Review: Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders

I recently watched a documentary named Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders. It's about the current state of the American economy, and how consumer debt plays a part in the economy. There were a couple of interesting points about credit card companies that stuck out:

• Why do credit card companies like people that have already declared bankruptcy?
1. They can't file for bankruptcy again
2. They have a taste for credit, in other words, they are willing to make minimum monthly payments forever
• True or false: Does the US Constitution protect your right to privacy, for example, preventing others from collecting or buying your credit history? This is a trick question. Yes, the Constitution protects you from the government's gathering of this type of information, but credit bureaus are not restricted and currently gather more information about you than you know.

If you get a chance, rent or borrow a copy of Maxed Out. It will change your perception of the credit card industry.

Watch Frontline's Secret History of the Credit Card

Great credit card documentary written by Lowell Bergman and David Rummel. It discusses where and when credit cards began, how its use affects families in the U.S., and the current state of the credit card industry.

Watch it online:

http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

Spending Cash

There are a number of benefits to spending cash instead of using checks and credit/debit cards. Of course, I am referring to payment in person (in a store or person to person transactions). Benefits of using cash include:

• Research shows that when you spend cash, you spend up to 33% less.
• You have no worries about bouncing checks after a major purchase.
• You no longer worry about having your credit/debit card denied at the checkout register.
• You don't need to check the balance on your checking account or your credit card limit before going shopping.
• Cash is anonymous. You no longer worry about off-line identity theft (checks and credit/debit cards always leave a paper trail).
• For major purchases, it shows that you have control over your finances and that you are not purchasing the item on credit.
• If you lose the cash, you lose the money. If you lose a credit card, you are required to go through the hassle of calling the credit card company and cancelling your credit card.
• Cash is accepted in more places than credit/debit cards or checks.
• You know exactly what your spending limits are for that shopping trip because when your wallet is empty, you are done spending.
  

Yes, I'll admit that there are a couple of disadvantages to carrying cash:

• If you lose your cash, it's gone.
• After a purchase, you end up with change in your pocket.

Are you comfortable carrying cash? Do you prefer plastic or paper? Let me know if the comments below.

A Cash Budget

In the fall of 2005, my family was cash-strapped and looking for a way to control our money. At that time, I read a number of books by two authors: Mary Hunt and Dave Ramsey. Both of them discuss setting up and managing a budget.

Based on their suggestions, my wife and I decided to try managing our money by operating on a cash budget. We started by breaking down our household spending into distinct categories, and gave each category a separate envelope. On each envelope, we list four columns: Date, Description, Amount and Balance. Each time we add or remove money from the envelope we make a note and adjust the balance. That way, we can read the outside of the envelope and see how much is inside. To find out how much we should put in each envelope each month, we looked at past bank statements and made a guesstimate as to how much we should put into each category every month. At the beginning of every month we sum up the total for all of the envelopes, visit the bank, and withdraw those funds in cash.

Why spend cash? There are a number of reasons. First, studies show that people who spend cash in person spend 30% less than people who use debit or credit cards. Second, we know exactly how much we have to spend each month. For example, we have an entertainment category for movie rentals, restaurants, etc. At the end of the month, if there is any money left, we go out to eat. If the envelope is empty, we don't. This is how we stay on our budget. Many think of a budget as a restriction on their freedom. I see it as the opposite: I control my money instead of it controlling me. Third, I have far fewer concerns about ending up with a zero balance in my checking account the day before payday. Because we withdraw a lump sum in cash at the beginning of the month, there will only be a couple of debits, including utility bills and a mortgage payment, that will withdraw money from our checking account during the month.

Another reason our budget gives us freedom: My wife, my kids and myself each have our own budgeted category. In the past, I always felt guilty buying something for myself and I never knew my limits. I would also get slightly upset at my wife when she would buy something for herself, without first looking at the balance in our checking account. Now each of us has a monthly allowance – that we can save or spend.

The cash budget also helps in emergencies. For example, we have a category for auto maintenance and repairs. After a couple of months of putting deposits in the envelope, we have a couple of hundred dollars saved (in cash) specifically set aside for the time when the car needs to go to the shop for repairs. When paid from the auto maintenance and repairs budget category, a trip to the auto shop has zero impact on the rest of our budget categories.

Our cash budget also allows us to set aside or pro-rate our yearly bills, such as auto insurance. We pay our auto insurance once a year, and in past years we have had to take money out of savings to pay the entire bill. Now, we have taken last year's bill, and we put away 1/12 of the total bill each month. At the end of the year when it comes time to pay the bill, we now have the money available.

There are exceptions to the cash budget. Sometimes, while I'm on the way home from work, I may need to stop and get a couple of items from the grocery story. I may not have any cash from our grocery category with me, but I may stop anyway. I purchase only what I need with my debit card, and when I get home, I pull the amount that I spent on groceries out of the groceries and put it in another envelope labeled 'Deposits'. This envelope is a catch-all for purchases that were made with our debit card. At the beginning of the month, we look at the Deposits envelope, add that amount to the cash that is going to be distributed to each envelope, and subtract the amount from the total that we were going to withdraw in cash from our checking account. This way we stick to our cash budget, and at the beginning of the month we leave any money in our checking account that should stay there.

Since we implemented a cash budget, we have been able to take control of our finances. It has allowed us to stop living paycheck to paycheck. We have gained peace of mind, knowing that we can pay our bills and still have money left at the end of the month. If I've convinced you to start living on a budget, I'd like to know if you have any questions or comments. Please leave feedback below.

Remove your name from credit card mailing lists

The last time you went to the mailbox, how many pieces of junk mail did you receive? Five? Ten? And of that number, how many were for pre-approved credit cards or insurance? Two or three? Here's a website that can remove your name from many of these mailing lists: http://OptOutPrescreen.com.

This website is sponsored by TransUnion, Experian, and Equifax, the three major credit reporting bureaus. It offers two options for removing your name from these mailing lists: submit electronically, and your name will be removed for five years. Print out, sign and mail in the form, and you will be removed permanently. You can also call 1-888-5-OPTOUT if you would like to have your name removed by a live phone agent.

I submitted my name and address, and will drop the printed form in the mail today.

Introduction

Welcome to the Savvy Family Finances blog. Our passion is providing for our families, spending wisely, and saving to ensure our families' financial security. We will be posting about our personal experiences, reviewing financial articles and books, and linking to awesome deals on products that we have purchased or plan on purchasing.

We hope that you can use this information to make wise financial decisions. Please leave appropriate comments, and include information that has helped you make wise financial decisions for your family.