He really is.

I’m not talking about his blog.  He’s not a slacker there.  The guy is a finalist for no less than seven Plutus Awards, one of which is for his PF Blogger Showdown series.   (By the way, it looks like PT Money has a comfortable lead in our showdown, but there may be a small amount of time left to tip the scale should you so choose.)

What I am talking about is that he’s a slacker at buying lottery tickets. He’d need to buy a whole lot more of them if he wanted to excel at it. I mean, he did drop $100 on his Budgets Are Sexy scratch off lottery project, but that was only one-fifth of what the average American household spends on lottery tickets.  (Hat tip to JLP for that link.)  The fact that J. slacks at this job is a good thing!

Five hundred dollars per year is the average, according to that Washington Post article.  Now, $10 a week isn’t high finance — a daily Starbucks will run you that — but the lottery is almost certainly a loss in the long run.  Even if the winnings per week are $4 (about what J. Money saw in his project) then it’s still a $6 per week loss.  Why knowingly go into this kind of arrangement?

Bringing up math in conversation, even in passing, usually does one of two things: (a) it causes people’s eyes to glaze over, or (b) it annoys them.  Case in point:

A Friend:  So, do you think so-and-so is going to have a boy or a girl?

Me:  A boy.

A Friend:  Why do you say that?

Me:  Because there’s a 51.5% chance that I’ll be correct.

I’d annoy a lot more people if I told them exactly how much per ticket they were losing.  They’d be annoyed that I was ruining their fun.  They might do something about it, perhaps, if I say that they could easily pay for a Netflix subscription with the amount that they’re blowing on lottery tickets.

But nonetheless, being a slacker at buying lottery tickets is something to be proud of.  To J. Money and all of the other lottery slackers out there, I salute you!

Hot hot hot money questions at Cash Commons

A few weeks ago I received word of a Facebook application called Buddy Bailout.  It’s a spin on the giant corporate bailouts that have happened recently, and in part it plays on people’s thinking: “Why can’t I get a bailout, too?  I sure could use one.”

Maybe one of that person’s friends (a) knows that they could use one, too, and (b) wants to point out the main reason why they’re in the position of needing to be bailed out.

That’s where Buddy Bailout comes in.  How it works (currently):

• Choose a Facebook friend that needs to be bailed out (i.e. has a spending issue).
• Choose from one of more than two dozen common spending issues that best matches what the issue is.
• Post it to their wall, with a message saying something like “Mighty Bargain Hunter thinks YOU need a bailout!” and gives the specific reason why.

Bills.com, the designer of the application, uses this as an introduction to the website, which provides financial information and other services.  The direct, in-your-face communication style of the application reminds me of Larry Winget’s, which can be very effective and helpful at the time when it’s needed most.  Staring your problems square in the face, and accepting responsibility for them, is the first step towards working them out.

Buddy Bailout sends the message in a genuine, often lighthearted way, but the point of the message is still right there.  So for that, I applaud them. Getting people toward responsible spending habits is a fantastic endeavor.  But, as this application is now, I personally wouldn’t have the guts to use it, even if I knew it could do an incredible amount of good for the person on the other end.

These “bailout messages” are wall posts.  Users typically set permissions so that their friends can see their wall posts, so the “bailout message” would be visible not just to them, but to anyone who could view their wall.  The bailout posts are what people need to hear, but probably not what they want to hear even in private, let alone in the semi-public world of their Facebook wall.  For me, it would be a very risky move, with respect to relationships, to post a bailout message for somebody.  It could work out if that person’s friends support my observation, but the message could just as easily be ignored, or worse, attacked.  In any case, everyone knows now that I think my friend spends too much money at Starbucks, and that can’t be taken back.

I know some people aren’t bothered by confrontation, and even thrive on it.  I don’t like confrontation at all, so the thought of it affects how I behave in different circumstances.  Another thing that may come into play is the traditionally private realm of personal finance.  I’m sure open discussion of personal spending habits wouldn’t have happened in the past, but is it time now?

What do you think?  Would you broach the subject of a person’s spending patterns on Facebook?

(Note:  If you have a money question and want to ask it on your own terms, head over to Cash Commons.)

