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stack of coinsWhen your finances are tight, you have two options before you. You either cut costs or increase your income. In most cases, people opt for the former because it is the fastest thing to do. You simply choose not to pay for something that you usually do when there is an immediate financial need. However, increasing your income is usually preferable because it keeps you and your family from feeling the burden of the financial difficulty. Of course, only the person who is trying to earn more will notice the change. The good thing about it also is that after the crisis has passed, you will benefit from the additional income that you have set up already.

But we all know that increasing your income is easier said than done. After all, the unemployment rate, although it has improved after the Great Recession, is still not enough to sustain what the middle and lower class really needs.

Lately, the issue about income inequality have come into the spotlight once more. Apparently, the gap between the rich and the poor is steadily increasing over the years. According to EPI.org, in 1979, 53.9% of the income increase in the US was taken home by the top 1% earners in the country. Over the period between 1979 and 2007, the income growth of the top 1% is 200.5%. For the remaining 99%, it was only a pitiful 18.9% growth.

Given these figures, you will know that even if you work hard on your job, statistics show that you will only get so much out of the overall income increase that the country is getting. But then again, maybe increasing your income is not really the solution.

What if you are told that obsessing about earning more will cost you more in the long run?

Why are Americans obsessed about earning more

First of all, let us identify why Americans are obsessed about increasing their monthly cash inflow. There are a couple of reasons why we are constantly after a higher take home pay.

It in our culture.

Americans love everything in excess. We are not really sure how all of this began. A lot of people say it was after the war when people started buying bigger homes and borrowing money to pay for that. Some believe it was after the credit industry loosened their approval restrictions. But regardless of how it started, you cannot erase the fact that if given a choice, we would prefer to live in bigger homes, drive expensive cars, own countless clothes and shoes, and have all the latest gadgets that we can get our hands on. Of course, all of these require money and that is one of the factors that influences our pursuit of a higher income. Not because we feel that our work deserves it. But more because we want to own more and better things as we age. Bob Sullivan, in his website BobSullivan.net actually calls us “the land of the Restless.” He explained how Americans are continually restless and that even though we earn more, we are never really satisfied. After an increase in income, we usually end up still falling short financially. That indicates a problem with the way we use our money, not the amount that is actually coming in.

We have accumulated a lot of debt.

Another reason why we are compelled to earn more is because of debt. Thanks to the consumerist society that we grew up in, we believed that owning more means we get to appear more affluent. Unfortunately, we were not taught to save up for it first. We used credit left and right just to satisfy the need to own more. That resulted in a lot of debt. Since we have to worry about debt payment on top of our monthly expenses, our income ended up being insufficient. It means increasing your income is now a must. Of course, you have the option to lower your monthly debt payments through debt relief. However, that will make the payment period stretch out longer – unless you have opted for debt reduction. But in most cases, the income increase is the solution to pay off your debts a lot faster.

Our future goals require money.

On a more positive note, people want to earn more because they have dreams for the future. You strive on increasing your income because you want to retire early and comfortably. You want a higher pay because you want to send your kids to a good school. You work two jobs because you want to save up for a new home. These are great motivations to increase your earnings but make sure that your target is realistic. Do not go over the top because you might end up exhausting yourself.

How working harder actually costs more money

Let’s be honest, we all want to earn more money. This is especially true for those who come from low income household. However, the issue here is this: what are you giving up to get that income increase?

Here are a couple of things that you are giving up when you choose to earn more.

  • Time. In most cases, increasing your income means you have to allot more time working. That means you are sacrificing the personal time that you should be spending with your loved ones. Even those who are single are sacrificing the time that should have been spent on their personal well being. You may want to think about the quality time that you are losing with your spouse, kids and friends.
  • Chores. This is connected with the time that you are losing out to work. Since you are working more, you have less time to cook, clean the house, etc. That means more money is spent on take out food, and probably hiring someone to help around the house. It could also mean doing the laundry twice because you are too tired to finish a week’s load of dirty clothes.
  • Health. Another thing that you may want to look into is your health. According to an article published on PRB.org, after the Great Recession, people got back to work but it was usually to a job that pays lower wages. That means if you want to increase your income, you may have to work longer or get two jobs. Working longer hours because you are bent on increasing your income means your physical and mental condition is more stressed. That could take its toll on your body and increase the risk of you getting an illness. We all know how costly it is to get health care nowadays so make sure your need to increase your salary is worth it.

