shopping tips

5 Reasons Not to Use Debit Cards When You Shop Online

Holly Johnson — Sat, 07 Nov 2020 22:45:14 +0000

Many consumers use their debit cards for everything they buy. Using debit instead of paying with a credit card can help you avoid the potential for debt. The money is taken out of your bank account directly and immediately, so there’s little chance to spend more than you have, unlike using a credit card.

But when shopping online, there are reasons to consider using a credit card instead.

Using a debit card for online purchases can mean enduring greater losses if you're a victim of fraud. Plus, you're giving up valuable consumer protections and rewards each time you make a purchase with debit in a store or online.

Here are all the reasons you may want to stop using debit and use a credit card instead.

1. You may be putting yourself at risk for fraud

It's easy to assume you won't be liable for fraudulent purchases made with your debit card or checking account number, but this isn't the case. Where most credit cards come with zero fraud liability thanks to rules enacted in the Fair Credit Billing Act (FCBA), the same protections don't apply to transactions made with a debit card.

In fact, someone who finds your debit card number could wipe out all the money in your accounts. If you don't notice or report it in time, you won't have any way to get your money back.

According to the Federal Trade Commission (FTC), your level of liability depends on when you notice the fraud and report it. For example, if you report fraud within two business days after it's noticed, you're only liable for up to $50 in losses. If you report fraud within two to 60 days of your statement being mailed to you, you're only liable for up to $500. If you fail to report fraud once it's been 60 days from the date your statement was mailed to you, the FTC notes that you could lose "all the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account."

2. You're missing out on rewards

In addition to putting yourself at risk for fraud, there are plenty of ways you're missing out when you shop online with a debit card. For example, you could be earning cash back or travel rewards if you made the same purchases with a rewards or travel credit card. These rewards can add up quickly, making it easier to see the world or splurge on merchandise, gift cards, and more.

While you can typically earn 1% to 3% back with a rewards or travel credit card, you can also double up on rewards by shopping through a cash back, travel rewards, or airline portal. You can also shop in portals with a debit card in some cases, but you'll mostly be limited to earning airline miles or cash back. (See also: How to Use Airline Shopping Portals to Cash In On Rewards)

3. You won't earn any sign-up bonuses

Using a debit card when you shop online also means giving up on the possibility of earning big sign-up bonuses. Keep in mind that many rewards credit cards offer consumers the chance to earn bonuses worth $500 or more when they meet a minimum spending requirement within a few months.

You may think you need to pay the annual fee on a credit card to qualify for sign-up bonuses or ongoing rewards, but this is far from the truth. The reality is, there are plenty of rewards credit cards that dole out sizable bonuses, ongoing rewards, and more without charging a fee each year. (See also: Don't Make These 6 Credit Card Sign-up Bonus Mistakes)

4. You're giving up valuable consumer protections

Another reason to use credit instead of debit is the fact that you could qualify for valuable consumer protections and free insurance. This can include travel protections like trip cancellation/interruption insurance, rental car insurance, travel accident insurance, baggage delay insurance, and more.

Other protections that can apply to your online purchases include extended warranties, purchase protection, and guaranteed returns. Most of the time, you won't qualify for any of these perks if you pay for your online purchases with a debit card. (See also: How Credit Cards Protect Your Purchases from Damage or Theft)

5. You're not building credit history

The final reason you may want to stop using your debit card is the fact that you're not building credit history based on your online purchases and everyday spending. When you use credit instead of debit, on the other hand, you're making regular purchases and payments that are reported to the three credit reporting agencies — Experian, Equifax, and TransUnion.

Having your credit usage and payments reported to the credit bureaus is huge because it helps prove your creditworthiness and gives them a basis to increase your credit score over time. Using a debit card certainly won't hurt your credit score, but it won't help it, either.

Considering a credit card? Here's a warning

While using debit online can be more risky and less rewarding, it's still important to figure out if you're a candidate for credit card use. While credit cards do come with better protection against fraud, the potential for rewards, and valuable consumer protections, they can make it easier to overspend and wind up in debt.

Before you sign up for a credit card and start using it for purchases, it's important to make sure you're committed to staying on budget and spending only what you can afford. If you wind up with a mountain of debt with the high interest rates most credit cards charge, the rewards and protections you receive won't be much help.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Maximize Rewards on Everyday Spending

Holly Johnson — Tue, 03 Nov 2020 17:32:44 +0000

While many rewards enthusiasts focus on signing up for new credit cards to earn signup bonuses, not everyone has the time or desire to play the signup game. There is effort involved in tracking multiple cards, annual fees, and rewards programs, after all, and some people don't want to spend their time or mental energy this way.

If you're someone who falls into this category, you may be better off maximizing one or two cards instead of chasing rewards. Fortunately, you can earn plenty of rewards over time if you're savvy about your card's benefits and bonus categories.

The key to getting the most out of your rewards cards is understanding how they work and looking for opportunities to earn more points on your everyday spending. Here are some tips that can help.

Brainstorm every bill you could pay with a credit card

Because rewards cards offer points based on each dollar you spend, maximizing the amount you can spend on credit is the best way to boost your rewards haul. The smartest strategy to use here is figuring out how many of your monthly bills you can pay with a credit card.

While you may not be notified or aware, it's possible that bills you've been paying with a check or debit card for years can be paid with a credit card without any fees. While your bills may vary, some expenses you should try to pay with a credit card include:

Rent
Utility bills like electric or gas
Health insurance
Cable television and internet
Cell phone
Taxes
Daycare
Auto and home insurance
Subscription services
College tuition or student loans
Medical bills
Lawn care

Keep in mind that these are just some of the bills you could be paying with credit. Depending on your situation, you could have additional, uncommon expenses to cover that could be paid with credit with ease.

Also, remember that these additional bills should be paid with credit on top of your everyday expenses like groceries, dining out, gas or bus fare, and miscellaneous spending. Every time you buy something in person or online, you should strive to pay with your rewards card if you can.

Leverage your rewards card bonus categories

It's also important to leverage your favorite card bonus categories, whatever they may be. This is especially important if you have a few cards with different bonus categories since you'll want to make sure you're using the right card for bills that let you earn bonus points.

Let's say you have a travel credit card that earns 3x points on dining and travel and another card that earns 6x points at the grocery store. In that case, you would be smart to use the travel card for dining and travel purchases and your other card when you stock up on food. While the amount of rewards you earn with individual purchases may seem nominal, using the right card for the right purchase can help you earn a lot more rewards over time.

Set up auto-pay bills to be paid with credit

Most of us have bills set up to be paid automatically, whether it's our Netflix and Hulu subscriptions, gym membership, or utility bills. Make sure each bill you have set up to be paid automatically is set up to be paid with your rewards card and not a debit card. This way, you can earn rewards points on those expenses every month.

Use shopping portals and dining clubs

Many flexible rewards programs, frequent flyer programs, and hotel loyalty programs have shopping portals you can access to earn extra points. Major airlines like American, Delta, and United also have shopping portals that work similarly. (See also: How to Maximize Rewards Through Credit Card Shopping Portals)

Some programs like Southwest and Delta also offer dining clubs. These programs let you earn additional points or miles just for dining at participating restaurants in your area. It's easy and it's free to join, so you may as well earn extra miles on your spending if you're going to dine out anyway. (See also: Everything You Need to Know About Airline Dining Rewards Programs)

How much the average family can earn

If you are skeptical the average family can rack up meaningful rewards without signing up for new cards over and over again, look at how this might work in real life. For example, imagine a family of four with two rewards card-toting adults. Across the two of them, they have:

A cash back card that earns 2% back
A travel credit card that earns 3% on dining and travel
A rewards card that earns 6% cash back at the grocery store on up to $6,000 in spending each year

To figure out how much this family might earn, we used Bureau of Labor Statistics spending averages from 2017. Here's a rundown of that data for the year plus how much a family could earn in rewards over 12 months based on average expenses:

Food at home ($4,363): $261.78 in rewards at 6%
Food away from home ($3,365): $100.95 at 3%
Utilities, fuels, and public services ($3,836): $76.72 at 2%
Household operations ($1,412): $28.24 at 2%
Household supplies ($755): $45.30 at 6%
Household furnishings and equipment ($1,987): $39.74 at 2%
Apparel and services ($1,833): $36.66 at 2%
Gasoline and motor oil ($1,968): $39.36 at 2%
Other vehicle expenses ($2,842): $56.84 at 2%
Healthcare ($4,928): $98.56 at 2%
Entertainment ($3,203): $64.06 at 2%
Personal care products ($762): $45.72 at 6%
Education ($1,491): $29.82 at 2%

Total rewards: $923.75

While $900+ is a lot to earn in rewards within a year, you have the potential to earn a lot more. After all, these are just some of the expenses the average family faces and not all of them. If you could pay some additional big bills with credit each month like daycare or your rent, you could significantly add to your bottom line.

