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  • How Do You Start Saving Money When You’re Poor?

    This Washington Post article caught my eye a while back on Twitter, and I haven’t been able to stop thinking about it.

    The article is about how people who live in poverty, even in the United States, can’t afford to buy extra when something is on sale, so they end up paying more for everyday items than those who have more money.

    How to Start Saving Money When You're Poor

    The example given in the article was about toilet paper, which made a lot of sense since everyone uses it, it doesn’t go bad, and you don’t use more just because it’s available. The logic made me more trusting of the conclusion that “the poor pay more” per unit price than shoppers with more money: “The world, in fact, is full of opportunities to save money — if you just have enough money to access them” (such as a Costco membership to get access to bulk canned goods).

    The article got me thinking: How do you start saving money when every penny counts?

    It’s actually the same solution for everyone who wants to save money: You find some way to cut back, and use those savings to build more savings.

    For a more prosperous person, the sacrifice might be a daily Starbucks. For someone with very little money, the sacrifice might be eating beans and rice for a week. Money Saving Mom has a fantastic post on how to survive on a $30 per week grocery budget. She even suggests temporarily cutting back to $25 per week and using the $5 per week to build up a stockpile. Small amounts really can add up.

    The bottom line is this: You have to make some small sacrifices now for your future.

    Is it legal to use damaged money?

    Can you use damaged money? - chieffamilyofficer.com

    A few week ago, a relative gave one of my kids a dollar bill, but it had been torn and patched up with tape. I remembered hearing somewhere that it’s illegal to damage money, so I became curious about whether the patched up dollar bill is still considered legal tender.

    As it turns out, it’s illegal to deliberately damage currency, but not illegal to spend it. If you have currency that’s been badly damaged, you can learn how to replace it here.

    Learn some new every day 🙂

    Image via FreeDigitalPhotos.net by scottchan.

    Is a law degree worth the cost and risk?

    As a lawyer, I follow the legal industry, and my favorite legal blog, Above the Law, actually bills itself as a “legal tabloid.” One constant theme is how much it sucks to be a lawyer right now, especially an unemployed one. And another recurring theme is how much it sucks to be a law student right now, with worse employment prospects than the fourth-year associate who just got laid off. Here’s a recent example: UCLA School of Law (arguably the most prestigious law school in LA) recently sent around a job listing to students that was for the position of chauffeur to an entertainment lawyer, the pitch being that you could talk to him about his job while you were driving him around to his various appointments. At least when I was a student, the law school tried to help students get hired as law clerks or externs doing real legal work.

    Last week, Above the Law discussed whether a student entering his second year should quit before incurring more loans. (The gender of the student isn’t disclosed so for simplicity, I’m going to assume he’s male.) The student in question goes to a top eight school, has decent but not stellar grades, thinks he would enjoy public interest law, already has $70,000 in student loans, and is convinced he would graduate with $170,000 in debt. The editors gave the pros and cons of staying in school, but I thought what was really interesting was what was missing from the discussion: deciding whether you really want to be a lawyer and if so, how to make it happen.

    For example, if the student really wants to be a prosecutor or legal legislative work, then continuing with law school is the only way to make that happen. Or maybe he really wants to be an entertainment lawyer – he’s still going to need that law degree. The fact that he is at a top law school indicates that he is bright and is likely to pass the bar exam, be considered for interviews, etc. Especially if the student is willing to relocate for his dream job, then I think someone bright enough to go to a top law school would be able to get the position. At the very least, he will be able to get some position in his chosen field.

    That leaves the money question. Crystal at Money Saving Mom often writes about how her husband was able to make it through law school without incurring any debt, but I don’t think that’s realistic for most people. Tuition and fees at the law schools in Los Angeles is about $40,000 per year. I don’t know if it’s even possible to come out completely debt-free if you go to a relatively respectable school and don’t have a whole lot of money coming from somewhere other than loans, such as savings, a spouse, or a job.

    Speaking of a job . . . that’s something most law students don’t have, and understandably so. I didn’t, for the first two years of law school. First year grades in particular are so important that most students don’t want to have distractions from studying. But the student we were discussing is already a second-year, and could conceivably hold down a job if he was serious about limiting the amount of debt he graduates with. Even ten hours a week would bring in some income.