Ask your burning money questions at Cash Commons

We just had an offer accepted for a new home a couple of days ago.  As such, there’s now a flurry of excitement and financial activity going on in our household now, and there will continue to be excitement even after our current house is sold.

Part of this excitement involved taking the first steps to adjust to a new mortgage payment.  My wife put down some numbers for what our expenses are currently, added them up, and came to the conclusion that things were going to be really, really tight as far as making ends meet.

This surprised me more than a little bit.  The difference in the mortgages between the two houses wasn’t gigantic:  only a few hundred dollars per month.  Were we that close all this time?  Did we really spend $1,000 per month on food for our family of three?  Are our monthly credit card charges reasonable, extravagant, or at a bare minimum?

If we had been tracking our expenses more carefully over the past year, I wouldn’t be doubting the numbers like this. I’m guilty as charged:  I still budget by The Force and we’ve managed to (yet again) squeak by for a few years doing it this way.  But I think I had a realization tonight:  We can’t afford to do this kind of thing anymore.

It’s more than just realizing that there’s fat in the budget that can be cut.  ($1,000 for food was high, by the way.)  It’s realizing that having a concrete saving and spending plan, and monitoring that plan, is critical.  Spending and saving without tracking things is just wandering, and after a while, you just don’t know where you stand.  Like I just found out.

Being unsure of where you stand financially isn’t pleasant. Take some steps to track your spending and saving, as I’ve started to do (again) with Quicken.  I’m going to try my currently-owned version (Quicken 2007 Home and Business) for a while to see if I can get the hang of it.  So far it seems easier than the last few times I’ve tried it.  I don’t think that’s Quicken’s fault.  I’m letting it do more of the work it was designed to do, like automatically updating transactions in accounts instead of me rolling up my sleeves and entering everything by hand.  I’ll go through to check them, but it’s probably a good compromise to have Quicken do the bulk of the work.

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No really, that isn’t a joke:  Some people did get bonuses this year, and they weren’t even bank executives!

Got a tip to this CNN Money feature on how seven people will spend their year-end bonus.  (One of the featured people is Danielle Liss, also known as The Frugal Lawyer.)

The bonuses for these seven ranged from $77 to over $50,000.  Though it isn’t apparent from the captions on the pictures, all seven of them plan to do something responsible with at least part of their bonus:

• Replace an ailing dishwasher
• Pay down debt
• Pay bills or buy necessities
• Bolster savings for house purchase or just for a rainy day
• Invest in real estate

A year-end bonus is one of those small windfalls that can be used for prudent things, or just blown.  What several of the people featured in this article did was allocate up to half of the bonus for “fun stuff” to alleviate saver’s remorse.

Doing something prudent with the windfall is good, because next year the year-end bonus might be “Congratulations, you still have a job” or “Here’s four weeks’ severance pay instead of just two.”

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(Welcome to this week’s Carnival of Personal Finance. After you check out the posts for this week, I invite you to check out my Back to Basics series.  I’d also love for you to subscribe to my feed or follow me on Twitter.)

Welcome to the Carnival of Personal Finance, Parts-of-Speech Abuse Edition.  What is parts-of-speech abuse, you might ask?  Well, it means taking a word with a perfectly good part of speech (as most words have) and changing it to a completely different, less well-known, possibly buzzwordy part of speech.  I’ve scattered four five examples of this kind of language jaywalking throughout the carnival submissions.

Budgeting, Career, and the Economy

• Christian Personal Finance tells how he escaped the rat race.
• Life Tuner proclaims cash king.
• Penny Jobs says that only capitalism can save us.
• The Smarter Wallet runs through some tips on how to save money on groceries.
• Parenting Family Money says that if you have a family, you should have a budget.
• The Suburban Dollar looks for the line between looking for a career and taking a job.

leverage (v.) – to use as a springboard; use as leverage.  Example: “The new project should leverage as much of our current technology as it can.”  One example of a long, bulleted list of bureaucratese developed explicitly to hide intelligent thought.

