Bad Spending: How a Single Purchase can Ruin Everything

One of the very foremost tenets of personal finance is having an “emergency fund”.  Ranging anywhere from perhaps a thousand dollars to a year’s worth of earnings, this is money set aside for life’s little surprises.  The idea is that if you have an even relatively small amount of cash available for things like car repairs, medical bills or unexpected trips like a wedding or funeral, you’ll be less likely to fall into credit card or payday loan debt.  Or if you have no access to credit or ability to borrow, this fund will help you keep the lights on when storms brew.  Missing even a few minor bills due to an unexpected expense can lead to long term consequences, as this family shows.

So if an emergency fund is such a good idea, what would be the opposite?  That would spending all of one’s savings on something that wasn’t an emergency and in doing so putting oneself on a financial precipice.  This is bad spending. Sometimes just one purchase can send your financial life, and maybe everything, off the rails. Continue reading

Making More Money: The Importance of Even Small Salary Increases

It goes without much argument that all things being equal it’s a good idea to be making more money than less.  The extra money can be used to pay down debt, save faster, invest more, or simply buy more stuff.  And who doesn’t like those things?

Getting a new job that pays more or a raise from a current gig is a great feeling.  But just how valuable is really?  And is it worth chasing even a few thousand dollars more?   For many of us the answer is absolutely, and more so than you may know.

Let’s imagine a typical worker we’ll call Sally. She has been working at the same job for two years now and makes $50,000 a year.  She’s considering another job offered to her that pays $55,000 a year, but she’s unsure it’s worth the change as it doesn’t seem to be much more money.

After all, $55,000 is only $5,000 more a year than she’s currently making, and that works out to a 10% increase in salary.   This is not a trivial amount, but certainly not enough to change Sally’s life, right? Well, maybe it is.

Sally currently saves $3,500 a year
Sally currently saves $3,500 a year

If Sally’s at all normal she’s likely spending a good portion of her $50,000 salary each year.  After taxes, rent, food, transportation, clothing and everything else that life throws her way, Sally may only be able to save $3,500 a year. Continue reading

Why I Still Play the Lottery Sometimes

I know, I know. There is no justification for playing the lottery;  the odds of winning are almost nil, you have to pay a mess of taxes on what you do get, and what you get will be a lot less than advertised.   And yet, I still play once in a while. Like today.

Today the PowerBall is up beyond 250 million dollars.   This is an awfully large number, and certainly one that could set me up pretty nicely for the rest of my life, but I don’t have a hard lower threshold for when I play.   Nor do I always play when it reaches these huge sums – it may hit $400 million and I’ll blissfully go about my day without any thoughts of playing.

So why did I play today?   Because I’m superstitious and a fool at times.   Continue reading