My New Choice

Last August marked the beginning of this site and was a time when I spent a good deal of time writing to myself as there were not many visitors.

Therefore I would like to take you back in time to a few posts that I feel are worth re-reading from one year ago this month:

• What is F.I.R.E?
• Building Emergency Savings While Eliminating Debt
• Reduce Your Interest Rates with a Phone Call
• Credit Score and the Importance of Payment History
• Do Not Negotiate the Payment When Buying a Vehicle
• Should I Close My Credit Card After Paying the Balance?
• The Perils of an Overspending Spouse
• Is Your Credit Card Due Date Inconvenient?
• Strategy to Curb Impulse Buying

Enjoy your trip back in time!

Yesterday I had posted about the fact that we would not be tipping the painters that were currently working on our home.

However, I now have to tell you that we have altered our course.

Earning a Tip
When trying to answer the question of who do you tip, my wife and I had decided that we would not be tipping the painters because they had been hired to do a job and they were doing that job.

So what made us change our mind and decide to give the painters a tip?

In a nutshell, these guys earned a tip by going above and beyond what was expected of them and working with us to make sure everything is perfect. From repainting the ceiling color inside our bay window because my wife didn’t care for the original selection to ensuring that every ding, dent and crack in the drywall was patched and repaired before painting, these guys have really done an outstanding job.

Then today the crew leader sealed the tip with an act of generosity.

As they were wrapping up for the day, I asked the crew leader if their company sold the t-shirts that they were wearing as I thought it was really cool. He said they did not sell them but he had one in his truck that he could give me. Not only that but it was my size too!

When I asked about the t-shirt, I never expected him to provide me with one free of charge as I was only looking for a yes or no answer to my question. I was thrilled with his generosity in giving me one of their shirts and in my eyes his gesture sealed the deal that his crew would be receiving a tip.

Tip For The Unexpected
It is unfortunate but I think quite a few people and professions have come to expect a tip regardless of how well they perform their job.

As I continue to examine the question of who to tip, I think that I will have to give special consideration to the people that deliver the unexpected with a special attention to detail. In the case of the painters, they’ve been outstanding as they have made sure that every little detail of the job has been done to our satisfaction and have redone anything that we did not feel was right.

In my opinion, their level and quality of service was unexpected and I feel that deserves a tip even though I had not originally planned to give them a tip.

Now I just need to decide how much to tip them!

Last month I asked all of you the question:

Do you tip contractors?

The outcome of the poll was that 88% of you said that you do not tip contractors. At first I felt somewhat guilty about not tipping the crew that installed our windows but after the job was completed I did not regret my decision.

Right now we are in the process of having our house painted and again I asked myself the question about whether or not we should tip the crew. We have decided that we will not tip the painters but this leaves me asking myself why am I always inclined to tip?

Previous Experience
One explanation that I look back to is that one of my jobs while in college was delivering furniture. This was very expensive furniture and usually involved moving old furniture at the customer’s house as well. Rarely did we ever receive a tip but when we did it really made our day.

When I think of those times, I feel like I should tip people that are coming into my home to provide a service for me. On the flip side, I also find myself thinking that they are already being paid to do a job so it is not necessary to tip them for doing what they were hired to do.

What Are The Rules
This naturally leads to the question about the rules or etiquette of tipping. Who do you tip? Without getting into a full blown list of who do you tip and who do you not tip, I think it comes down to one thing in many cases:

Does the person or people rely on tips as part of their wage?

Consider some of the people that you might tip on a regular basis - waitress, barber or hairstylist, taxi driver. While I am not sure about the taxi driver, usually wait staff and barbers/stylists earn less than minimum wage and/or work on a full commission and tip basis for their income.

In this case, the other person is relying on an expected tip as part of their salary. That doesn’t mean that you have to tip if the service is poor but I think it is a good rule of thumb for answering the question of who do you tip.

Now consider some other jobs or professions: handyman or contractor, fast food restaurant staff, mailman. These people are all earning a given wage to perform a specific job function. They are not paid less than minimum wage and are not depending on tips to supplement their income.

Is It That Simple
That seems like an overly simplistic view of answering who do you tip versus who do you not tip but I think it works well as a general guideline.

In our current situation, we hired the painters to perform a specific job function. They are doing far more than I would do if I were painting myself, such as patching all of the drywall, but they are being compensated for that time and effort. Therefore I do not feel that I need to give them a tip for their work.

Do you think this is too simplistic a view on tipping? Who do you tip?

