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Frugality is an approach to managing personal finances that focuses on saving money through smart choices. To be frugal, you need not always opt for the lowest cost, but the best quality for the price. Consumerism Commentary offers many frugal living tips.

Frugal Living Tips

Frugality is an approach to managing personal finances that focuses on saving money through smart choices. To be frugal, you need not always opt for the lowest cost, but the best quality for the price. Consumerism Commentary offers many frugal living tips.

The concept of the Latte Factor is one of the most divisive in personal finance. Money gurus get so worked up over whether the Latte Factor is a valuable lesson in money management, that one might think the issue were as important as the national debt. Most of the time, passionate responses pertaining to the Latte Factor are based more on book sales and page views than any rational consideration of the issue, though.

latte

The Latte Factor is a term coined and trademarked by financial author and guru David Bach. He posits that small, repeated savings — of which people can make into habits — can aid the growth of wealth over time. The math supports this as truth: Assume you spend five dollars every weekday on a fancy, coffee-related drink on the way to your office. Now, imagine you cut out the coffee, or replace it with a $1.50, less-fancy drink. You would save at least $20 a week, or about $1,000 a year.

Take it a step further and put that money in a bank or invest it. Then, assume that you can earn a return from interest, dividends, or investment gains on that cash. Over the next ten years, you’ll have somewhere in the neighborhood of $15,000 more to your name than you would have, had you continued buying your daily gourmet drink.

Take it a step furtherLatte Factor Coffee

This concept isn’t limited to expensive coffee-related drinks, though. Any habits that result in spending money that could be deemed unnecessary can qualify for elimination due to the Latte Factor. Cook your own food rather than dining out once a week, and you could save just as much money (or more) over the same period. Cut out your premium cable package in exchange for Netflix or Amazon Prime streaming, and tuck that cash away.

Most people, however, don’t bridge the gap between reducing spending in one area and increasing savings with the difference. Unless there’s a concerted, conscious effort to transfer money from a checking account to a savings account or an investment, the money formerly spent on lattes or other repeatable expense will often just be spent on something else.

Furthermore, families that have already reduced their spending due to personal or economic situations may not have much room left to scrape the barrel. Finding additional savings can be too much to ask.

Yet another criticism of the Latte Factor is that it minimizes the importance of reducing large expenses. If a family gets into the habit of saving money ordinarily spent on lattes and uses that attitude to justify buying a more expensive car, all the work will have been for naught.

Well, I take that back: the work would have been for a more expensive car. But, in my opinion, there are about 100 better uses for that extra, squirreled cash.

Do what works for you

All spending is a choice. It’s easy to remember this when a friend refuses to spend time with you, citing the expense of the activity, while they continue to purchase unnecessary electronics equipment, for example. You can identify someone’s priorities by looking at how they choose to spend the money they have and the time they have available. If you look at your own priorities, your budget should match.

Whether you realize it or not, you’re broadcasting your priorities to the world. Spending money and time in one area of your life, at the expense of another area, is really all the evidence you need. If there’s incongruence between the priorities you think you should have and how you spend your time and money, consider changing something. Or maybe, you need to accept the idea that your priorities may not be what you expect. Your real priorities are evidenced by how you spend your limited resources.

So, what if the pick-me-up you receive by drinking a fancy latte in the morning is important to you? As long as you realize that your habit results in a hypothetical “loss” of $10,000 or more over the course of ten years, spend the money. Sure, buying a practical car that requires little care, uses fuel efficiently, and will last a long time can save money over the course of several decades. But if buying a less practical car makes you feel happy and won’t be a financial hardship — even if it means leasing a new car every three years — then go ahead.

Just remember, though: Your spending reflects your priorities.

I see this in my own spending. For example, I still drive my old Honda Civic. In one respect, I haven’t purchased a new car because I see it as an unnecessary expense. I’m more than comfortable with keeping the money I would need to buy a new car in my savings account. Meanwhile, I spend money on things other people would see as frivolous, such as photography classes and equipment, hiring a maid service for my apartment on a bi-weekly basis, coin collecting (though not much recently), and travel.

