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Your Money > Smart Assets
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How to live beyond your means
Even when you're spending money you don't have, there are savvy ways to stretch your cash.
September 23, 2003: 10:13 AM EDT
By Gordon T. Anderson, CNN/Money Contributing Writer

NEW YORK (CNN/Money) - Most articles about personal finance preach a gospel of thrift, advising readers to save and plan and pay down debt. Reckless consumption is a serpent to be shunned.

Sometimes, though, you just don't want to hear another sermon about Sound Financial Planning.

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Robb Report magazine is out with its private preview of luxury goods for the upcoming year. Brett Anderson of Robb Report talks about the selection.

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So if you're looking for practical advice about getting your financial house in order, stop reading now. This is a story about sinning and getting away with it.

Does that mean you should live fast and leave a beautiful corpse? Not really. But here are a few ideas on getting good stuff, going places in style, and being prepared for the day the bill comes.

Learn to shop

Ditch the khakis and denim button-downs – haute couture no longer means expensive. The reason is fashion arbitrage, the art of spotting and exploiting inconsistent prices in different markets.

For example, normal prices at New York-based Barney's can be laugh-out-loud outrageous, with $1,000 cotton sweaters and the like. But twice a year in New York and Los Angeles, the upscale retailer hosts "warehouse" sales at locations away from its main branches.

There, the discounts start deep and get more aggressive over the sale's two-week run. Examples: a silk-and-cashmere jacket by Zegna marked down from $1,400 to $150; Ferragamo shoes, once $400, walk out the door at $89.

Another option for serious shoppers are the sales hosted by a group of women calling themselves the Billion-dollar Babes, at which prices can drop as low as 80 percent below retail.

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The events take place a few times a year in Los Angeles, Las Vegas, and New York, and feature a glittering array of designers. Besides the ubiquitous Fendi, Gucci and Prada, participants have included brands that are less frequently seen discounted, like Vivienne Westwood, Helmut Lang, and Jimmy Choo.

Can't get to a coast? There's always the Web, where discounts sprout faster than you can say "production overrun." Check out a site from Italy called Yoox.com. It sells high-end clothing at low-end prices. Beloved by European fashionistas since 2000, Yoox began shipping to Americans last year.

Suburban Chicago hosts a different sort of shop-til-you-drop festival: the ritziest rummage sales on earth. Two Winnetka churches, the Congregational and Christ Church, annually vie for the title "biggest" (certified by Guinness), but each offers an impressive selection of wares from affluent North Shore locals.

"There are rooms devoted to everything: handbags, handkerchiefs, treasures, and furs," said Murph Henderson, a frequent attendee. "The selection runs the gamut from super high end to K-mart."

'Rent' -- don't buy

Automobiles. You want to drive a fancy car, but don't have a fancy budget? Leasing is the answer. The best option is to get a second lease – leasing a car that's already been leased once before. This way, you'll drive a car that's been "gently used" but your debt obligations will be much lower than to lease a brand-new vehicle.

If you go for a model whose design hasn't changed much recently – say, a two-year-old Lexus -- many people won't even notice that the car's model year is not quite au courant.

Housing. Yes, with cheap mortgages and ever-rising home values, it makes financial sense to buy real estate. But remember, you're poor. No banker is going to write you a mortgage to buy a house in San Francisco's tony Pacific Heights. You might, however, be able to rent it.

In many big-city markets, the disparity between the cost of renting and the cost of buying expanded in the go-go mortgage market of the last few years. As sale prices rose, rental prices did not.

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"Two things have hit rentals hard: mortgage rates have fallen to generational lows and job growth has been poor," said Lawrence Yun, an economist at the National Association of Realtors. "Rising vacancy rates has put pressure on rental prices."

Another advantage: renting keeps you flexible. Defaulting on a mortgage obligation is a monumental financial blunder; canceling a rental contract may cost you a security deposit, unless your landlord is unusually litigious.

Understand credit cards

The obvious key to living beyond your means is to use other people's money to get what you want. Hitting up wealthy friends is one way, but it's better to borrow from rich strangers, like a bank.

Keep one card free of revolving debt. Pick one of your credit cards (the one with the highest interest rate) and make sure it's paid off on time every month. This will be the card you use to make routine purchases – restaurant meals, groceries, clothing -- but not big ones.

"Take advantage of the float," said Scott Bilker, author of "Talk Your Way out of Credit Card Debt" and founder of the site Debtsmart.com.

Credit card purchases made at the beginning of a cycle do not come due until four to six weeks later. For cards that are paid off, this is equivalent to a zero interest loan.

Take advantage of low-interest transfers. There are plenty of low-interest offers out there, but beware of all the catches. "You definitely have to read the fine print," said Bilker.

If you're going to transfer debt from a high-interest account, first make sure the offer has no transfer fee. Bilker points out that one-time transfer fees can be up to 4 percent of principal. That's no bargain.

Also be clear on what happens after the low-interest period expires. A few months of zero interest isn't worth much if the rate soars above 20 percent thereafter. A better deal might be 3.9 percent until the debt is paid off in full.

Remember that card companies always pay off low-interest loans first. Let's say you answer a low-rate-for-life offer and transfer $5,000 of debt. If you use that card again at the regular rate, that new debt will not be paid down until after you pay off the low-rate debt. The same logic applies if the account has existing debt on it when you transfer to it.

Call first, then spend. "Before you make any major purchase, you should call your card companies and ask what deals they're willing to make," Bilker advised. Lower interest rates, cash-back bonuses and all sorts of other goodies may be available "without your even knowing it." The time spent to find out may be well worth it.  Top of page




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