Today I had the opportunity to practice what I preach to my wife and kids about how to avoid impulse buying and truly evaluating if something is a need versus a want.

This morning I was reading the newspaper and noticed a sale ad for Fry’s Electronics that was advertising a 50″ Sony Grand Wega HD rear-projection LCD TV for $699.00. The advertisement noted that this was a clearance item and was limited to in-stock items.

Need or Want?
We currently have a 32″ Sony - no LCD or plasma, we’re old school - that works just fine so obviously a 50″ LCD TV would be a “want”. However, with football season quickly approaching I could easily justify this as a “need” don’t you think?

Because this really is not something that we need, I did not have specific plans to visit the store but thought that I would stop by to look if we were in the area. As luck would have it, we were out running errands today and happened to be right near the store - honest, I didn’t plan it - so we stopped by to take a look.

Resist The Temptation
We walked in the store and headed back towards the TV department. As we browsed the display of TVs, one of the salesman asked if we needed any help and we asked about the 50″ Sony Grand Wega in their advertisement. He informed us that they did not have any of the 50″ TVs left but they still had a couple of the 46″ Sony Grand Wega TVs left.

The 46″ TV was on sale for $599.00, normally listed at $1499.00.

My knees buckled and I was tempted to make the purchase. As I stood there looking at the TV, I imagined watching the football game in HD on the nice 46″ screen. Our kids were standing there in a trance watching the movie being played and the salesman informed me that they now had only one left as someone else had just bought one.

Feeling the pressure to make a quick decision, I remembered that we didn’t need this TV and while it was a great deal there were so many other things that we could do with that $600.00. I informed the salesman that we were going to pass on the TV purchase today. While the kids were disappointed, I was happy to have set aside those thoughts of Sunday afternoon football on the big screen and resist the temptation to make the purchase.

To be perfectly honest, I am not sure that I would have resisted the temptation quite as well had the 50″ LCD been in-stock but I didn’t have to make that decision.

Lesson Learned
While there is nothing wrong with purchasing something that is a want versus a need, assuming that you can afford the purchase of course, I was reminded today that even the things you want should be prioritized.

Instead of spending $600 to replace a TV that is operational, we would much rather use that money to complete a few of the projects around the house that we have been working on or just increase our savings after recently paying for our replacement windows and blinds.

Regardless of what form it takes in your life, enjoy the moment when you resist the temptation. I’ll be enjoying my decision - at least for a few weeks until football season starts!

Brian over at FinancialDominance.com has tagged me to participate in the My One Money Advice meme.

This meme was started by Pinoyo over at Moolanomy in an effort to help promote financial responsibility and awareness.

The Question: If you can give one advice, tip, or story related to money, what would you share?

Always Pay At Least The Minimum Due On Time
The one piece of advice that I would share would be to always make sure that you pay at least the minimum due on your debts and make the payment by the due date.

When I graduated college with a fair amount of debt, I always maintained a very good credit score because I never had a late or missed payment. While paying only the minimum is not the strategy to use if you are trying to get out of debt, it will go a long way towards preventing you from getting deeper in debt.

As soon as you start making late payments, you will be hit by additional fees and most likely will have your interest rates jacked up as well. To add insult to injury, your other credit cards may increase their rate as well once you have a late payment hit your credit report.

As I mentioned when I wrote about 5 steps to improve your credit score, lenders are more concerned with whether you are going to pay them on time than they are with how much more than the minimum you pay each month. From a lender’s perspective, they actually prefer that you pay the minimum as that will keep you in debt even longer.

Timely payements account for 35% of your FICO score so by following this one piece of advice you will be doing your best to maintain a quality credit score while you eliminate your debt. The real benefit here is that your high credit score will qualify you for more attractive balance transfer offers and lower rates with your existing credit cards.

Additional Tips
Others that have participated in this meme have included some outstanding tips. Here are a few of the tips and advice that have been shared:

• Pinyo said, save 10% of your income and make it automatic
• Paidtwice said, ignorance does not help you…knowledge is power, and with power you can institute change
• Being Frugal said, practice contentment…realize that money and things aren’t going to make you happy
• Plonkee Money said, know yourself
• Hin’s Tech Corner said, not to compare yourself to others and think about money all the time
• Loonies And Sense said, take control, and do it now
• Adventures In Debt said, have patience
• Give Me Back My Five Bucks said, when you think you can’t, you can
• Financial Dominance said, understand that your situation is different from everybody else’s
• My New Choice said, always pay at least the minimum due on time
• More Merchant said, if you can’t pay cash for what you want you don’t deserve it
• Financing Your Family said, spend less than you earn
• Nick said, pay yourself first

I’d like to hear what tips or advice the following people would share: Mark at Financing Your Family, Jake at More Merchant and Eric at Money Dork.