What to watch out for

While maximizing rewards cards is a smart idea if you're using them already anyway, there are always pitfalls to be aware of when you're using a credit card. Here's what to watch out for during your quest for more cash back and travel rewards.

Fees for using credit

While there are many bills you can pay with credit without a fee, some vendors, merchants, and service providers charge a fee to use a credit card as payment. Fees are especially prevalent on bills such as utilities, cable or internet, rent, and insurance. Make sure to verify you aren't being charged a fee to use credit before you proceed.

Annual fees

Don't forget that some rewards cards charge annual fees. These fees may be worth it depending on your spending and rewards haul, but you should always factor them into the equation to make sure each fee is worth paying. If you're against paying annual fees, look for rewards cards that don't charge one.

Budgeting mishaps

Using a credit card for all your expenses may simplify your financial life, but it could also cause your budget to fall out of whack. Make sure you're only spending on purchases you planned to make anyway, and that you're tracking your spending and paying off your credit cards regularly.

Debt

Never use credit cards for purchases you can't afford to repay if you're pursuing rewards. The interest you'll pay will always be much more than the rewards you earn. If you're worried using credit will cause you to rack up debt you can't afford to repay, you're better off sticking to cash or debit instead.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Avoid These Common Hidden Fees

Emily Guy Birken — Tue, 03 Mar 2020 09:00:08 +0000

When I found out that my favorite comedian was coming to town, I couldn't wait to buy tickets. Each seat in my preferred section cost $84, which was a little high, but I figured it was worth it to see someone who consistently makes me laugh. But after adding in the service charge, taxes, and a fee to email the tickets to me, the two $84 tickets came to a total of just over $200.

Anyone who has recently bought tickets to a music, sporting, or comedy event has had a similar experience. Hidden fees increase the price of your seat, but you won't even realize until it's time to enter in your payment information. At that point, you're already excited about the event and don't want to back out because of an unexpected cost.

Buying tickets is not the only time you find yourself staring down a hidden fee. Here's what you need to know about the surprise extra charges on common purchases, and how you can either plan for them or fight them.

Events

Buying tickets to events has changed a lot in my lifetime. Back in high school, I actually had to visit a box office or local retailer to purchase tickets to an upcoming event. I even camped out to be among the first in line for a popular band that came to town. When buying them in person was the only way to get tickets, the face value of the ticket was much closer to the amount you would pay for it. In general, you'd only pay sales tax on top of the ticket price.

All of that changed when Ticketmaster became the primary method for buying tickets. The event sales giant started charging everything from service fees to delivery fees to processing fees to facility charges. These additional fees are revealed only after you have chosen your seats at the base ticket price, and while you're watching a clock tick down the amount of time before the tickets are released to another hopeful concert-goer.

These fees add 25% to 35% to the price of your ticket, and the use of the countdown clock and the belated reveal of the fees both work to make you grumble but ultimately fish out your credit card to pay anyway.

For a short time, Ticketmaster held an absolute monopoly on tickets, and it still represents more than 80% of the market share of the ticket-sales industry. However, that doesn't mean you have no choice.

Avoiding the fees

The savvy concert-goer and sports fan has several options available for reducing ticket fees. To start, you can purchase directly from the venue to reduce your fees. Even if you buy the tickets online through the venue's online portal, you can usually get a lower price than you would through the big ticket brokers. This is what I did to buy my comedy tickets. As unhappy as I was paying an additional $32 for them, it represented only a 19% markup. Had I gone through Ticketmaster, the markup was just over 34%.

If you have more time than money, rocking the old school method of buying tickets in person at the box office can save you even more money.

Airline tickets

Within the past 10 years, airlines figured out they could increase profit by reducing the freebies they used to offer. They started by levying a checked baggage fee, which ranges from $10 to $150 per bag, depending on which airline you fly and how many bags you're checking.

From there, travelers started seeing seat selection fees when booking online. While there are always a few "free" seats that are covered by the cost of the ticket, you'll often find they're sparsely spread throughout the cabin and often not next to each other. This means that you (and your traveling companions) will each have to pay a seat selection fee if you'd like to be seated together.

Additional fees may include charges to watch the onboard entertainment and for drinks and snacks. All of these fees can inflate the cost of your flight by as much as 50% or more.

Avoiding the fees

Within the airline industry, fees vary a great deal. That means it's still possible to shop around to avoid extra expenses on top of your airline ticket. Some low-cost airlines allow you to bring up to two checked bags for free, skip seat selection fees, and enjoy complimentary snacks, drinks, and entertainment onboard.

Even if you don't have many airline choices because you don't live near a major airport, you can still keep your fees lower by purchasing your tickets as far in advance as possible. The sooner you buy your tickets, the more likely it is you'll be able to pick your seats for free.

In addition, making sure you understand exactly what fees your airline charges can help you to avoid last-minute surprises. Knowing before you reach the airport that you'll have to pay for a checked bag gives you the option of packing light with just a carry-on. And you can come to your flight prepared with snacks and entertainment to avoid paying for them on the plane. (See also: How to Save Money on Flights Using Fare Alerts)

Hotels

Booking a hotel room online allows you to easily compare room rates so you can find the best deal. Unfortunately, the rates you see online don't necessarily match the amount you pay once it's time to check out. That's because of charges like resort or amenity fees, parking fees, online booking fees, and Wi-Fi.

These fees vary and can be difficult to determine ahead of time. For instance, the resort fee is a daily additional charge levied for your use of the hotel's amenities, from gym and pool access, to using the hotel's private beach or enjoying the breakfast spread. Even if you have no plans to use any of the amenities covered by the resort fee, you're still on the hook for the fee. Most hotels charge a flat daily rate for their resort fee, but some charge a percentage of your room rate or a per person rate per day.

Avoiding the fees

Parking fees and Wi-Fi charges tend to be the easiest fees to determine ahead of time. Calling around and asking what these fees will be can help you decide where to stay. You may also be able to ask for discounts on these fees based on membership to groups like AAA or AARP or a hotel loyalty program.

Many countries prohibit charging undisclosed fees like resort fees and online booking fees, but the United States has no specific prohibition — although deceptive pricing is against the law. This means you can find the information about resort and other fees by either looking on your preferred hotel's website or by calling and asking. However, the fees are not necessarily going to be easy to find or calculate ahead of time.

There are several options for opting out of resort fees. The first is to only book rooms at hotels that do not charge them. You can check if a hotel charges resort fees at ResortFeeChecker.com.

In addition, booking a room using travel rewards points often means that your resort fee and your booking fee are waived. Hotel loyalty programs can also potentially earn you fee-free stays. (See also: How Travel Rewards Cards Can Help You Score Luxury Travel Perks)

Finally, opting out of hotel stays altogether can be another method of avoiding fees. Finding a place to stay through a peer-to-peer homeshare like AirBnB or VRBO can offer you cheaper per-night costs that have no fees tacked on.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why It Pays to Be a Patient Shopper

Emily Guy Birken — Fri, 06 Dec 2019 03:35:46 +0000

Ever since I learned that consumers who do less research tend to be happier with their purchases, I've been proud of my "good enough" method of shopping. Unlike my husband, who does weeks (or months) of research, seeking out expert opinions, investigating the pros and cons of various options, and weighing his preferences compared to costs, I tend to figure out the minimum I need to be happy and buy the first item I come across that fits my needs and price range.

According to Barry Schwartz, author of the book The Paradox of Choice, my method of decision-making is called "satisficing," while my husband engages in "maximizing." Maximizers believe that there's an ideal version of whatever they're looking for, and make it their mission to find it. But maximizers will sometimes agonize about their purchase even after they've made it, because they're afraid there is a better version out there. Satisficers, on the other hand, focus on what will be good enough to meet their minimum criteria, which means satisficers are generally happier with their decisions.

While I've long felt a little smug about the fact that science has proven my way is better, I recently realized that there are some problems with making good enough decisions that maximizers don't. Here's why satisficing can sometimes lead you astray in decision-making.