Is the Latte Factor relevant to your personal finance experience? What does your spending say about your priorities? 

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credit-karma-tax-softwareThe first time I filed my very own taxes was with Turbo Tax, back in 2003. I was 18 years old at the time, attending college, and it was the first year my parents could not claim me as a dependent.

I had earned a fair amount of income from my jobs on campus (and my summer job) and Turbo Tax was of great help.  Living in Florida, I (luckily) didn’t have to worry about state filing costs… the entire experience of entering two W-2s and getting a refund took all of 10 minutes.  It was exactly as advertised, and I was 100% satisfied.

Before I knew it, however, my tax situation became more and more complicated.  I started my own business, began saving a small amount for retirement, got married, had children, bought a house, started a second business … the basic version of Turbo Tax wasn’t cutting it.  Upgraded versions started costing serious money (upwards of $100). Plus, even more money to file my state taxes, now that I live in Connecticut instead of Florida.  It has actually become better for me to have a CPA handle my taxes each year, rather than worry about screwing it up myself while still paying $150 via Turbo Tax or H&R Block.

Well, in a new and very surprising move — at least to this financial blogger– Credit Karma now offers FREE tax software for almost every American taxpayer.  And when I say FREE, I mean it costs absolutely nothing to file both your Federal and State tax returns. No matter your individual (very important) tax situation, there’s no charge when you open an account, no charge when you file, and no charge whether you’re reporting $45,000,000 or $45,000.  (**If you own a small business that files S corp, C corp, partnership, or multi-member LLC paperwork, I’m afraid you’re out of luck this year for filing your business taxes. Credit Karma cannot yet file your return — but this won’t be the case forever, says their CEO.)

Some important points to make before talking about how Credit Karma can provide such a service:

  • The software is not yet live but will be in January — you can even “get in line” now to gain access. You will absolutely be able to file your 2016 taxes next year.
  • You must have a CreditKarma.com account (it’s free) in order to utilize their tax filing platform.
  • Your 2016 Federal and State tax returns are due no later than April 18, 2017.
  • You can print and mail your return after completing it using Credit Karma, if you so desire.  You don’t have to e-file if you don’t want to.
  • Filing your return can only be done by logging into their platform; the software cannot be downloaded.

credit-karma-tax-software-image

When Did Credit Karma Become a Tax Software Company?

Earlier this year, Credit Karma purchased a North Carolina based tax preparation company named AFJC Corporation.  AFJC Corporation is a provider of online tax preparation, filing solutions, and related services for individuals, certified tax preparers, and financial institutions.  As a result of this purchase, Credit Karma is opening a new office in Charlotte, NC, entirely focused on their tax prep services.

Before this purchase, Credit Karma was known for being able to provide you with a free credit score, without even requiring a credit card.  Before them, the deal with other credit score providers was that for the first X number of days, you could see your score without charge. After that, though, your free trial period would end and you’d have to pay a monthly service.

Related: How to Get Your Credit Report for Free

Credit Karma didn’t like that system, which all of the other companies were using. They took the idea a step further and decided to make the whole damn thing free.  And as you can see from their new tax platform, it’s kind of their thing to take an existing pay-for service and make it 100% free.

How Can Credit Karma Make Tax Filing Free of Charge?

Credit Karma is likely spending millions of dollars on their new office, millions of dollars to develop the software to be able to provide 100M tax returns, millions of dollars in advertising (I just saw a TV commercial for their new software), and millions of dollars to staff it all, so that if problems arise, they have plenty of support available.  And, of course, they don’t plan to take in a single penny of revenue from tax filers.

What now? How does Credit Karma plan to make money?  Well, every piece of information you provide them when filing your taxes is going to be used to offer you services in those industries.  For example:

  • When you enter your home mortgage interest, you’ll get an email about suitable refinance options. (If you sign up for any of them, Credit Karma gets a commission.)
  • When you enter your business expense report, and show a lot of travel, you’ll get an email about potential travel reward credit cards .(If you are approved for any of them, Credit Karma gets a commission.)
  • When you enter your self employment health care costs, you’ll get an email about other medical insurance providers that might save you money. (If you apply for any of them, Credit Karma gets a commission.)