Even if I haven’t tagged you to participate, feel free to join in the fun with your own tip. Let me know about your tip by linking to this page or leaving a comment and I will add it to the list.

In the discussion on the post about how to setup laddered certificates, Mark Anderesen made a comment that touched on the money personalities of people.

When you evaluate a financial product or service, you need to take into account your own money personality to determine if the product or service is appropriate for you.

While using a CD ladder will mean you actually earn a slightly lower interest rate than using a premier online savings account, that might be perfectly acceptable if the liquid savings would be a temptation to you. As Mark noted, his wife’s money personality is such that she would spend the money if she has it. In that case, the CD ladder likely makes a great choice because it removes some of the liquidity of the money as you would forfeit interest if you withdraw the cash before the CD maturation.

My money personality is such that I do not have the temptation to spend money that resides in our online savings account. My wife tends to spend money if it is left in our checking account but resists the temptation when the money is set aside in a specific savings account. Therefore the CD ladder is not the best option for us from a financial standpoint and we utilize the slightly higher interest rates of the online savings accounts.

This demonstrates that you really need to take some time to honestly assess your own money personality. Are you the type of person that will spend money if it is readily available? Are you able to have liquid funds and resist the temptation to spend that money?

What works well for one person may not work well for you. Once you are able to discover your own money personality, you will be better suited to determine which financial solutions will work the best for you.

Mark Andersen from Financingyourfamily.com is a banking professional who loves what he does and shares his insight into a little-known banking strategy.

A common situation that befalls the members I work with goes like this:

1. A close relative passes away
2. Said relative leaves a substantial inheritance
3. A receiver of the inheritance doesn’t want to blow the inheritance, so they come see me.

Generally, they do not want to spend the money, they want to save it.

They don’t want it easily accessible, but they would like to change their mind on that in a few months or a few years, and they are not interested in uninsured investments (stocks, mutual funds, etc.)

The strategy I suggest is known as Laddering, and it’s a great way to make CDs more liquid without sacrificing interest.

How does one ‘ladder?’

Let’s say that the inheritance was $40,000. In a 12 month CD, that would earn a good amount of interest, but since we want access to a good amount in 3 months, that one-year CD would be foolish for the full $40,000. What we’re going to do is break that $40,000 into 4 $10,000 chunks, and we’re putting one in a 3 month CD, one in a 6 month CD, one in a 9 month CD, and one in the 12 month CD. This is the first four rungs of the ‘ladder.’

The interest on shorter-term CDs is less than on longer-term CDs, so when the first CD comes due, we take the $10,000 plus interest and we put it in another 12 month CD. Now our portfolio looks like this: 3-month CD paying 6 month’s interest; 6-month CD paying 9 month’s interest; 9-month CD paying 12 month’s interest; and a 12-month CD paying 12 month’s interest. We’ve now put the newest rung on our ladder.

Once the first 12-month CD comes due the ladder cycle is considered to be complete.

Variations

I’ve seen several variations to help fit some unique needs. There was a retired woman who had a lot of money from her husband, and had a monthly ladder in place where the interest would deposit into her checking account when the CD came due. The result was that she got roughly a $600 paycheck on top of her social security and pension every month, and had more money than she knew what to do with. Her grandchildren are adequately spoiled.

I also worked with a college student who had a great job (he could afford to go to school from just what he earned) but he took out student loans every semester anyways. His ladder was every 6 months (every semester) and he just put his student loan money in there to earn interest. Because of the grace period on his loans before he had to pay interest, he was able to get out of student loan debt and have an extra $1000 in his pocket on graduation.

You can be pretty creative with laddered CDs, and if you have a solid banker who you trust you can even turn a safe, federally-insured profit from them.

Still looking for an invite to The Motley Fool?

The 20 invitations that I had available disappeared quickly but one of the people that I invited is offering his invitations as well. The last time I checked there were still 11 invitations available.

If you’re still looking for an invite, head on over to Financial Dominance and ask Brian for one of his invites. Thanks for offering your invites Brian!

Available Invitations
Financial Dominance - 11

Any other site authors that still have invitations remaining, let me know and I will maintain a link to your site in this post to direct users your way.