the economy and frugal living

C-Fan · Post by **C-Fan** » 07 Oct 2008 07:35

Dan: Thank you for being entertaining.
Jeremy: You know when you're being baited, right?
Bob: Interesting topic. Here's an interesting article in the New York Times about how consumers decreasing their spending will make the recession worse. I'm not saying you shouldn't cut back on your spending, I'm just pointing out how it's interesting that the economy flows well when people don't worry about it, but when confidence is lost, a recession becomes a self-fulfilling prophesy.

Slowsis · Post by **Slowsis** » 07 Oct 2008 07:51

Jeremy is helping the economy by buying tons of consumer goods. 20 cans of Cambells Chunky is a good start. This kind of spur of the moment purchase is exactly what the world economy needs to keep going.

I'm going to invest in a lifetime supply of disposable enemas and suppositories to ensure my rectum is in good order even if I'm living in a forest compond snaring chipmunks for sustinence. All that wild game is sure to bung me up.

Jeremy · Post by **Jeremy** » 07 Oct 2008 13:45

C-Fan wrote:Jeremy: You know when you're being baited, right?

Well I'm certainly aware that Dan has an easy out, but also that much of what he posted could not be seen as a joke (such as the state of European banks), and I'm equally aware that he has little idea what he's talking about on this subject, and if having to eat 20 cans of soup is the price I have to pay for demonstrating his inferior grasp on global economics, I am happy to so. I have nothing to lose unless I actually lose the bet, in which case I would lose regardless of whether I make it or not.

max · Post by **max** » 07 Oct 2008 21:07

The bet, the photo and the entire thread is SOLID GOLD

Jeremy · Post by **Jeremy** » 08 Oct 2008 05:09

BainbridgeShred wrote: Not that it would matter much, but a large scale bailout like the one done here in America would be impossible in Europe where banks are regulated by country-to-country basis.

http://www.theaustralian.news.com.au/st ... 43,00.html

"BRITAIN rushed out a package worth up to $US875 billion ($A1.23 trillion) today to head off a banking collapse as markets went into freefall over fears the worst financial crisis in decades has still not hit a peak."

"Brown called for ``European-wide funding plan'' to help ease the global financial crisis and said proposals had been made to other nations.

Britain's rescue initiative followed desperate efforts by other governments and institutions.

The European Central Bank said it would pump $US70 billion ($A98.7 billion) into interbank money markets in one-day loans today, raising the daily amount by $US20 billion ($A28.2 billion)."

*not that I was exactly right about a European bailout either

*

Also re: epic photos involving soup. You'll have to wait a couple of weeks, but I'm working on something truly epic. Have to wait until I get a free weekend.

Rieferman · Post by **Rieferman** » 08 Oct 2008 17:27

wtf happened to this topic?

I love it in some ways..

But

I'm really actually interested in knowing what others are doing.

Got another addition from my life.. I'm normally not pro "home equity line of credit" when compared with "home equity loan". I'm conservative (economically speaking) and value the locked rate. But talking to my financial advisor, I agree that prime will continue to be very low for at least a year. So I'm attempting (attempting since it requires approval from appraiser of your home) to convert some debt to LOC instead of loan. Saves me about 2 points, meaning I can pay down way faster. Plus, you can always re-lock later into a fixed product should you fear rising rates.

Back on topic folks (though soup pictures are extremely welcomed)

Jeremy · Post by **Jeremy** » 08 Oct 2008 18:44

I spoke to Caroline Overington today (award winning Australian journalist), and her advice to me was to pay off all credit cards and get completely out of debt - not just being net balanced, but actually having no debt. She also thought there is no chance of a depression in Australia, and that our economic circumstances here are much better than in the US.

Rieferman · Post by **Rieferman** » 09 Oct 2008 04:23

I agree with the no debt thing in terms of 'no bad debt'. I'd consider credit card debt to generally be bad debt because of the rates that are usually in play sooner or later.