In the end, you have to weigh what working more will really cost you. Your health, relationships and personal well-being may not be measurable but they are all equally important in your life. Make sure that you are not abusing what your body can handle.

If increasing your income can be done without you having to work longer hours, that is the ideal situation. Setting up a passive income business is a great place to start. Think about your options before plunging into the task of earning more. You can even capitalize on a hobby so you can increase your income while enjoying what you are actually doing.

woman holding a house and some cashDo you think frugal living is the answer to improving your current financial condition? It is possible. There are actually a lot of factors affecting your ability to improve your finances. But one of the highest reasons for your financial situation is your spending lifestyle. Regardless of how much you earn, it will dictate how successful your are when it comes to increasing your personal net worth.

Of course, it is foolish to think that increasing your income does not have a hand in improving your finances. It is the catalyst by which you will improve your wealth. However, there seems to be some inequality when it comes to the income distribution. According to the report coming from the FederalReserve.gov, only a small percentage of Americans benefited from the income gains between 2010 to 2013. Simply put, it is was only the rich who was getting richer and the rest of the population is still struggling.

Somehow, you can say that this is a major reason why it is hard to a lot of Americans to experience a boost in their household finances. Unfortunately, this is a tough hurdle to overcome. It will be a long journey before we can hope to deal with the income inequality issue. It is actually tough to determine if someone is already doing something about it.

But even if the issue is far from being resolved, that does not mean you cannot change something to help alleviate your situation. This is where frugal living becomes a solution.

How frugality teaches you that more is not always merrier

The thing about Americans that is destroying our financial lives is our preference for everything that is big. We like everything to be big because we feel that it is the main proof of our success. While buying more may feel like you are rolling high, that only shows superficial success. Underneath it all, you know that the material things will soon fade away and your future is not as stable as you thought it would be.

Frugal living is actually against anything that is excessive. It is not about deprivation. It is about being wise about your expenses so that you will never go beyond what you can afford to spend. It is being cautious about where your money is going. It is making sure that you are not only spending on the present, but also investing in the future.

The thing that should prompt you to use a frugal budget is that it eliminates the usual notion that bigger is better. Being frugal means you can spend your money but only on what is essential and really important to you. It is not about the luxury cars or the big houses. It is more about buying a car and a home so you can live a comfortable life – not a luxurious one.

When you live with the notion that bigger is better, you are exposing yourself to two pitfalls.

The materialism trap

This is the mentality that feeds on the notion that the more you have, the happier you will be. This is one of the most incorrect mentalities there is. While owning a lot of things may seem like being in abundance, you are slowly, but surely, enslaving yourself to your possessions. Moving to a new location will be tough because you have so many things to take care of. You will always feel compelled to own the latest gadgets and expensive items in the market because you feel that your happiness is tied with it. But we all know that material things will not make you happy for long. It will soon fade away and leave you with emptiness.

The pitfall of debt

The NewYorkFed.org reports that non-housing debt increased by 1.9%. These include the auto loan increase of $30 billion, credit card increase of $10 billion and student loan increase of $7 billion. While the mortgage balance decreased, the debt continues to remain at a high amount for American households. Frugal living, while it does not directly oppose debt, strongly teaches consumers to live below their means. This is to avoid the need to be in debt. You do not have to eliminate it totally because you need to maintain a high credit score. However, you should never put yourself in a position wherein you are borrowing money because you have your back against the wall. That is how it all becomes dangerous and your finances end up in ruins.

Things that you do not need to be big in a frugal lifestyle

Truth is, spending is easier than reaching saving goals. But that does not mean you should go the easy way. What you need to understand is that bigger is not always better for you. Frugal living does not support this. What it promotes is getting only what is just right and never anything in excess.

According to the survey done by Gallup.com, 45% of Americans have reported that they are spending more now than the previous year. Most of their expenses are on necessary items so it may seem justifiable. However, you should also criticize if the huge takers of your budget are too excessive for your actual needs.

Here are a couple of things that are not always better when you buy more of them.

