For the uninitiated, regifting is giving an unused gift to someone else that was previously given to you. There could be many reasons for regifting a gift someone gave to you from having no use for it to already owning the item in question. Or of course, when you dislike the item altogether (although regifting then becomes questionable - why would you give an item you dislike to someone only to have them question your taste just like you questioned the taste of the original gifter?)

Regifting Rules

• Keep track of who you received the gift from. Post-it notes work great. You don’t want to make a rookie regifting mistake by wrapping and resending the box of exotic bath salts and gels back to Aunt Sarah.
• Avoid the vicious (and rather embarrassing) regifting cycle. Similar to point #1 above, ensure whoever you’re regifting is not somehow connected to the original gifter i.e. Person A gives a gift to Person B who regifts it to you; now you don’t want to turn around and regift Person A with the same gift. If you did, everyone in the chain would be busted!
• Don’t regift used items. This is a big no-no. The regift should be an unused item, so used socks and half-used gift cards are definitely out of the question. Besides with the stigma regifting is trying to shake off, a used gift fits right into that stereotype.
• Re-wrap. Not only does this mean taking off the old wrapper and replacing it with a new one, it also means cleaning the gift and at least making it look like it hasn’t been sitting in your closet for months.

There are more tips (such as this one to sell unwanted gifts on eBay - there’s always a sucker somewhere), but these are the most important ones to remember. As a bonus, take the money you saved by regifting and stick it into your savings account - great way to budget when you do have to buy a real gift.

The bear market (what we’re experiencing now) is a lot like a liquidation sale. The shop owner (seller) just wants out, so he’s heavily discounting items to get them off the shelves. All this while, shoppers (buyers) are surveying the store and the goods for sale. Some are skeptical of the quality, durability of the product and walk away - confident there must be a catch somewhere; after all why would the items be so heavily discounted. Other shoppers are much smarter though. They have been eyeing the store products but always found them to be too expensive. Now that they’re so heavily discounted, they swoop in to get themselves a great deal. More importantly, they know what they’re buying. After all their patience and research these past few years, they know the product is solid and a great value at the now reduced price.

The moral of the story is that the market always goes through ups and downs. It’s the market’s way of going on a crash diet the day after Thanksgiving dinner. It needs to shed the excess. But this is quite often the best time to buy stock in some world-class companies whose fundamentals are still strong but whose share price has taken a beating (due to the negative economic environment).

So don’t let the market get you down. Instead, use the opportunity to reassess your long term goals, revisit the reasons why you picked your individual investments, and if the investments continue to make sense (i.e. the business fundamentals have not changed), stay the course and continue making periodic investments in the stock market. You can take comfort in knowing you’re getting a great deal on a great product - more product for the same amount you’ve always invested.

Some folks justify purchasing a lottery ticket by saying it helps the local government provide essential services. Yet, there’s something inherently wrong and unethical with collecting money by way of a lottery knowing that only a fraction will get the money back so that they can reallocate the funds elsewhere.

Others justify the practice by saying “It’s play money” or “It’s just for fun”. But the truth is that most people will get hooked to the rush and excitement a lottery ticket provides. And it won’t be long before your twice a week grocery run includes dishing out a “few bucks” towards the lottery.

Instead, consider saving or investing the money. A lot of people balk at this saying the money they use to buy a lottery ticket is hardly enough to save anything meaningful. But I disagree. Where a lottery ticket almost guarantees you will lose 100% of the money invested, saving or investing the money in a reliable investment vehicle at least guarantees that your principal will remain safe.

As a quick example, even $5 a week towards lottery ticket purchases works out to $20 a month, or $240 a year. Yes, not exactly a goldmine, but continue doing this for a few years and you’ll be sitting on a tidy, little nest egg. At a minimum, enough to pay for the little expenses that you never accounted for, such as the 6 month car servicing or afterschool Karate lessons for Jimmy.

You’ll be amazed at how quickly saving even a little adds up. And as a bonus, you won’t get that sinking feeling each Saturday when you realize your chosen numbers don’t match the numbers drawn. Happy saving!

The method I use to manage my finances is called a zero budget. At its core, it is a budget that assigns every dollar you earn to an expense or saving category. As a result every dollar is spoken for and controlling your spending (and saving) becomes much easier.

Image by littledan77

How Does a Zero-Based Budget Work?

While you can go as crazy as you want with a zero-based budget, the essential steps are outlined below.