On the other hand, in some ways, debt can be good. Mortgage locked in at low rate for example. Or federal school loan (in my case, locked for 30 years at 1%... that's free money basically).

The funny thing though, is that (at least here in USA) much of our current economic issues are related to people buying way over their heads, and using bad credit to do it. I don't know if it's a sense of entitlement or what, but I see examples of it all the time. People buying $500,000 (USD) homes at age 28-30 and then furnishing the home with top end furniture, and parking 2 $30,000 cars in the driveway. How is that possible at that age? It's either family money (inheritance) or (most likely) extreme debt. I think many people want what they saw their parents have while they were growing up - but people often don't realize that it took our parents YEARS to build to that position, and they certainly didn't have that lifestyle as a young 30-something.

The other thing I see, is people buying to their full capacity (and often above that capacity, see above), but they base their full capacity on strong market conditions, bonus opportunities etc. In other words, they max out based on the best case scenario. One couple that we know did this - the husband is the only source of income, and he was getting rich in mortgage industry. Uh ohhhhhhhh. Times aren't so grand now are they? I'll bet they are in serious distress right now, if not already on the road to foreclosure.

Jack Stutler · Post by **Jack Stutler** » 09 Oct 2008 05:21

mm, this whole situation makes me very glad i decided to never get a credit card of my own. and i thank my dad just about every time i see him for the advice he CONSTANTLY gave me as a kid growing up "son, when you buy things, only buy them if you have the money on hand to pay for it right then and there".

Frank_Sinatra · Post by **Frank_Sinatra** » 09 Oct 2008 06:07

Ok, on topic:

I'm hearing from our clients that things are really tightening up. Hiring freezes, ticket sales declinging, endowments plummeting in value (we service a lot of big name Chicago not-for-profits). On the other hand, we're trying to land a huge project with a government client, if we get it we'll ride this out no problem.

Other than that, I feel fairly isolated from this crisis. I don't have any money in the markets. I don't have any kind of mortgage let alone a risky one, and I wasn't planning on buying a home in the next couple years anyway. I don't have any credit cards and I've been steadily paying down my variable rate student loan (might make the last payment this month - excited). That leaves one larger loan with like a 1.75% rate which I'd rather not have but is manageable.

I live in a city where I don't need a car to get around, and had some thoughts about buying one (for work) but it isn't absolutely necessary so I'm gonna keep putting it off until it becomes necessary.

I might be taking some classes next year but I'll be paying out of pocket w/assistance from employer (or just going to the City Colleges of Chicago & paying entirely out of pocket) so I'm not worried about financing on that front.

I don't spend a ton of money on myself - the one area I could cut back would be packing lunches instead of going out to eat. I did just buy an iPhone but that's really the one exception to a pretty frugal way of life. Ok, ok, I could buy fewer hookers.

If anything, I'm positioned pretty well assuming we keep getting work. My 401(k) enrollment is in January, so I'll be buying in at fire sale prices. Housing prices will most likely continue to fall, though I expect some effort to stabilize them with the next administration. Either way, if I do buy, I'll be buying pretty cheap, assuming financing is available. I'd really need to start saving for a down payment though if I want this to happen, but I haven't made up my mind yet anyway.

century264 · Post by **century264** » 09 Oct 2008 06:08

Since the economy is in a downturn, I don't know if the advice applies, but Jack, what my parents always said was get a credit card but use it only for small purchases and pay everything off every month, so that when you need credit, your score is ridiculously good, because it will be hard for you to pay down, say, a house with the money you have on you. Like I said, though, if credit's all screwed up, I haven't started that system yet, and I may end up not starting it, but I thought it was a good idea

C-Fan · Post by **C-Fan** » 09 Oct 2008 09:09

I agree. You want to get a credit card just so you can build a credit history. I pretty much only use my credit card for groceries and plane/train/bus tickets, and I make a point to pay it off on time every month. Somewhere down the line you will need credit, and if you aren't building it over time, it will be hard to get a loan.

