Debit vs. Credit

I am not a fan of credit cards, but while I don't use them on a regular basis I do recognize that there are times when it makes sense to use credit over debit. This CNNMoney article provides some decent guidance as to when to use debit and when to use credit.



(1) Planning to make a major purchase. I generally agree, any purchase over $1000 or electronics/appliances purchases we use our credit card. However, I don't make the purchase until I have the full purchase price saved up and thereafter I generally pay the bill before it is due.



(2) Travel or gas. I generally agree, we use our credit card for booking hotels, rental cars, flights, etc. Often time we will use our debit card upon check out, when the final price is known and agreed to, but I have run into the problem of holds by hotels in the past. I've not had any problems with gas stations though.



I can't really get behind the other two stated reasons to use credit (1) rewards and (2) you don't montior your checking account close enough.

The Three D's

Somewhat similar to Dave Ramsey in both the goals of the program and the spiritual basis. This CNN article describes a church's "Dfree" program.


The three focal points of debt, delinquency and deficit represent the cornerstones of family financial strength.

First, debt: Americans owe a lot of money. The levels of family debt are threatening our ability to develop any meaningful wealth or to pass that wealth on to future generations.

Second, the commitment to eliminating delinquencies means that we, as a congregation, are pledging to pay our bills on time. Late payments lower our credit scores and this causes us to pay higher interest rates even on good debt such as mortgages.

Lastly, to be free of deficit living means to live within our means and thus eliminate the need to close our spending gaps by using high interest credit cards or --even worse -- alternative financial services such as payday loans, pawnshops and rent-to-own schemes.

While, the plan is nothing new. The best part of this program, in my mind, is the goal to popularize debt free living and the community support provided by the congregation.

If you are working on paying down your own debt, think about how you can make yourself accountable by setting up systems and by sharing your journey. My husband and I held each other accountable as we worked to pay off our non-mortgage debt back in 2007. But, we also talked about what we were doing with our parents, siblings, other relatives and friends. While it was a little embarrassing to share the fact that we had $50,000+ in non-mortgage debt, I soon learned that many, many of my friends had their own debt struggles.

I also like the focus on deficit spending, obviously it is impossible to get out of debt if you keep adding to your debt load each month by spending more than you are bringing in. The deficit step is one that I think a lot of plans gloss over. I found that by tracking our spending, using Quicken (but you can use a little notebook, Excel spreadsheet, any system that works for you), for a few weeks we quickly identified and targeted areas to cut. Also, our allowance system, which we still use, is another way to rein in deficit spending. By using an allowance we limited the amount of money available for day to day spending, and by doing so we reduced our spending and made more money available for debt service.

Stock Gamble Update

Well, it has been a month since Mr. Sam undertook his first non-tax advantaged (i.e. 401K, IRA) stock purchase (or gamble as some of you have called it). At present, if we sold today we would realize a net profit of @ $400 or a return of 8% in one month.

Obviously, we are not going to sell after one month so like any investment the profit is illusory until you sell it.

A Follow Up to Definition of Rich

Well, the New York Times picked up on the same question I raised - whether it is fair to define a professional couple who earns $250,000 as rich. Interesting to learn that in the 1970s there were 25 tax brackets.

And here is one from The New Yorker that makes the point I've been trying to make: that is doesn't make sense and it isn't fair for LeBron James and a dentist to pay similar income tax rates.

Big Ticket Layaway

I thought this article about big ticket layaways from CNN.Money was interesting.

I also realized that my most expensive piece of art was bought via "layaway" although that term was never used by me or the gallery. I had decided that I really wanted to purchase a particular work of art. True to my $100 rule*, I had waited many weeks or months before actually initiating the purchase. When initiating the sale I asked if I could pay over time and the gallery agreed. We set up a monthly auto payment on my debit card and I paid for the art over time.

How about you, have you ever utilized "layaway" for a luxury item (in my mind art is a luxury purchase).

*For those that are not familiar with the $100 rule, we wait a day for every $100 an item might cost. So a $1000 item requires at least a 10 day cooling off period. We also live by the $300 rule, any purchase over $300 must be discussed and agreed to between the two of us.

