No money down, 0% APR, no payments until next year.  These are all phrases that we hear a whole lot these days.  Consumer financing has become available almost anywhere for nearly anything.  It used to be that you could get financing for your house and car, but now you can even get financing for a vacuum, couch or even clothes!

The need for immediate satisfaction is really the driver behind the availability in financing options.  You see that flat screen TV advertised in the newspaper with the “No Money Down” and “No Payments for Two Years”.  After that, it is only a hundred bucks a month for a couple of years.  No problem, I can afford that!  Well… can you?  By financing your TV, you are overpaying by a huge margin because of the cost of interest.  Once you have everything paid off, you ended up paying way more than the sticker price for something that has already lost a ton of value.

Just because you are making installments on something, doesn’t make it any less expensive.  $900 seems like a lot of money, but $30/month for three years sounds like a lot less, even though it ends up being a lot more.  Also, you might not have $900 just lying around to spend on a TV, but can easily commit to $30 a month for the next three years.

Financing something that you can’t afford and can easily live without may make sense in the short run, but it will really end up hurting you in the long run.

Financing an investment is called “leverage” and is usually considered a good thing.  It helps you make more money.  Financing a consumer good is called “consumer debt” and is usually considered a bad thing.  It helps you spend more money.

Just make sure you really need something before you buy it.  One trick I use is the 21 day rule.  If you see something that you want, promise yourself that you won’t buy it for 21 days.  If, at the end of those three weeks, you are still just as excited about it, go ahead and buy it.  If you aren’t, it might mean that you were only caught up in the moment and you really don’t need that item.

If you have a high deductible health plan (HDHP), you may be eligible to create a Health Savings Account. Also known as an HSA, this is basically a special savings account that is used to pay for medical related expenses. The primary benefit of this account is that you can make contributions (or deposits) into your account using pre-tax income. The drawback is that you can only use money in this account for medical-related expenses. The definition of medical related expenses is pretty broad; I have even heard that you can buy diapers with your health savings account.

The tax savings works like this: Say you make $50,000 in one year, and you want to contribute $2,000 to your health savings account (There are yearly contribution limits, make sure you aren’t contributing more than your limit). You deposit the $2,000 in your account and you write the whole $2,000 off on your taxes even if you haven’t spent a dime in medical related expenses that year. Your savings account grows tax free and rolls over from year to year, unlike a flexible spending account. When you need to make medical related expenses (doctor bills, deductible, medicine, etc), just use the money from your health savings account. Piece of cake!

After spending a couple hours reading through my health insurance documentation, I finally figured out how to start my health savings account. The one thing that would have been nice is if my health insurance company told me that I wasn’t setting up the health savings account through them or with them. I could go to any financial institution that I wanted and set the account up there. I did a search on Google for HSA accounts and found plenty of places to sign up. The one credit union I ended up with offered the account with a visa debit card and a 5% interest rate. The only drawback is that they start charging a $1/month fee after the first year. However, all I need in the account is $240 and the interest will cover the monthly fee the entire time.

My health savings account ended up being really easy to get started. I just filled out some forms online, clicked the “I agree” button, sent them a couple bucks to start the account off, and now everything is set up. I didn’t have to do anything through my Health Insurance to get the account set up. After setting up your health savings account, just be sure to get itemized receipts for every single purchase that you make with your account. Save these receipts in case you need to show that all your purchases were health related. I will have to research exactly what expenses are included in “medical related expenses” so that I can take maximum advantage of all the tax savings. It will be great knowing that I can pay for cough drops tax-free!

What happens if you lose your job? There is a good chance you could be facing unemployment in this slowing economy. Here are some tips if you do end up getting your pink slip.

