Fabulous Financials & Fitness

Today’s post is a guest article from Vik Tantry at Kanjoh.  Vik has a new blog that takes a video-focused approach to teaching financial concepts.  I hope you enjoy it. [-SM]

For a long time, the credit card industry has profited from charging extraordinarily high interest rates to consumers. But most people aren’t aware of the specific tactics used to target these consumers. Using client segmentation and marketing techniques, credit card companies can determine which consumers are most profitable, and then focus on retaining these consumers.

Capital One was actually founded by using these techniques. Back in the late 1980s, credit cards were becoming increasingly popular. The founders of Capital One started looking at consumer data, and found three distinct groups:

1. Those who paid their bills on time
2. Those who made the minimum payment, but always keep a significant outstanding balance
3. Those who constantly defaulted on their credit

Of these three categories, only the second one was profitable. Capital One couldn’t make any money off of consumers who paid their bills on time.  They also lost money on the third group. But the second group was a gold mine. These were the people who could just make ends meet, but were unable to pay more than the minimum payments. As a result, they were prime targets for exorbitant interest rates.

Once Capital One figured this out, they created a targeted marketing plan. They used tactics such as low introductory rates, with steep increases in subsequent years. The plan was very successful, and soon other credit card companies were copying their strategies. Unsuspecting consumers were encouraged to meet the minimum payment, without blatant warning of the high interest rates to follow.

The recently passed credit card legislation may help reduce this, but it will not prevent credit card companies from trying to make a profit. Capital One and its competitors will continue to use tactics to find profitable consumers. Just remember, what’s profitable for them is a loss for you.

As I’m wrapping up a few things to prepare for the busy holiday week, today’s entry is written by Sean, a Fabulous Financials reader.  It is well-written and very timely because the underlying message is relevant to our current economic issues.  Enjoy! [-SM]

Even in the midst of the current economic climate, when it’s obvious that saving money and operating on a budget are good things, a surprising number of people balk at the idea of getting their spending under control in an organized way. Consequently, they wind up feeling resentful and deprived rather than claiming a sense of accomplishment for being in control of their own monetary destiny. “Budget” is not a dirty word, nor is it a difficult process.

No one knows what they can realistically afford until they understand what they are currently spending. The first step in developing a successful budget is a month of income and expense tracking. In whatever way feels most comfortable or works most efficiently, the would-be budgeter should keep track of everything that comes in and everything that goes out for a month in clearly understood categories — utilities, rent, groceries, and so on. For the economically panic stricken whose immediate response is, “that’s not fast enough,” science tells us that the act of observing changes that which is observed. As soon as a person starts paying attention to their spending, their spending habits change.

Record keeping should not, however, stop, once a budgetary pattern has been established. Efficiency experts agree that keeping track of what you have done is actually more effective than listing what you need to do. Consider the quarterly bills that roll in seemingly unannounced, like car insurance and homeowners insurance. Making note of when you last paid these sizeable expenses can allow you to forecast when these bills will come due and allow you to plan for them. Also, if your grocery store has a reward card program or if you’re clipping coupons (both of these are excellent ideas, by the way), keep track of how much you’re saving with these methods as well as tracking the actual cost of the groceries. It’s a tremendous incentive to keep up frugal behavior when the shopper can see a $250 savings thanks to store brands and doubled 25-cent coupons at month’s end.

Credit cards don’t belong in the budget picture, at least not in the early days. Swiping a card is easy. Writing a check or counting out bills is tangible. Part of the disciple of keeping a budget is making money and expenses real again. If, after several months of living by the budget, a credit card expense is manageable — meaning there’s enough extra money in the budget to pay the balance in full or at least twice the required amount of the minimum payment each month — the card can be pulled out and used. The best rule of thumb is to be able to pay off the entire card balance at month’s end with no carry over and interest accrued. If that can’t be done, charge one thing and pay it off completely before anything else goes on the card.