Rieferman · Post by **Rieferman** » 09 Oct 2008 09:42

nathan, as an upcoming first time home buyer, you're sitting pretty especially since your debt is nill. Homes will be historically cheap, and that only really benefits people that don't have a home to sell already. If you get even a hint that the market is improving, I would consider whether you're ready to buy. Oh, and that 1.75% loan... shit, I'd pay that as slowly as possible. Free money. If you have extra money sitting around, you can earn more than 1.75% elsewhere no problem.

regarding credit cards. We shopped for a card that we like in terms of rate and rewards program. We have that card set on auto-bill payer mode for all of our bills that are constant each month. In turn, I have my bank card (which draws from my checking account) set to auto-pay my credit card the next day. What this does is continue to show credit history, improves my credit score, and earns me rewards points - all while never risking having to pay interest.

Another point about credit cards. Set yourself a reminder once per year to call and ask them to: 1) reduce your rate, 2) increase your spending limit. Though you would be ill advised to spend to the limit, when you apply for mortgages (etc.) they look at your available credit as part of the scoring procedure. Maybe Outsider can chime in with more details there since I believe he works in mortgage industry and would know the calculation.

Jeremy · Post by **Jeremy** » 09 Oct 2008 15:46

I use my credit cards for everything - Every fortnight I put my entire pay onto them, and then use it from there as neccessary (or usually unnecessary) . As I said at the start of this topic though, most of my income is disposable, so I feel quite comfortable with this. That said, I'm taking COs advice and put a focus on paying them off before spending any significant amounts of money, and then going to try to start saving as well for when I return to full time study.

Given I have every weekend already booked out until the 15th of November (I think), this may be difficult

Jack Stutler · Post by **Jack Stutler** » 09 Oct 2008 16:10

yeah, i've been told about doing that, and i will get one, probally in january. just, knowing myself and how terrible i can be at keeping track of my money, the though of me having a credit card is kinda worrisome for me. i guess i'll just use it for groceries or something and then leave it at home.

ObArA'BaRs · Post by **ObArA'BaRs** » 10 Oct 2008 08:30

i actually sent in my application to receive my FOID card the other day before i read this thread.

The way I see it. I live in the Chicago area where there are hundreds of poor people who will become even more poor. If hey have guns so should I because if there family is starving whats preventing them from robbing me. Some Robin hood shit.

By the way go ahead and flame my comment anyway you like Jeremy.

Outsider · Post by **Outsider** » 10 Oct 2008 14:19

Another point about credit cards. Set yourself a reminder once per year to call and ask them to: 1) reduce your rate, 2) increase your spending limit. Though you would be ill advised to spend to the limit, when you apply for mortgages (etc.) they look at your available credit as part of the scoring procedure. Maybe Outsider can chime in with more details there since I believe he works in mortgage industry and would know the calculation.

sigh...

You asked for it, Bob, so everybody can hold you responsible for having to read all the gibberish that follows.

Hmm...
Regarding point #1, many people I know do not seem to realize that most credit cards charge no interest if you pay your balance in full each month (seems like it shouldn't even need to be said, but I'm talking about people who don't have credit cards AND people who have actually been using credit cards for years and don't even know this...). So, basically, many people believe that you always pay a relatively high rate of interest on anything you pay for with credit. In point of fact, you only have to pay that interest on that portion of your balance that you forward on the later months. That is, if I charge $100 dollars on my credit card and I get a bill from that credit card a few weeks later, I don't owe them any interest at all if I pay back the entire $100 that month. I only start owing them interest payments if I, say, just make the minimum payment of $12 and forward the remaining balance on to the next month -- then I owe them 17% interest on the $88 bucks I chose not to pay back right away. Plus, that interest translates directly into more dollars on my balance, which I will then also owe interest on each month after until I pay off the whole balance -- each month I rack up a higher balance because of the interest charged on my outstanding balance, and each month I'll also have to pay interest on the dollar value of the interest costs of the previous month. It builds on itself, and thats called Compound Interest, and it doesn't really come out to alot of money over just a very short period of time -- a couple months, an entire year... but if you let it keep building month after month for years it can get very nasty -- basically, exponential growth. Albert Einstein is said to have stated that "Compound Interest is the most powerful force in the universe." If he even actually said such a thing he was probably joking, but still, the exaggeration does serve to make a point -- don't let yourself accrue interest payments upon interest payments upon interest payments, or else you're going to wind up eventually paying DOUBLE on everything you pay for with your credit cards. Don't pay double -- use credit cards and pay them off entirely every month, or at least pay off almost all of it almost every month and keep the amount of interest you owe very small in comparison to what you actually spend on stuff.