Satisficing can be expensive

I recently purchased a new desk chair for myself. I work from home, and wanted to have a chair that offered more lumbar support and some padding. So I went to an office supply store and picked out an office chair that felt comfortable, looked cute, and was within my price range.

I was happy with my purchase for about six weeks, until the day I put just a little weight on the back of the chair, and it broke. Turned out that the chair's back was made of particle board under the padding, and it was only a matter of time before some kind of pressure broke the board around the screws that held it in place. My "good enough" chair was only usable for six weeks, and now I have to buy a new one. It would have been less expensive if I had spent more time researching which chairs are highly rated, even if I had ended up with a pricier chair.

And this is not the first time my willingness to settle for "good enough" has cost me money. From furniture to cookware, I've found that buying something that fits my minimum criteria sometimes results in a purchase that doesn't work for the long-term. Which means I have to spend more money to buy a replacement.

Maximizers, on the other hand, may not be able to make a quick decision, but their commitment to researching their purchases means they're unlikely to be stuck with a busted desk chair only six weeks in. (See also: How to Use Financial Anchors to Make Better Money Decisions)

Satisficing and satisfaction are not the same

While I am very much a satisficer, there are a few purchases that bring out the maximizer in me. One of them is blank notebooks and journals. I love buying these, and I want the journal I purchase to precisely fit the project I have in mind.

For instance, I recently spent nearly an hour and a half looking through the blank notebooks on display at our local indie bookstore to find the perfect one for an upcoming creative project. While I could certainly use any blank book to scribble notes and draw pictures, the one I found embodied the exact aesthetic I was looking for and had gorgeous, creamy, unlined paper inside — just like I wanted.

Finding the exact thing you want to buy after doing diligent research offers a much higher level of personal satisfaction than settling for good enough ever will. While I'm always glad to be able to make a purchase and move on with my day, I admit that my satisficing ways can sometimes cheat me out of the satisfaction of finding exactly what I want.

Satisficing can prompt careless decisions

Ultimately, satisficers like me prefer not to waste time on making a choice. We often go for the good enough option because we'd rather get the decision made and over with than spend any extra time on it.

This preference for getting it done (as opposed to the maximizer preference for doing it right) can sometimes put unnecessary time pressure on the satisficer. Even though there's no particular urgency for a decision, a satisficer may feel as though they need to just make any decision so they can cross it off their list.

This has happened to me on multiple occasions when I just wanted to move onto the next thing. For instance, when I needed to change a flight because of a family emergency, I chose the first flight the airline offered to me, so I could take care of the next thing that would help my family. But that flight was at an inconvenient time and would cause more stress to my family. My desire to make a decision and move on quickly meant I had to call the airline back and ask again if they would change my flight.

I made that mistake because my satisficing tendencies prioritized getting things done quickly, rather than getting them done right. (See also: How Projection Bias Could Be Destroying Your Finances)

Learning to maximize and satisfice

While I will probably always lean more toward the satisficing end of the decision-making spectrum, I know that adopting some maximizing ways can help me make better decisions. Making sure that I raise my standards, embrace the enjoyment of finding the right choice for me, and slow myself down when making decisions will all help me to enjoy the best of both worlds.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Steps to Avoiding Credit Card Debt Over the Holidays

Holly Johnson — Thu, 07 Nov 2019 08:00:07 +0000

Holiday debt may be incurred unintentionally, but the consequences can linger long after you put away the twinkly lights and stockings. A 2018 report from Magnify Money showed that consumers polled added an average of $1,230 in holiday credit card debt during that season. Not only did 64% of respondents agree their new holiday debt took them by surprise, but almost half of respondents (49%) said it would take them five months or longer to pay off remaining holiday bills.

If you're struggling with debt already, the last thing you need this year is a new pile of debt to contend with. Unfortunately, the constant pressure the holidays bring can leave you feeling like you're set up to fail from the start. Here are the best steps you can take now to avoid a holiday debt hangover.

1. Create a holiday shopping budget

First, you have to have an idea of how much you plan to spend on holiday gifts before you can decide how the funds will be used.

If you started a holiday savings account earlier this year, you may have no trouble logging in to see how much money you have set aside. If not, you'll need to take a close look at your checking and savings accounts to see how much "extra" money you'll have to spend this year.

As you assess your finances and excess cash, make sure to think through all your regular bills and expenses that need to be paid each month. Also, jot down any work-related year-end expenses you'll need to cover, such as holiday travel or holiday parties.

Then consider how many additional paydays you have until the holidays, as well as how those funds will need to be allocated.

2. Figure out how to earn extra money

If you find you don't have as much extra cash for the holidays as you hoped, you may want to get creative when it comes to finding more cash. This could mean picking up a few extra shifts at work, but it can also mean picking up some work on the side for a few weeks as the holidays approach.

If you're looking for easy ways to make money before the holidays this year, look for side hustles you can start without a big investment of time or cash. Try walking dogs, babysitting neighborhood kids, or selling stuff you own and don't use anymore, for example. (See also: How to Turn Your Expertise Into a Side Hustle)

If you have any points leftover on rewards credit cards, you can also see about cashing them in for gift cards or merchandise.

3. Make a holiday shopping list

Once you know how much money you'll have to spend this year — or at least have a general idea, you need to make a list of people to shop for. While kids and family members will obviously make this year's list, don't forget to add in gifts for an employer or your coworkers as well as any holiday gift exchanges you participate in.

Write down this list on paper, or paste it in a spreadsheet along with the amount of cash you have to spend this year. (See also: Take Control of Your Money With These 10 Free Spreadsheet Templates)

4. Make some essential cuts

Next, take a close look at your holiday shopping list to see who needs to be cut. You may find you have family members or friends you don't need to buy a gift for because you never see them. Or perhaps you have older kids in the family who no longer receive gifts from Santa.

If you participate in holiday gift exchanges and are tired of doing so, those are usually the easiest to cut out. Call the person who normally organizes the exchange each year and let them know you're on a tight budget. If they don't like it, that's too bad.

If you plan to cut family members you normally shop for from your list, it might be wise to let them know ahead of time — especially if they also buy gifts for you or your family. Most people will understand you're trying to spend less and avoid debt this year if you reach out and explain the situation.

Either way, decide who you want to shop for and remove everyone else from the list. Then you can decide how to divvy up your holiday budget for each person that's left. Maybe you have two children and allocate $150 to each of them while setting aside $20 per person for other people on your list. Whatever it is, put your budget and plan in writing so you can stick to it.

5. Shop sales to make your money stretch further

Having an idea of how much you plan to spend on family and friends is the best way to avoid going over your budget this holiday season. When you know for a fact you have $20 per person to spend on family members, you're in a better position to shop for gifts in that price range instead of overspending, or winging it as you go.

While Black Friday and Cyber Monday tend to bring excellent prices and sales on everything from electronics to clothing and home decor, don't forget to keep an eye out for low prices for anything you want to buy. The internet is your friend when it comes to searching for deals and comparing prices across multiple stores. You can even sign up for the Honey app, which finds the best coupon code and automatically applies it to your cart whenever you shop online.

6. Have a plan to avoid debt when you buy gifts

You may plan to use debit cards for online purchases and cash when you shop in stores this year, and that's perfectly okay. Just remember that, as a general rule, credit cards are considerably safer when it comes to online purchases due to the way the Fair Credit Reporting Act (FCBA) protects against fraudulent purchases.

If you decide to pay with credit in order to rack up cash back or qualify for consumer protections like extended warranties or purchase protection, make sure you only charge gifts you planned for in your holiday budget ahead of time. Also make sure you pay your credit card bill in full as soon as it arrives. As holiday shoppers from years past willingly admit, it's far too easy to let year-end bills linger.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Pre-Commitment Mechanisms Can Help You Resist Impulse Buys

Emily Guy Birken — Mon, 28 Oct 2019 08:00:07 +0000

If you've read the Greek epic The Odyssey, you may remember Odysseus's ingenious plan to hear the dangerous voices of the sirens, who would lure sailors to their deaths. Every member of his crew plugs their ears with beeswax so they can't hear the tempting song, and Odysseus latches himself tightly to the mast of his ship, so that he cannot escape and steer the ship off course. With a little forethought, Odysseus manages to be the only human who hears the sirens' song and lives to tell the tale.

Odysseus's scheme is an excellent example of what behavioral economists and social scientists call "pre-commitment mechanisms." These mechanisms can be powerful tools in helping people overcome impulsive behavior, and specifically, overspending.

