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Video: Financial habits to break in 2011

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    NATALIE MORALES, anchor: This morning on TODAY'S MONEY , financial habits to break in 2011 . It's time to break your New Year's resolutions . And if saving money is high on your list, well, we've got some expert help for you this morning. Carmen Wong Ulrich is a personal finance expert and author of "The Real Cost of Living." Carmen , good morning.

    Ms. CARMEN WONG ULRICH (Author, "The Real Cost of Living"): Good morning, Natalie .

    MORALES: A lot of us set our resolutions now, and a big one of course is not only your health, but also saving money . And here's there sort of the combination because you say you can save a lot of money , and there's a financial opportunity in kicking some of those bad habits , right?

    Ms. ULRICH: Oh, absolutely. There's a lot of decisions that we make in life, and this is -- the book covers all these decisions we make, from going to college, graduate school, staying home to take care of kids that have a cost associated with them. But we all want more reward.

    MORALES: Mm-hmm.

    Ms. ULRICH: And that goes for bad habits , as well. A lot of the habits that we have actually cost us a lot of money . So not just do we feel it physically in terms of our health, but also it costs us, it really impacts our wallet a lot.

    MORALES: All right, so speaking of those few pounds that you want to drop, that you make that resolution that you're going to do every year. And there are costs associated with being overweight . What are they?

    Ms. ULRICH: Absolutely. And we're talking technically overweight or obese...

    MORALES: Mm-hmm.

    Ms. ULRICH: ...with a body mass index above 25 and obesity above 30. Huge health care costs . There are two types of costs here, direct costs , the health care costs and complications...

    MORALES: Right.

    Ms. ULRICH: ...of things such as, you know, strokes and hypertension, high blood pressure , colon cancers...

    MORALES: Any diseases can happen as a result.

    Ms. ULRICH: ...all these diseases and complications. Diabetes, incredibly expensive.

    MORALES: Mm-hmm.

    Ms. ULRICH: So you're going to spend, on average in one year, over $ 1400 in direct health care costs being obese or overweight .

    Ms. ULRICH: Now, in terms of indirect costs , wage discrimination. Now, this is something that a lot of folks don't really talk about, but all the studies come out and show that in general, if you have two job applicants, they'd always rather take, an employer, the person who is not overweight than one who is. And in general, you lose about $1.25 an hour in terms of pay over the year if you are obese or overweight .

    MORALES: Wow.

    Ms. ULRICH: So that also has an impact on your wallet, as well. And other things, lifestyle costs , like clothing, for example, you can't find your size. There's that discrimination.

    MORALES: Mm-hmm.

    Ms. ULRICH: And travel costs . Engineering researchers have found that we spend over 300 million more gallons of gas in terms of transport.

    MORALES: Wow.

    Ms. ULRICH: Airlines, too, you'll also pay more of a premium for airline tickets.

    MORALES: Right.

    Ms. ULRICH: So if you add up all of the indirect and direct costs , on average in one year, you're talking about over $6,000 it's costing you to be overweight or obese.

    MORALES: Not to mention the major impact on your health.

    Ms. ULRICH: On your health, exactly.

    MORALES: Exactly. It's -- same thing can be said for smoking, as well. Obviously a pack of cigarettes, approaching, I think 10 -- I don't know what they are because I've never smoked, but $10 a pack or something like that?

    Ms. ULRICH: Yeah, I had to research this one, too.

    MORALES: Yeah.

    Ms. ULRICH: Because it -- boy, have times changed.

    MORALES: Yeah.

    Ms. ULRICH: You know, looking at the New York City prices, of course, and with a lot of added taxes here, we know that smoking is a huge killer. We know that.

    MORALES: Right.

    Ms. ULRICH: But if that can't keep you from stop smoking , look at how much money you're spending and wasting on smoking.

    MORALES: Mm-hmm.

    Ms. ULRICH: If you just go a pack a day -- so that works out over $3,000 of the year, that's a ton of money -- look at life insurance premiums. What insurers know is that you have twice the chance of dying young...

