Personal Finance Guru Q&A: ‘The Real Cost of Living’ Author Carmen Wong Ulrich

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In the first of a new series of Q&As with personal finance experts, the TV host and author of Generation Debt offers her thoughts on everything from why she would never pay cash—or even put more than 20% down—when buying a house, to why she always pays top dollar for quality tequila.

What's 'The Real Cost of Living'?

In her new book, The Real Cost of Living: Making the Best Choices for You, Your Life, and Your Money, Carmen Wong Ulrich uses down-to-earth language and practical tips to help readers navigate the pitfall-laden, headache-inducing world of personal finance—covering real estate, family life, careers, credit cards, bad habits, shopping, and more.

There are plenty of insightful anecdotes and straightforward advice in the book, but what makes it stand out is that Ulrich—who has a master’s degree in psychology—has a fine grasp of why it is that so many consumers make one bad decision after another.

She answers my questions below.

I know that there are always exceptions, but how are men and women different when it comes to spending, saving, and other personal finance issues? Do we tend to have different strengths, weaknesses, blind spots, etc.?
Carmen Wong Ulrich: To generalize, women of certain generations especially (let’s say Gen X and up) were still sometimes enabled to put their heads in the sand when it comes to money. Far from all women, but some women (and many I hear from) just don’t want to know when it comes to finances, especially if she has a husband who’s more than willing to take care of things. Then there are women like me who had the opposite reaction to being raised when men still held the purse-strings, so to speak. We saw our moms take care of the house and family, and even work a bit, yet only get handed a check once a week to budget for everything. We saw that, and we didn’t like it. I think women have actually been given a short-shrift with money stereotypes. We are actually more likely to manage the household budget and are more likely to be substantially worried about money. We have more to be responsible for – the families we’ve made, our parents, our shorter working-lives (if we have kids), our longer-life-expectancies. Women are more conservative investors (a good thing) though what we may suffer from is the desire to make our families happy and take care of everyone at the expense of our budgets and sometimes our futures. As for men, they are the only people who come up to me and ask for a ‘hot’ stock/sector/commodity. It’s amazing!

What are some of the newest fees confronting consumers nowadays, and what are the easiest ways to avoid them?
CWU: Fees. Ugh. They’re everywhere. Banking has become filled with landmine-fees. You sometimes don’t know where they came from or why you’re suddenly being charged, but one day you had free checking and the next day you woke up and, not. Banking these days has way too many fees—low-balance fees for checking accounts, more debit card fees are coming, monthly maintenance fees. Just awful. Avoid them by first calling your bank and asking the fees to be waived. It can’t hurt to ask! After all, breaking up with your bank is a pain. If they won’t budge, shop around for a new bank—head online to sites like Bankrate.com or Interest.com, and don’t be shy about using a credit union or community bank. They may not have a fancy online system like online banks, but they may have much cheaper banking for your needs.

For someone who has the money: Do you think it’s foolish or wise to buy a house with cash nowadays?
CWU: Foolish. And I hate calling people names. It’s incredibly unwise to buy a home with cash—incredibly! In my book I start my ‘home’ chapter with a guy who called my show to tell me about how he put his life savings, $400,000 in cash down on a home for him and his mother. The home cost $800,000 when he bought it. But, in a ridiculously short period of time the home was worth half that–$400,000. So now, instead of having almost half a million dollars in cash (an insane amount of money for anyone to have in cash) he had NOTHING. Zero. It’s an extreme example but it illustrates the point that your home is not like a car or a stereo system. It’s a product whose value is tied to a market—a market that you have no control over. So, buying a home is always a bit of a gamble—like buying one expensive stock and hoping its value goes up. Before the housing bubble, home values went up around this country on average 3% to 5% a year. Your money serves you much better invested in a tax-friendly retirement account. When you buy a home, don’t put down more than 20%. Any more than that is betting your money on one tiny piece of a very big housing-market-pie. Especially with interest rates this low!! Mortgage money is cheap money right now. Let the ‘house’ (meaning, the bank) share the risk with you.