  • Food in bulk. It is true that you can save more when you buy in bulk – but only when your family can finish it off before the expiration date. If you know that you cannot consume what you have bought before it expires, then you are wasting money in the process.
  • Big homes. If you have a big family and your finances can afford it, then go ahead and buy a big house. But if you only have one child, a smaller home is more practical – even if your current income can afford a bigger home. Remember, a big house would also mean bigger repair, maintenance and utility costs.
  • Luxurious cars. As long as the car is fuel efficient and will not drain your wallet in terms of repair and maintenance, then it should serve its purpose.
  • Huge TVs. While having that big screen is great, they are not always the most long lasting of the bunch. Not only are they expensive, but they are known to have a lower lifespan compared to the smaller TVs.
  • Bulky appliances. Lastly, the big fridge or the huge washing machine may seem like a great idea but you should know that they cost more energy to run – even if they are energy efficient.

Try to live by the rules of frugal living and you should be able to free yourself from the need to buy more just to appear successful. As long as you have what is essential to survive, it should be enough for you to live by. And whatever is left of your finances, you should learn to save it. It may not be for the rainy day, but it should be saved for the future expenses that you will make. That way, you can build up your finances so you can hope to achieve financial independence. That means you do not have to work so you can live. You have already placed your money somewhere it can work for you and generate income – like investing!

steering wheel with a piggy bankGetting a car loan to purchase a vehicle is a common practice for American consumers. In fact, using credit for a lot of purchases is a preferred payment method for a lot of buyers. Whether that is buying a home, a new TV, a kitchen equipment – we all love to use our plastic or go to the bank to get a loan.

But while the practice may be common, that does not mean you should automatically assume that this will be your mode of payment. It is important for you to consider all your options first before you actually proceed to apply for a loan.

Smart spending is not really about using cash alone. You can still use credit but you have to do so properly. Make sure that you understand the pros and cons before you finalize your decision to use a loan to make a purchase – especially if it is for a car.

In truth, there are purchases that are loan worthy. For instance, a home is an expensive expense that nobody really expects you to pay it in cash. However, there are purchases like buying a car that you need to think twice before you take out a loan to buy it. That is because a car, once you drive off from the dealership, starts to depreciate on you. No matter how short the term of your car loan is, you will always end up paying more than the actual value of the vehicle.

How to maximize your auto loan

But if a car is needed and there is no way for you to save up for it to buy one in cash, you may want to consider these important tips when you are getting an auto loan.

  • Set a budget. As soon as you decide to buy a car, whether you intend to use cash or credit, you have to set a budget first. That way, you can limit your search options. You can do this by considering your other expenses and debts. Make sure that you do not only consider the monthly loan payments – you should also consider the other costs involved in car ownership.
  • Get as much cash as you can. Even if you cannot pay 100% in cash, save up at least for a downpayment. That way, you can minimize the loss in value that is usually present when you buy a vehicle through a car loan. Even 25% can make a big difference in your budget.
  • Take a look at your credit score. Before you apply for a loan, make sure you check your credit score first. Do you need to improve your credit score or is it in fairly good condition? If it is the former, then you may want to consider working on your score first. That way, you will not be charged with high interest rate on your loan – which is very common for borrowers with a bad credit. In case there are errors in your credit report that is causing your score to be lower, you need to correct that so you can get the lowest interest on your car loan.
  • Understand the APR of loans. The APR is the annual percentage rate. When you are borrowing money from any financial institution, the loans rates usually reflect the APR. This is a combination of the interest and fees involved in the loan. The rule is, the lower the APR, the more you will save money.
  • Know your loan term options. When you have a long term loan, that means you will be paying less each month because your debt will be divided into more payments. However, you will be paying more on interest amount. But if you get a short term loan, you will pay more each month but you will end up saving more because you pay less interest. According to Reuters.com, regulators are quite concerned because financial institutions, banks in particular, offer long term loans to borrowers with bad credit. That means they pay much more than the actual value of the car. It ends up compromising the finances of the consumer all the more.
  • Compare the loan rates and terms of different lenders. There are many websites that has a list of rates and terms from various lenders. You may want to look at them so you can check which of them will give you the most savings. You can also look for online calculators that will help you determine the monthly payments that you are expected to make on the car loan each month.
  • Get to know your lenders. There are different ways for you to get your car financing. Aside from banks, you can also borrow money from credit unions. The car dealership also has their own financing terms that they can offer you. Make sure you consider the loans being offered by each. Most of them have their own discounting schemes and you should consider each carefully. Generally, credit unions have the best rates but it is up to you which you will use.
  • Detail all your payments. Remember that your loan is not the only thing that you have to pay off. Do not forget the interest rate too. Factor that in your payments.

