The Minimum Payment Trap

On the outside, minimum payments are made to look harmless and as though they exist for your advantage. However, this couldn’t be further from the truth. Minimum payments are designed to keep people in spiraling debt.

The lower the minimum payment (relative to the size of the loan), the more interest you will pay.

When you take out any sort of loan loan, there is often a structured loan repayment plant for the duration of the loan. Lower minimum payments are attractive to consumers because they see it as an opportunity to make big, expensive purchases without the need to save up for them. The problem with this model is that on top of paying for the items or commodities in question, you also pay interest on a loan. While this is widely known, what is not widely known is that Minimum payments maximize your out of pocket expenses significantly. 

My friend recently bought a home for a relatively affordable price in Bellevue, Washington. A year or so after buying the home, he found out the house had severe electrical and plumbing issues. He had to take out a second mortgage to gut, fix, and repair the whole house. At first, he was very happy because the minimum amount due per month on the 2nd mortgage was very affordable and would let him fix his abode.

Still, due to the cost of the repairs and materials, he did most of the work himself. I would come over to help him with heavy things or to hang drywall occasionally. One day I came over and he was noticeably upset. I ask him what was wrong, and he told me this:

(paraphrasing) ” I just found out that if I make the minimum payment on my second mortgage, I will pay twice as much across twenty years. I can’t afford to make much more than the minimum payment between other bills, my first mortgage, and student debt. I’m f**king screwed for twenty years. I looked into my other debts and it’s the same thing. I make $100,000 a year, but I can’t save anything because of all of my bills. How can I raise a family without sinking further into the hole?”

He had been lured into the minimum payment trap for the past decade of his adult life. He’s an opportunist. He saw every loan with a minimum payment as an opportunity to buy things he didn’t necessarily need… like the boat he purchased a few years ago. He doesn’t get to spend much time on it. It costs him a few hundred a month and it will continue to do so for years to come.

How do I beat Minimum payments?

The best way to get a head of minimum payments is to not take out loans in the first place. Save your money, then make a purchase. Not the other way around.

What if I already have Minimum payments to make?

Don’t make the minimum payment, even if you can only pay 5% more it will save you in the long run. If you can afford to pay more upfront on the loan, do so. If you can afford to make higher monthly payments, absolutely do so.

What if I have no other options, I need to take out a loan?

Same advice as above, try to put as much down up front as you can. Always pay more than the minimum payment due. Make sure to review the loan terms with scrutiny, some loans have terms that change after five years.

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The Minimum Payment Trap

On the outside, minimum payments are made to look harmless and as though they exist for your advantage. However, this couldn’t be further from the truth. Minimum payments are designed to keep people in spiraling debt.

The lower the minimum payment (relative to the size of the loan), the more interest you will pay.

When you take out any sort of loan loan, there is often a structured loan repayment plant for the duration of the loan. Lower minimum payments are attractive to consumers because they see it as an opportunity to make big, expensive purchases without the need to save up for them. The problem with this model is that on top of paying for the items or commodities in question, you also pay interest on a loan. While this is widely known, what is not widely known is that Minimum payments maximize your out of pocket expenses significantly. 

My friend recently bought a home for a relatively affordable price in Bellevue, Washington. A year or so after buying the home, he found out the house had severe electrical and plumbing issues. He had to take out a second mortgage to gut, fix, and repair the whole house. At first, he was very happy because the minimum amount due per month on the 2nd mortgage was very affordable and would let him fix his abode.

Still, due to the cost of the repairs and materials, he did most of the work himself. I would come over to help him with heavy things or to hang drywall occasionally. One day I came over and he was noticeably upset. I ask him what was wrong, and he told me this:

(paraphrasing) ” I just found out that if I make the minimum payment on my second mortgage, I will pay twice as much across twenty years. I can’t afford to make much more than the minimum payment between other bills, my first mortgage, and student debt. I’m f**king screwed for twenty years. I looked into my other debts and it’s the same thing. I make $100,000 a year, but I can’t save anything because of all of my bills. How can I raise a family without sinking further into the hole?”