Mid-September Numbers

(1) Max out 401ks - $33,000
(2) Max out IRAs - $10,000
(3) Prepay mortgage - $1200
(4) Add to baby fund - $3500
(5) Add to emergency fund - $7000
(6) House/Furniture fund - $3000
Total - $57,700

(1) - $20,614 (62%) (goal is $33,000)
(2) - $10,000 (100%) (goal is $10,000)(Completed)
(3) - $900 (75%) (goal is $1200)
(4) - $3083 (88%) ($9244 in our baby fund, goal is $10,000)
(5) - -$2276 (-33%) ($22,132 in our emergency fund, goal is $32,000)
(6) - $3000 (100%) (Completed)
Total - $35,321 (61%)

Also, Christa asked if I could elaborate on our Baby Fund. Best case scenario, the Baby Fund will be used for "start up" costs like crib, decorating the baby's room along with birthing costs. Even though we have good health insurance, I understand from friends that the co-pays can run up since you have a co-pay for the hospital, the ob/gyn, etc. Worst case scenario, the Baby Fund will be utilized for fertility treatment costs. We have not gotten to the fertility treatment stage, but so far we are not pregnant so that is a possibility.

One of the reasons we got our finances in shape after we got married was so we would feel more comfortable moving forward with having a baby. So at this point, we are not delaying our efforts due to finances and the baby fund is just a way to save some extra targeted money for that goal.

How Do You Define Rich

I have been reading a lot about the income tax cut/tax increase debate recently.

One proposal that seems to be gaining ground is to keep the Bush era tax cuts in place for individuals earning $200,000 or less and a couple earning $250,000. The Bush era tax cuts would expire for those earning $200,000+ or a couple earning $250,000+.* It seems, from the reading I have done, that most people consider a couple earning $250,000+ "rich" and worthy of higher tax rates.

I'm not so sure I agree that a couple earning $250,000 should be lumped in with the millionaires and billionaires. First, as a married person I am seriously annoyed at the marriage penalty. I might agree that an individual earning $200,000, with no dependents, might be rich. But, I don't agree that two working professionals who each earn $125,000 is also subject to higher taxes. That is a major marriage penalty and I don't like it. If I were in charge I would up the threshold for a married couple to at least $300,000.

Second, many of these folks are folks who financed their futures, these are your medical school, law school, business school graduates and most of these folks took out big student loans to pay for their education. Some of these folks will be paying off their student loan debt for many years and they can't deduct the interest. I have friends who have $1000 per month student loan payments. Third, this working couple likely has a mortgage, a car payment or two, in addition to the student loans. Throw in a child or two and they are also likely paying big bucks in child care costs.

Yes, these folks are in the top 5% of the country's population in terms of income, and I agree that they should pay more in income taxes than a couple earning $50,000 a year (which they already do). But I don't see these folks at rich or worthy of disdain or punishment.

Furthermore, the top fifth of households already pay 69% of all federal taxes. I was also surprised to learn that 43% of tax "units" (that is an IRS term) pay nothing in income tax or will have a negative income tax (of course they do pay other kinds of taxes). I fully support our progressive system and I believe that those who benefit the most, those who earn the most, those who have profited the most, should pay the most. But is it fair for the income tax burden to be so uneven, 43% paying nothing in income tax and the top fifth paying 86% of the income tax collected? See this article for more information.

What do you think?

* The tax cuts would expire for earnings above the $200,000 or $250,000 threshold, so the higher rates would apply only to those monies above the threshold.

Economics of Pants

As a professional person, I normally wear business or business casual attire (i.e. suits, dress pants, dresses, skirts, sweater sets, etc.). Such attire is not inexpensive, but I generally do a good job in buying good quality clothes on sale. Furthermore, much of my business collection consists of classic clothes such that I can generally wear pieces from year to year.

Recently I have found myself with 8 pairs of pants which, while they look good and fit good, require repair of the inside lining. So I have priced the cost to repair the pants, $30 each (includes a $5 volume discount of three or more) and I am trying to determine if it is worth it.

On average, the pants I am looking to repair probably originally cost between $60 and $100. Some of these pants I have, again on average, worn once a week or once every two weeks for the past 3 or 4 years. Accordingly, my per wear price, on the high end is $1.20 and on the low end is $.75.

At least three of pants are part of a suit which both increases the original investment cost and increases the replacement cost. If I paid $150 or $180 for a suit and the pants need to be repaired it makes more sense to invest $30 to be able to continue to use the suit for another 2-3 years. As a result, I've made the decision to repair the pants that are a part of a suit.

But what about just the pants, does it make sense to pay 50% of the original price of the pants, when they are three years old already? Should I just go out and buy some new pants? What would you do?