It is also a good idea if you can trade in your old car and include it in the deal. It will help lower the car loan that you have to borrow. But make sure that you ask the dealer to detail all the prices. For instance, get the price of the car you will buy, the trade in value of the current car, and the financing terms of the dealer. That way, you will know just how much you are really paying for.

Know the car costs on top of your loan

We have mentioned earlier that you have other costs to worry about apart from the monthly payments on your auto loan. These include your car repairs, maintenance, gas and car insurance. There are other payments too but these are the general costs of car ownership.

According to an article on CBSNews.com, these are the estimated costs of owning a car.

  • Small sedan – The cost of gas and basic maintenance per mile is 16.3 cents. The annual cost of driving 15,000 miles a year is $6,957.
  • Medium sedan – The cost of gas and basic maintenance per mile is 19.1 cents. The annual cost of driving 15,000 miles a year is $8,839.
  • Large sedan – The cost of gas and basic maintenance per mile is 21.7 cents. The annual cost of driving 15,000 miles a year is $10,831.
  • SUV – The cost of gas and basic maintenance per mile is 23.8 cents. The annual cost of driving 15,000 miles a year is $11,039.
  • Minivan – The cost of gas and basic maintenance per mile is 21.4 cents. The annual cost of driving 15,000 miles a year is $9,753.

According to the article, this is lower than the estimated cost of car ownership in 2013. These data comes from the AAA. If you wish to learn how to compute the actual cost, then you may want to view the report from AAA.biz. It has instructions on how you can calculate the amount of money that you need to spend on the car that you are eyeing to buy. This will give you a good idea on how you can budget your money. It will also help you decide on the amount of money that you should get on your car loan.

family buying fruitsEveryone wants to learn how to be a financial success. It is what we were groomed to be right from the beginning. When we were young, we were encouraged to study well so we can get into good colleges. We were told that a college education will help us get a great paying job that will allow us to succeed financially.

Everything about our life seems to be about this pursuit of richness. We think that wealth is what will help us feel accomplished in life. We believe that if we have a certain amount of money, it will bring us happiness, contentment and a long-fulfilled life.

While being rich certainly has its perks, you need to be wise about how you will reach that goal. It is true that being wealthy will allow you to be happy – since most of what makes us happy costs money. But make sure you achieve that goal without losing sight of the other priority things in life.

You see, some people think that if they work longer hours, spend more time in the office and less on their personal lives, they will be financially successful. Well financial success goes beyond what you earn. That is a very important truth that you should know about being a real success.

2 ways your health can make you financially successful

Health is wealth. That is true. We are not trying to go on cliches but this is one of the vital truths that most of us fail to consider. When you fail to take care of your health, it will cost you – a lot. But if you keep yourself healthy, you will be more likely to achieve financial success.

There are 2 ways that a good health can make you successful financially.

Getting enough sleep

This may seem trivial to some people but it is very important if you think about what lack of sleep will cost you. According to a study published on Harvard.edu, scientific evidence linking sleep and mental performance go way back in the 1930s. This discovery was done by Nathaniel Kleitman, one of the pioneers in the sleep medicine field. He observed a pattern in the cognitive performance of people who are deprived of enough sleep. It is discovered that even one night of sleep deprivation will have a significant effect on the ability of your mind to focus. Not only that, it has a negative effect on our ability to perform cognitive functions – like decision making.

So if you are on the verge of making an important financial decision and you feel yourself losing sleep over it, you have to stop that habit. Force yourself to have a good nights sleep. That is the only way that you can condition your mind to logically weigh the pros and cons of your decision.

The same article from the Harvard website also mentioned that lack of sleep affects our mood too. So it is not just your brain that is going to be compromised – your emotions too. Whether you like it or not, your financial success is also affected by your emotions. If your mind is weak and your emotions are fluctuating, you might be more inclined to rely on your feelings to make decisions.

