Saving money during the winter

The weather in the northeast has been pretty warm so far this year, but it probably won't stay that way for long. Many housing situations include heat in the rent, but some do not. Even if they do, there are a few reasons why you want to be smart about lowering heating costs and making your place as comfortable as possible. Here are a few tips to keep costs down during the winter and cold spells wherever you live:

Space Heater: 

Central air conditioning is nice, convenient, and it really shines in the summer. But in the winter, it can be a pain. Specifically, if you have an apartment with multiple rooms and only one thermostat, inevitably, one of the rooms is going to be too hot or too cold. The easiest way I've come to dealing with this problem is buying a space heater. The bedroom is the most challenging, because when you sleep you don't want to have to wake up to adjust the temperature to your liking, so you will just be miserable and tired when you get up in the morning.

In my last apartment, the thermostat was in the bedroom, so as long as I kept the bedroom at the desired temperature with the space heater, the central air never came on. This saved a lot of money. In my current place, the thermostat is in the living room, so I still keep the space heater in the bedroom, and just turn down the thermostat lower than normal, so that it doesn't make the bedroom too hot even when the living room is freezing.

In the end, it just comes down to it being cheaper to heat one room rather than the whole apartment. A space heater will definitely be an additional electric load, it is a giant resistor after all, but not having to power a central fan and pay for heating a whole apartment/house can make up for that easily. 

Thermostat setting:

I play a little game with the thermostat: "How cold is too cold." I set my thermostat to a temperature, and then if I'm comfortable, I lower it a degree. And then after a while, if I'm still comfortable, I lower it another degree. I keep doing that until I'm cold and then bump it up a degree and keep it there. It turns out that it doesn't take much to save money, while still being comfortable.

Windows:

Seems obvious, right? Close windows and cold air won't come in. How about this: Lock the windows. If security isn't a big worry, (think 5 floors up and no fire escapes on that side of the building) locking the windows may not seem like a big deal. I learned a little late, that locking windows actually helps seal the window and prevent drafts. During an especially cold day last year, I happened to be by my window and feel a cold breeze hitting my ankles. Turns out, the window was closed, but not locked, and so as soon as I locked it, the breeze stopped. I still kick myself for wasting money for weeks before I noticed this.

Not only did these tips save me money, they also made my apartment so much more comfortable. My last apartment wasn't insulated very well, and so there were many drafts from closets and windows. Having the heat constantly come on and off was loud, and made the rooms hot for a few minutes, normal for the next and then cold for the following few minutes before the heat came back on. With drafts plugged, thermostats set comfortably and a heater in the room that mattered, the apartment stayed at a normal temperature for hours.

Hidden costs of owning a new car

The folks over at Broke Professionals recently wrote about hidden costs of buying a car. As my car has just reached its first year and 20k miles (I know, I drive too much) some of these tips rang true with me.

Insurance: I tried to take this into account when figuring out my budget, but sometimes the quote isn't exact. Buying a newer car is almost certainly going to increase your insurance premium. Also, I moved soon after buying the car to an area where my insurance premium went up a few dollars.

Maintenance: I also accounted for this in my budgeting, and figured that with a new car, maintenance would be cheaper than with my older car. It is in fact cheaper, as many things are covered under warranty, but there are still some expenses I wasn't planning on. Basic maintenance includes oil changes and filter changes, but other things come up too. Flat tires need to be replaced and the ones on my new car are more expensive than my previous ones. Additionally, they are harder to find which makes price comparisons difficult. I had to go through this last winter and it was a pain and much more expensive than I anticipated.

Fuel: Again, I budgeted for this, but there's a difference between estimated mileage and actual mileage. My new car has a larger engine than my previous one, so it doesn't do quite as well on the mileage. I guessed how it would do, but I overestimated by a little. Not a huge deal, but it does add up over time. Underestimating by even just 1 MPG can cost about an extra $100 a year for me. Some cars also use more expensive gas, so that's an additional consideration.

Taxes: This one caught me completely off guard. I received a bill for my old car when I transferred it over to Massachusetts's plates, and that wasn't too bad. Then when I bought my new car, I assumed all of the taxes were included in the 'taxes' portion of the purchase price. Well that's just simply not true. That was the sales tax. There's also the excise tax. This is a tax the city sends you a bill for later on. Well that was a couple of hundred dollars I did not expect to be paying. Now I know, but I was lucky that I was able to fit that in my budget by spreading some other items out over a few months. Not every city has this type of tax, but these and others like these can be very sneaky.