He had been lured into the minimum payment trap for the past decade of his adult life. He’s an opportunist. He saw every loan with a minimum payment as an opportunity to buy things he didn’t necessarily need… like the boat he purchased a few years ago. He doesn’t get to spend much time on it. It costs him a few hundred a month and it will continue to do so for years to come.

How do I beat Minimum payments?

The best way to get a head of minimum payments is to not take out loans in the first place. Save your money, then make a purchase. Not the other way around.

What if I already have Minimum payments to make?

Don’t make the minimum payment, even if you can only pay 5% more it will save you in the long run. If you can afford to pay more upfront on the loan, do so. If you can afford to make higher monthly payments, absolutely do so.

What if I have no other options, I need to take out a loan?

Same advice as above, try to put as much down up front as you can. Always pay more than the minimum payment due. Make sure to review the loan terms with scrutiny, some loans have terms that change after five years.

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How much do you spend on Coffee?

Do you know how much you spend per week on coffee?  There is calculator at the bottom of the article. Let me know in the comments if you find this interesting!

For many people who live and work in the city coffee is a way of life. The case is especially true for Seattle- where Starbucks Coffee originates.

Coffee is a brewed drink prepared from roasted coffee beans, which are the seeds of berries from the Coffee plant. Coffee originates in Africa- but is now grown over 70 countries worldwide because of how popular it is. It’s one of the fastest growing multi billion dollar industries in the world and one of the most in demand commodities. I’ll get back to this point and why it matters in a minute.

The coffee craze is driven in part by the fact that people need an extra kick to get them through the day- which I understand completely. I’ve drunken my fair share off coffee and there were times when I was younger I briefly followed the growing Starbucks army.

I would have 2-3 cups of coffee per day. Easily coming to $10 dollars depending on what I would get where. 5 days a week- 50 weeks a year…

I was spending easily $2500 dollars a year on coffee! THROWING IT AWAY.

As soon as I realized this I knew I had to correct my course of action. At the time that was a sizeable amount of income. Now this blog and other projects of mine would cover that cost passively ;). I’m still going to save the money and consider it a double savings for not having spent it.

I had many options in front of me- the most obvious one at the time was to buy a Mr. Coffee and cheap grounds to make at home. However I then learned that some countries will add various things- including ground corn and dirt to ground coffee during coffee shortages (largely brought on by my point above…)

The next logical step was to buy whole beans and grind them myself. I didn’t mind making the one time cost into a high quality grinder– however the reoccurring cost of fresh beans was still kind of high when I compared it to the cheaper ground coffee. So I ultimately decided to cut coffee out of my regular day to day life and I think that was the best decision for me. I could of also reduced my intake but I figured it may be nice to try going without coffee for a while.

However if you still want to drink coffee- buying the beans your self and grinding them at home will absolutely cut your costs down by a factor of 90%. For me, that would mean I’d spend about $250 a year- which is far more manageable. However it also involves much more effort for which my time has been sparse. So I decided to pocket the rest of the money and save the time as well.

monday morning coffee GIF

It actually wasn’t to hard for me to stop drinking coffee cold turkey- but a lot of people do experience withdrawals and get caffeine headaches. So for some it may be a good idea to slowly reduce your consumption first.

More Info and External Sources:

Your coffee might have dirt in it

The Coffee Craze

Coffee Spending Calculator

Coffee is a Waste of Money

Average Coffee Expenses

How to make chocolate milk mix at home from scratch! (3 simple ingredients!)

I LOVE chocolate milk. It’s super cheap and easy to make your own chocolate milk mix at home- rather than buying more expensive mix at the store. I buy most of my ingredients in bulk so I already had everything I needed to do this. This recipe makes enough mix to make a bunch of chocolate milks with. You can easily halve or quarter this recipe if you don’t want as much left over.

Be sure to share this with your friends!