Credit, Debt, and Finance

• Len Penzo explains how to get out of paying a mandatory gratuity for bad service.
• Insureblog plugs Cartopia.
• Taking Charge recommends payment cards for keeping spending habits in check.
• Foreigner’s Finance serves up something a little different: seven countries’ credit card stats, side-by-side.
• Digerati Life talks about frequent-flyer credit cards.
• PT Money runs through Charge Cards 101.
• Simple Financial Lifestyle nicely explains the power of one.
• Personal Finance Analyst recommends doing your own mortgage acceleration.
• One Money Design shares some common traits of people who successfully got out of debt.
• Debt Free Adventure has a how-to handbook for credit card debt reduction.

awesome (n.) — an otherwise indescribable great thing; something awesome.  Examples:  Stackoverflow Careers’ invitation to “amplify your awesome” or Sheetz’ call to “wake up and taste the awesome.”  This always leaves me asking: “My awesome what?“
Frugality

• Pragmatic Environmentalism shares some tips for getting more mileage out of your laptop batteries.
• Tiny Money was taken on a trip to Bait and Switch, Inc., by the mall Santa.
• You Have More Than You Think (great title!) lists the five questions you should ask yourself before buying anything.
• Rainy Day Saver talks extreme frugality.
• Quest for Four Pillars dishes out some last-minute cheap gift ideas.
• Free From Broke really enjoys saving at the supermarket.
• Live Real, Now flogs his inner impulse shopper.
• Bible Money Matters suggests ways to give more and spend less this Christmas.
• A Gai Shan Life reminisces about the holidays.
• Money Crashers lists five last-minute Christmas gifts that don’t suck.
• Think Your Way To Wealth explains how to save money with Bing Cashback.
• Eliminate the Muda wonders what the ROI is on an iPhone.

fly (adj.) — stylishly cool; bangin’; sweet; tight. Examples in song: “Pretty Fly For A White Guy” by The Offspring; “Pretty Fly For A Rabbi” by Weird Al Yankovic; “Feelin’ So Fly” by TobyMac. (Let’s just say I’m in touch enough to know that I’m not even the slightest bit fly.  Just ask J. Money.)
Investing

• Narrow Bridge Adventures talks about using microfinance to invest in someone’s future.
• Dividends Value lists the 2010 Dividend Aristocrats.
• The Dividend Guy reviews The Investor’s Manifesto.
• Good Financial Cents warns that the 80% rule might not be enough to retire on.
• Dividend Growth Investor suggests using dividend stocks to combat inflation.

friend (v.) — to add someone to your online social network (e.g. Facebook).  Example: “Thanks for friending me.”  As it is possible to friend someone, it is also possible to unfriend someone.  Or is it defriend?  Disfriend?  Antifriend?  Who knows …

Money Management & Saving

• Fiscal Geek reviews budgeting software You Need A Budget 3.0.
• Free Family Finance makes a case for why your income isn’t your greatest wealth-building tool.
• Don’t Quit Your Day Job (another great blog title!) explains how to control your giving.
• Free Money Finance discusses the net worths of the members of the US House of Representatives.
• Science and Money gives a run-down of the financial aftermath of a car accident.
• Well-Heeled with a Mission has a super-simple net worth calculation.
• Budgets Are Sexy’s brother put on his reflection pants and swam in the lake of him.
• Gen Y Wealth suggests a savings goal for 2010.
• Get Rich Slowly states that no one cares more about your money than you do.
• Studenomics asks: “How do people get rich?”
• Bargaineering rates checking accounts and selects the best on a number of criteria.
• My Wealth Builder recommends giving saving priority over spending.
• Money Smart Life has a tip for Christmas shopping deals on name-brand goods.
• A Modern Gal discusses the confession of financial sins.
• No Debt Plan has a way to change your financial life radically in four steps.

fail (n.) — a spectacular non-success; a flamboyant failure.  The example here is pretty obvious.  Not only a parts-of-speech abuse, but lots and lots of spawned noun pairs!  A total fail in standard written English!
Taxes

• Oblivious Investor discusses tax planning in retirement.
• Darwin’s Finance has some year-end tax tips.
• Stumble Forward explains in what way the rich don’t pay taxes.

Other

• Provident Planning gives a summary of tithing in the Bible.
• M is for Money discusses holiday tipping.

That is it!  Stay tuned as Gather Little By Little carnivals next week.

