things that you would most likely already be buying anyways. There are several ways to earn. The easiest way to earn money is to register your credit card through your account. Then, when you shop at certain retailers, most grocery stores, gas stations and restaurants you receive cash back that is deposited directly into your account. The savings varies by location but can range from 1% on gas to 5% for most grocery stores and retailers.

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