No Debt Plan

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(Photo by Subliminally Obvious)

This is a continuation of my Dumb Money series. Other tales of Dumb Money? The Gym, The Lottery, and Too Much Cell Phone.

Facts pulled from TheTruth.org:

• In 2006, over 5 million people around the world died from tobacco products.
• About 90% of all lung cancer deaths among U.S. women smokers are caused by smoking.
• Tobacco kills over 20 times more people than murder.

Smoking and tobacco has been linked to various types of cancer. Very, very bad stuff. I was kind of surprised that is kills 20x more people than murder each year.

That’s all well and good, but apparently some people could care less about the risk of cancer.

When I first graduated college I took a job with a rental car company here in town. During my first day of work at a large branch, four of the twelve employees working asked me if I smoked.

This is how all four conversations went:

Employee: You smoke? (walking toward back exit)
Me: No
Employee: Oh, really? Don’t worry. You will.

I kid you not this is how all four conversations went. I thought they were playing a joke on the new kid. I would soon find out that a majority of the employees in the branch (and at least our city) smoked.

The excuse to smoke was the job was so stressful. I’ll give them that, it was stressful. I just have better ways of dealing with my stress than increasing my chances of premature death via a horrible, life sucking disease.

Smoking is a Financial Cancer

I sat down with one of my branch managers during my tenure with the company. She was making good money and blowing through it like no one’s business. I set out to help her with a budget. When the line item for cigarettes came up she estimated she spent a minimum of $200 on cigarettes each month. This was on top of eating out, going to bars on the weekends, and simply blowing her money while student loans and credit card debt piled up. She shared a rented house with two roommates. Her cost for utilities and rent were ridiculously low. Yet the money burned a hole in her pocket.

Let’s look at what $200 per month can do:

• Pay off $2,400 worth of debt in one year
• For most people, $4,800 would also be a rather healthy start to an emergency fund
• If you earned 7%, over thirty years that $200 per month would turn into $243,994.

Plainly put, her smoking was a financial cancer for her. It was also a symptom of other serious problems (blowing $1,000 per month on eating/drinking out). That $200 per month (minimum) cancer was slowly killing her odds at a secure financial future.

That may seem outlandish, but in my opinion also true. We could argue if $200 per month on cigarettes is significant or not in the long run … but it’s $200 on cigarettes. As I said, it was a sign of other issues in her financial life.

Smoking. $245,000 in the future. Seems like an easy choice to me…

Cancer is a Financial Drain

This goes without saying: cancer is a terrible ailment. For some people, genetics or plain bad luck puts them on the wrong side of the equation. Smoking is just asking for it. And last time I checked, cancer wasn’t a cheap and easy fix. It can completely drain your finances and put you into medical debt.

It’s just one choice. One, little, $200 per month choice. Yet how serious are the consequences? Not only financial problems stem from smoking. A whole range of health problems can be linked to tobacco use.

Smoking Addiction is Similar to Debt Addiction

One more quick note — addiction is similar across issues. “I’ll stop tomorrow.” “I’ll quit next week.” These phrases could be about smoking, and they could be about your credit card use.

Either way: make the smart decision. Don’t be dumb. Stop the habit. Do whatever it takes to quit.

(Photo by jurvetson)

This is a continuation of my Dumb Money series. Other tales of Dumb Money? The Gym and The Lottery.

Ah, the cell phone. What would we do without these wonderful devices? (+5 points for alliteration) They keep us constantly in contact with friends, family, and co-workers. You can surf the web, watch movies, and twitter everyone on the planet… all from a single device. Call California. Call Chicago. Call your Mom. All for the same rate.

It amazes me that this is all done by 1s and 0s inside the little computer chips residing in the phone’s case.

Cell phones are great. I’m pro-cell phone. But there are a great many people out there that are paying a dear price for their cell phones… a price much too high. Money that could be spent paying down debt is instead used to cover fees for text messaging and “administrative”.

This is a mistake we’ve made, too.

Our Cellphone Contract

Our cellphone provider is Verizon Wireless. They have the best network by far, and you pay a slight premium for it. The “Can you hear me now?” ad campaign is truly indicative of their coverage. Thumbs up to them there.

We pay $69.99 per month for two phones and 700 shared minutes. Nights/weekends kicks in at 9pm. I get a 10% discount through work, and so after taxes and fees we pay roughly $68-69 each month. Do the math and that’s $0.10 per minute. Our two year contract is up in February of next year. We’re still trying to decide if we will renew, continue on the current plan, or switch plans/providers. We like Verizon a lot, but we’d love to save some money, too.