Here's what you need to know about pre-commitment mechanisms and how you can incorporate them into your financial decisions. (See also: 5 Mental Biases That Are Keeping You Poor)

Why do pre-commitments work?

According to Dr. Daniel Crosby, author of The Behavioral Investor, "pre-commitment works because it takes natural (and sometimes negative) human tendencies like laziness and status quo bias and actually makes them work for us."

Since we're likely to let a previous decision stand if it keeps us from having to make a new decision, we can profit from our own laziness. For instance, someone trying to maintain a healthy lifestyle may not keep donuts or ice cream in their home as a pre-commitment to eating better. Since getting junk food requires leaving the house, the pre-commitment of not buying treats can often be enough to keep sweets out of their diet.

Pre-commitments can help align your long-term goals with your short-term decisions. Dr. Crosby writes that "a pre-commitment should be used anytime we feel our short-term preferences may change, but our hope is for our long-term commitments to mirror our current frame of mind."

This means that anyone who'd like to spend less, make rational investment choices, or pay down debt could benefit from creating pre-commitment mechanisms.

What does a pre-commitment mechanism look like?

There are multiple ways to create a pre-commitment mechanism to keep you on track to accomplishing your goals.

Social consequences

Many successful budgeters blog about their journey out of debt or toward financial independence. These budgeters are pre-committing to social consequences if they should fall off the debt-repayment wagon. The negative social consequences of reneging on the publicly stated goals are much stronger than the immediate temptation to spend, which helps those who share their goals publicly to stay on track.

In the modern world, there are a number of ways to use social consequences as a pre-commitment to improving your spending habits. For instance, you can set up an automated alert from your bank or credit card issuer that texts your spouse anytime you make a transaction larger than a certain amount. The social consequences of having to explain your purchase to your spouse can be enough to make you pause before buying anything.

In addition, you can also seek out accountability partners via social networks or take a page from debt bloggers and record your journey in a blog.

Automation

Having your savings taken automatically from your checking account allows you to pre-commit to a savings strategy that's harder to undo. This automated decision allows you to benefit from your own disinclination to change the default setting. (See also: 5 Ways to Automate Your Finances)

According to Dr. Crosby, one of the most famous examples of a pre-commitment mechanism is the Save More Tomorrow program, popularized by Richard Thaler and Shlomo Benartzi:

"It involves pre-commiting to the auto-withdrawal and auto-escalation of retirement savings over time. Effectively, it allows a retirement saver to make a good decision once that benefits them for the entirety of their savings lifetime. People are busy, their willpower is weak, and their decisions can be inconsistent. By 'setting and forgetting' decisions like saving and escalating retirement contributions, human frailty gets turned on its head."

Remove temptations

Another pre-commitment option is to change your environment so that you encounter fewer temptations. This is what the dieter who has no sweet treats at home is doing. Reformed spenders can do the same by taking their credit card out of their wallet. (There's a very good reason for the old-fashioned advice about freezing your credit card in a block of ice.)

Similarly, removing your payment information from your favorite online retail sites, unsubscribing from retail email newsletters, and immediately recycling paper catalogs you receive can all help you avoid the siren song of spending.

When pre-commitments don't work

While setting up pre-commitment mechanisms can do a great deal to help you improve your financial life, they're not magic. A pre-commitment that can be undone will be undone if it's easy for you to change your commitment when you're feeling tempted.

Dr. Crosby has seen that creating rules-based pre-commitment strategies often does little to stop investors from reacting emotionally. "Jim O'Shaughnessy, the godfather of quantitative investing, recently revealed that 60 percent of rules-based traders broke their rules during the Great Recession, effectively nullifying their pre-commitment (which is all an automated, quantitative strategy really is)."

These traders had pre-committed to a kind of "if this, then that" rules system for investing. But when they got scared about their investments, they ignored the rules they had committed to. Because they could break their own rules, these traders did so, despite their pre-commitment to more rational investment choices.

This is why Dr. Crosby recommends making your pre-commitments difficult to alter. "Once you've made a commitment, you want it to be as hard as possible to change it. Make that choice and lose the key!"

Know your temptations

Pre-commitments can help you protect yourself from making easy, habitual, lazy, emotional, or poorly-thought-out decisions. But your pre-commitments will be more effective if you know which temptations are most likely to affect you, and if you make your pre-commitments difficult to change.

Be like Odysseus, and outsmart your worst impulses before you have a chance to indulge them.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Resist These 4 Rationalizations to Spend Money

Emily Guy Birken — Mon, 30 Sep 2019 08:00:08 +0000

When I turned 40 earlier this year, I decided to celebrate in style with a theme party at a local pub. When I went to a party store to buy decorations for the event, I went a little overboard with balloons, streamers, hats, and kitsch. I'm only going to turn 40 once, after all, and I wanted to enjoy myself and throw a fun party.

As I was cleaning up many of the unused decorations after the party, I realized I had fallen victim to one of the classic money blunders: using a special occasion as my rationale for overspending.

Humans are good at coming up with rationalizations for spending money. But the lies we tell ourselves to excuse our spending are remarkably consistent, and we can recognize these rationalizations while they're happening. The next time you find yourself using one of the following excuses, stop and ask yourself if you're rationalizing your spending. (See also: 5 Mental Biases That Are Keeping You Poor)

"It's a special occasion!"

The special occasion excuse is the very reason the staff at the party supply store were so happy to see me. It feels wonderful to spend money to celebrate, whether you're marking a milestone birthday, giving holiday gifts to your loved ones, or commemorating a major life change like marriage or graduation.

However, as good as it feels in the moment to spend money for these reasons, special occasion bills are just as painful to pay as any others. The boost you may feel for being the hostess with the mostest or the uncle who gives the best Christmas presents will have faded by the time your credit card payment is due. And that is hardly the way to ensure that you have happy memories of your special occasion.

If you find yourself excusing your overspending because it's for something special, stop and think about what it is you truly want to get out of the occasion. Take a moment to recognize what feeling you want to evoke. Once you've figured that out, you can then determine how to do so without overspending. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)

"This will save me money."

My stepfather once went to Sears to buy a single 5/16 inch wrench that he needed for a project. Buying the single wrench would've set him back about $15. But when he got to the store, he found a 44-piece wrench set with every possible size he could ever need. The set cost $200, but he proudly told the family that the 5/16 inch wrench in the set only cost him $4.50. By spending $185 more than he planned, he saved $10.50 on the particular wrench he needed.

We often rationalize a purchase with this kind of thinking. We tell ourselves that spending money we didn't intend to spend will somehow save us money in the future. And retailers are fully aware of our tendency to rationalize purchases as a way of saving money. (My stepfather's wrench set helpfully broadcast the fact that each wrench only cost $4.50 across the top.)

Asking yourself the following questions can be a good method of breaking through your rationalizations:

Do I need this item?
Would I buy it if it weren't on sale or if it couldn't save me money?
Can I afford it?

Had my stepfather asked himself these questions, he certainly would not have come home with a set of 44 wrenches that he didn't need. (See also: How to Use Financial Anchors to Make Better Money Decisions)

"I need this!"

Knowing the difference between needs and wants is the basis of personal finance literacy. Recognizing that you must prioritize your needs over your wants is the cornerstone of basic budgeting, and most people are well aware of the importance of doing this.

The problem with the needs-versus-wants education is that it provides us with another ready-made rationalization for spending. Anytime we can convince ourselves that we need an item, there is very little to stop us from overspending.

For instance, let's say your car is on its last legs. You need to get a new car because you have to have reliable transportation to get to work. But you convince yourself that you need a brand-new car rather than a reliable used one. You've tacked a want onto your legitimate need in order to justify your overspending to yourself.

To avoid this rationalization, ask yourself if your need could be fulfilled with a less expensive option.

"It's only $X."

Spending a little bit of unexpected money can feel like no big deal, since you're only parting with a five-spot or a tenner. If this only happens every once in a while, you might chalk it up to the cost of living.

However, there are problems with the "It's only $X" rationalization. The first is that small amounts add up quickly. You can rationalize your way into some pretty hefty spending a couple of dollars at a time.

In addition, what you consider a small amount of money changes with your budget. As you earn more money, you may go from thinking "It's only $5" to "It's only $50." While you may have the income to absorb such a change in your "It's only" thinking, you're still spending more than you planned and it will add up even quicker at a higher income level.