If there is an important decision to be made, make sure you sleep it over before you make your choice. According to WebMD.com, sleep allows you to put energy back into your body bank every time you go to sleep. Your body is being repaired on a cellular level – that makes you more fit to make the right decisions that will lead to your financial success.

Preventing illnesses

Another contribution that a good health has on your way to being financially successful is it keeps you from spending on high medical treatments. According to the HuffingtonPost.com, Americans pay more on healthcare compared to other countries in the world. The International Federation of Health Plans compared various drugs and medical services from other developed countries and they found out that we pay a lot more. For instance, American pay $215 for a prescription of Nexium – a common remedy for acid reflux. This is the most expensive of all. The second most expensive is in Switzerland and they only pay $60 for the same medical need. In Netherlands, they only pay $23.

For Copaxone, a popular remedy for multiple sclerosis, Americans pay $3.903 while those in Switzerland, the second most expensive, pay only $1,357. Those living in England only pay $862.

Imagine the amount of money that you have to spend on getting yourself healed from illnesses. If you live a healthy lifestyle by eating the right diet and getting enough exercise, you may not need these prescriptions. What you save by not spending on medical expenses can be used on something else. Things like investing more money is the first that comes to mind. Contributing to your retirement fund is another. Boosting your emergency fund is also something that can help you achieve financial success. Even if you think that you are physically okay now because you are still young, you should not abuse your body. Because your irresponsible behavior now will cost you a lot of medical expenses when you get old. That might compromise what you have worked so hard to accomplish in your financial standing.

3 steps to achieve a healthier you and improved finances

When it comes to keeping yourself healthy, what you need to focus on is your habits. You have to identify the old habits that will ruin your health because eventually, it will lead to you being a financial failure.

In truth, the way towards a healthier lifestyle is similar to improving your financial situation. Here are three steps that you need to follow.

  1. Eliminate the excuses. Most people believe that the first step is always the hardest. That is because this is when all the excuses will try to bring you down. You can blame your work, your need to buy stuff and to provide for your family. These are the excuses that you usually make to make abusing your body okay. Stop the excuses and focus on the benefits of living a healthier lifestyle.
  2. Strategize. Once you have gotten rid of the excuses, you can now concentrate on making a plan. Nobody accomplishes anything worthwhile by going with the flow. What you need is a detailed plan that will allow you to meet your new goals while still satisfying the old ones. It will also help you identify the old habits that are compromising your good health. Just like you need financial planning, you also have to plan how to live a healthier lifestyle.
  3. Implement. The last step is to implement your plan. Some people are so enthusiastic in creating a plan but end up failing because they did not do a good job at following through their plan. Make sure that you follow your plan to the letter. If you have exerted all the effort needed to make it work but it still fails, check your plan. It might not be realistic. If that is the case, then you may have to change your plan.

Being a financial success is not really a rocket science. But you have to make sure you understand all the factors that will help you reach it. Do not think that something that is seemingly non-financial can contribute to your finances. Nothing is too small when it comes to your finances. One mistake can be enough to put you down a spiral of debts.

interest rateDo you think that you can get lower credit card interest rates? Of course you can! All you have to do is ask. It is not against the law to request for a lower credit card rate. However, you also have to understand that you cannot force your creditor to lower it if they do not want to.

Truth be told, lesser consumers should have no problems with their credit cards if only the rates were not too high. Of all the other debt types, this is the debt with the highest rates. According to the latest data from Bankrate.com, the average interest rate for credit cards is at 15.66%. It is more than half of the next highest loan rate – which is for student loans at 6.8%. Mortgage loans has an average of 4.24%, home equity has 4.38% and auto loans has an average of 3.22%.

Imagine how much money you are wasting on your credit card rate. If you owe $10,000, there is a chance that you will be charged $1,566 on that debt. Seems unfair right? Some card even have an interest of 36%. You should seriously consider than every time you swipe your card. It is no joke to waste that much money on purchases that you can pay in cash.