(Photos: fireflythegreat, jpctalbot, happysweetmama, jaycross, Beverly & Pack)

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One of the most important rules of investing is this:  Don’t invest in anything you don’t understand. If you don’t understand stocks, don’t invest in them.  If you don’t understand options, don’t invest in them.  If you don’t understand futures contracts, don’t invest in them.  If you don’t understand credit default swaps, well … don’t worry, because no one understands them.

Good money education is a critical component to your financial soundness.  Why?  Because no one cares as much about your money as you do. Everyone else cares about their money, and if they can get some of your money by offering you a product to make money, they will.  Whether you make money or not is largely immaterial to them.  What makes them money is very important.

When Vanguard (and just about every other financial blogger on the planet) talks about why index funds are good investments, they talk about the low fees that come with not having to be as active in managing the makeup of the fund.  “Low fees” are nothing more than a selling point. What are the advantages and disadvantages of owning an index fund?  Heck, what’s in the index fund?  What’s the market it’s indexing?  These are all questions that need understandable answers.

I asked a question over at Cash Commons about what stock screeners people use.  No answers yet, but Frugal Lawyer piped up and asked: “What’s a stock screener?”

I’m very glad she asked this question. It’s a bit like raising your hand in a lecture with 200 people to ask a basic question about what’s being discussed.  It takes courage.  And just like in the lecture situation, there are probably a whole bunch of other people that had the same question, but were afraid to ask it, and were glad you did.

Fundamental knowledge is the most important kind of knowledge to have about a subject.  Part of this is understanding the basic terms used in the subject.  Next is understanding the terms that can get easily confused.  Then, with a basic vocabulary in place, now you can read something and begin to understand what’s being discussed.

Don’t be afraid to ask about what you don’t know.  It could cost you.

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I do software development at work.  A term that gets thrown around a bit is code smell.  It’s a catch-all for any number of programming practices that indicate more serious underlying problems, or that indicate that quick fixes were made that will be more costly to maintain down the road.

Basically, the code smells a little bit.  There’s nothing really wrong with it, but it’s getting close to its “best if used by” date or it’s past it a bit.  You want to incorporate lessons learned sooner rather than later to get the smell out.

Personal finance is the same way.  There are money smells that indicate that, although there’s probably nothing really wrong yet with your finances, your personal finance situation is turning a bit and can get rank further down the road.  Liz Weston’s article, 8 signs you’re headed for financial disaster, calls out a few of these money smells:

• Surprises on your bank account statements. You have some of those extra fees for overdrawing your account in some way, and didn’t expect them.
• Lack of savings. This indicates that you’re tapped out and could easily go into the red.
• Lack of discretionary income. This indicates that your breathing room is gone, and that you could easily go into the red.
• You’ve taken out a payday loan. These are typically viewed as loans of last resort, as they carry very high interest.  This indicates that other funding sources have dried up.

There are others on Ms. Weston’s list, but they’re more indications that things not only smell bad with your finance, they’re downright spoiled.  Missed loan payments, for example, indicate that serious problems have already arrived.

I’d suggest a few more early-warning type indicators:

• You start to ask, “When does the next paycheck come in?” Maybe this one only has a hint of malodor to it, but if there were always three or four paychecks’ worth in the checking account, it would hardly ever matter when the next one came in.  As it is, if this question is being asked, it means that it’s a concern.  There still may be time to shuffle money around from one account to another in order to cover a credit card bill (that still may be paid in full) and the problem is averted.  But it’s still far better to have a lot of cushion in the checking account, not just a small one.
• You start to second-guess yourself about when payments have come out. Related to the above one, earlier this week I had to call up my wife to see if our credit card payment had been taken out of our account.  I knew that it was getting close, and I knew that my next paycheck wouldn’t be deposited until now, so I feared (for a few minutes, anyway) that I had dropped the ball.  What triggered this brief feeling of low-grade dread was seeing my balance on an ATM slip.  It was easily high enough not to bounce anything, but not if my credit card payment hadn’t been taken out already.
• You pull out a fair bit of money from business accounts to fund current personal expenses. If business profits are used to cover current personal expenses rather than grow the business, then this is a money smell because it shows that present demands are cutting into future-oriented pursuits.