The Minute Paradox

We use right around 50-60% of our monthly minutes every month. That equates to about 350-400 minutes. Unfortunately, Verizon no longer offers a 450 minute family share plan. It has been discontinued; the 700 minute plan is the smallest one available. Even if we had a 450 minute plan there is then the risk of going over on minutes and paying hefty fees.

I’m guessing many of you are in the same predicament.

“But I Need to be in Constant Contact!”

You’ll hear people with Blackberries scream this all the time. The constant need to be constantly in contact with the entire universe is crucial to business success these days. Even for people whose companies won’t pay for it (because they don’t see the role requiring it), the extra $30-45 per month is absolutely necessary even if it pushes their phone bill over $125 per month. Does the receptionist really need that Blackberry? Probably not.

Reassess your current needs. I did this recently as I pined for a Blackberry. I thought I needed a Blackberry. Not to mention it was hip, cool, and a new gadget for me to play with. But then I ran the numbers and sat down to think. I sit at my desk all day, connected to the internet on my laptop. The moments I am in the car are either: going to work in the morning, going home in the evening, or going to a client meeting during lunch. I don’t desperately need to be connected at these times.

Do you?

How to Avoid Having Too Much Cell Phone

1. Look at what you currently are using. Look at your minute use, and how many text/pic/video/e-mail messages you are sending from the phone. Does the cost justify the use? What if you simply went to a pay-as-you-go plan for texting (if you use a small amount of them) instead of paying the $15 per month constant charge?
2. Assess your current needs. Has something changed? Were you just promoted and really do need to stay in contact with your team 24/7? Or is everything the same and you just saw a cool phone that you wanted?
3. Shop around. Look at other providers. Look at their costs. Do you get a corporate discount? Do you use it? (For example, I get 10% off with Verizon through my company.) If you were just promoted, will your company now offer to pay for your service (or part of it)?
4. Consider other options. Have you considered getting a pay-as-you-go phone like Virgin Mobile? Some plans you must put in $10 worth of talk time each month and it costs $0.10 or $0.20 per minute. If you talk 300 minutes per month and it costs you $0.10 per minute, that’s $30 per month. Also, consider how else you could communicate in the same way. Skype? Sitting at your desk?

Cell Phones Epitomize Dumb Money… for some people

If you buy a new phone every three months and don’t work for Engadget or Gizmodo (or any other review site), you’re out of your mind. Phones are extremely expensive and the newest crazy feature that just came out will be old news in three months… when you upgrade again. To avoid spending too much money on your cell phone, truly sit down and assess your needs. Don’t upgrade or buy simply because it looks like a cool phone. That’s a slipper slope. Inevitably, your cool new phone will be old, scratched up, and outdated. And you’ll want to replace it again.

Additionally, who needs to watch movies on their cell phone? Seriously? Is that 4 inch screen truly satisfying? I don’t believe in walking around with your iPhone earbuds in your ear throughout the day, watching movies and listening to music. Unplug. Look around. Strike up a conversation with the person sitting next to you on the subway.

As I mentioned before, our plan essentially costs us $0.10 per minute for 700 minutes. But we only use 300-450 minutes per month. Perhaps we should change to a pay-as-you-go-model? It is something we will definitely consider.

What about you? Have you made a mistake in your cell phone purchases? Or have you been successful in keeping costs down?

This is a continuation of my Dumb Money series. The last post in the series, Dumb Money: The Movie Theater, was used as a guest post at Get Rich Slowly.

My next target? The lottery.

The lottery would be fantastic, if only I could win it. Alas, Alabama doesn’t have a lottery. Of course, even if we did I would not partake. Let’s look at some simple odds courtesy of WebMath.com (it was the first result in my Google search).

To my understanding, most of the major lotteries require you to pick six numbers (usually 5 and the “super” number at the end). Using the calculator, we’ll tell it to pick 6 numbers ranging from 1 to 99 and to not replace each number when it is picked.

Result? The odds of picking six correct numbers is 1 in 1,120,529,256. Picking five numbers? 1 in 71,523,144. Are you really going to be able to pull off those odds? I doubt it. Sure, someone has to win. Someone does usually win. Just look at those odds before plunking your $1, $5, or $10 down.

To put this in perspective, let’s look at some other ‘common’ odds. You have a…

• 1 in 2,000,000 chance of being struck by lightning.
• 1 in 12,000 chance of finding a pearl in your oyster.
• 1 in 705,000 chance of having quadruplets (if you are a pregnant woman).