Important things to know about the interest on your cards

According to the credit card rate report from CreditCards.com, the lowest interest rate that are offered averages at 10.37%. That is still a high rate compared to other types of debt. The rate will also vary depending on what type of card you have: balance transfer (12.73%), business cards (12.80%), student cards (13.27%), rewards card (15.04%) and airline cards (15.46%). If you have a bad credit score, it gets worse because the average credit card interest that you will get is 22.73%.

To make things worse, the law allows creditors to raise their interest rates for no reason at all. They are only required by the law to give all consumers that will be affected at least 45 days notice before the implementation of the new rates. According to ConsumerFinance.gov, the significant changes that creditors are allowed to make includes the interest rate, minimum amount requirement, grace period and even their method in computing the charges on your card.

The website states that although these are allowed, there are certain limitations to what creditors can change. Like they cannot change the interest on an existing balance unless you are 60 days past your due. But if you already solved that problem, you can request them to lower your rate and they should comply.

Other than that, they have no legal obligation to agree to lower your rate just because you asked them to. But that does not mean you should not try at all.

5 reasons to give creditors for a lower interest rate on your card

A lot of consumers have called their creditors to ask for a lower rate on their credit card. Your creditors are not heartless and if you explain the situation to them, they might agree to lower your interest rate. Sometimes, you don’t even have to be in a bad financial situation. As long as you know how to negotiate your case properly, you should have a fighting chance to succeed in lowering your credit card rate.

Here are 5 arguments that you can give to help convince your credit card issuer that you deserve a lower interest rate.

You have a good credit history. One of the strong arguments that you can make is that you have been a good credit card holder. If you have been paying your dues on time and you do not miss any payments, you can use this reasoning. Let your creditors know that you are a responsible credit manager and that they do not have to protect themselves by giving you a high interest rate.

You have a long credit history. If you have had that card for several years, you can also use that to help convince your creditor to lower your card rate. The credit card company still views you as their customer. The prospect of losing old clients will make them more amenable to agree to your proposal.

You are thinking of transferring your balance. This is applicable to those who are struggling with a lot of debts. Using balance transfer to solve credit card problems is one of the ways you can convince your creditors to lower your rate.  If you have found a card that offers a lower interest if you open with them, then this is something that you can bring up with your existing creditor. Let them know that you are having a hard time paying off your debts because of the high interest rate and that you have received a lower offer from another bank. Ask them if they can match the offer of other bank so you do not have to transfer your balance.

You are torn between loyalty and practicality. This uses the same scenario as above. However, you will play on your loyalty towards the card. This will work if you have been with the company for a couple of years. Let them know that you received a good offer from another bank about a lower credit card rate than your existing. Tell your creditor that the offer is appealing but you would like to know if they can match it first because you would rather stay with your old creditor instead of transferring to a new one.

You just make an offer. Sometimes, you do not have to make any excuses. Just make an offer and let them know that you think your rate is too high and that you believe you deserve a better credit card rate.

What to do if your creditor refuses to lower the rate of your credit card

While all the above mentioned arguments are sound, not all creditors will agree to lower your rate. If that happens, you have a couple of options before you.

  • Wait a few months and try again. If they did not agree the first time, let it go and wait a couple of months before you try again. See if you get better luck at negotiating a lower rate.
  • Do not add to the balance and slowly pay it off. In most cases, any high interest rate that was just implemented only applies to new purchases. If this is the case, then just do not make any purchase for the meantime and pay off what you owe. When you have paid it off, you can call the creditor again to ask for a lower interest rate. If they refuse, then you can do the next option.
  • Transfer to a new credit card. When the credit card issuer refuse to lower your credit card rate, you can tell them that you will just transfer to another creditor who offered you a lower interest rate. Since you do not any balance with the old card, this should be easy to do.
  • Get debt help. If you cannot transfer to a new card and your high interest rate is really troubling you, then you may want to think about debt relief. Some people deal with credit card interest rate that is too high through debt relief. Call a credit counselor and ask them for your options to pay off your credit card debt. There are non profit credit counseling agencies that you can go to for help. They should be able to help you with a payment plan that you can afford. In some cases, they can even help you negotiate for a lower interest rate.

Do not think that you have no power to change your credit card rate in case it gets too high. Even if your creditor refuses to agree to your proposal, you have the option to transfer to another credit can company with better rates and terms.