1. Identify your sources of income: Look through your pay stubs for this information and include any other significant sources of income such as interest paid, rental income, etc.
2. Identify your expense categories: Jot down all your expense categories including fixed and variable expenses. Also include categories for savings. These are also outflows and you should treat this as an expense - see the 10% savings method for some savings inspiration.
3. Allocate your expense amounts: Look through your bills and put down what you spend each month for each expense category. Start with the fixed expenses first, such as the rent or mortgage payment. Continue going through the expense categories and put down an amount that is realistic i.e. matches what you’ve been spending in the last few months.
4. Do an income minus expenses calculation and adjust accordingly: Add up all your income and subtract all the expenses from this amount. If you come up with a negative number, clearly your income cannot support the expenses you have listed. It’s tough, but you will have to tweak the amounts in the expense categories until income matches expenses. If you have a positive number, you have some extra breathing room in your budget - congratulations! Given the whole point of a zero-based budget is to allocate every dollar of your income, either towards spending or savings, you need to increase the amounts in each expense category. Some suggestions for this newfound wealth is to divert it towards paying down debt, starting or growing an emergency fund or saving for an expected future expense (vacation, car, house down payment, etc.)

That is in essence how a zero-based budget works. As you can see, every dollar gets allocated with your complete knowledge - at least on paper.

My Approach to Zero-Based Budgeting

I have adopted a slightly tweaked approach to zero-based budgeting - one that uniquely matches my financial situation. Read through and hopefully you will be able to get some ideas for how you budget.

Image by Darwin Bell

1. I get paid once every two weeks and find it easier to apply a zero-based budget to each pay cycle. So, in essence, I just worry about two weeks at a time as opposed to an entire month.
2. Next, I list out all my expenses and categorize them into two groups of equal amounts. For example, if my monthly expenses are around $4,000, I try and create two groups each with around $2,000 worth of expenses - being careful to move around expenses while respecting their monthly due dates.
3. Each paycheck, I pay out the amounts that I need to for that period (based on the two expense groups above of around $2,000). Some months this involves making payments when the payment isn’t due yet (e.g. cable bill, newspaper subscription), but I find paying it ahead of time to be easier and less stressful than worrying when the bill comes in the mail.

If my math has worked out correctly (and I’ve been able to avoid any unplanned spending), by the time the next paycheck comes in (after two weeks), my checking account is close to zero. Of course, because I’m playing so close to the $0 balance, I need to monitor my account balance in those last few days to make sure it doesn’t dip below $0 and hence avoid any bank fees. Note: Keeping a cushion of $200 in your checking account all the time might also be a good idea.

Some Useful Zero-Based Budgeting Tips

• Use electronic spreadsheets as they help automate simple math and avoid calculation errors
• Don’t use MS Money or Quicken if you’re new to budgeting. While these software applications are very powerful, they may be a bit too much to handle at first. Besides, you want to really understand your budget first before you hand it off to an automated tool.
• Err on the side of conservatism when estimating variable expenses

1. Increase the deductible: It’s simple: if there is an auto claim, the more you agree to pay yourself before the insurance company picks up the tab (the deductible), the lower your premium. I have found a noticeable reduction in my premium by agreeing to a $1,000 deductible, but it may be a different amount for you. Select a figure that you are comfortable with and can afford to pay if there is ever a claim. (Of course, if I ever have a claim less than $1,000, I will have to pay the entire amount since my deductible is higher than the claim.)
2. Insure your home and vehicle with the same insurer: Insurance companies reward you for your loyalty and you can get a discount of up to 15% on your total premium if you give all your business (automobile, home owner or renter’s insurance, etc.) to the same company.
3. Take a defensive driving course: This saved me another 10% on my premium. Call your insurance company and see if they can refer you to a company. If you’re taking the course without the knowledge of your insurance company, check with them to ensure the course content qualifies you for a discount. Defensive driving courses can be expensive (up to $500) but well worth the investment in the long term.
4. Purchase a car that costs less to insure: More expensive cars are often more likely to get stolen and more expensive to repair if they’ve been involved in an accident. Always get an insurance quote prior to purchasing a car - the premium on that red Mustang may be so high that what seemed like a “killer deal” at first is no longer the case.
5. Retrofit your car with security devices: Make sure your insurance company knows of security devices you have installed in your car such as car alarm, satellite tracking service, etc. This additional protection can also get you lower rates.
6. Shop for insurance rates: Auto insurance is one of those things that once established most people forget about. Ask your friends for recommendations and call other insurance companies when your policy is up for renewal - you could get a much better rate from some other company.
7. Don’t speed: Not only is speeding unsafe, speeding tickets can stay on your driving record for up to 5 years (depends on your state or provincial law). And in those years your insurance costs are guaranteed to shoot up - and shopping around is not going to lower your rates substantially either. (Image on the right by Joe Shlabotnik.)
8. Ask about group insurance: You might be in for a nice discount if your employer or an association you’re a part of (alumni, AAA, CAA, etc.) has negotiated a reduced rate with the insurance company. Check with your employer or association and avail the cheaper rate.