If you find yourself rationalizing a purchase with "It's only $X," ask yourself what else you could do with the money. Thinking through what the loss of that money actually means to you can help you overcome the rationalization. (See also: 4 Mindful Spending Habits That Will Save You Money)

From rationalizing to rational

Making excuses for our less-than-ideal choices may be human, but it's not the best way to manage your money. Taking the time to really ask yourself why you're making the choices you are can help to end your rationalizations and start looking at your finances more rationally.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Mindful Spending Habits That Will Save You Money

Emily Guy Birken — Mon, 12 Aug 2019 08:00:06 +0000

Spending money mindlessly is easy to do — not to mention fun! Between one-click purchases, instant downloads of new movies and music, quick stops for something to eat, and impulse purchases in stores, it's entirely possible to spend an entire paycheck in a day without even realizing.

But just because it's easy to spend money without thinking doesn't mean you have to fall victim to it. The following mindful spending strategies can help you resist impulse buys long enough to help you remember what you truly value.

Calculate costs in hours spent

While money is replaceable, time can only be spent, not earned. That's why it's helpful to start thinking of prices in terms of hours, rather than dollars. Remembering that you've already traded your time for the money you plan to spend on whatever has caught your fancy can be enough to help you keep your cash in your wallet.

Vicki Robin and Joe Dominguez popularized this strategy in their book Your Money or Your Life, where they make the case that your time is literally money, since you trade your time away in order to get money. When you calculate costs in hours spent, you determine the amount of money you net per hour, and compare that number to the cost of goods and services to buy. With your calculation in hand, you have a better sense of how much time any one purchase costs you.

To put this strategy into action, start with your monthly income. Check your pay stubs to see how much you make per month. Multiply your monthly net income by 12 to get your annual income, then divide it by 2,000 (the typical number of hours worked in a year) to get your hourly wage.

Let's say your monthly income is $3,100. If you multiply that by 12, you get $37,200. Divided by 2,000, you get an hourly wage of $18.60.

Having that number in your head can re-contextualize prices, because it gives you a concrete value of your hours. When you're tempted by a home assistant device that's on sale for $150, the price may seem like no big deal. But is it worth 8.06 hours of your work time?

You may ultimately decide that having a home assistant device is worth just over a day of work — and that's absolutely fine. Calculating prices in hours worked means that you're actually clear on what the true costs are.

Know why you're shopping

Eating and shopping can both feel very good in the moment, to the point where you ignore any signals that tell you that you've had enough. Like eating, we often spend money because we want to change our emotional state. And in both cases, there's a huge industry in place trying to keep us mindless, continuing to ignore signals and consume in order to avoid emotions.

To combat this, get several blank index cards. Place these where you'll see them anytime you might spend money. For instance, put one in front of your credit cards in your wallet, one on your laptop, and one taped to the back of your phone. On each card, write the following questions for yourself:

Why do I want to buy this?
What problem do I expect this purchase to solve?
How do I expect to feel after making this purchase?
How long do I expect to own this item/use this service?
Do I already own something similar?
Can I recreate the feeling of buying this without spending money?
Can I recreate the feeling of buying this by spending less money?

It's important to check in with yourself to understand why you're consuming so you can stop if it's not what you really want, or engage mindfully so you can truly enjoy the process if it is what you want. (See also: 8 Ways to Save Money When You Can't Really Afford To)

Create a purchase wish list

There is an excellent reason why "wait before making any purchases" is a classic personal finance tip. Forcing yourself to wait to decide if you actually want to spend money on an item can help mitigate the emotional element of spending decisions.

However, if you've ever tried to institute such a rule for yourself, you'll remember the "I don't wanna wait!" reaction that can derail the entire process. Even though you might be aware of these impulse-driven moments, it can still be tough to stand up to that foot-stomping part of yourself insisting on making the purchase right now.

One method of both calming and honoring the little Veruca Salt inside you is to keep a purchase wish list. When you find something you absolutely want to buy, quickly write down what it is, where and when you found it, and how much it costs. Once you've written it down, set a date anywhere from 24 hours to 30 days in the future when you may come back to make the purchase, if you still want it.

There are two benefits to this list:

You create self-awareness

You're recognizing the part of yourself that wants to give in to the impulse purchase. It does feel good to buy things on a whim. It would be fun to have whatever cool thingamajig you're pining for. Writing down all the details about the potential purchase is a way to honor the reality of your spending desires. You're not wrong for wanting the item, and making this list can help you feel more at peace with leaving it behind at the store or in your digital cart because you've honored your emotional reaction to it.

You train yourself to resist impulse buys

The second benefit is that by creating this list and letting it age, you learn to spend less on impulse buys, while still being open to making spending decisions that truly enrich your life. True impulse buys won't tempt you to return, since the inconvenience of going back will be stronger than the impulse to buy. The purchases you actually care about will be worth the wait, and allowing yourself to go back for such buys will ensure you don't feel deprived. (See also: How a Simple "Do Not Buy" List Keeps Money in Your Pocket)

Keep your mind on your money

Parting with money is incredibly easy, especially in our increasingly cashless society — which makes it very hard to resist the siren song of spending. But recognizing the time cost of purchases, asking yourself why you're buying, and honoring your impulses by creating a purchase wish list can all help you to pause between your desire and your purchase.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Get Your Spouse on Board With Budgeting

Emily Guy Birken — Mon, 15 Jul 2019 08:00:06 +0000

Money is the most common cause of stress in relationships, according to a study conducted by The Harris Poll, and fights about finances are often cited as the reason for divorce. Couples struggle to get on the same page about their finances because they don't have a shared budget or regular conversations about money. Unfortunately, avoiding the budgeting discussion will do nothing to improve your money stress or your bottom line. It doesn't do much to avert fights about money, either.

But even if you know all this, your spouse may not be willing to embrace the joys of budgeting. In fact, just bringing up the subject could prompt your partner to leave a person-size hole in the wall as they make a hasty exit.

Here's how to bring a spouse on board to the necessities of budgeting if they're reluctant to try it. (See also: 4 Money Fights Married Couples Have (And How to Avoid Them))

Start by dreaming big

Budgeting is really all about figuring out how you can have the things you want most in life. But most people think of budgeting as deprivation and spreadsheets, which is no one's idea of fun.

So to get your unwilling spouse on board with budgeting, start by having conversations about what you both want in life. For instance, you might ask your partner what they would do with a million dollars. Not only will this conversation be fun — it's thrilling to think about these kinds of dreams — but it also provides a great jumping off point for starting a budget.

After your big dreams conversation, you could open a new savings account specifically for the trip to Egypt your spouse has always wanted and start putting aside $5 a week. This shows your spouse that you're taking their dreams seriously, and that a cruise up the Nile is more than just a fun fantasy. Once there's a real trip or other goals that you're working toward, it can be a lot easier to get a reluctant spouse excited about budgeting. (See also: 5 Steps to Successful Budgeting)

Work solo on a budget, but ask for input

In every marriage, there are tasks that one spouse takes over because the other spouse isn't interested in handling it. Maybe she handles all the lawn care while he does the grocery shopping and cooking. So there's nothing wrong with creating a budget by yourself if your spouse has made it clear that they're not interested.

However, even if your partner says they want nothing to do with budgeting, it's still very important to make them part of the process. Put together your monthly spending plan solo, but ask your partner for their opinion after you're done. Not only will this show them that you care about their input, but they may also have a different viewpoint of various spending categories. For instance, if your partner handles the cooking, they may recognize when you have over- or under-budgeted for grocery shopping.

In addition, you can potentially ask your spouse if there are any places to trim the fat that you hadn't thought of. If you've already started setting aside money for a big dream you share, this will make this request even more motivating, since your spouse will recognize that you're trying to reach that dream faster. (See also: 11 Budgeting Skills Everyone Should Master)

Let your budget work its magic

While budgeting is much easier if everyone is on board, you can still improve your bottom line and reduce your stress while working by yourself. Even if dreaming big and asking for input don't motivate your partner, seeing a budget actually work can make a big difference.

For instance, let's say you and your spouse find yourselves stressed and scrambling every six months when it comes time to pay for car insurance. Since you've started implementing your budget, you've decided to put aside $75 per month toward that bill. When it comes due, instead of feeling overwhelmed and panicked like you normally do, the amount of money you need is already set aside and ready.

Simply sharing this win with your spouse could do a lot to bring them around to the benefits of budgeting. This is especially true if you used to have arguments or stressful scenes every time this bill came due.