Ingredients:

How to mix:

  1. Put all ingredients into a jar with a lid
  2. Put a lid on and shake the ingredients until they are well mixed.
  3. To make chocolate milk, add 1-2 Tablespoons of mix to a 8 ounce glass of milk – or as desired.
  4. Stir mix into milk
  5. Enjoy

Hope you enjoy this recipe! *and that it save’s you money on chocolate milk mix! ;)*

Don’t always buy cheapest (The Walmart Syndrome)

It’s important to be frugal. However, simply ‘buying the cheapest’ is not always the best tactic. This works for some things like quick consumables, like a generic brand of yogurt vs the name brand. However, for other things- like appliances, tools, and clothing, it’s not. These commodities I refer to as durables, rather than consumables, because they are meant to be used over and over again.

Walmart Syndrome, more commonly known as planned obsolescence , is where you keep buying the same cheap products again and again- spending more money in the long run because you make the same purchase multiple times. Sadly, most people have normalized the concept of buying the same thing multiple times because there are so many disposable products- but this line of thinking is not sustainable for both consumers wallet and the environment.

The old adage: “There’s buying cheap and then there’s buying smart” is really what this post is all about.

When I was young, for example, there was a year I bought 3 pairs of flip flops in one summer. I kept buying the cheapest pair (trying to be frugal and naive) and they kept falling apart after a few weeks of normal use. I ended up spending $40 combined for the 3 shitty pairs, as well as $25 for a nicer pair which lasted much longer (years in fact). I ended up paying three times as much as I would of had I just bought the slightly more expensive version in the first place.

Note: This doesn’t always mean that there is a direct correlation between the cost of a product and it’s quality. Some products are blatantly overpriced. Some products that will last a life time are quite affordable, like this can opener

Durables can be anything from furniture to consumer electronics or from clothes to toys. When making these purchases there is either an upfront cost you must incur, or you can finance it. Naturally, whenever possible, you should avoid financing where it’s not advantageous (eg. 0.0 apr for 12 months and paid within 12 months is a good deal).

When buying durables, I think it’s best to take the total cost of the item and divide it by the number of years I expect it to work- because nothing last forever. This requires a little market research to estimate the life span of the item (there’s a way to get around the research I explain later). Although products with life time warranties still exist, they are becoming harder to find and often have many stipulations and limitations- so watch out.

A good example is a new phone or tv. How many years do you plan to use your phone/tv? How many phones/tvs have you had to buy across your lifetime? With that information, how many more do you think you will buy?

For me, I just purchased a new phone. With most phones in the past I expected about 2-3 years of life time (which I got with both of my android phones). A new phone cost about $400, so about $130 per year to use. That isn’t bad, but if I’m trying to minimize costs I can do better. I just got a Samsung Phone that is built very rugged. Albeit a little older of a model, it only cost me $100 dollars brand new and it should last me 5 years. $20 dollars a year is six times cheaper than $130 dollars a year.

In addition to thinking about the lifetime of anything you might purchase, i t’s also worth considering weather or not it’s worth buying used. There is slightly more risk, but more often than not the used item is still fully functional and you will get a good bargain.

Take advantage of refund opportunities. Many people I know think it is simply to inconvenient to go to the customer service counter and ask for a refund rather than to go to the same store and but the item again. A good strategy if you’re not so savvy with understanding the quality of a product (or researching it) is to buy cheap, and then return it if it’s not working out in exchange for the slightly more expensive version. This way you’ve mitigated your investment risk in the product.

Regardless, people need to actively try to buy higher quality commodities that will last them a long time rather than settling for cheapest. In most cases, you will find that over time you will spend more money re-purchasing the same item over and over again.

If you’re interested in learning more about planned obsolescence, I encourage you to check out The light bulb conspriacy.

You’ve gotta fight for your right

I recently moved from one apartment to another a few miles down the road. Until now, all visits to my previous landlord’s office were cordial and fair. Recently however, they sent me a move out bill of $50 because my security deposit alone was not enough to cover move out costs.