You get the idea.  Of course, this is something they’ve already been doing when you get your free credit score through CreditKarma.com. Here, though, they’ll be able to do it on a much grander scale, getting (what should be) 100% accurate information about the consumer and pinpointing offers that might suit their needs.  A lot of up front costs now and, if all goes according to plan, a lot of revenue later.

What Happens to Turbo Tax, H&R Block, TaxACT, my CPA…?

If Credit Karma is successful in offering 100% free-of-charge tax returns for tens of millions of Americans, then it’s a grim picture for the names above (and many others not mentioned).  Platforms like Turbo Tax and H&R Block make their revenues from the costs they charge to file taxes, even if some of their services are free.  Seeing as the news is pretty fresh, I would imagine many other companies are getting ready to cut prices drastically in order to keep business for 2017 and beyond.

What if Credit Karma is not successful in this venture and the revenues cannot sustain the business? Then, you’ll likely see an emboldened group of tax prep providers, strengthening their core products and platforms.

As tax season approaches, I plan to update this article with fresh screenshots and information on the Credit Karma tax prep platform. For right now, they offer no other information than to wait.  So, I wait. But be sure to check back in the coming weeks to learn more, as the Credit Karma Tax unveiling gets underway.

Oh, and don’t worry, H&R Block. My parents will still spend $300 to sit down with you for 4 hours, filing their single W-2 with no investment income. (It’s amazing I turned out so well, really.)

 

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Over the past few years, cell phone providers have declared an out-and-out war to win over consumers. This spells good things for the consumers, who can now take advantage of more low-cost cell phone plans than ever.

These days, even the “big four” cell providers — Sprint, T-Mobile, AT&T, and Verizon — are lowering their prices. And there is a host of other companies jumping on board with cheap voice, text, and data services.

Finding the right plan for your needs requires some research, though. First off, the provider you choose should have decent coverage in your area and areas to which you travel often. Saving $15 a month on your cell phone bill doesn’t mean much if you constantly drop calls in your own living room!

Plus, you’ll need to ensure that the plan you choose has what you really need in a cell phone plan. That might mean unlimited voice and text, or a hefty amount of data for your business.

Whenever you are ready to lower your cell phone bill, check out these 20 low-cost plan options.

Sprint Unlimited Freedom and Family Plans

This plan offers two lines with unlimited data, talk, and text for $100 per month. It offers unlimited 4G LTE data, and allows you to add up to 10 additional lines for $30 each. Or you could opt for a cheaper family plan with limited, shared data and $20 per line access.

T-Mobile ONE

The ONE plan offers unlimited talk, text, and data for $70 for the first line, $50 for the second line, and $20 for up to two additional lines — so $140 per month for four lines. Or you could get four lines for $120 per month when you use Auto Pay. The plan offers unlimited everything in Mexico and Canada, and unlimited text and data just about anywhere else in the world.

AT&T Mobile Share Advantage

This customizable plan allows you to choose how much data you want to share, from 1GB for $30 a month to 100GB for $450 per month. Then, add smartphones for a monthly access fee of $20 per month. If you don’t use much data, this plan would be a great way to cut your expenses down to as little as $70 per month for two lines and limited data access.

Verizon Plan

This giant is known for its great coverage, but has started to lower its prices to stay competitive. The plan comes in five “sizes” from S to XXL. As with AT&T, this plan allows you to customize your data to what you’ll actually use, which can save low-data users some money. There’s a $20/month charge per phone, and data costs anywhere from $35/month for 2GB to $110/month for 24GB+2GB per line.