On to point # 2: Spending limits... Credit Scores are not really my area of expertise here, but, if I understand correctly, then, yeah, an important part of what determines what sort of deals you'll get on borrowing money (for home loans, for car loans, for credit cards, and some other important things too) will depend on your credit history and credit scores. Your credit scores are some complicated formula that nobody really understands perfectly, and these scores are calculated by a few very large and nearly global Credit Reporting Agencies, such as Equifax, Experian, and Transunion (Equifax was, I think, formerly known as TRW, and this is one of the buildings that Tyler Durden wants to blow up at the end of Fight Club --destory everbodys' credit history...). Basically, banks, credit card companys, utilities (the companies you pay your electric, water, and phone bills to) and others report to the credit bureaus, and they keep track of your payment history -- primarily, how much money you borrower as expressed in how much credit you have available to you (your credit limits) and how much of that available credit you're actually using (*for example, I have a credit card with a $10,000 dollar limit, and I presently have a balance of $2,000 dollars outstanding, so, I'm using about 20% of my available credit limit -- its good to have alot of credit available and to not actually be using much of it... It hurts your credit score to "max-out" your credit cards -- basically, you don't want to keep a balance on a credit card thats more than about 33% of your available credit limit*) and also your payment history -- basically, do you pay your bills on time or do you pay them late, and, if so, how late? Other important related thing will wind up on your credit report too, such as if you have collection accounts against you (you payed some bill so damn late that the person you owe the money too has gotten tired of waiting to get the payment from you, so they "sell" your debt to somebody else, a collection agency, for a fraction of the value [getting some money back on a bad loan is better than getting nothing at all] and let that collection agency pursue you for the entire value of the debt). Collection acounts look pretty bad on your credit report and can be kind of tough to actually get off your credit report -- basically, you might wind up with that collection account showing up on your credit report for a long time, long after you've actually paid-off the collection agency, and so then you'll have to keep on file the proof that you actually paid the collection account off and submit that information separately to whoever you're looking to borrower money from -- kind of a pain in the ass in addition to kind of making yourself look like somebody that they'd think twice about lending money to. We lend to people who have collection accounts on their reports, but we insist that they show us proof that they've paid them off.