Now, I know for some $50 might not be a lot- but as far as I am concerned that’s a weeks worth of groceries. Also, there was one more problem with the move out costs: THEY WERE FRAUDULENT.

The property charged me for an apartment cleaning, a carpet cleaning, and drip pan (stove) cleanings. The total amount of $300 less my $250 deposit. I spent the weekends before I left meticulously cleaning out the place- very careful to take BEFORE and AFTER pictures of the process. This is something I’ve done with every property I have lived in, and this is the first time I needed it.

So, I go to the office to ask them why they made those charges. The manager at the office was hunky dory about it all as she navigated for my file on her computer looking for pictures her staff would of taken of my apartment while cleaning it. After twenty minutes of searching, she discovered there were no pictures. She then told me we would need to wait a few weeks to find the maintenance guy to see if he had them. I told her a week was all the more I would do because that was a bullshit excuse. They were just looking for ways to derail me from getting my money back. I asked her what she would do if I had before and after pictures- as well as video- of me cleaning the property. Her face went white as a ghost but she had no comment. I told them I would be back the following Friday.

I come back the next Friday and no one is at the office but the new front desk girl. Coincidentally, the management decided to be uniformly sick that day. By a streak of luck, the front desk girl was able to connect me to the corporate office. After relaying the same information, the corporate office was much less reluctant to process my refund and apologize about an ‘accounting error’. I received my full $250 back and left in a much better mood.

Moral of the story: Corporations will nickel and dime you, and a lot of people won’t think twice about the money they have been screwed out of. And those that do, will have to fight for it. It’s your right to fight for your money- you earned it. Don’t let some white collar corporate bozos steal it from you.

 

Starting a Frugal Balcony Garden

For the past 6 years I’ve been living in apartments. Until now, I’ve only tried to garden a few flowering plants- but not consumable ones. I’ve recently learned how easy it is to get a reasonable harvest of veggies and herbs on a windowsill or porch. It will be important for me to learn how to produce my own food for two reasons:

  1. To Save Money (now and later)
  2. Learning New Life Skills and creating the opportunity for Sustainability

Gardening is key to sustainability. It’s a venture I’ve never tried before. I don’t have much space, but could still potentially  grow a variety of veggies, herbs, and fruits on my 3rd floor porch. It’s early springtime, so this is a great time to start. I have a few plastic pots, but a may build a window box like this simple one at hgtv. I also may be extra frugal and recycle 32-128 oz aluminum cans as planting pots. A major disadvantage is my production will be limited due to the size of my porch.

A major advantage, however, is after some initial setup costs (~ $100 for dirt, seeds, and pots) everything I do will be more or less free. The seeds will last a very long time as there will be hundreds. Buying hundreds more will only cost a few dollars. There may be some fertilizer costs along the way that I need to add into the total costs of my garden. On the whole, I expect it will save me tons of money in the long run.

I am going to grow (links to seeds in titles) and perhaps some herbs:

  • Tomatoes
    • Tomatoes are awesome! I use them for all sorts foods and sauces I make at home.
  • Chilies (Hot Peppers) and regular Peppers
    • Peppers are excellent because when diced and saute’d, they can add a ton of flavour as well as a satisfying crunch. Chile and other hot peppers bring in the spice. >:)
  • Onions
    • I use onions is pretty much every thing I cook, I think I will prioritize this!
  • Potatoes
    • Hearty and filling- a staple crop! This may be best to grow in the less sunny months. It’s also super cheap to grow!
  • Spinach
    • Spinach is awesome lettuce. It has everything lettuce has plus way more nutrients. It’s expensive to buy, but cheap to grow!
  • StrawberriesBlackberries, Raspberries, and Blueberries 
    • Berries are much more expensive compared to veggies and other fruits…. but they are also more expensive to buy. In the long run,  it will still be far cheaper. And I can make a ton of smoothies.

If the weather is good, I will start this weekend! Wish me luck!