Celebrate the wins together

Pointing out the ways that things are improving is a great method for encouraging your spouse to take ownership of your budget. For instance, if you spend less on dining out because you're making more of an effort to cook at home, you could ask for their input on how to celebrate. You might say:

"Check out how much we saved this month by cooking at home! I'd like to put most of it toward our credit card debt, but let's think about how we can enjoy some of this saved money. What do you think we should spend it on?"

Sharing the benefits of your budget with your spouse, even if they haven't done the same budgeting work that you've put in, can help make it clear that your budget is a joint endeavor.

From reluctance to excitement

The majority of budgeting fears stem from a sense that it will be both boring and limiting. Bringing your spouse on board means showing them that budgeting offers both fun and freedom. Consistently focusing on big goals, doing the budgeting work yourself while always asking for input, letting the budget do its job, and sharing the wins can all help your foot-dragging spouse to embrace the budget.

In time, your spouse may even say those three little words everyone wants to hear from their sweetheart: "You were right."

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Use Airline Shopping Portals to Cash In On Rewards

Holly Johnson — Tue, 28 May 2019 08:00:11 +0000

Airline shopping portals offer an easy way to earn "extra" miles for every dollar you spend, but too many people don't even know they exist, let alone how to use them. Once you understand how to use airline shopping portals, you can earn hundreds or even thousands of airline miles each year — without even getting on an airplane.

While many airlines have their own shopping portals, the most popular ones include Delta SkyMiles Shopping, American AAdvantage Shopping, United MileagePlus Shopping, and Southwest Rapid Rewards Shopping. Eager to learn more? Here's how shopping portals work, and how you can cash in.

How airline shopping portals work

The first thing to note about airline shopping portals is that they're entirely free to use. You don't have to pay to become a member, nor do you have to pay to create an account.

You do, however, need to have an airline loyalty number to earn miles in any given program. Once again, signing up for frequent flyer accounts is free and you can complete the entire process online. Generally speaking, you only need to offer basic personal information to create a frequent flyer account, including your name, home address, phone number, and email address. From there, you'll choose a username and password.

In terms of ease of use, shopping portals only require you to take one extra step before you make a purchase. If you planned to shop at Kohl's, for example, and wanted to earn Southwest Rapid Rewards points on your purchase, all you'd need to do is search for "Kohl's" in the portal. Then you'd find several special promotions for Kohl's, along with the number of points you'll earn on your purchase, like two points for every dollar, for instance.

To earn extra miles on your purchases, all you'd need to do is click on "shop now" and wait until you're transferred to the Kohl's website. And any miles you earn by making a purchase will be automatically credited to your account. (See also: How to Maximize Rewards Through Credit Card Shopping Portals)

How to earn double miles and points

It's fair to assume you need a credit card to earn points or miles through shopping portals, but that couldn't be further from the truth. All you have to do is log into any portal and "click through" to participating stores before you shop. If you prefer to pay for your purchases with a debit card or gift cards, that's totally up to you.

With that being said, there are many reasons you should consider using a credit card any time you shop online. First, keep in mind that the points you earn through shopping portals are doled out on top of the rewards you earn with a credit card. Using the example above, you could earn two points per dollar shopping at Kohl's through the portal, but you could also earn more Southwest Rapid Rewards points by using a co-branded Southwest credit card.

Credit cards also offer many consumer protections, including guaranteed returns, purchase protection, extended warranties, and more.

You can also "mix and match" your airline shopping portals and rewards programs, meaning you can shop through an airline portal and use any rewards credit card to pay, even if it's not affiliated with that airline. This makes it easier to use your online purchases to meet a minimum spending requirement to earn a signup bonus, but it's also helpful if you like to use different shopping portals but you only have one or two rewards credit cards.

Most portals feature dozens of popular stores

If you shop online often, you probably have a handful of go-to stores you shop regularly. You may be surprised to learn that airline and rewards shopping portals feature many of the top retailers available, including Kohl's, Best Buy, Macy's, Walmart.com, CVS.com, and eBags.com, but there are many, many more.

Also, some shopping portals let you earn points or miles for "services" you book online. For example, you can earn extra points with airline portals by setting up phone service with Verizon or AT&T. You could even earn extra points and miles for buying a mattress online or for ordering groceries through Peapod.com.

How to maximize rewards through airline shopping portals

There are several ways to ensure you're maximizing these airline shopping portals to the hilt.

Check shopping portals every time you shop

Make sure to click through a portal any time you make an online purchase. If you don't, you're leaving miles on the table.

Compare portals to find the best earning rate

If your regular stores are on more than one shopping portal, make sure to compare portals to find the best earning rate. Where one portal might only offer two miles per dollar spent at a specific store, another portal may offer a better deal.

Keep an eye out for special promotions

Sometimes airline portals offer special deals where you can earn even more "bonus" miles if you reach a spending threshold. By waiting to shop until a promotion comes along, you can maximize your spending even more.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Items You Need to Be Prepared to Replace

Emily Guy Birken — Mon, 06 May 2019 08:00:12 +0000

It can be easy to forget that the things you own will someday need to be replaced, particularly big ticket items. There's a certain sense of finality about owning an appliance, vehicle, or piece of furniture that may make it seem like you'll never have to worry about getting another one again. But there is a finite lifespan for everything, and ignoring that is how stressful financial emergencies can surprise you. If you haven't thought about the fact that your aging refrigerator will eventually need to be replaced, you won't be financially prepared when it finally gives up the ghost.

That's why it's a good idea to know the average lifespan of every big-ticket item you own, so you can plan ahead for when you will have to replace them. Here's what you need to know about when to replace your most expensive durable goods, and how you can save up for these replacements without stress.

1. Car

Even if you plan to drive your car until the wheels fall off, there will likely be a point at which you face the difficult question of whether to repair or replace your vehicle when it begins showing signs of age. In general, you can expect to get no more than 10 to 12 good years out of your car, and replacing it with a good quality used car can set you back as much as $15,000 to $20,000. And this is assuming your car has no major problems and you never get into an accident prior to the 10-year mark.

If you have a car payment, it's a good idea to continue to pay yourself the amount of that payment each month after you have satisfied the loan, so that when you inevitably reach the end of your car's life, you'll have money for a new set of wheels.

If you own your car outright, the good news is that it doesn't take much per month to save up $15,000 to $20,000 in 10 to 12 years. Set aside between $110 and $170 per month in a high-interest account, and you'll have created a new car nest egg.

2. Car tires

Of course, your car won't last 10-12 years on one set of tires, so you'll need to replace them. In general, you can expect to get five years out of a set of tires, so you'll probably have to replace your tires twice in the lifespan of your car.

A new set of tires cost an average of $525 to $725, according to Angie's List. To be prepared for this expense in five years, you'd need to set aside between $8.75 and $12 per month.

3. Mattress

While the myth that your mattress doubles in weight every eight years from the accumulation of dead skin, sweat, and dust mites is touted specifically to sell mattresses, it is true that your mattress does need to be replaced after a while. Depending on the mattress manufacturer, you should expect to replace your mattress every eight to 10 years. The true indicator that you need a new mattress is the quality of your sleep. If your aging mattress feels uncomfortable and you wake up sore and poorly rested, it may be time to buy a new one.

A new mattress costs between $800 and $1,000, which means you only need to set aside about $8.35 per month to be ready to buy a new mattress in 10 years. (See also: How to Buy a Mattress in 10 Minutes or Less)

4. Couch

We've all had the experience of being swallowed up by a fraying couch that has lost its structural integrity. But how long does it take a sofa to go from a comfy spot to watch TV to a black hole that seems to consume your guests?

The average life of a couch purchased today is between seven and 15 years. According to ForRent.com, the average sofa-buyer spends just over $1,000 for a new couch, although you can generally expect a longer lifespan the more money you spend on your couch initially.

To be ready for a new couch in seven years, you'll only need to set aside about $12 per month.

5. Kitchen appliances

According to This Old House, the average gas range can last about 15 years before needing to be replaced, while refrigerators have an average lifespan of 13 years, and dishwashers and microwaves are generally ready for retirement after nine years.

Costs vary pretty widely to replace each of these items, depending on the type and features of the new appliances you choose. However, according to Consumer Reports, the best-rated ranges cost between $1,500 and $2,000, while you can expect to pay between $600 and $1,200 for a good-quality new refrigerator, an average dishwasher will cost between $250 and $1,000, and a new microwave will set you back between $80 and $300, according to improvenet.