So, these credit reporting agencies keep track of this historical record, and they use some sort of mathematical formulas to score your credit history -- your credit score is something like between 300 and 850, the higher the better. I've seen alot of stuff that says the the average credit score in the USA is something around 668 or something. I've seen plenty of people with credit scores around 550, and some up to about 830. The big government chartered (now actually government owned) mortgage buyers Fannie Mae and Freddie Mac actually set certain standards for credit scores -- stuff like, if a mortgage borrower has scores below 720, they're going to charge a bunch of extra money from the bank that is trying to sell the mortgage to them (banks lend money to home-buyers, and then might sell that debt to someone like Fannie or Freddie so that the bank has more money to lend out to somebody else -- so the bank is sometimes just the middle-man in the lending process, though they will also hold many loans "in portfolio" too). So, when you ask for a loan from the bank and you have less than awesome credit scores, they might either a.) charge you a few thousand dollars extra to give you the loan you want, because Fannie or Freddie is going to charge the bank a few thousand extra to buy the loan from them, or b.) charge you a higher interest rate that represents thousands of dollars extra that you'll eventually pay the bank, because Fannie or Freddie will pay thousands of dollars extra for a loan with a higher interest rate, thus off-setting the thousands of dollars extra that Fannie and Freddie charge the bank to take those loans off the bank's hands. ---- So, having an average or poor credit scores can cost you thousands of dollars extra when getting a mortgage. ----- There are actually multiple kinds of fees like that, one of which relates to your credit, another relates to what percent of the value of the house you're buying is borrowered from the bank versus what percent of the cost you pay yourself as a down-payment. Add up all the possible extra fees and you could be talking about tens of thousands of dollars in extra fees, so, you'd want to do everything you can to keep those extra costs down, and, keeping your credit scores high is one of the easier ways of doing that, provided you're diligent about protecting your credit over the long-haul.

(*I mentioned above about credit card balances and available limits, and how its better to keep your ratio between balance and limit low -- well, I have been told that some cards/bank have different policies for how they report this to the credit agencies -- basically, they don't report how much your actual limit is, instead they report your highest balance as your limit. In other words, if you have an actual limit of $10,000, and you're highest ever balance on the card is $2,000, some companies always report that highest balance, the $2000, as your available credit limit, so, if you maintain a balance on that credit card at nearly that $2000 highest balance, it will look to the credit reporting agencies as though you're nearly maxing-out that credit card, and thus your credit score will suffer as a result, even though you're keeping your balance way below your actual limit. It seems to me like a shitty way to do business, I don't know why they do that -- maybe they want to keep your credit limit secret for some reason... I don't know... ---- Anyway, the company in question that I've heard does this is Capital One ---- you might remember all their funny tv commercials featuring vikings and barbarians of one sort or another in various funny little situations. "Whats in your wallet?" ---- beware, and think twice before putting Capital One in there... )

Oh, part of your credit history that factors into your credit score is literally the length of your credit history ---- the longer your history is the better, provided your history shows you to have almost always made your payments on time and not maxed-out your credit limits and not racked up a bunch of collection accounts. In other words, if you've got a perfect record of on-time payments, your score can still be sort of low if that record only goes back one year. Thats one reason why you'd want to establish a credit history - a records of responsible borrowing - pretty early.

Personally, I think I've got good credit scores, though I've never actually seen my scores because the government says you're entitled to a free credit report every year (if you ask for it) but the actual credit scores cost extra... but anyway, I'm pretty sure my scores are good, and as a result I keep getting offers from credit card companies. Every month I get come-ons in the mail from credit cards that want me to open up a new account with them. I've presently got a few more accounts than I need or even want, but, because of my good credit history, those companies really want me as a customer, and so they offer me all kinds of extras to sweeten the deal. Mostly, its extra Airline Miles that I like, and even though I've got a few cards too-many already, I'm probably going to get a couple more because I can't say "no" to tens of thousands of "free" airline miles. I already earn miles for spending money on my credit cards, but my expenses are pretty small, so those miles add up slowly. When I get an extra 20,000 miles for taking out a new card... Well, last year it cost me virtually nothing to fly to the South American Footbag Championships in Colombia because of "free" airline miles I'd earned in part by spending, but more-so by accepting one or two of those kinds of offers. And even now I've got enough miles to fly free to Hawaii with two different airlines (though not quite enough to get to Europe with either of them). Those offers sometimes have a certain amount of cost, though. A couple of those cards have a $60 dollar annual fee, so, if I keep those cards for long enough it would add up to the cost of those flights anyway, but, cancelling a credit card can lower your credit scores.... so I'm sort of stuck with them. Well, not really, since how long you have the card effects how much your score is hurt by cancelling them -- basically you don't want to cancel any account that has been open for less than one year. So, I figure I'll cancel those costly cards after about two years, and thus I'll be paying $120 each for about $500 dollars worth of airline travel. So, even though I'm still paying something, its like getting 75% off on the cost of a few fairly expensive trips.