Americans have been living in a climate of instant gratification for at least two decades. Now, with new homeowners often admitting they’re buying a foreclosure (which means someone else lost their home) and water cooler conversations are more about credit scores than football, delayed gratification is back in. Developing a budget and sticking to it does not have to be punishing. It simply means taking a sober, realistic look at individual financial health and accepting what is and isn’t possible. Working an amount into the budget each month to be saved toward a goal or goals will quickly reveal that savored long-term accomplishments taste much better than gobbled instant acquisitions.

Sharon Harvey Rosenberg, also known around the web as The Frugal Duchess, is currently on a virtual book tour to promote her book, The Frugal Duchess: How To Live Well and Save Money.  I was more than happy to spread the word about her book tour and she’s offered to share frugal fashion tips with my Fabulous Financial readers.  Here’s a post about her “frugal uniform.”

I work in a uniform. I party in uniforms. I shop in a uniform.

My uniforms are not standard-issue, mass-produced garments. They are not pre-packaged items, but rather outside-the-box, one-of-a-kind creations.  These haute — so hot! — uniforms save money because my wardrobe provides an easy fashion guide for the different roles that I assume in life.  Here are the uniforms that get me through the week:

• Work uniform. A little while ago, I started working in a very corporate setting. To fit in, I wear a black pencil skirt (one of several), a tee-shirt (in a variety of colors) and a matching cotton cardigan.
• Formal party uniform. Black skirt, sleeveless shell and a short black bolero jacket from Yves St. Laurent (a hand-me-down) or a tuxedo jacket.
• Shopping uniform: Denim skirt (long or short) and a tee-shirt with three-quarter sleeves. A cardigan is optional.

Occasionally, I’ll wear fabrics with patterns, but for the most part, my wardrobe consists of skirts, shirts and sweaters/jackets in a limited range of solid colors. By picking clothes, in a small field of colors (mostly blue, pink and orange), the pieces in my wardrobe readily match each other and are easily re-arranged to create new looks. I add a little drama with accessories: a funky necklace, pearls, great shoes or scarves.  Here are the other benefits of my system:

• Time-saver: Uniforms save time, because I can just randomly grab a shirt, a skirt and a cardigan and still look polished. Dressing has become a no-brainer.
• Thrifty editor: My uniform approach instantly narrows the color, style and shape of garments that I load into my shopping cart. This disciplined approach to dressing and shopping forces me adhere to self-directed fashion rules, thereby limiting impulse purchases and fashion mistakes.
• Creativity spark: Matching and swapping around the various pieces of my wardrobe forces me to look at my closet with fresh eyes. I’ve become more creative by finding new combinations for old clothes. Additionally, the various uniforms save grooming time and enable me to spend more time on other creative pursuits, including time with my kids and my keyboard.

The Frugal Duchess also writes for the Miami Herald on topics related to frugality and personal finance.  If you’re interested, check out her blog, subscribe to her blog feed, or buy her book.

Image Credit: unknown

My Mom instilled in me my love for road trips. Being one of six kids, we would fight for the honor sitting in the passenger seat, beside Mom. Shot gun came with its responsibilities (we had to keep Mom awake and look for wildlife) but it also meant that we had her attention one on one until the next stop.

The hubby and I take many road trips during the summer. Even with the cost of gas, the lack of airfare needed immediately puts it in the frugal travel category. We have a couple other tricks to keep costs down.

Cool Like That

The cooler is the road trip buddy’s best friend but that cooler space is precious. We maximize it by filling it with frozen bottles of water and low filled beverages (including drinking boxes, a healthier fruit slushy) instead of the messy ice. Ice melts, gets dirty, and spills. It also makes sandwiches soggy. Frozen drinks are a neater solution.

Backseat Peace And Quiet

When we went on a long road trip, we knew what to expect and we looked forward to it. My Mom would always buy us new coloring books and a brand new mega pack of crayons. It was the only time we got our own books.

That bought Mom peace and quiet in the backseat. Happy little faces all around.

Some more modern Moms, I know, save special video games and toys for their trips. Same result, happy kids, peace and quiet.

