Myths On Money

Today, we are going to take a look at my favorite online (and FREE) personal finance software: Mint.com.

Traditional Software

For a number of years, I used Quicken’s basic finance software to track my expenses and monitor my budget. While the program was very good, there were a few ways in which these new online tools are better suited for most people. The primary challenge was the complexity of Quicken. While uploading our transactions and categorizing them was fairly straightforward, accessing the reports could be quite confusing. The software is very powerful and has many many useful reports, but the problem was that I did not know how to use the vast majority of the reports, and setting them up to be easily useful was very difficult. The complexity and wide array of available reports made it a bit time consuming to use, and somewhat frustrating at times. I didn’t want to spend a lot of time budgeting, so as a result I did not track my finances as closely as I would have liked.

Mint.com

The first thing you may notice when you go to Mint.com is the fresh, very Web 2.0 styling. The visuals and colors all pull together to make the site very easy on the eyes. But, we’re not here for fine web design, are we?

Setting up your accounts in Mint is very very easy. Just enter the name of your bank, then the log in information, and you’re done. Mint’s claim that you can set up your account in 5 minutes may be a bit of an exaggeration, but not by much. I think it took me about 7 minutes to set up all my accounts. Very easy, simple, and straightforward.

Mint.com automatically updates all of your accounts each time you log on. When it updates, it categorizes your expenses for you. The categorizations it makes are pretty accurate, but you will of course need to check on the them and make some changes.

My favorite thing about Mint is that it shows you your net income for each month. This chart helps you gauge how well you are doing month by month, and if you are having success in saving money. It also shows you if your spending is trending upward or downward, and by how much. As you can see, I made a major purchase in September, followed up with some bonus income in October. But, as a whole, my net income each month is positive. This is what you want your net income to look like also. If you have negative net income, then there is a major problem and you need to take drastic steps to change your spending habits.

One thing to make sure you use on Mint is the budget tool. It is VERY simple and easy to read. You simply enter how much you want to spend in a given category each month. Then, as the month progresses, the budget area will keep a running total of how much you have spent in those categories. Piece of cake.

Another great thing about Mint.com is that it is super easy to pull up a pie chart showing the areas where you are spending your money. The pie chart allows you to drill down into the data for each category. So, if you see the category “Groceries”, you can click on it and it will change the chart to show you all you “groceries” purchases. Then you can click on a purchase to go to the transaction page for that transaction to view the details and make any changes that may be needed.

Mint also provides you with alerts when it notices a change in your spending habits, or when you are over budget. You can choose to have Mint email you when you overspend on your budget, or when you have unusually large transactions occur. You can always opt out of the emails, but the main page of Mint will always display these alerts for you.

Overall, Mint.com is the best personal finance software I have ever used. It is fast, easy, convenient, and powerful. I recommend all my readers use Mint.com.

You know those little things you carefully cut out of the paper each week, then promptly lose/forget about? Those are coupons. Everyone knows about coupons, and how much money they can save when you use them to buy things you normally purchase. The good news is that coupons exist in the digital world, too, in the form of coupon codes.

The trouble I always have with coupon codes is that I NEVER seem to have one. Ever. Well, I decided to do something about that the other day. The result: I found RetailMeNot.com

Retailmenot works a little differently than some coupon code sites you may have been to. In Retailmenot, users submit codes that they have found. Others try the code, and report on whether or not it worked. So when you go to Retailmenot, you find can find a whole list of coupons codes for the website you are curious about, and a ranking for how frequently the code worked when people tried it. I have used it several times already, and it has worked great.

The thing that really sets retailmenot apart from the crowd, though, is its downloadable browser extension. If you use Firefox or Internet Explorer (and possibly other browsers), you can download an extension for your browser that will check every site you go to, and then automatically inform you if retailmenot has coupon codes for that site! So, from the moment you visit a potential shopping site, retailmenot will notify you of possible savings. It’s like walking into Walmart and being handed a book of actual, usable coupons. It doesn’t get any easier to save money than that!

The Word on the Street

The ever-so-kind businesses are so generous as to allow us to finance large purchases at zero percent interest!!! What a sweet deal, let’s take it!

The Truth

These deceptive deals can be devastating to anyone who fails to read the fine print.