One other problem with all those cards -- just like the issue with the Interest Rates, they don't really cost you much IF you keep careful track of how much you owe and to whom and when. If you don't keep careful track, you forget to make a payment or keep some card too long or something and thus wind up costing yourself money and hurting your credit which may cost you even more money somewhere else, plus, by screwing-up your credit history you kill the goose that lays those golden airline mile eggs. Screw up your credit history and you'll stop getting those extra-sweet offers... There are some other risks that you take playing this game too... especially when you're as careless and irresponsible as I... Shit... I think I may be getting in over my head...

edit 1: Some employers will actually acquire a credit report on job applicants, particularly in business and financial fields. Having a good credit history probably isn't going to help you land a job, but having a pretty bad credit history might prevent you from getting that job.

edit 2: just wanted to say -- Jer O'Wheel's photo is the funniest thing I've seen on this web-site in a long time -- I'd say it was probably worth any expense of his just to make such an excellent joke -- plus, he's really putting his money where his mouth is (pardon the pun) -- much respect. good on ya, mate.

Rieferman · Post by **Rieferman** » 10 Oct 2008 16:22

good post jon

just a couple comments

A) I hope everyone already realized that you only pay interest on items that are on your credit card for longer than 1 month. If paid in full each month, no interest. Hence my "credit card game" with auto-bill payer above. I earn the points etc. but never pay interest.

B) credit limit. I've never heard that capital one scenario, but then again I have a Visa and a Master Card. My limit is very high now and my credit score rose as the limit rose. So I would think they're using entire available credit. I'll look it up later or ask my advisor to be sure, but it's a reasonable assumption. Good head's up about the capital one card though. And everything else you wrote is dead on. Very low owed balance and very high limit = good.

C) You mentioned average credit score of 668 or something like that. I'll have to look it up, but I'd be shocked if it were that high. I'm at like 750+ and mortgage brokers/bankers/credit card companies are super pumped to talk to me.

D) Mistakes and their affect on credit... They're LONG lasting. When I had heart surgery in 1999 I received (literally) $500,000 worth of medical bills. Then, days after each bill, Aetna would send me a claim showing the bill was covered in full. Of the HUNDREDS of bills, Aetna missed one, and so did I. It was sent to collections, for $50.55 before I noticed (afterall, I was recovering from having my sternum ripped open). Despite that Aetna eventually paid it, and we disputed it, it took 5 years to come off my report. Remember, I'm at 750 score now. With that ONE event, I was in the 500's. As soon as it was dropped, I jumped into the 700's. Moral is: DON'T ever ever ever bounce a check, miss a bill payment, anything. If you can avoid it, don't let it happen due to laziness. Without a valid dispute, bad marks hurt you for SEVEN years.

E) Having many credit cards is not advisable supposedly. That's just from my advisor, but since I don't have a lot of cards, I never got the reason why. I'll find out if I get a chance. Have one or two cards is best scenario

edit: btw, a credit card that is never used doesn't help your credit. Doesn't hurt either. Has to be used and paid off to help you.

crazylegs32 · Post by **crazylegs32** » 19 Dec 2008 16:55

The credit cards charge the stores 3 percent for using their "services" this get passed along in the prices whether you use cash or credit. Credit cards suck/ The scores dont start at zero, 500 would be really horrible credit from someone who never paid off debt, 680 proll is the average, 750 would be very good or excellent- you get best rates. My fico was 816 last month but it went to 806 for some reason, I dunno how hi it can go?

hacksterbator · Post by **hacksterbator** » 21 Dec 2008 19:42

Holy crap, how did i miss this topic!!??!!
It's been a while since Dan said he was going to post a picture of that $20... Perhaps he's hit hard times already?