Ever seen that GEICO commercial for auto insurance: “15 minutes could save you 15% or more”? Take those 15 minutes to find your auto insurance company’s phone number and your policy number - it will in the insurance paperwork. Often this is the step where most people fail to take action and hence pass up hundreds of dollars in savings each month. Don’t be a fool - make that call today!

With the astronomical price of gas and the growing gridlock on our roads and streets (especially during the already frustrating morning rush hour and evening drive back home) a respite from having to drive your own car will certainly be welcome. Sure, carpooling isn’t as great when you actually start getting into a routine (loss of privacy, inability to always set your own schedule), but the rewards (financial and environmental) clearly outweigh these minor nuisances:

• Lower your gas bill
• Less wear and tear on your own car
• Reduce pollution and traffic congestion

Start carpooling today with these great resources:

• eRideShare.com is a free service to connect you with travelers going the same way as you in your area.
• CommuterPage.com has a great list of tips for successful carpooling.

 
Image by victoriapeckham

The really great thing though is that it’s not just books that you can find at the library. Did you know your local public library is also a great place to find audio CDs, movies (VHS and DVD), language guides and much more - all for free? Now granted they won’t have the most recent movie titles or your favorite gangster rap record, but they’ll have a lot of popular titles, including the classics that you always wanted to rent but ended up going with the latest release instead.

At most public libraries, all that is required is a driver’s license or some proof of identification that shows you are a resident of the city or state. You can then borrow to your heart’s content. Even extending the time you can keep the book or movie is free. Plus with a library card (for which you may be charged a minimal processing fee e.g. $5) you can get free Internet access.

Your taxes pay for all these services, yet it’s a pity how much of what we pay for never gets used. So this weekend, head down to the library, browse and bulk up on some reading material - I know I certainly will and plan to enjoy every minute of it.

Image by Orin Optiglot

Payday lenders have begun to spring up more and more, especially in lower income neighborhoods where most households run tight budgets and struggle to make ends meet. A recent study found that young families were three times more likely to use payday loans than those that had an income earner aged 35-44. The likelihood of using payday loans was also high in families that reported little savings or no credit cards (particularly those that that been refused one before) and in families that reported having no one to turn to if they faced financial difficulty.

Payday lenders tout these loans for their convenience and as a solution to a temporary shortage of cash, but the costs involved are much higher than at first seem apparent.

How Does a Payday Loan Work?

Let’s say Alex has a $100 cell phone bill due at the end of the month but doesn’t have the cash to pay it. She figures if she can borrow $100 for two weeks she can pay it back when she gets her next paycheck.

To borrow $100 from the neighborhood payday lender, the lender will ask for proof of employment (to confirm Alex can pay them back), identification (to come after her if she doesn’t pay) and a postdated check. The check will be for the amount borrowed plus a fee (e.g. $20) and dated two weeks out. At this stage Alex will owe $120 to the payday lender.

While $20 may seem reasonable for the immediate convenience, it works out to a ridiculously high annual interest rate - far higher than even a high-interest credit card. But the problem doesn’t stop there. Most people who get a payday loan do so because they had trouble budgeting for expenses in the first place and failed to maintain an adequately funded emergency fund. Chances are that by the time the two week payment date comes up these problems won’t be fixed and the borrower (Alex in this case) will not have the funds to pay the amount due. But here’s where the payday lenders get smart. Instead of sending the loan to collections or negotiating a payment plan, they allow the borrower to extend the payment date by another two weeks for a second fee (say $20 again). This results in a total fee of $40 on an original loan of $100; that’s 40% of the loan in fees in just one month!

Unfortunately for most payday loan customers this vicious cycle never stops and they end up owing more in fees than even the original loan itself destroying any hope of recovering from the mess.