Conflict of Interest

Businesses are not your friends. They are there to make a profit, plain and simple. They do so by offering a fair exchange of goods and/or services. So, do you really think that the deals they push the most loudly are the things that make them the least money? No way! How many car commercials have you ever seen where they just tell you the price of the car? Not many. It’s always what your payment would be, or, better yet, what your lease would be. Why? Because this is where they make the most money, and at the same time, they make their product more “affordable”.

An Example

Maybe I will just let the numbers speak for themselves. The numbers you are about to see are very powerful: parents please be advised.

I love Best Buy. Truly, I do. They have great stuff. Like this TV. Very nice, wouldn’t you agree? And look, they have this wonderful financing offer. No interest at all for 36 months! Seeing as how I happen to not have $1,600 I think I will take advantage of this great deal. I mean, the payment is only going to be $45 a month. Piece of cake right? I sign on the dotted line and practically strut out of the store, confident that my financial prowess has won me a great deal.

6 months later, it’s December. It’s Christmas time! The holiday is so hectic and crazy, that I forget to make my payment on the TV on time. No biggie, I figure. I’ll just pay $90 next month, and everything will be great. I get my next bill, and get hit by the shock. My balance should be $1,330. Instead, I see a balance owing of $1,562. And my payment should be $45. Instead I see a payment of $74.80!! What happened?

What happened was the fine print. Take another look that financing offer and you will see the phrase “Interest will be charged to your account from the purchase date if plan balance is not paid in full within 3 years or if minimum monthly payments are not made.” This means that if you miss even one payment, they can (and probably will) backcharge all of the interest that you should have paid, and add it onto your balance. Then, they will start charging you their interest rate (21-30%) until the TV is paid off in full. I don’t know about you, but I have been known to be late on a payment a few times in my life. Not often, but occasionally one of my many bills manages to slip past my attention. Unless you have never ever been late on a payment (and I am not sure that’s possible!), there’s a fair chance you might be late once in those three years. So what does being late on that payment do to your bottom line? See for yourself.

6 payments x $45 per payment + 30 payments x $74.80 per payment = $2,514

So. $900 in interest just because you made one tiny little mistake, like being late on a payment. Just in case you were wondering, that is roughly equivalent to paying $2,409 on the day you buy the TV. Below is a table that shows how much the TV costs if you miss a payment at the various stages of the repayment period. Notice that the longer you go before being late, the more the TV winds up costing. This is because the interest that is secretly accruing in the background has more time to compound against you. Then, when you are late, it pounces.

So, it seems apparent that 0% financing can be a risky and expensive way to pay for things. Let’s see if we can find a better way. Suppose you just paid off your car, and now have an extra $200/month freed up. Instead of rushing out to renew that payment on a new car, you decide to reward yourself with a new TV. So, you save that $200 for just 8 months, and now have $1,600 in cash. You run out to Best Buy and, much to the dismay of the salesmen and the envy of your fellow shoppers, throw down cash for this magnificent TV. Let’s pause here and compare where you are at compared to where I was with my 0% financing deal. You have the TV, and no payment. I have the TV, and a $45 payment (for now, anyway). So let’s just suppose you decide you want to take the $45 that I am paying, and put it in the bank. If you can get a high-yield savings account that will give you 4% on you savings, then after 36 months, you would have $1,718 in the bank. So, after 36 months, I have my TV, and nothing else. You have your TV and $1,718 cash in your pocket. That’s enough to buy yet another magnificent set. Or you could keep saving…and pay cash for your next major purchase. This is how paying cash for things truly increases your wealth; if not only saves you from paying interest, if also allows your money to EARN you interest. Paying cash for cars is one of the best things you could ever do for your financial situation.

How do you start down the path of cash? Well, if you are in debt, the first thing to do is to get rid of the debt.
This will require discipline and concerted effort on your part. You may have to deny yourself some things. It will be worth it, trust me. The next step is to simply save your money each month. It’s that easy. If you do so, your money will begin earning interest rather than paying interest, and your wealth will grow.

I like this video. It kind of illustrates how personal finance can be a lot simpler than we sometimes think it is. I will let the video speak for itself.

Couldn’t have said it better myself.