Miscellaneous: Occasionally I wanted to splurge a little on my 'new' car. So I bought a fancy antenna and had window tints installed. Nothing too major, but they did end up costing me more money than I planned for. I also felt obligated to keep my car clean at least for a little while. Little $8 trips to the car wash aren't a lot on their own, but as with everything, it adds up.

All in all, I'd estimate about $50-$75 extra on top of the budget I had planned for a new car. I had to cut back on some other things, but I was able to fit it in. Others may not be able to, and returning a car after realizing you can't afford it can become a very costly mistake.

How to recover from an 'expensive' month

Every once in a while, I have a month where I blow my budget. Not just by a few bucks, but by a serious chunk of change. Usually, it's when there are large one-time expenses (i.e. car repair bill, surprise taxes, holiday shopping, or paying for an upcoming trip). These things may or may not be planned for, but as the month wears on, I start to feel like I've lost complete control over my spending. That leaves me feeling one of two ways: either I throw my hands up and say 'screw it' and just buy whatever I want or I become a miserly old man and never step foot outside my home unless it's to go to work to make more money.

Neither response really seems healthy, especially when the situation is beyond my control.

So I've come up with a quick fix for when I'm feeling pretty crappy about my spending.

• Sit down and look at exactly what I spent my money on. When I look at my budget and see that I've been good about all of my discretionary spending and the only thing that's messing up my budget is the one-time expense, I start to feel a little better about things. I'm not a failure, or at least this isn't evidence of it.
• Figure out how to prevent the expense from happening again. Young people are notorious for underestimating the ongoing cost of purchases. Maintenance is just one of those things that just comes with territory. So when I recognize that fact, and agree to pay the few bucks to keep my car in tip top shape, I start to plan for it and include it in my budget. This helps even out my spending expectations and prevent surprises from cropping up in the future.
• Accept that sometimes, expensive things are just going to happen. When I look at the hospital bill I'm still paying every month, I wince a little and am amazed that it's still there. Then I start to kick myself for getting all worked up about something that turned out to be nothing. And then I finish that thought with the old adage "nothing is more important than your health" and become grateful that I'm still here. Sometimes life is just going to throw us curve balls. That's what an emergency fund is for.

I'm going to have to deal with this feeling this month, with the repairs on my car and buying plane tickets for two trips this summer. My Mint.com account is not going to be looking pretty. Later in the year I'm going to have to lay out some more money for these trips, but it'll be worth it and I'll go through my process again to feel better about it. In the end as long as you’re not wasting money, what does it matter really?

How do you recover from an expensive month?

Getting your credit report, understanding it, and fixing any problems

Read my previous post on credit reports and scores here.

Now that you know what a credit report is and why it's important, let's take a look at how to find out what your credit report says and what you can do to fix it.

First up: getting a free credit report. Everyone is allowed one copy of their credit report free from each of the three main bureaus each year. So that's a total of three free credit reports each year. Most people suggest utilizing this perk by checking your credit report once every 4 months, rotating between each of the bureaus. I often forget to check mine, but now that I’m writing about it, better believe I’m checking them right now.

The official place to go is www.annualcreditreport.com, which will link you to each of the bureaus, and will point out if you've already checked in with that particular bureau this year for your free report. I always forget which ones I've already checked, so this is helpful.

Additionally, you can get a copy of your report if you are denied a credit card or loan due to a company rejecting you based on information from the report. Usually if you receive a rejection letter, it will include information on how to see the particular report they looked at.

Checking your credit report is critical as there can be any number of mistakes present that will prevent you from getting a loan. Even worse, these mistakes may still allow you to get a loan, but at crappy interest rates, and you'll never know that an incorrect entry is costing you thousands.

Credit reports are pretty easy to understand. They include some basic information, which includes your birth year, your current and previous addresses, and current and previous employers. This is useful information, but the real good stuff is the information regarding your credit history. This part of the report lists all of the issuers of credit, how much you owe them, recent balances, total balances, and a slew of other information. This is the information you want to ensure is correct. This is what most companies are going to look at to see if you are handling your credit responsibly.

