Episode 20: Greg Karp Joins Jim and JD to Talk All Things Personal Finance

by brian on September 21st, 2009

Greg Karp joined JD and Jim for this week’s episode.  Greg is the author of The 1-2-3 Money Plan and Living Rich by Spending Smart.  He also currently writes a weekly column that is syndicated in 10 or so major newspapers .

The show started off quickly with the guys asking Greg about how he got into this business and how he has seen it grow over the past year or two.  Jim joked that “frugal” is sort of the new exclusive club (the same way spending on expensive or big cars was an “exclusive club”).  Greg said a very profound and true statement saying “you can’t out-earn dumb spending.”

JD asked what the difference is between a cheapskate and a frugal person.  Greg responded that frugal people tend to be clever in their spending while cheapskates end up possibly hurting themselves and people around them with their behaviors and attitudes.

The 1-2-3 Money Plan

Greg started to talk a bit about his book and mentioned specifically, Chapter 4: How to buy stuff.  Jim feels Greg’s description provides a good framework for people to be more deliberate in their spending.  Greg lays out three simple tasks per topic in his book.  In this instance, how to buy products, he states that you should read reviews on anything that costs over $50 (Greg recommends reading Consumer Reports – Jim’s quick research said that the cost of a CR subscription for a year was only $26).  Another place to look is on Amazon (their consumer reviews are often times helpful) as well as Consumer Search.

Money and Happiness

There are a number of ways you can buy happiness, and Greg says spending money on experiences instead of stuff is one way.  He suggests spending money on going to a concert over buying another CD, or buying a vacation as opposed to a new iPod (etc.).  Greg stated that there are studies that actually show experiences can make you happier.  Greg had a very profound thought saying, “Experiences appreciate in value in your mind as often times you remember them fondly, where as goods and “stuff” depreciate as soon as you get them home.”

Greg’s FIT Theory (Food, Insurance & Telecommunications)

The average family spends about $14,000 a year on these three things.  If you are going to start a spending makeover, this is where you want to start because there is a lot of waste in each of these areas.  Insurance in particular, you buy to prevent yourself from financial disaster.  You don’t buy insurance to prevent yourself from financial annoyances.  Greg says NEVER buy an extended warranty.  Odds are any product you buy usually has a 30 day product warranty at the store.  The manufacturer probably has a one-year warranty.  Most credit card companies will double the manufacturer warranty, giving you a 2 year warranty on most products, so what is the point of buying a 3 year warranty?

Especially when talking about insurance, Greg emphatically said “If you don’t understand it, don’t buy it.” As far as lowering insurance costs, you should raise deductibles (he admits this is standard advice, but the problem is, most people don’t do it).  You shouldn’t want to make small claims on your insurance anyway as it raises your premiums and ends up costing more money.   JD even mentioned that at one time he carried a $50 deductible on his auto-insurance.  He said he knows he spent more on premiums than he ever did on claims over the long run.  Jim stated that he hears from people that they feel there is a connection between the amount you pay in premiums and the amount of service that you get.  Greg debunks this by discussing studies by the consumer federation of America that show there is no correlation between cost of premiums and level of service.  Greg also recommends looking for auto-insurance first (and get the best deal you can), and then piggy-back your homeowners insurance to get the multi-line discount.
As far as telecommunications, Greg suggested finding the right size plan for what you use.  Moving to a prepaid wireless plan can also save a ton of money.  Jim mentioned that in Europe all cell-phone users use prepaid plans instead of contract plans.

Can’t Out Earn Dumb Spending

JD came back to this point that Greg mentioned earlier and referenced some of his readers and even a family member that feels like they can spend what they want, because they are able to go out and earn more money.  JD feels that this is dangerous and even cites this economy as a reason why this philosophy isn’t necessarily true.

Greg talks a lot about the spending side of the equation as opposed to the earning side, because he feels that fixing that side is the quickest way to get into a better financial position.  He states that saved money is much better than earned money in the short-term.  His way of explaining it went like this: “If you save a buck, how much of that do you get to keep?  All 100 cents.  Now, if you earn an extra dollar at work, how much of that do you get to keep? 65 cents, 75 cents, maybe?”

Callers and Chatters

The first caller has just started a new position where she was forced with the decision to decide what type of health insurance policy to carry from your employer.  She asked Greg if he had any advice for people that are going through the process for the first time.  He stated that you really need to know yourself, and know the type of health coverage you currently use and may need in the future.  Furthermore, its not wise to forgo health insurance as it is incredibly expensive, and is one of those things that could lead you into financial disaster if you had to be self-insured.

Another caller joined the show looking for advice to help manage her food budget better.  She stated she was on a limited income, and has a son who is picky about what she eats and was looking to Greg to provide her with some tips.

Greg gave good advice by saying the following:

  • Stock up when things are on sale
  • Try store brands. (Store brands are really good. Consumer reports did a story where store brands actually tested better than actual brands)
  • Look at shopping at a place like Aldi’s that is very bare bones. (It doesn’t have great service or great shelving but has great prices.
  • Check out the local dollar store for some food items.

Jim continued talking about generic brands and mentioned that most generic brands are actually made by brand name companies. Those store brands may have been made with a special formula specifically for the stores.  Greg then turned into a tirade about bottled water. He even referenced that Evian spelled backwards spells naive. Jim also mentioned that in countries where drinking water isn’t as good as it is in the states, bottled water is dirt cheap because it is a necessity. Here it is priced like a luxury and has the costs associated with a luxury.

Aaron called in to talk about his own health insurance issues. He mentioned that if you focus on prevention, eat healthy and stay healthy you won’t have to worry about insurance costs on the backend.  All three of the guys appreciated and agreed with his points as it is a very true statement.

JD’s Million Dollar Idea

JD had an idea in the middle of the show that really could have some legs.  After poking fun of some of the people on Joan Rivers’ How’d You Get So Rich he stated that he should come up with a show that highlighted people that have built their wealth to becoming millionaires.  “The true millionaire next door type” he calls it.  Although he doubted if such an idea would have legs or would be relegated to PBS or something, Greg kidded JD by saying, “Well, you know Get Rich Slowly is boring, right?”

Fun Links to Check Out From Greg

  • MagicJack – Free local and long distance calling in the USA and Canada.
  • Zenni – High-quality, complete prescription eyeglasses with high-index, hard-coated lenses, plus case, for $19
  • KeyRingThing – Combine your loyalty cards and tags on one easy card

Next Week’s Episode: Michael Hampton from Western Oregon Univ. – How to find a job in this economy.

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