    And of course, there’s the big one – lifestyle. To be honest, back when I was in law school, I didn’t have a full grasp of what it means to live within one’s means. And most of my peers seemed to be the same. But a frugal lifestyle could significantly reduce the total amount of loans at graduation.

    Just as important, a frugal lifestyle after graduation will ensure those loans are paid off relatively quickly. Most loan programs allow for 20 to 25 years to pay off your student loans. But if you follow the proven debt-reduction techniques like the debt snowball, you can cut that time by half or more. These are all things that should be taken into consideration when deciding on a future career path, whether it’s the law or something else.

    The Fed rate cut doesn’t help me personally (actually, it hurts)

    The Federal Reserve reduced its interest rate to 3.5% this morning. There was once a time when I loved seeing the Fed cut its rates. The last time the Fed slashed rates like this (about 6 years ago, I think it was), the monthly payment on my private student loans dropped from $400 to $270. I was just learning about personal finance at the time and I knew just enough to keep paying the $400 per month so I would pay off my loans faster.

    Since then, I’ve paid off my private loans. And now I have no adjustable-rate debts. I have a 30-year fixed rate mortgage. I have a consolidated student loan. And that’s it. Which means the Fed’s rate cut does nothing to help my personal financial situation.

    In fact, not only does it not help, it hurts. Because the interest rate that I earn at the bank will probably now drop and I won’t earn as much interest on my liquid savings as I would have before the rate cut.

    The only personal silver lining that I can find is the hope that rates will keep dropping so that I’ll be able to re-finance my mortgage for a rate that’s even lower than my already low rate. Oh, and that when we buy our new car later this year, we’ll be able to get a really sweet financing deal (like 0%) so we can redirect the money we would have used to pay for the car toward my student loan.

    In the meantime, I know it’s probably futile, but I really hope that the people who could truly benefit from this rate cut take advantage of it and pay off their debts. Our country’s economy would only improve if everyone were in a personally strong and stable financial position.

    My Financial Education – Update #2: Postponement

    See my previous posts in this series here and here.

    It’s not the first time I’ve been overambitious and miscalculated, and I’m sure it won’t be the last. I just didn’t realize how little free time I would have after Tyler was born, and now that he’s not a newborn, I have even less time for myself. So I’ve decided that one of the many adjustments I have to make is putting off my financial education and shelving Personal Financial Planning: Theory and Practice and The Greatest Salesman in the World until I have more time to read, not to mention the mental capacity for learning. Hopefully that won’t be too long from now, but in the meantime, I don’t want to miss a minute of my boys growing up!

    Book Review: Rich Dad, Poor Dad by Robert Kiyosaki

    My dad gave me a copy of Robert Kiyosaki‘s book, Rich Dad, Poor Dad years ago but I didn’t get around to reading it until a few weeks ago. I wish I’d read it earlier, although I’m not sure I would have appreciated it quite so much. I didn’t agree with everything Kiyosaki says, but I thought he had some interesting points to make.

    For example, he defines wealth not in terms of net worth, but in terms of how long you can pay your bills without working. His position is that ideally, one’s income comes from assets, not a job. So if your assets produce enough income each month to meet your monthly expenses, you are wealthy because you don’t have to work in order to pay your bills. Kiyosaki also suggests that luxuries should be purchased with income from assets, rather than with “savings.” He believes that “savings” should be used to purchase assets, which will produce income.

    One theme that Kiyosaki repeats throughout the book is that maximizing knowledge minimizes risk. In a similar vein, Kiyosaki also notes that opportunities for making money are everywhere if one has the right mind set. I liked these points of view as they are quite different from my usual perspective and, I suspect, the perspective of most people.

    A disturbing moment, at least to me, was reading that Kiyosaki believes that paying oneself first is so important that he does it before he pays his creditors. He claims that knowing he owes his creditors money makes him work harder to make or find money, but that it’s more important to build his wealth than to pay his bills. I personally can’t agree, but it’s definitely an interesting point of view that makes this book a worthwhile read.