We’re embarking on a typically spend-happy few weeks, and things can get really busy.  Please take time to smell your finances!

Any other money smells I’ve overlooked?

Thanks to A Gai Shan Life for including this post in the Carnival of Personal Finance.

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A few weeks ago I met “J” of BudgetsAreSexy.com, and Nicole of Breaking Even Communications, up in DC.  It was a great way to spend a Sunday afternoon, and in the process I really got a feel for what generous hearts they both have.

Subsequently J gave me a sneak peek at another charity project he had in the works.  At the moment it appears he has it on the back burner, but from what I saw it was really polished and had a nice message to it.

So I wasn’t surprised when I saw that he had more giving activity going on this weekend.  He bought $100 worth of scratch-off lottery tickets and pledged any winnings to Project Hopeful.  After all was said and done, he raised more than $200 through his winnings and other matching donations.  Not bad at all!

In the weekend leading up to The Big Scratch, he entertained guesses for what his winnings would be.  He was hoping for $125, but my guess was closer to the right answer than anyone else’s.

I guessed he’d win $39, and he actually won $38.

Now, I understand completely that this was all in fun and I know without a shadow of a doubt that J’s heart was in the right place in doing this, and I’m not trying to take that away from him at all.  But I knew that it was almost a sure thing that he wouldn’t win more than the cost of the tickets.

Why?  Mathematics.  The more tickets you buy, the more likely you are to come close to the mathematical odds that were set forth in the game. There are two extremes.  If you buy one ticket, you either win 100% of the time, or you lose 100% of the time.  That’s one extreme.  If you buy all of the tickets, and if the odds of winning are 1:4.21, or 23.75%, then you’ll win 23.75% of the time.  That’s the other extreme.

J bought 100 tickets, and he had 20 winning tickets out of 100, or 20%.  That’s not that far off from 23.75%.  Had he gone all out and spent his yearly entertainment budget of $1200 (assuming $100/month), his win percentage would likely have been within a percent of the actual odds.

“Well, one of those tickets could have been a big winner, MBH.”  Absolutely right.  But not likely!

Let’s take ‘Tis The Season, one of the games J played. I’ll assume that the 1:4.21 odds apply to this game (they may not). The Maryland Lottery page shows the number of unclaimed prizes. Here are the numbers as of right now:

$1,000 – 16
$500 – 316
$100 – 567
$50 – 741
$12 – 7,592
$6 – 33,176
$3 – 57,130
$2 – 191,098
$1 – 270,869

Just as you’d expect: There are a lot more smaller prizes than big ones remaining. But let’s add another row to these numbers:

$1,000 – 16
$500 – 316
$100 – 567
$50 – 741
$12 – 7,592
$6 – 33,176
$3 – 57,130
$2 – 191,098
$1 – 270,869
$0 – 1,802,431 (est.)

I took the number of unclaimed prizes (561,505) and multiplied that sum by 3.21 (4.21 – 1) to estimate the number of non-winning tickets.  The majority of tickets are in that last (unwritten) line.

Playing the lottery long-term is a money-loser. It will eat your lunch without question.  J just took the opportunity to compress a year’s worth of lottery playing (two tickets per week) into a single weekend.

So anyway, I’m glad that J raised as much as he did.  He even offered to buy me a beer for being the best guesser.  But after this post, I’m probably the one who will need to be buying.

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This economic downturn hasn’t been kind to a lot of people.  Jobs that haven’t been taken away from people have had their hours cut, their workload increased, or their cost of living allowances taken away.  Jobs that people used to be able to count on are on very fragile ground.

If this US Debt Clock is accurate, we’re getting a new person on the unemployment roster every 17 seconds now.

What can you count on in this economy?  I think the only thing that you can absolutely count on in this economy is that you can’t count on anything in this economy. Retirements have been upended by plummeting 401(k)s and IRAs.  Nest eggs have been cracked by crashing home values.  Many people, all of a sudden, won’t be able to retire.

It’s foolish to take anything for granted.  There’s far less within our control than we probably realize, and proposed solutions that aim to make things better will almost certainly just make them worse.