Metro PC

Launching into the smaller providers, we’ll start with Metro PCS, which offers nationwide 4G coverage. Its “unlimited” data, talk, and text plan really comes with 1GB of 4G data before kicking you down to lower data speeds. Still, the plan is a good deal at just $30 per month, or $25 per month as part of a family plan. For just $50 per month, you can get unlimited talk and text plus 5GB of 4G data.

Cricket

Cricket’s Basic plan runs just $40 per month, and includes unlimited nationwide text and talk plus 2.5GB of high-speed data access. Or the $70/month Unlimited plan offers unlimited high-speed data, unlimited nationwide talk and text, unlimited international texting, and data access and unlimited talk and text to and from Mexico and Canada. Cricket also offers group pricing and discounts for signing up for auto-pay.

Page Plus Cellular

Page Plus Cellular is a no-contract provider that still offers super-cheap plans with restricted minutes and text. The cheapest plan is just $12 per month for 250 minutes, 250 texts, and 10MB of data. Or opt for the largest plan at $69.95 with unlimited calling, unlimited national and international texting, and 7GB of 4G LTE data, which is then restricted down to 2G.

Virgin Mobile

This provider is gaining in popularity, and not without reason. Its main plan is just $40 per month and includes 4GB of high-speed data. Plus, it allows you to stream music from services like Pandora and Slacker without tapping into your data.

Boost Mobile

Boost’s Unlimited Starter package starts at just $30 per month and includes 1GB of 4G LTE data. You can add additional data for $5 per GB per month. Like Virgin, Boost offers unlimited music streaming through certain music apps. For more data, check out the $50/month Unlimited Unhook’d plan, which offers optimized streaming for videos, gaming, and music, and unlimited 4G LTE data for everything else.

Straight Talk

Available plans for Straight Talk depend on your phone and current phone number, so you’ll have to check availability. But some example options include a 1-year unlimited plan for $495 total. This one offers unlimited nationwide talk and text and 5GB of data per month at 4G LTE, restricted to 2G service after that.

Republic Wireless

For just $15 per month, Republic offers unlimited talk and text without data (except on WiFi). It’s a good plan option if you’re near a WiFi signal most of the time. Plans add more data from there, up to 10GB per month on the $90 plan.

GoSmart Mobile

This provider offers four service levels, including a $25/month plan that includes unlimited international texting, unlimited national talk, and unlimited 4G LTE access for Facebook. Its largest plan is $55/month and includes up to 20GB per month of 3G data access, as well as the other perks listed.

FreedomPop

This provider actually offers a free Basic Plan that includes 500 texts, 200 minutes, and 500MB of data each month, as well as free calling over WiFi. You may be able to bring your own existing device to this provider, or purchase a device from them.

H2O Wireless

For $30 per month, you can get unlimited talk and text, 500MB of data, and $10 of international talk credit. Or go up to $60 per month of unlimited talk and text, 4.5GB of high-speed data (restricted to 2G data thereafter), and $20 per month of international talk credit. H2O also offers pay-as-you go plans, which let you customize your payment based on how much talk, text, and data you’ll actually use at a time.

Scratch Wireless

This provider, like many other small providers, operates on the “Wi-Fi First” principal. In other words, if WiFi is available, your phone will operate on that rather than using data. When connected to WiFi, you’ll have unlimited text and data. The service is free for three months, and costs just $7.99 per month after that. If you’re typically in places where WiFi is available, Scratch could be the ideal service for you.

ChatSIM

Communicate mostly by text? ChatSIM is a super-cheap way to make that happen. The base plan costs $15 per year and comes with unlimited texts and emojis anywhere in the world. You can also purchase multimedia credits to cover photos, videos, and calls, ranging from $15 to $60 each.

Red Pocket

Red Pocket offers two types of service: its Flagship Plans, which work on all its wireless networks and allow you to keep your phone and phone number, and Device-Specific Plans. Flagship Plans begin at just $29.99/month for unlimited talk and text and 500MB of data. These plans go up to $59.99 per month for unlimited everything with 3GB of high-speed data (and lower speed data after that).