Other than buying a house, under what circumstances do you think it’s OK to borrow money? And in what situations do you think it’s absolutely a bad idea to borrow — via a loan, or a credit card you can’t pay off immediately, or some other means?
CWU: Bad idea to borrow for something that won’t augment your life in a measurable way. That handbag will not make your life better. You may look better (and trust me, I love me some handbags), but it’s a temporary salve, not a long-term fix. To avoid bad-borrowing, few things are better than the old-fashioned needs vs. wants truth-test. Do you really NEED it? Or do you just WANT it?

It’s definitely a good idea to borrow when it comes to getting a college degree—however, and I really mean however, you’ve got to borrow the right way. Federal loans. A solid, not-too-pricy school. You’ve already gotten scholarships and grants. And you will finish school in four years or less. AND, you should not borrow in total more than you can make your first year out—so if you’re expecting to make $32,000 in your first full time job, don’t borrow more than that to go to school. And federal loans will protect you with the lowest interest rates and options should you not be able to pay because you’re out of work. It’s also OK to borrow to get a car. After all, you probably need that car to get to your job. However, (here I go again with the however), you cannot buy too much car. Borrow just enough to do what you need to do. You can bet the $750 I put on my credit card my first year out of college to furnish my studio with IKEA was well-worthwhile. I had to sleep and eat somewhere!

What are some of the ways you see people spending their money that will never make sense to you personally? You know, the expenses or splurges that always leave you scratching your head?
CWU: Fancy/flashy cars when you still live at home with your parents. Twenty+ dollars a week on lotto when you have nothing saved. Any purchase that you can’t afford but you feel “But, I deserve it!” What you deserve is to respect yourself enough to be smart about your money!

A while back, the blog featured various frugality aficionados naming the products that they’re willing to pay good money for. Would you care to weigh in and tell us five or so things you see as worth paying extra to ensure quality? Be as specific as possible — we want brand names, if you have preferences.
CWU: Ha! Love that you’re asking this… and it’s a hard one! I almost never like to pay full price for anything…

1. Gifts for my husband/daughter. Once in a while I may see something great on sale but, as long as I have a budget in mind, I don’t mind paying full price for a gorgeous watch (like a Hamilton) or outerwear (Burton ski jacket).

2. Anything Apple. This is one brand that doesn’t cut prices often. A bummer, since we’re in the market for new Macbook Airs. But, we’ll pay it if we have to because we know what we’re getting. Same for my iTouch and our iPods.

3. Restaurants. My husband and I are foodies, which sometimes makes our wallets cry. We love Char 0.4 and Strong Place in Brooklyn and Yerba Buena in the East Village. Trying new restaurants is a joy of life that we treasure and even manage on a tight budget, when we have to. I’ll go nuts with cutting spending in many other areas so we can try a new spot.

4. Tequila. I got to live in Mexico City (D.F.) years ago, when the only tequila you ever saw in a restaurant or liquor store in the U.S. was Cuervo. Sam’s Club in D.F. had pallets of the best tequila for $7 (35 pesos) a bottle back then. When I came back to New York, that same bottle was almost $50! Thankfully, things have changed, but I still pay premium for great tequila brands like Herradura, Don Julio and Dos Generaciones.

5. Nail polish, makeup and skin care. Yup, I’m girlie like that. If I find a color for my nails I love, by O.P.I. or even Nars, I’ll pay full price for it. I also buy MAC products at full price (many times I’ll have to do my own makeup for the local stations so it’s very much worthwhile) and my skin care products are always full price. I use Arcona lotions at night and in the mornings, DDF face wash and Philosophy’s “The Present” as a primer. Great stuff and worth every penny!

MORE PERSONAL FINANCE Q&As:
Q&A: Why Should You Take Money Advice from People Who Are Bad with Money?
Q&A: ‘Generation Earn’ Author Kimberly Palmer
Q&A: ‘The Simple Dollar’ Author Trent Hamm

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