Alternatives to Payday Loans

Payday lenders target people that are already struggling with finances as they will be the ones most attracted to these loans. This group of people includes:

• Younger individuals or families with limited understanding of financial planning
• Those already in debt struggling to make ends meet each month
• Those that fail to budget and live beyond their means

The United States Federal Trade Commission suggests the following alternatives to payday lenders. While not ideal, they provide safer and less expensive options to get a loan.

1. Small loan from a local credit union
2. Loan from family or friends (with payment terms in writing)
3. Credit card charge or advances
4. Requesting an extension from the creditor (i.e. asking for more time to pay)
5. Pay advance from your employer

The best way to stay clear of payday loans is to exercise sound financial planning. Of course this is easier said than done for those struggling with making ends meet each month, but some basic strategies go a long way.

• Create a budget and stick to it - knowing how much money comes in and tracking expenses is the first step to avoid being broke before the month is out.
• Find ways to cut costs and save money - look at the 101 ways I saved money this year for inspiration
• Setup an emergency fund - a rainy day fund to pay for financial emergencies prevents the need to take out a loan in the first place

“I have bills coming due at different times each month. Managing these is turning into a full-time job. Can you help? How do you pay your monthly bills? Do you cut checks each time or have you automated the payments somehow?”

Great question Adrian. I struggled with efficient bill payment for a long time until I finally managed to get it under control.

 
Image by Fr Antunes

I use credit cards to manage payment of most of my bills - of course, I pay the balance in full each month. Most of the companies that I deal with accept plastic as method of payment and I have given them permission to charge the amount due to my credit card each month. As a result, monthly bills for my cell phone, cable television, long distance calling card and favorite charity are all billed directly to the card. I prefer this approach over cutting checks for a number of reasons:

• Manage cash flow - I know I make enough each month to pay all my bills, but the bills may come due before I get paid. Using a credit card allows me to smooth the outflows and prevent an unexpected bill from torpedoing my checking account.
• Track expenses - I can track my spending history very quickly and get a quick snapshot of my monthly expenses without having to query multiple records (bank statements, checks, etc.)
• Dispute charges - It’s easier to dispute charges or discrepancies in a bill when the amount has been paid via a credit card as opposed to a check. Any dispute that you cannot resolve with the company directly can be brought to the attention of the credit card company which will then suspend the payment and help resolve the issue on your behalf.
• On-time payment - I know I will never be late for payments as the amount due is charged to the card automatically by the company itself.
• Points - I love the fact that I get credit card points for expenses I would’ve incurred anyway - credit card or no credit card.

The only recurring bills that I do not charge to the credit card are those that I cannot. Or more accurately, those that the company in question would not accept credit card payments for. This includes my mortgage payment, car payment and insurance premium. These three bills are debited from my checking account by the company directly. Because these bills have known amounts and due dates, planning for these is a cinch - I just need to ensure my bank account is adequately funded when these bills come due.

Where I can, I avoid cutting checks. I hate the exercise and licking envelopes gives me a headache. Besides, why spend money on stamps when the company is willing to accept payment via credit card or direct bank debit for free.

Adrian, I hope this gives you a few ideas to help manage your bills more efficiently. Readers may submit their own financial questions by leaving a comment below or emailing me. Questions will be answered in future posts.

I have since come a long way both in terms of income and what I consider to be life-altering decisions. Yet, I always missed the simple pleasure that came with relishing how unencumbered money was going to spent - no matter how small the value.

So a few years ago, I decided to make a change. I started giving myself an allowance again. Nothing big - only $25 a paycheck. Two paychecks a month, and I had $50 to use as I saw fit. Some months I spent it (I can’t even remember on what, but it was probably something silly). Other months I actually plunked it into my online savings account. And one month I indulged myself in impulse buys (shameful, I know). Yet, the best part was that for once, there was no strategy. No method to the madness. No stress associated with feeling compelled to save every penny for retirement. Just the simple pleasure that came with deciding the fate of those $25.

Unsurprisingly, I found this to be an emotionally healthy and rewarding exercise as well. Having programmed myself to “earn, spend less, save more” and to think in financial categories and buckets all the time made getting back the freedom to decide what I do with a mere $25 absolutely refreshing. Even though I was saving at a healthy clip, I hadn’t had this sense of fulfillment in years.

Consider using this strategy yourself. If $25 is too much for your paycheck to bear, just take an allowance of $10. The only rule is to treat it as an allowance - and for a couple of times each month to let the 10 year old in you take over again.