Don’t let Black Friday take you into the red and other savings ideas

In the US, the day after Thanksgiving is known as “Black Friday” which is the official launch of holiday shopping. Some even start on Thanksgiving, which is usurping the best family holiday in America, for people to spend money. If you are an American or know one, you know that Americans like to do two things more than anything else – be entertained and buy stuff.

I have written before about ways to save money, as we have too many folks who want yours. Let me use this Black Friday to rehash a few of them and speak to the holiday season where buying gifts is done in excess. If you follow a few of these, you will end up with more money to live better, have less stress, retire earlier, and be more in control of your life. In no particular order:

– you don’t need to participate in Black Friday. Trust me, the retailers will get desperate closer to Christmas and layer in discounts. You will also be less tempted to buy if you take your time.

– speak with your family and friends about gift giving. Maybe you could limit the giving to the kids or have a charity donation for adults donating a small sum to a favorite charity of the recipient.

– for year-round, do not play the lottery. I have written several posts on this, but my favorite line is from John Oliver who stated your chances of winning the lottery are the same as being struck by lightning while being bitten by a shark. Save the $10 a week and at year-end you will have $520 plus interest.

– for borrowing, tear up all credit cards but one or two. You do not need more than that. My wife and I get 3 to 5 offers a week for new cards. You get very popular when you manage your debt and save a lot of money.

– do not borrow from pay-day lenders. They are one step above leg-breakers and you will quickly spiral into a rabbit hole of debt with over a 1000% interest rate. I am not making this up. This is about the worst thing you could do if in trouble.

– be wary of credit consolidators. They are not all created equal, so do your homework. Also, there are a number of non-profit advisors who can help you consolidate or manage your debt.

– be wary of for-profit colleges which are 5 to 6 times the cost of community colleges. A rule of thumb, the bigger the celebrity advertising the college, the worse its record for graduating. These colleges prey on veterans, spend more on marketing than education and graduate less than 15% of their students.

– if you have no health coverage, sign up for the Affordable Care Act at http://www.healthcare.gov. Subsidies to pay for premiums are available up to $95,000 in income for a family of four, higher if a larger family and lower if smaller. Healthcare coverage will get you doing preventive medicine rather than reactive medicine and keep you from going bankrupt.

– if you work, save in your 401(k) plan or something similar. Using payroll deduction, it is like paying yourself first, especially when the employer will match your savings.

Finally, be wary of scammers. If it sounds too good to be true, it usually is. Many scammers prey on church and association leaders to get at others, prey on the elderly with confusion, and prey on everyone with fear (IRS scams, power shut off scams, computer repair scams, etc.). If someone offers you a potential high rate of return with no risk of loss, it is a scam.

If you do all of these things, great. If you know someone who would benefit from the advice of an old fart, please send them this link. Always remember, you do not have to buy anything except food, water, minimal clothing, transportation and shelter. The rest becomes wants and can be managed. Happy holidays.

Credit Union Savings Lottery Gains Momentum

On PBS Newshour last weekend, a savings concept was highlighted that takes advantage of people’s interest in playing the lottery. In the state of Washington, a credit union is seeing the benefit of this concept which is called “Save to Win.” Per a Seattle Times article this past March:

The ‘Save to Win’ plan promises monthly and annual drawings for cash prizes, with one entry ticket issued for each $25 deposit made into a 12-month certificate of deposit. ‘The whole idea is to entice people to save,’ says Lee Wajnor, vice president of marketing at O Bee Credit Union in Olympia, who lobbied legislators to get the program approved in 2010. ‘People are creatures of habit,” and the lure of a lottery may be enough to nudge them into saving,’ he says.”

The entire Seattle Times article can be found with the attached link: http://seattletimes.com/html/businesstechnology/2020671264_sundaybuzz31xml.html

The beauty of the plan is people cannot lose their money. They can only win with small stipends such as $50 awarded monthly or a larger prize at year-end, such as $5,000. Since each $25 increment increases your chance of winning, the monthly winners usually reinvest their small awards into their savings account.

Variations of this model are being done in other states with Michigan credit unions being the first. Michigan’s efforts started in 2009 and the credit unions now have 12,000 participants. Note that credit unions are the only group able to have a savings lottery at this time, as banks are restricted from so doing. Since copying is the sincerest form of flattery, this idea should spread.

The credit unions attest they are losing money on this concept today, but by getting people to not throw their money away on a state lottery, which is in essence a regressive tax with so little chance of winning, the credit unions are helping people help themselves. And, with some critical mass, the credit unions will break even. Yet, by helping people gain more financial stability, the credit unions will likely benefit from other banking services the participant may need.

As I write this, I remember one of our blogging friends telling the story about how she was driving a friend around and the other person asked “Can we stop by the convenience store, so I can buy a $5 lottery ticket?” The author of the story said “Here, give me the $5” and proceeded to throw it out the window. When her friend protested, the author said, “You accomplished the same goal and now you have a better story in throwing your money away.”

I applaud this savings lottery concept. It appeals to the hidden gambler in all of us, but also let’s people save their money and not throw it out the window. The winnings are not headlines worthy, but the chance of winning is much greater than in the state lottery and becomes even more so the more you save. And, winning $5,000 or $10,000 is nothing to sneeze at. Yet, even if you don’t win, you still gain as you have at least a $300 plus interest balance after one year. And, that is better than $300 blowing in the wind.