Simple Mobile

You can bring your own phone or buy a phone through Simple Mobile, and then sign up for a $60/month plan with unlimited 4G LTE data. Don’t need the data? Keep it simple with a $25/month unlimited talk and text plan.

US Mobile

This provider offers completely customizable plans, so you only need to pay for the services you actually use. For instance, you can pay $3/month for 100 talk minutes, or $15/month for up to 5,000 minutes. Similarly, texting costs $2/month for 100 texts or $7/month for unlimited texts. And data costs from $2/month for 100MB to $35/month for 6GB. Add on a $2/month service charge, and you’ve got a plan you can completely customize to your actual usage.

ROK Mobile

As with other providers, this one cuts back on the cost of streaming music by providing the ROK Music App. It offers a $49.99/month plan with unlimited talk, unlimited text, and 5GB of 4G LTE data.

So which one wins?

As you can see, there’s some huge variability in plan prices here, from free plans that focus on WiFi coverage to $100/month plans from the “big four.” The key is to ensure that any provider you choose will have good coverage in your area, and that the plan will be sufficient to meet your talk, text, and data needs.

Be sure to read the fine print. Also talk to friends and neighbors about their coverage, especially with less well-known providers. Then, pick a plan and start reaping the financial reward of this wireless war for customers.

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There’s a good reason I can’t get into extreme savings for retirement. When desperate financial times call for desperate financial measures, there is a good incentive to cut all unnecessary spending and eliminate bad debt. Many people even wait until they hit rock bottom before reforming their approach to their finances, because the effects of bad money management aren’t always clear until they’re completely unavoidable.

After one extreme — complete lack of reasoning and complete lack of understanding consequences — there is a tendency to hit the other extreme. An obsessive spender is just as likely to become an obsessive saver. A little obsession might be good. When I realized I wasn’t saving for my future, I began tracking every cent of income and expense, and it helped me learn where I could cut back my spending and improve my income. It’s an important part of moving your life in the right direction, and I still recommend this to anyone who hasn’t seriously considered their money management skills, particularly those who aren’t left with much net income at the end of the month, if any.

There’s a danger in taking saving too far. Money is more than a number, and you are more than just your net worth. The only point in growing your bank account balances is to use that money for something at some point. Money has no intrinsic meaning; its purpose is only what you can do with it. Although it’s a problem not many will face, it is possible to save too much money.

The government encourage saving decades in advance for retirement by providing tax incentives. It’s a good way to decrease the burden on employers, who at one time offered pensions to assist their employees when they could no longer work. Pensions have all but disappeared in the private sector, replaced by 401(k) plans and IRAs. Preparing for retirement in advance is healthy financial planning, but you still have to consider there is a chance, though remote, that you won’t survive until the end of the saving-for-retirement phase of your life.

It’s a morbid thought, of course, and I wish all Consumerism Commentary readers a long, healthy life. An insurance company may use actuarial tables to determine the chances of any individual living a certain number of additional years, but it’s just an estimation. When we plan for the future we have to assume that the money we invest or save while looking at a time horizon decades in the future will be there when we need it, but we also have to assume that we’ll be there to use it. That’s a lot of assumptions, and putting money away that could be used today is a certain type of risk.

Having a will helps a saver feel comfortable with the fact that if his money outlives him, it will at least see a chance to be used, either by relatives who might save it or by a non-profit organization who can use the funds to move its mission forward. For those who have the means, however, having not completed everything on a “bucket list” could be a regret. Life is almost always shorter than we want it to be, and with many fulfilling activities, many of which require money, it doesn’t make a lot of sense to wait until retirement to do everything.

It’s not a good idea, though, to take this “life is short” mantra and use it as an excuse to spend money with wanton abandon. This is a toxic financial attitude, even though it could be considered the opposite of putting your financial concerns off until the future, another toxic attitude.

While I fully agree that everyone should seize the day in as many opportunities as possible, this approach should be balanced with enough consideration for the future. I don’t think that balance can ever be perfect, though. All anyone can do is make an educated guess, and aim for an approach to finances with which one is comfortable. One that provides a chance for thriving when income from work is no longer a factor while taking advantage of opportunities today for enjoying life.