To replace your range in 15 years, you will need to set aside about $11 per month. Your refrigerator replacement in 13 years will see you setting aside between $3.85 and $7.69 per month. To get a new dishwasher in nine years, put aside between $2.32 and $9.25 per month, and for a new microwave, set aside $0.75 to $2.80 per month. (See also: 7 Ways to Save Big on Appliances)

6. Basement appliances

According to Consumer Reports, you can expect to get 10 years out of your washer and dryer before you need to replace them. Your water heater will give you about eight to 12 years of service before needing replacement. Your furnace should last about 15 to 20 years, while your central air conditioner should give about 10 to 15 years of service, according to This Old House.

To replace each of these items, you can expect to spend an average of $275 to $1,000 for a new washing machine, and $200 to $800 for a new dryer, according to Kitchens.com. It costs $800 to $1,500 for a new water heater, and an average of $5,400 for a new central a/c unit, according to Home Advisor. And it costs between $2,250 to $3,800 for a new furnace, according to Angie's List.

To replace your washing machine in 10 years, you'll need to set aside between $2.29 and $8.35 per month. For your dryer, you'll set aside $1.67 to $6.67 per month. To replace your water heater in 12 years, you'll need to set aside between $5.55 and $10.41 per month. You can replace an air conditioner in 10 to 15 years if you set aside $30 to $45 per month. And for your furnace, plan on setting aside $9.38 to $21.11 per month.

Creating a replacement fund

No matter where your possessions are in their life cycle, you can start preparing for their replacement today by starting a replacement savings fund. Setting aside between $208 and $322 per month will have you ready to replace each of these items in time.

But even if there's no way you can set aside several hundred a month to replace items that are currently working just fine, remember that any amount of money you can set aside each month will help keep the inevitable from being an emergency. Knowing that your possessions have a finite lifespan can help you prepare for the day when they will need to be replaced.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Minimize Financial Stress During the Holidays

Nicole Lapin — Tue, 18 Dec 2018 18:28:12 +0000

The holiday season is supposed to be merry and bright, but due to the high cost of the holidays and the interpersonal politics of things like gift-giving, shopping, and entertaining, it can also be filled with friction between friends and long-distance besties.

A 2018 Bankrate survey found that more than two in five Americans feel pressured to reach deeper into their wallets than they're comfortable with during the holiday season. With that in mind, here are a few tips to help manage the pressure and stress of the holidays so you can actually enjoy the festivities sans drama.

Don't go into debt buying holiday gifts

It's so easy when you go into a store to waste a ton of time shopping and blow your budget on a gift that costs more than you wanted to spend. This year, instead of getting friends another scented candle or bottle of wine, I'm giving money with Zelle because it's a guaranteed way to stick to my budget and never overspend. A 2018 survey by Zelle found that 58 percent of people surveyed wanted to receive money as a gift. And really, who wouldn't want a little more money going into the new year?

I like to personalize every gift, so whether it's going old-school with a hand-written card or adding "for that pumpkin spice latte I know you love" in the memo line when I send $15 to a friend, I know I'm staying on track with my budget and giving a personalized gift that people actually want. No re-gifting, no shopping, and no worries.

Host holiday parties without blowing your budget

Everyone loves a great holiday party, but going out to the bars or hosting a group dinner can be beyond expensive. Instead, you can team up with friends to host a higher quality party without going broke.

Not everyone is a planner though, so let everyone take on the responsibilities that best suit them — maybe your friend makes a mean margarita but can't cook to save his life, and maybe your friend with more money than time just wants to cover the cost of the cleaning service the next day. You can hire anyone from a cleaner to a bartender on sites like TaskRabbit. Figure out who wants to do what, and delegate the responsibility wherever you can!

Look for the best holiday travel deals, but avoid hidden fees

Holiday travel can get expensive quickly, especially if you're traveling with a group. Plane tickets add up fast, and it can be hard to get everyone in the same place. To sidestep this, always hunt for holiday travel deals.

Websites like Hipmunk or KAYAK search multiple airline and travel sites at once, making sure you're getting the best deal on all your holiday travel. Be careful of fares that might have hidden fees, though — lots of airlines have "basic economy" tickets now that don't allow carry-ons or for you to choose your seats, and the last thing you want is to end up having to spread your friends out across an airplane.

Split the cost of travel whenever you can

Sharing an Airbnb or vacation rental with friends can be fun, but settling up the expenses can be awkward and potentially ruin the memories you make. Instead of constantly passing money around throughout the trip, let one person put the cost of the group's lodgings or airfare on their travel rewards card and then split the costs. Point-chasers will rejoice and the money will be in their bank account before their credit card bill is due. Plus, you'll all save on ATM fees if you're in towns where your bank doesn't have a branch. I use Zelle for this, too.

Make a plan, and stick to it

As you're looking for ways to make it through the holiday season with your sanity and finances intact, don't forget that the new year is coming up. Before you blow through your holiday budget and dip into other accounts, come up with a spending plan now to set your finances up for success in 2019.

Just like experts recommend an "eating plan" as a more long-term approach to dieting, I recommend a "spending plan" instead of a crash money diet. A sustainable spending plan is broken down into the three E's:

Essentials: This should be 70 percent of your overall monthly budget for basic expenses, like rent or mortgage, utilities, food, transportation, and insurance.
Endgame: This should be 15 percent of your monthly budget for your future, like savings accounts, investment accounts, and retirement accounts.
Extras: This should be the other 15 percent of your monthly budget for whatever else makes you happy.

Set this budget before the new year begins and use whatever tools work for you to track your spending, and then set regular check-ins to make sure you're staying on track throughout the new year.

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Guest Post Blurb:

Nicole Lapin is the New York Times best-selling author of Rich Bitch and Boss Bitch. Lapin was the youngest-ever anchor on CNN before holding the same title at CNBC, anchoring the network's early morning show, Worldwide Exchange, while covering business topics for MSNBC and Today. She has served as an anchor for Bloomberg TV and a special money correspondent for Entertainment Tonight.

Lapin is currently the host of the CW's business reality competition show Hatched. She contributes regular financial reports to Dr. Oz, Good Morning America, and The Steve Harvey Show. Lapin is Redbook magazine's first-ever money columnist and the first female "Money Expert of The Year" winner for the second year running. Lapin graduated as valedictorian from Northwestern University.

This article is from Nicole Lapin of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Baby Items With the Highest Resale Value

Ashley Eneriz — Thu, 13 Dec 2018 09:00:10 +0000

While the cost of baby gear, clothes, and diapers adds up quickly, there is also money to be made with baby items. For all three of my children, I've bought quality baby items second-hand for less than half of their retail price, used them, and then resold them for what I paid (or more!) once I was done using them. This method has allowed me to have everything on my baby list and lower the cost of having a baby.

You can find good quality baby items at thrift stores, garage sales, and consignment shops to make the most profit. Once you're done with an item, sell clothing on a site like eBay, and sell bigger items, like baby gear, on Craigslist, OfferUp, consignment shops, or local Facebook groups. Here are eight baby items with the highest resale value. (See also: What a New Baby Really Needs)

1. Name-brand baby clothes

I once found a baby Burberry outfit for $0.99 at the thrift store. I resold it within 24 hours for $75 on eBay. The right baby clothes can fetch a pretty penny. Look for popular brands like Baby Gap, Janie and Jack, Gymboree, and OshKosh for less than $1 a piece to resell. Selling a lot of the same brand in the same size can earn you more money than selling each piece separately. Boutique brands like Hanna Andersson, Naartjie, and Kickee Pants sell for even more when they're in sets and in excellent condition.

2. Halloween costumes

New parents are more likely to spend more money on their baby's first and second Halloween costumes than the ones that follow, because those are exciting ages to celebrate Halloween in something that's brand new and extremely cute.

If you purchased a costume for your baby from Gymboree, Gap, and Disney, you can resell them and make some decent cash. You can also look for these brands at thrift stores in October, and buy costumes for up to 90 percent off the week after Halloween in retail stores to resell. (See also: 15 Ways to Make Money on Halloween)

3. Strollers

Parents are willing to spend a lot of money on name-brand strollers, especially if they're double or triple strollers. Look for brands like Bugaboo, Baby Jogger, Britax, and BOB strollers, since they hold their resale value well. Potential sellers are very interested in the year a stroller was made, so be sure to stick to recent models to make an easy sale.

Along with strollers, stroller accessories are also a hot item. Brand-name trays and attachments are easy to store and can fetch a decent price if kept in good condition.