• Don’t panic! Stay calm and don’t get too down on yourself. Most lay-offs occur when big executives decide that they want to spend less money. Don’t take it personally. Heck, you didn’t even like that job anyway!
• Be sure to keep your health insurance coverage. If I remember correctly, you are allowed to keep the same medical coverage after being laid off for a number of months. The only catch is that you have to now pay for it, but you are paying the group rates instead of the individual retail rates. The group rates tend to be a whole lot cheaper.
• Collect unemployment. You should absolutely take advantage of the opportunity to collect unemployment. After all, you were indirectly paying for it all these years! Unemployment usually lasts up to six months and doesn’t have to be paid back. Your unemployment paycheck is based off what you were making, but is usually far less. But, when you lose your job, every penny counts!
• Start looking for a new job as soon as possible. Don’t let your emotions prevent you from getting yourself back on track. Start searching for a new job the day you get laid off.
• Use this opportunity to change careers or go back to school. Since unemployment levels are so high, you may find it difficult to get another job. Now is your chance to get a degree and pursue that career you have always wanted. Education is easier and more affordable than you think. Check out some of the opportunities in our STUDENT section.

As long as you don’t have a major melt down, losing your job won’t be the end of the world. Just remain positive and things will start falling into place.

We hear it all the time, recession this, depression that. If you are the average hard-working Joe, you don’t have too much to worry about unless you get laid off. If you do get laid off, I’ll be making a future post about what to do if you get laid off.  As long as you have enough income to cover yourself in the meantime, everything should eventually work itself out.

• What about my retirement or investment accounts? Those are at an all-time low! As long as you weren’t planning on cashing in on all your investments right now, you should be just fine. If you are investing for retirement, and you don’t plan to retire for another twenty years, you have plenty of time to let your investments recover before liquidating them.
  • What if I am about to retire? Typically you don’t empty your entire retirement account in one day. You make withdrawals from it while the balance continues to run with the market
• What if my kids are about to go to college and the fund is at an all-time low? Just like your retirement account, you won’t be liquidating your child’s entire college account at once. If you are worried that there won’t be enough to make it through the next four (or five… or six…) years, have them take out a student loan. This will help them build credit so they can qualify for a mortgage once they graduate and pay off the loan.
• My house has lost so much value that I now owe more than I own! This is called being “Upside-down” - the value of your home is less than the remaining balance of your mortgage. As long as you stay put and continue making the mortgage payments, your home value should recover and eventually you will start building equity. Here is where you could run into trouble:
  • If you need to move. – If you absolutely must sell your home to relocate for work, talk to your lender about what your options are. They may be open to negotiations. In most cases, they are only entitled to your house, so they are usually willing to talk to you so they won’t have to foreclose.
  • If you are in an adjustable-rate or negative amortization loan. If your monthly payments are set to skyrocket soon, take a look to see if you can easily afford them. If you can’t, you risk letting your house fall into foreclosure. If you know you won’t be able to make the payments, see if you can refinance or negotiate with your lender so they don’t end up foreclosing.

Just hang in there and the economy should work itself out. Unless you are an investment banker with all your money on the market, just continue working, paying the bills and things will work themselves out.

Having an emergency cash buffer is always a good idea to help keep you safe and protect your credit report in the event of an emergency.  Having a nice cash reserve will help you avoid having to take out a payday advance or use your credit card when you need fast cash to make a payment or pay a bill.  I consider having a cash buffer as a form of insurance - it protects you in the event of an unfortunate event, however this form of insurance pays you interest, instead of costing you a monthly premium.

I like to keep about $4,000 in an savings account that I can use in case of emergencies.  I determined this amount by using a few different ideas.  One method of thought is that my maximum health insurance deductible is $4,000.  In the worst medical emergency, I would have just enough in my emergency cash fund to pay for my medical bills.  Also, I considered what would happen if I lost my income.  I figured that four grand is enough to hold me over for about two months, and two months should be plenty of time to get back on my feet.

How did I start my cash buffer?  I just saved the money up, stashed it away and forgot about it.  I lived below my means for a while until I had enough money saved away.

So how can I afford to have that money just sitting in my bank account?  Well first, it should not be sitting idle - it should be accruing interest.  There are plenty of free online banks that have competitive savings rates.  Just shop around online.

The question I ask is: how can you afford not to have that money just sitting in your bank account?  Think of the domino effect if you are just barely getting by and something bad happens.  First, your credit goes downhill, then you become overwhelmed in debt - things can easily spiral out of control.  Not having an emergency cash buffer could end up costing you in the long run.