AAA Or Other Vehicle Assistance

As the hubby and I always kick with the older vehicles, we consider vehicle assistance part of the maintenance cost. One tow and the membership pays for itself. Plus if you’re female or in a bad neighborhood, you don’t want to step out of the car to try to fix the mystery problem yourself. Uh, not worth it.

Another benefit of AAA is the access to maps and my fave, TripTiks. These are route maps with construction zones, rest stops, and blurbs on passing towns. Educational and entertaining for the person (or child) riding shot gun.

Of course, even with vehicle assistance, run down your pre-drive checklist. Check all fluids, oil, antifreeze/coolant, windshield washer solvent (for the bugs all road trip vehicles collect). Check the tires, ensuring that they are properly inflated and in good condition. Check all belts and hoses, looking for wear and tear.

Now, I’m sure I’ve missed some road trip tips. If I have, I’d love to hear them. Oh, and what was your all time favorite road trip?

Kimber Chin writes romance novels based in the business world and blogs at No Limit Ladies. One of her favorite annual road trips is to Taste Of Chicago the first weekend in July.

This is a guest post from a fabulous reader whom I admire and respect for many reasons. Read what she and her hubby have agreed to share with us and you’ll understand why:

photo credit: Thirty6Red

When Single Ma contacted me about my statement that there is no “head of household” in our home [in response to this post - SM], I did not think it was a very different approach to married life. But, when I started to think about why this was the case for us, I realized how it relates to our household finances, family management and career aspirations.

My husband and I have been married for over 10 years. From the beginning, we both wanted careers and a family and realized that for both of us to have successful careers where we reached our potential would require some give-and-take, especially with children in the plan. When we married, we were both people used to making decisions in our lives.

Finding the Comfortable Groove

In the beginning, we tried to have one person manage all of the household finances. We quickly found that this resulted in too much pressure and discord. In order to make OUR marriage work, we decided to divide the responsibilities and play to our strengths. Now, each takes the lead on what we do best. I am a frugal person by nature, but my husband has a degree in thrift. I am more interested in different investments and allocation methods than he. So, my husband “does the math” on the day-to-day household finances and I take the lead on managing our investments. We always make sure to keep each other in the loop.

Give-and-Take

• Most things are done with compromise and by consensus. For example: I don’t mind cleaning my house, but I refuse to work 40+ hours and do it all myself. My husband HATES house cleaning, but also acknowledges that it is not fair that I do all the cleaning in addition to working as much as he does. The solution is a weekly cleaning service that is an agreed to family expense.

• Another example was when I was offered a really excellent project that required long hours for about 6 months. Before accepting the assignment, I talked to my husband about what was on his horizon at work. We also discussed what was going on with our son over the same time period. Our conclusion was that I should go for it. My husband agreed to handle most of the childcare and household responsibilities so that I could purse this opportunity.

There have been many examples of this give-and-take over the years, sometimes with me making the “sacrifices.” The result is that both of us have been able to advance our careers (maximizing our earnings) and manage our family as the circumstances required. When “nothing special” is going on at work, we split childcare responsibilities – my husband takes the mornings and I take the evenings.

Why It Works

The reason this works for US is because we value the same things: honesty, hard work, loyalty and freedom of choice. Above all, our family (immediate and extended) comes first. Also, neither one of us are people who have to be in charge all the time. We don’t want what we consider the unnecessary pressure of making all the decisions. But we also know each other so well that when a family decision needs to be made and one us of isn’t around, we do what we think is best. In addition, we respect each other tremendously. My husband always tells me how impressed he is with my solutions to problems and analytical skills. I am impressed with his capacity for acceptance and understanding. I have thrown him some real curve balls over the years and he has handled each one.

Finally, we both know that we are a lifetime partnership of two independent people who love and support each other. It is not easy and takes a lot of work and communication. We both know that we could do fine alone, but we don’t want to do so. We are better and stronger together.

This reader not only has a successful marriage, but she also has a successful/demanding career, earn well over six figures, and has a household net worth bordering $1M. Now do you see why I admire her so much? LOL She gives me hope that I, too, will one day find a “life partner” who will view me as his equal. One that I can learn from, support, and grow with – together.