If you find an error, you have to contact that particular bureau directly and ask them to fix anything. It might take a little while, but it's definitely worth it. Your credit score is based on this information, so make sure it's correct.

While you can get a free copy of your credit reports, it's not so easy to do the same with your credit score. Companies love to charge people to view this, and most will sign you up for a credit monitoring service, which may or may not be necessary. Many credit card companies now offer the ability to see a credit score, though depending on the company it may or may not be the same score used by a potential lender.

The say time heals all wounds, and it's pretty much the same for your credit report. Pretty much anything that you've done prior to 7 years ago will fall off of your report and become irrelevant. Bankruptcy remains on your report for 10 years, and severely limits your ability to acquire new credit, but even that too will eventually fall off. Those are long time limits, but the good news is that after 2 years, most problems have less of an effect on your credit score. So if you start paying bills on time, stop opening new credit cards, and start to manage debt responsibly, within 2 years you will be well on your way to becoming an upstanding credit citizen.

There is a lot of information about credit reports, specifically how much each part counts, i.e. paying on time, outstanding debt, and debt to credit limit ratios, so if you are curious take a look around online.

Use your credit wisely or not at all.

What is a credit report and why does it matter?

Last week I went to a personal finance event at MIT hosted by students. The purpose was to educate seniors who are nearing graduation about personal finance and what it means once you enter the real world. It was a great event, led by recent graduates who answered questions ranging from how to budget to how to negotiate a salary with only an academic record to back you up.

One question that came up that I have overlooked here thus far was a very simple but critical point, "What is my credit report/score and why does it matter?"

The first two parts are pretty straightforward and I'll go over them briefly, but the final point is the most important question. Why does the amount of debt you have and how you use it matter? How does it impact the rest of your life?

I'll take a step back first and define debt. Debt is money that you've borrowed from someone or an institution that you've promised to pay back. That's it. Usually this is in the form of a contract or agreement, and this agreement usually has some stipulations on how long it's going to take for you to pay it back, what the minimum amount that you can pay back in a given month is, and how much interest you are going to be charged for every day that the debt is outstanding.

Three of the largest credit reporting bureaus.

A credit report is basically the report card for all of your outstanding debt. Each of the three major companies, Experian, Equifax, and TransUnion, has a separate report for you. It includes every account that you've opened, when it was opened, how much debt you currently have for that account, the maximum amount of debt you can have for each account, and whether or not you've been paying that debt back as agreed.

A credit score is similar to a GPA for your credit report. It's a numerical value that is used to give a 3-digit summary of your credit report. These scores are unique to each company and vary depending on what information that company has available to it or chooses to include.

Now that those terms have been defined, why does it even matter?

Well to you it shouldn't really matter. You're not a better person than someone else because you have a higher credit score. But it does matter to lenders, the people who will decide whether or not they will lend money to you. To them, a credit report/score tells them how likely they are to get their money back as agreed, based on people with credit histories similar to you in the past. Basically it tells them how much risk they are taking on by lending you money.

An example would be if you had $100 would you be more likely to lend your money to your friend who has a good job, has always paid you back in the past, and usually only spends what he has available; or to a friend who already owes you $300, hasn't paid you back when they originally agreed they would, and has a habit of going on shopping sprees even when they haven't paid their bills? Most people would go for the first one because it's less risky. The banks and other lenders do the same thing.

So keeping your credit report clean and free from any bad marks, such as large amounts of debt and late payments, tells lenders that you are responsible and a low risk. Lenders in turn usually agree to lend you more money and at a lower interest rate. So in the end you pay a lot less for buying a car or home. Let's say a car costs $20,000 and you wanted to take out a loan for that amount. If you have a good credit score, at the end of 5 years, you will have paid the car off and paid a total of $22,645. If you don't have a decent credit score, you could end up paying $24,319 due to the higher interest rate you were given on the loan. That's a difference of over $1,600 for the exact same car solely based on your credit score. And that assumes you even get approved at all. Some places will just simply say 'no' if your credit isn't up to their standards.

Other people check your credit as well, including: home loans, employers, landlords, credit card companies, and numerous other places. It sucks to work so hard to find the perfect home or job and then be denied because they think you are a financially risky person.

If your credit report is not looking so hot, there's still hope. Next I'll be talking about where you can go to get a legitimate free credit report, some of the areas of the report lenders look at the most, and how to fix them (hint: time and paying bills on time).