    MORALES: Wow.

    Ms. ULRICH: ...and you lose 11 minutes of life for every cigarette you smoke. So you're going to pay twice as much in life insurance premiums.

    Ms. ULRICH: And also lifestyle costs . For example, my husband and I , we bought our current home from a smoker. We paid about 10 percent less on the value of the home because it didn't show well...

    MORALES: Oh, interesting.

    Ms. ULRICH: ...it was covered with tar and nicotine. So there's all these other lifestyle costs ...

    MORALES: You can't get rid of that smell of smoke, yeah.

    Ms. ULRICH: ...your car, the dentist. Add those all up, again, over $6,000 a year.

    MORALES: All right. And that's money you could be investing wisely.

    Ms. ULRICH: Exactly. Exactly.

    MORALES: OK, next is carrying credit card debt , and we're talking about more than just the interest rates which you're paying, which ares significant enough.

    Ms. ULRICH: Again, this idea of direct and indirect costs and what real costs are are all of those costs . So you really need to look at it that way.

    MORALES: Mm-hmm.

    Ms. ULRICH: Let's say if you carry the average per-person credit card balance of $3700, if you only pay the minimum, it's about, you know, over -- almost $800 a year in interest that you're paying.

    MORALES: Right.

    Ms. ULRICH: Now, fees -- in general now, fees are through the stratosphere, right? You've got annual fees, underbalance fees, low balance fees, monthly fees, and those add up to about $74 a year. Now, what if you had taken the interest that you paid plus the $3700, you hadn't owed it at all...

    MORALES: Right. Invested it.

    Ms. ULRICH: ...and you invested it. Over 20 years, averaging around 7 percent, you would have quadrupled your money and you would have earned almost three times as much in interest. So the real total cost of that credit card debt is tremendous. It's over $10,000.

    MORALES: Absolutely. Now, you know, what's staggering here is we consider that employers may penalize you for being overweight , smoking and carrying debt.

    Ms. ULRICH: Mm-hmm.

    MORALES: I mean, it sounds like this is illegal practices going on.

    Ms. ULRICH: Well, in half of the states in this country, it is actually illegal to discriminate in terms of your personal choices like smoking or like being overweight .

    MORALES: Right.

    Ms. ULRICH: But in the other half of the country it's not. And there are some companies who up front will not hire you if you are a smoker or if you're unhealthy and overweight because it adds costs to them.

    MORALES: Mm-hmm.

    Ms. ULRICH: So it's really important to realize that there are ways that you're being affected by your habits in terms of how you make your money and terms of credit card debt , as well. Your credit rating , your credit score still can really affect if you can be employed.

    MORALES: All right, Carmen Wong Ulrich , great information, as always.

TODAY books
updated 12/29/2010 7:04:14 PM ET 2010-12-30T00:04:14

Thankfully for many, holiday spending is behind us. Come January, the bills — and the New Year’s Resolutions — will start rolling in.

When reflecting on habits you’d like to break in 2011, it’s important to take a look at your personal finances. Common problems such as being overweight, smoking and carrying credit-card debt could be costing you and your family thousands of dollars.

To help combat such negative trends, consider this excerpt from the new book “The Real Cost of Living: Making the Best Choices for You, Your Life, and Your Money” by personal finance expert Carmen Wong Ulrich:

Resolution #1: Lose weight
Obesity is becoming the norm in this country — a very dangerous and expensive norm. We're being super-sized at such a rate that experts say that in 20 years, more than half of American adults and the majority of children will be overweight. The first and possibly most expensive costs of obesity have to do with direct and indirect health-care costs and complications. Being overweight can contribute to many diseases and chronic conditions, including some cancers (breast and colon), diabetes, hypertension, heart disease, high cholesterol and stroke, and this list contains four of the top six causes of death in the United States. As of 2008, the Centers for Disease Control and Prevention (CDC) found that health-care costs in this country were around $147 billion to cover health complications from obesity — more than 9 percent of the nation's annual health-care budget. If you break down that price tag, obese Americans pay $1,429 a year more in medical costs than someone who has a body mass index (BMI) below 25; that's 42 percent higher health-care costs for an individual. If you're overweight or obese, you're also much more likely to take more medication than someone of lower BMI.