4. Specialty items

The key to cashing in on baby specialty items is to stay on top of baby trends. Specialty baby items like a DockATot baby lounger or Owlet baby monitor are at the top of many baby must-have lists at the moment. If you can find these items for 70 to 90 percent off their retail value, then you can make a quick profit.

5. High-end maternity items

Most maternity clothes and pillows aren't ideal for reselling. However, expensive name-brand maternity clothes, especially dresses and jeans, are easier to resell. You can determine which maternity brands and items sell best by searching the sold items on eBay. (See also: 7 Smart Ways to Save on Maternity Clothes)

6. Large baby gear

Most parents are desperate to sell large baby gear for next to nothing because it takes up too much space in their home or garage. You can find walkers, bouncers, high chairs, Bumbo floor seats, and more for $3–$5 each at yard sales and local online sales and flip them for $25–$60, depending on the quality of the item and brand.

7. Book sets

Baby books are easy to find for a quarter or two at yard sales or thrift shops. While you won't make a sizable profit on one book, you can make a good amount on a series of books. Some popular baby books to look for are Sandra Boynton board books, Dr. Seuss' board books, Dr. Seuss' hardcover books, and all of Eric Carle's books. Sell them in lots to earn the most money for them, and even pair them with matching stuffed animals or puppets if you can. (See also: 15 Unexpected Expenses of a New Baby)

8. Baby carriers

Baby carriers like Ergobaby, TwinGo, Tula, and the Solly Baby Wrap all resell well. These baby carriers in specialty designs can also earn more money than standard colors.

When looking for brand-name carriers, be sure to stay up-to-date on the newest models. For example, Ergobaby released a 360 carrier, so parents can carry their babies forward-facing safely. This means there is a greater demand for this model than Ergobaby's older models.

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This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How Reflecting on Possessions Can Help You Resist Impulse Buys

Emily Guy Birken — Tue, 27 Nov 2018 09:00:11 +0000

The office supply section of the local pharmacy has a nasty habit of extracting money from my wallet. You'd think I could easily fix this problem by avoiding that aisle, but nearly every time I'm at the pharmacy, I'm convinced that I need to buy some mechanical pencils, and perhaps some sticky notes, too.

Some of what's going on here is my personal affinity for office products, but my growing collection of highlighters also reflects a universal problem: the inability to resist impulse buys. But according to a 2018 study from Rice University, an easy and free way to keep yourself from making impulse buys is simply reflecting on the items you already own.

Here's how this trick can help you keep more money in your wallet, and fewer notebooks and binder clips from following you home. (See also: 10 Classic Impulse Buys We Need to Stop Falling For)

Think about what you already have

The Rice University study asked one group of participants to describe an item they purchased, currently own, and have recently used. For instance, a 29-year-old female participant wrote:

"I just purchased a Kindle Fire. It is black. I can read books and access the internet. It opens a world of novelty to me. I read a book in bed and checked the weather this morning before even getting up. I spent about 45 minutes. I also downloaded several apps. I was lying down and the ease of Kindle use allowed me to comfortably read without noise to wake up my partner."

The "recently used" aspect of this thought exercise seems to be the important factor in helping to reduce your interest in spending money on something new. A second group of participants was asked to make a plan to use items they already owned but had not used in some time, while a third group — the control group — was asked to do nothing.

Surprisingly, the participants in the first group, who had reflected on something they owned and had recently used, found their willingness to pay for something new reduced by 14 percent compared to the control group. The planning group, despite having thought about the fact that they have items they are not using, saw their willingness to pay for a new item increase by about 6 percent compared to the control group. (See also: 8 Ways Social Media Tricks You Into Spending More)

Practice gratitude as an antidote to impulse buys

So why did the planning group see their willingness to spend money increase? Logically, it would seem that thinking about all the unused stuff you already have would be enough to pump the brakes on an impulse buy. After all, why spend money on something new when you have things already collecting dust at home?

However, buying something on impulse is, by definition, an emotional decision. So trying to counter that urge with a logical response is unlikely to work. It would be like trying to fight a fire with a single ice cube. Instead of trying to talk yourself out of an emotional decision using logic, you need to counter it with another emotion.

In particular, gratitude has been proven to reduce impulsive urges. According to a 2014 study published in Psychological Science, participants who were prompted to feel grateful showed a reduced level of impatience in waiting for a financial reward.

What's likely going on here is the fact that impulse purchases are often an attempt to fill some sort of emotional void. My purchase of a new pen is not really about the pen itself, but the momentary thrill I feel at having something new. That thrill keeps me from feeling low or bored or frustrated, however briefly the emotional boost may last.

But gratitude is a nourishing emotion. It is difficult to feel an emotional void when you're reflecting on how full your life is and how glad you are to have what is already yours.

Within this context, it makes sense that the Rice University study participants thinking about a recently-used item they already owned were less inclined to spend money. Intended or not, they were given an opportunity to feel grateful for an item they already had, which lessened their interest in spending money on something new.

How to make this practice work for you

The next time you're facing down a display of day planners or dry erase boards (or whatever impulse purchases tend to tickle your fancy), take a moment to think about an item you already own. Specifically, try to remember:

How much you spent on it.
When and where you bought it.
What it looks like.
When you used it last.
How you used it.
What you enjoyed about using it.

It's very likely that your potential impulse buy will have lost its sheen by the time you finish thinking through all of these. Not only will this thought exercise give you a moment's pause between wanting and buying — which is very helpful in giving your better nature a chance to remind you that you don't need yet another notebook — but it will also evoke a sense of gratitude for what you already have. (See also: 7 Effortless Ways to Prevent Budget-Busting Impulse Buys)

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Ways Brand Loyalty Costs You Money

Kentin Waits — Mon, 08 Oct 2018 08:00:13 +0000

Loyalty is usually considered a virtue. In romance, in friendships, in business — loyalty typically wins. But when it comes to brands, blind loyalty can actually be a bad thing. Stand by your brand? Always and forever? I don't think so. Here are six ways brand loyalty costs you money. (See also: How We Brainwash Ourselves Into Brand Loyalty)

1. It prevents you from discovering new products

Consumers who rigidly stick to one particular brand never discover what else it out there (and let's face it, there's always something else out there). With that degree of loyalty, you may miss out on new products or more efficient options that can save you money in the long run. (See also: 7 Grocery Store Habits That Are Making You Broke)

2. It discourages price comparison

From cellphone carriers to bulk cereal, brand loyalty discourages objective price comparison. If you never consider other options, you miss out on special promotions, deep discounts, and other money-saving opportunities.

Venture beyond your go-to brands. In the grocery store, compare the unit price of products and the value that generics and store brands offer. For services such as cable, internet, and phone, check out new providers who may have more flexible pricing options. (See also: 7 Generic Beauty Buys Better Than the Expensive Originals)

3. It limits flexibility

Though brand loyalty works best when it's voluntary, many companies prefer something a bit more binding. Think about brand-specific software, tech accessories that aren't universally compatible with other devices, and smartphones that lock out all carriers but one. Are the manufacturers nurturing loyalty by supplying a superior product or service, or are they simply benefiting from a captive consumer base? Remember, when a brand limits your flexibility, it limits your opportunity to save. (See also: 5 Smart Ways to Save on Smartphones)

4. Store brand credit cards may not offer the best terms

Store cards or co-branded credit cards may make you feel like you're part of an exclusive club, but they don't always offer customers the best terms. Many charge an annual fee, impose higher than average interest rates, and offer limited options for reward redemption. Unless you shop frequently at a particular retailer, store cards can't beat cards with more flexible rewards programs. Instead, choose a general cash-back credit card with a competitive interest rate and no annual fee. (See also: 5 Store Card Pitfalls to Watch Out for)

5. Loyalty and reward programs trade nominal savings for big data

Loyalty plans and retail reward programs don't give you discounts out of the goodness of their hearts; they trade it for detailed data on your buying habits. In turn, that data is analyzed to cross-sell similar products, suggest accessories and upgrades, and predict what you'll buy in the future. Once you sign up, you become part of an alarmingly sophisticated marketing machine — one that's designed to sell you more products more often. Where's the savings in that?

6. Many membership benefits don't last

Building brand loyalty is an expensive endeavor. Perks, upgrades, and discounts are used strategically to draw new customers into rewards programs. However, those benefits cost money and don't always last. Once your loyalty is firmly in place, privileges have a way of gradually disappearing. In fact, new customers often get far better deals than those who've stuck around for years.

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This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: