Consumer Voice - March 2007

It’s an age-old problem: money seems to disappear.

You are most likely conscious of many of the places where your money is going (with or without your permission!). But it is a good idea to take an inventory of it anyway. There may be some places you haven’t thought a lot about. Take some time to make a list of major expenses you’ve had over the last year. Review your bank, credit union, and credit card statements and look for some patterns and add up your expenses. A few of the types of major black holes people find when they go looking are:

Home Repairs or Renovations – Oftentimes it is easy to overlook how much we are spending on fixing our homes or doing home improvements, especially if we are doing them ourselves. While there are the obvious lumber, wiring and other costs, we forget about the new saw that had to be purchased to do a particular piece of the renovation. A home can be one of the biggest black holes in our spending. These are also often credit card purchases which, if not paid off monthly, are probably costing you more than they should. If you have more repairs or renovations to do on your home, you may want to consider a more cost- effective way of financing them such as saving money for a period of time and using cash for those purchases. If it is not possible for you to save the funds, consider a lower cost home equity loan instead of using credit cards for those purchases.

When we are doing home repairs as they present themselves, we are also paying the “emergency” premium. By that we mean that we are apt to purchase materials that are not on sale at a store that is close to our home, rather than planning the renovation or repair in advance. The bottom line is if you find your home is one of your biggest black holes, it may be better to plan a large renovation project and take care of everything at one time, instead of “as needed.”

Sometimes, during better housing markets than we currently have, it is better to sell the home and buy one that will not have so many costs associated with it.

Automobile Repairs - Like home repairs and renovations, repairing an automobile can be a big black hole in your spending. There comes a time when you need to determine if it is worth it to keep the car or to purchase another car that is not going have so many repairs. Because automobile repairs are often done when a car breaks down, these expenses also often seem to come at a time when people can least afford them. If you are not able to replace the car soon, begin a special savings that you can use to pay for your repairs with cash. Look into ways to reduce your repair costs, such as utilizing a local technical school for repairs. Then, set a timetable for replacing the car.

Hobbies – It can be difficult to face how costly some of our hobbies actually are, especially if they are the types of hobbies where we spend $20 “here and there” for materials. However, many hobbies are extremely costly and can amount to major black holes in our spending. We don’t have to give up the hobbies that bring us so much joy, but it is wise to know what you are spending on the hobbies and make adjustments. You can curb your expenses on hobbies and develop a budget for your hobbies as well. You may also be able to turn your hobby into an income- generating activity by starting a small business. You may also be able to purchase materials for your hobby more inexpensively through the Internet, garage sales, auctions and estate sales.

Vacations – We all need a break sometimes. But vacations can also break the bank if we don’t plan and budget for them. We buy the plane tickets one month, pay for the hotel another month, and then go out to eat every day we are gone. It is easy to lose track of how much was spent or to spend more than we intended to spend.

Sometimes the best way to plan a vacation that you can afford is to work with a travel agent, even though many people feel they can get better deals on the Internet. The reason working with a real person is valuable is because travel agents know, off the tops of their heads, where the best deals can be found. Instead of deciding where you want to go on your vacation and then looking for deals, you can go to a travel agent and tell them what you like to do and how much you want to spend, and they can tell you the best places to go.

You can also easily change the type of vacation you will have in order to save some money. In a state like Colorado, where there are so many things to see and do and where there are so many other states accessible by car, a road trip may be a fantastic alternative to other types of vacations.

What is most important is to set a budget for your vacation and to save money in advance to pay for it. Tell your family the limits and stick to them. Get everyone involved in the planning and saving for your vacation so as not to face a child who says. “Daddy, can I have that?” without having an answer that includes asking the child if he or she has saved their allowance for that item.

Kids – Expenses related to our children are expenses that come with lots of emotional baggage. Everyone wants to ensure a great childhood for his or her children, but that can come with a large price tag. Knowing what you are spending on your children is important. And knowing what you are not spending money on for your children (like a college savings plan) is more important. If you are trading college for video game systems and ballet lessons, you may need to reassess your family’s financial priorities.

Your kids can learn a lot in this process as well. If you can put some of the decision-making into their hands, they will benefit greatly. You may be able to do this by setting up a checking or savings account for each child, and funding it with the amount of money you want to budget for each child each month or year. Then, have your child determine how that limited amount of money will be spent and stick to that plan. It is amazing to learn that the all-important drum set isn’t quite that valuable to your child when it means they must sacrifice their participation in football to have it.

Insurance – In 2007, you can change your financial future by looking closely at your insurance policies and costs. You may actually save money by having all of your insurance policies under one agency, for example.

You can also save yourself a major expense now or later if you take a look at your auto insurance. Consumers United Association has worked extensively on the issue of auto insurance in Colorado from the consumer standpoint. Right now, under our current insurance system (called Tort), you need to have a method of covering your medical expenses if you are in an accident. Many people do not realize they are not adequately covered for medical bills resulting from an automobile accident. Ensure your family’s financial stability by reviewing your automobile and health insurance policies. If you or other members of your family are not covered by health insurance, purchase Medpay coverage through your auto insurance policy. Make certain you are covered by one of these two methods or you could face major medical expenses if you are in an accident. Conversely, you may be over-covered. If you have good health insurance, you may be paying more than you need to pay for medical coverage related to an auto accident. Check your insurance polices.

If you decide to get new insurance quotes to reduce your insurance costs in 2007, ask the agent if they have included Medpay or not. If you are quoted a much lower rate for your auto insurance than your other policy, it may be because Medpay was not included. If you need Medpay, you may need to tell the agent give you a new quote. Then compare the coverage to your previous policy.

Debt-Related Expenses - The cost of using credit is one of the most significant factors in black hole spending that there is. If you wonder about this, gather your credit card statements and add up your interest for last month. This black hole is so important we have provided you with a separate article about how to get out of debt, also in this issue.

Patching those pinhole leaks in your spending is as easy as identify what they are. Typically, they are small purchases that amount to a larger hole if you aren’t aware of them. The best way to find them is to track your expenses for several weeks. Look for items like lunches, vending machine purchases and stops at convenience stores.

These days, many people also have some “passive” expenses they are not paying attention to. These are things you may have signed up for to pay automatically that you aren’t using such as music subscriptions, magazines or fees associated with Internet bill payments (when you aren’t using it).

Many financial institutions charge a number of fees— for out-of-network ATM withdrawals, check cashing, teller or lobby visits, etc. Review your financial institution’s fee policies, ask your credit union or bank for the locations of their surcharge free ATMs and use only these locations. If your bank does not have surcharge free locations convenient to you, withdraw larger sums rather than taking out $20.00 here or there. Paying $2.00 - $3.00 each time you need cash could add up to a much as $40.00 in fees each month alone.

Pet expenses are another area to look at. To avoid major medical expenses, you can now purchase pet insurance (some credit unions even offer this).

These are just a few examples of the types of expenses you might find if you look closely at your spending. However, many people find that these pinhole expenses can add up to $50-$100 per month or more that could be used for savings or debt reduction.

To find surcharge free ATMs, visit the following links:
COOP - Surcharge Free Credit Union ATM Network
PLUS (Visa) ATM Network
CIRUS (MasterCard) ATM Network

Reducing or eliminating debt is one major way you can begin to make 2007 your best financial year. If you have taken the steps to learn how much you are spending each month on debt-related interest, you now have enormous incentive to make a change!

There is a formula for getting out of debt. People even try to sell the formula, as if it is some kind of new concept. But it is not. Anyone can get out of debt, no matter how much they owe, typically in five years or less. Here’s how:

Make a list of your debts including the balance and the interest rate.
Contact credit card companies to see if they can offer you a lower interest rate.
Figure out how much extra money you can find in your budget from looking not just at the big black holes in your spending, but the pinholes too. It may even be worth getting a part-time job to do this.
Pay the minimum payment on ALL credit cards except the one with the highest interest. Pay all extra money you have found, plus the minimum payment to the card with the highest interest rate.
When the card with the highest rate is paid off, apply all of the money you were paying on that card to the card with the next highest interest rate until it is paid off, and so on.

This formula works so long as you are not continuing to charge on these cards or are paying late fees, so you need to use some of the money you have found in your budget to ensure that you do not charge those items to your credit cards. You may also need to make sure that you simply reduce your spending altogether in order to make this work. The formula will not work if you do not pay more than the minimum payment.

If you would like to create a debt repayment plan, there is an excellent tool available on the Internet that will tell you exactly how long it will take you to pay down your debt: Debt Repayment Tool

Once you have paid off your credit cards, you can even pay off your mortgage and car loans by applying that money to them. To see what would happen if you were able to apply all of your credit card payments to your mortgage, try this calculator.


home \| about us \| benefits \| sponsors \| advocacy \| national efforts \| media \| join CUA \| members only \| contact us


home \| about us \| benefits \| sponsors \| advocacy \| national efforts \| media \| join CUA \| members only \| privacy policy \| contact us Copyright 2000-2007. Consumers United Association. All rights reserved. Web site designed and maintained by Whole Brain Technologies, LLC in partnership with Ideal Design.