“But lotteries help fund our schools and education programs!”

Really? Thanks to the New York Times, we know that at most (in New York, no less) 5.3% of the money provided to schools comes from lotteries. Sure the numbers can look great because there are billions of dollars involved. So a few million here and there for education sounds great. The net revenues that end up going to schools aren’t terrible — 30 to 40%. The rest goes to run the lottery — marketing, prizes, and vendor (gas station) payments.

The end result is there are a group of core players that play lotteries. I couldn’t find the data, but you would imagine these are not folks with millions in retirement money. The lottery is occasionally described as just another tax. The only difference is you volunteer to pay this tax. The worst part is that 60 or 70% of the “tax” you pay doesn’t even go to help education. You would be better off having an actual tax that everyone paid because then every dollar could go towards education.

It’s Cheap and Harmless Fun

Lotteries want you to come back and play. They want to entice that core group of players. As noted in the NYT article above, states are coming out with more instant gratification games that are more addicting. I wouldn’t call that harmless.

It isn’t cheap, either. Assuming you play the lottery once per week for only $1, you’re giving up a lot of money in the long run. If you saved your $52 and put it into a savings account or other investment only once per year, and earned a 5% return, you would have $1,805 in 20 years. I would guess most core players do not play for just $1 per week so it just gets worse from there. (Add a 0 to the above number if you played $10 per week.) Imagine if you applied that money to your debt instead of throwing it away!

Then there is the little fact about most lottery winners being broke within five years of winning the lottery. It’s just a bad system all around.

So what do you think? Are you for or against the lottery? Do you play the lottery consistently? If so, are you in positive territory with your winnings?

Chandler: Oh yeah, gym member. I try to go four times a week, but I’ve missed the last 1200 times.
Ross: So why don’t you quit?
Chandler: You don’t think I’ve tried? You think I like having 50 dollars taken out of my bank account every month? No, they make you go all the way down there! Then they use all of these phrases and peppiness to try and confuse you! Then they bring out Maria.
Ross: Who is Maria?
Chandler: Oh Maria. You can’t say no to her, she’s like this lycra spandex covered gym…treat.

Thanks to the writers of Friends, we can kick off what I hope becomes a regular post that we’ll call Dumb Money. Simply put, these posts revolve around dumb money moves that are keeping you from getting out of debt. Keeping you from moving forward with your financial life. Sort of like Dave Ramsey’s stupid tax.

Physical exercise is a great thing. Staying in shape should help your finances down the road because you will be healthier. Exercising creates endorphins which puts you in a better mood. All around, exercise is a good thing and I’m not knocking it. In fact, I need to do more of it.

I am knocking paying $25 or $50 per month to let someone allow you to exercise.

What does a gym offer that you can’t do at home?

• Equipment? You can get by with the basics.
• Special showers? No; at least not that I’m aware of.
• Convenience? What is more convenient than your house or apartment?
• A warm space in the winter or cool space in the summer? If you work out at home, it will be heated and cooled just as much as the gym down the road.

In regards to equipment, you don’t need a treadmill, elliptical machine, or stationary bike. Some basic equipment you can use at home: tennis shoes and dumbbells. Of course the shoes are to jog/run outside. You don’t need fancy $100 running shoes either — I use tennis shoes I’ve had since high school. I’m 23. (Again, I’m not a fitness expert, but these work for me.)

Dumbbells are surprisingly diverse … you can work a lot of different muscles with such a simple tool. Judging from a quick Google search, you might expect to pay $1-2 per pound per dumbbell. So your $25/month gym membership would buy you two 10 lb. or one 20 lb. dumbbell in the first month. That would keep you busy for the first month, and you get to keep them! The next month you could buy additional weights, or save for something larger; in essence building your own home gym.

On top of jogging and dumbbells, you can do push-ups and crunches. All for free. In your living room. In your underwear (blinds closed, please).

Just like any other service provider, gyms want to entice you with “free” benefits — especially this time of year. It’s New Years resolutions time, so sign up now and get three months free! Or free spa treatments in your first month, or, or, or…

$25 per month is $300 per year. $50 is $600.What if you put $50 towards your debt snowball, emergency fund, or retirement account?

So don’t be Chandler. Suck it up and quit the gym!

* * *

I just noticed Flexo at Consumerism Commentary wrote an interesting article in 2007 about the gym: 10 Things Your Gym Won’t Tell You.