Improving my financial IQ

I just finished reading a fabulous book: Stop Getting Ripped Off: Why Consumers Get Screwed, and How You can Always Get a Fair Deal by MSNBC “Red Tape Chronicles” columnist Bob Sullivan. In it, Sullivan gives the lowdown on the ways consumers are financially illiterate and advice for how we can stop getting screwed by various entities: TV companies, mortgage brokers, car salesman/auto loans, cell phone companies, student loans, various types of insurance, and investment brokers. Here are some key ideas that were somewhat new to me (or that confirmed my prior knowledge or experience):

1. Credit card companies use your average daily balance to figure your interest for the month, so if you plan to carry a balance, you should postpone large purchases until the end of the month and try to make payments ASAP, rather than waiting until the bill comes due. The fewer days of the high balance you have averaged each month, the lower your interest payment will be.
   
2. When buying a car, never negotiate on the price of monthly payments. Negotiate on the purchase price, the “out the door” price (not the MSRP sticker price). Get your own financing before showing up at the dealership; then you can find out if the dealership can beat it. Watch Rob Gruhl’s short video on how to avoid getting screwed at http://www.youtube.com/watch?v=sH651baH7-c.
   
3. One reason for the housing meltdown: too many homeowners without a 20% down payment or equity in their home to offset inevitable market downturns (we are those homeowners). When they stopped paying mortgages (we’re not those homeowners), banks/lenders were left with properties worth less than the unpaid loan on them. Of course, homes shouldn’t be seen as investment properties, so if you’re going to be there long-term, the downturn shouldn’t phase you (unless, I guess, your whole neighborhood turns into HUD homes and crack houses).
   
4. You should spend as much or more time shopping for a home loan as you do for the home itself. The loan is more important than the home. Sullivan’s chapter on home-buying is phenomenal.
   
5. Your cell phone company is probably screwing you. Visit About.com’s Pre-Paid Cell Phone Plan Chooser at http://cellphones.about.com/od/prepaid_phones/qt/plan_chooser.htm to consider your options for pre-paid plans.
   
6. Your cable or satellite TV company is probably screwing you too. Visit http://www.cancelcable.com to learn more about cheap/free online options for watching most TV programs (with fewer ads). In fact, the whole idea behind paying for cable TV was to avoid the advertisements. In addition, call your TV company at least once every six months with competitive offers from other companies and threaten to leave (you have to be willing to actually do so). Usually your company will offer you a reduced rate. Trent’s been using this strategy with increasing regularity with DirecTV, and it’s working.
   
7. Awesome website on financial aid: http://www.finaid.org/. It’s run by a former college financial aid officer whose rule of thumb advice is this: “Don’t borrow more for all your college expenses than you can honestly expect to earn in your first year of employment” (175).
   
8. The last section of his book is advice on pitfall-proofing your finances, and some of his advice differs from Dave Ramsey’s, who advocates just a $1000 emergency fund while paying down debt. Sullivan emphasizes a more sizable safety net. It’s good to get these different perspectives, and this was an informative section, particularly since I pay little attention to my retirement and other investments. I know feel empowered to take some control over our financial future.

If you want to learn more about Bob Sullivan and his stellar advice, visit this book’s website at http://stopgettingrippedoff.net/. A few weeks ago, it had a promo for free copies of his book (I think it’s gone now—sorry), but I received a free (signed!) copy of his book Gotcha Capitalism this week. Woohoo! One more thing—this book is actually a pretty engaging read. And much more informative than Dave Ramsey's material, which mostly focuses on convincing the reader to reduce his/her debt (Well, duh, I'm reading the book. I think I'm convinced.)