The good news is that we can enjoy life today while saving for the future. It doesn’t have to be one or the other, although when you’re living paycheck to paycheck or worse, the smart decision is to focus on getting out of that situation and beginning to build wealth as the primary and only priority. Once you are building wealth, you are in a better position to have that flexibility. The frugal approach to life assists with this goal. You can find ways to enjoy life on a budget while keeping the automatic investing plan in full force.

Although I save for retirement to cover myself in the likely event I’ll eventually want to stop working in exchange for money — likely well before I reach the government-suggested age of retirement — I want to make the most of my time today. That doesn’t always require money, but sometimes it does.

  • I see people putting up with terrible bosses and jobs they don’t like. Life is too short to waste your time in situations that aren’t ideal, or at least moving in that direction. It’s a myth that we need to just accept what we have and be happy when we’re treated poorly at work. When the economy is bad, people are brainwashed into thinking they should be lucky to have any job. Get out and find something better.
  • Unhappy marriages and personal relationships are similar to bad working situations. Life is too short to spend your life with someone who doesn’t make you happy or to force yourself to spend time with people who don’t share your values. There are seven billion people in the world.
  • Why waste your time watching television when life is so short? Well, while reading a novel might better flex your neurons, seeking entertainment is a part of enjoying life today, so don’t be too quickly to accept the productivity refrain that mindless entertainment is a waste of time. There may be better ways to be entertained, but life is not worth living if you have to be productive every waking minute of every day — especially if that “productivity” is for the benefit of someone else.

Recognize that life is short and that we might lose our chance to enjoy life if we wait around for retirement or financial independence to start living. We can’t use the fact that life is short as an excuse that prevents good decision-making, which takes the idea to the extreme to the detriment of important goals like saving for the future.

How do you balance the need to plan for your financial future and to achieve financial independence with the need to make use of what you have and enjoy life today? How do you make the most of what is a relatively short life without sacrificing your future? How do you prevent “life is short” from becoming a toxic financial attitude that takes away your ability to save?

Flickr

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8 Tips for a Frugal Valentine’s Day

by Luke Landes

For several years, it was a February tradition on Consumerism Commentary to look for moderation on Valentine’s Day. Many young couples would like to use the day to express their love, but might not have the financial means to do what television commercials make you believe is normal. If you have additional ideas, feel free […]

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When Money Is Scarce: Forced Frugality and Bad Decisions

by Luke Landes

I’ll be honest. When the idea for this article struck me late last night, I had a definitive idea of how I was going to address the topic of conservation mode. But the clarity of day may have changed what I think about the idea. Throughout my life, I’ve been working with scarce resources. Now, […]

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Four Expenses I Couldn’t Dream of Having Ten Years Ago

by Luke Landes

Having my own business, and an eventually successful one at that, has changed my life — but it hasn’t changed it much. I was forced into frugality by necessity in 2001, a few years after I graduated from college and was growing deeper into debt. I needed to fix my finances for the sake of […]

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5 Most Annoying Banking Fees

by Luke Landes
Grabbing money

Fees and surcharges seem to be an unavoidable part of living in a world where banking is big business. If you keep your financial situation simple, diligently shop around, and keep an eye on your money, you can avoid may of the more common fees. In theory, you could increase your fee-avoidance ability by keeping […]

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Learning to Say No

by Luke Landes

Earlier this week, I appeared on HuffPost Live, an online television channel, to talk about saying no to spending. Social situations make it difficult for people to admit among friends that they can’t afford whatever the social activity might be, such as dining out or going to a club. The discussion was couched in fashion. […]

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For Financial Freedom: Reduce Expenses or Grow Income?

by Luke Landes

The frugal approach to growing wealth focuses on what you spend. The Millionaire Next Door, one of the most popular wealth motivation books, shows how spending wisely is the most important factor in increasing net worth. The book contains anecdote after anecdote about millionaires who live below their means and keep their wealth by maintaining […]

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