When you think about “preparing for the future,” think instead of “hedging against the future.”  How?

• Cushions, cushions. Bolster that emergency fund to buy time in the face of job loss.  Bolster your food supply in case price controls cause shortages.  (Price controls are another solution that will backfire.  Think gas station lines in the 1970s.)
• Diversify your investments. If you’re heavy in anything (or only have a couple of asset classes) look around some more.  And don’t forget to invest in yourself.
• Diversify your income streams. Only have one income stream?  Start working on another!  And then another.  Your one income stream can go bye-bye at any time.
• Retire into something rather than just retire. It would be great if one of your new income streams involves something you really enjoy, and can do well into the traditional retirement age.
• Take care of your health. I’ve recommitted to this. The less you need health care, the better, because it will be more expensive, and you’ll wait longer to get it.
• Pray.

Thanks to The Censible Life for including this post in the Carnival of Personal Finance.

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On last week’s post on whether you should be able to put your tithe on a credit card, I received a well thought-out response from commenter Brian.  I’ll reprint it here, and discuss it.

I work with more than 800 mainline protestant churches in Ohio. I say the credit card issue reflects larger issues in the church: The world is not the same that it was in the 50’s. Churches that do not recognize this will die.

This is seen in changes in music styles, less formal relationships with clergy, more short-term committee assignments and the way organizations of church women operate.

If we are to be relevant in our world and reach out to people, we have to be willing to do so on their terms and this includes finances. By allowing our “customers” to pay their pledges the same way they pay many other expenses, we are saying to them that we recognize we’re not in the 50’s anymore.

What is the good of churches allowing nontraditional giving methods?

1. Fewer people carry cash or check books with them at all times.
2. Regular on-line transfers help even out giving over the year. We know that if you don’t plop it in the pew you won’t put it in the plate, so giving traditionally dips in the summer time, during bad weather and on holiday weekends.
3. Electronic transfer allows greater privacy in giving. If I write a check and put it in the plate, volunteer counters and others may see what I give. But a concise electronic statement would only be seen by the Financial Secretary who would actually record my pledge.
4. Cash and checks have to be handled. They have to be counted, counted again, prepared for deposit and driven to the bank. In an era where volunteer time is harder to come by, let’s let our volunteers focus on doing the work of the kingdom and not tie them up counting money.
5. Cash is also a safety liability. Although this is quite rare, a pile of cash can be misappropriated, and with no cash register receipt to balance against, such a theft would go unnoticed.

I believe there are many positives to churches accepting credit cards, electronic funds transfers and other “modern” ways of conducting business.

Like I said, very well-thought-out comments.  Thank you!

My original post discussed the downside of tithing with a credit card, focusing mainly on the possibility of leading congregants into financial temptation and retarding spiritual growth, while not really discussing directly the advantages that such transactions can bring to churches.  Brian lists out some of these advantages, and I agree that many congregants would appreciate the fact that giving in this way was an option.

Like anything a church does to make itself more relevant, it should do so while holding true to biblical principles. And if I would be in a church that was considering this change, and if the leadership of the church made the decision to accept credit cards after faithful prayer and with the guidance of the Holy Spirit, I really wouldn’t argue.  For example, if the church made training available from Financial Peace University, Crown Ministries, or some other Christian financial ministry, then that would give the opportunity to soften congregants’ hearts in order to examine their giving in the context of this new technology.

If a church doesn’t seek guidance from the Holy Spirit with regard to this, and does it for, perhaps, worldly reasons (”We need more regular giving” or “We need to encourage more giving”) then that’s where problems are more likely to crop up.  That was the context of my original post.

I do disagree on one point within item #4.  I have helped with counting the offering for quite some time, and this is the work of the kingdom just as much as taking a missions trip to Africa.  I’ve learned a lot doing this, and I have no doubt that performing this task has helped me to grow spiritually.  Besides, even if credit cards come to the offering plate, checks and cash won’t go away, and counting up the offering will still need to be done.  From my experience, counting up 50 checks doesn’t take that much more time than counting up 15 checks, because of all the other set-up and tear-down work that’s needed.

Anyway, any more thoughts on this? I’ll be happy to write about it again next week.

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