I’ve been thinking about this for a long time and talked to some American friends about this, so I decided to share with you some insights into the personal finances in Europe (actually it might be only Spain, or just me).
The original idea for the title was “What’s wrong with American personal finance”, but I guess a positive thinking could help more than just criticism. I usually read some productivity and lifehacks blogs like LifeHacker or zenhabits and once in a time, a money article pops up. The two most common pieces of advice in this field are:
- Avoid late fees by using Quicken/MS Money to pay your bills
- Get rid of your debt
Those two common issues amongst American people were really bizarre for me the first time, and still today I can’t fully understand were the problem comes from.
Avoiding late fees
Simply put, I’ve never paid a single late fee in my life (maybe renting videos long time ago). The most common payment method in Spain for recurrent bills like Internet, rent, phone,… is called domicilación bancaria. I’ve been told there’s something like that in the US, and I’ve found similar concepts on the Wikipedia: Direct debit and standing order.
That is, if I get a new DSL contract I give my bank account number to the service provider and they charge me every month directly in my account. The only chance to get a late fee there is if there are no funds in that account.
So, my piece of advice here is: ask your bank about this possibility and get your bills paid with direct debit
Get rid of your debt
This in fact hit me long time ago, in an episode of The fresh prince of Bel-Air, when Will gets his first credit card and starts spending way more than he can pay. I thought that was a silly joke, but as I discovered later, it seems like the sad beginning for a lot of people.
I have one credit card and I only use it to buy online and when I travel outside Spain. My other cards are debit cards: some Visa Electron and some Maestro. In fact, most of the time my credit card stays at home.
I don’t even know if there are debit cards in the US, but if they exist, you should get one.
I found this cool parody some time ago about getting out of debt:
http://www.dailymotion.com/swf/2zb8R5htoF6Qi5G62
Conclusion
My final basic trick is that my expenses are much lower than my income, so I can pay them every month.
I think the above video is my conclusion to this: don’t buy stuff you can’t afford and I should add find the financial tools you need to stay away from credits.
If by Debit Card you mean when you use it to pay for stuff, money is directly transfer from your bank account to the merchant bank account, yes we do have them in Canada (I’m Canadian) and the U.S.
They are great, you loose your wallet, or it get stolen, and it’s just a card to replace.
I no longer use paper money.
Domicilación bancaria is known by a few names in the U.S. (e-check, automatic withdrawl, etc.), but has never really caught on. Not too sure why…. probably because people feel like they are loosing control of their finances. Of course, in reality, the “flexibility” that people feel they “need” in playing their bills is exactly what you address in your first point
Yes, we have both automatic payments from our bank accounts as well as debit cards.
My wife and I have tried paying a couple bills automatically, but we didn’t stick with it. I have a mental block against handing over the combination to the vault. (I wonder if it’s a cultural thing….as mossholderm states, people don’t seem to use the option much.) We did have one bad experience; Verizon took $200 from our account with no warning, as an early termination fee. It was an error on their part, but it took over two moths and many phone calls to get our money back.
Debit cards though are the best thing since sliced bread. I hardly ever carry money.
It’s funny though, some people are confused when they see me hand it over to pay for common items. I’ve had older colleagues offer to buy my lunch because they thought I had no cash and was paying for my food with a credit card.
dave, that sure was a bad experience. I think in Spain you can tell your bank to cancel a payment during the first 30 days.
Americans seem to be deathly afraid of direct debit — I do almost everything with it and have had no significant problems. I found it’s a great idea to set a limit in which 2 months worth of bills fit. That case if the company slips up (as it’s bound to happen), it can still pull the forgotten month and the then-current one next month. But no way can they charge something really nonsensical.
They seem to be obsessed with cheques, something I’ll never understand either
Italy home finances used to be like in Spain (you buy what you can afford). However, now it is more similar to USA. Almost everybody have debts and “how to get rid of debts” articles and ads are popping up in newspapers and TV.
People get poorer, banks get richer. Somebody says this is progress and development…
This is very stupid, has nothing to do with free software, nor open source. Please stop blogging!
lb
P.S. Maye “neoism” is the right thing for you.