Image: The Real Cost of Living
Perigee Trade

Your paycheck also pays the price. Wage discrimination exists as well as hiring discrimination. The majority of respondents in one recent study said that they'd always choose the thinner individual when deciding between two similar job applicants. Employees who are overweight, on average, make $1.25 an hour less than a low-BMI colleague, adding up to a six-figure loss over a career. Women get hit the hardest when it comes to paying a high price at work for being overweight — obese women can make up to 24 percent less than an average-size women while even slightly overweight women make around 6 percent less.

Obesity price tag: $6,454

Add together the higher annual costs of health care and medication ($1,429), wage discrimination ($2,500), travel costs (a conservative $25), and other lifestyle costs such as mobility and clothing ($2,500), and the cost of being overweight is around $6,454 a year, or $538 a month. Over a lifetime (40 adult years), that's more than $258,000. And had you instead put that $538 a month in your retirement account, earning a moderate average of 6 percent interest, you'd have $1,082,675. But that's without diabetes or complications. Consider those pricey add-ons, and you're looking at $19,454 a year in total costs — that's $778,160 over a lifetime and over $3 million if that money had been invested.

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Resolution #2: Quit smoking
Smokers pay the highest cost of all bad health habits; smoking is the number one preventable cause of death in the United States. Some 440,000 people die every year as a result of smoking. It's one of the most addictive habits out there, but it is a habit and not a necessary way of life. Let's get the priciest cost out of the way: our life span. We know that smoking shortens your life, but by how much? One study says that every cigarette you smoke (listen in, occasional smokers) cuts 11 minutes off your life. But 11 minutes seems like small change, until you add it up. Smoke a pack a day, that's almost four hours of your life lost a day. In a month, you've shortened your life by four and a half days. In one year, you're out 55 days of life — over four months.

An early and probably painful death is an incredible cost. Not to mention those wrinkles. But what about the costs that hit your wallet? Almost $97 billion is spent on the health-care costs of smoking each year, and the CDC says that another $97 billion is lost in worker productivity. We each pay several hundred dollars in taxes every year to cover these costs, smoker or not. If you smoke one pack a day, that's $10 out of your pocket every day. If that $10 a day was put into a basic savings account over the next year, you'd have $3,650 by the end of the year. After ten years, you'd have $36,500. And if you had added that $300 a month to your retirement account instead and earned an average of 7 percent over 20 years, you'd have an additional $159,000 to pad your golden nest egg.

Just as with being overweight, being a smoker costs you in the workplace. Several big companies such as Union Pacific, Weyco and Alaska Airlines will not hire smokers at all. Citing the financial impact on the company (higher insurance premiums, more absenteeism, etc.), these companies say no to smokers on the payroll. Half of the United States has anti-discriminatory laws that do not allow employers to punish you or take into consideration what you do during your personal time, but many other states are able to say no to hiring smokers. When it comes to the price you pay as an employee, several sources say that you can expect to make 4 percent to 11 percent less as a smoker because employers see it as an unattractive, unhealthy and time-consuming habit, not necessarily a habit that helps you climb the ladder.

The indirect financial costs of smoking go much higher than the cost of buying cigarettes. You're also sure to see the dentist more often than a nonsmoker. Cigarettes can cause not only that unsightly smokers' yellow on your teeth (and fingers) but gum disease and other serious, very expensive periodontal disorders and diseases. Also prepare yourself for a bit of a shock when you try to buy a life insurance policy — a vital move if you have kids or other dependents. On average, you will pay more than double what a nonsmoker pays in annual premiums. If a healthy nonsmoker has a term policy for 20 years (with $500,000 coverage) that costs $1,200 a year, a smoker will look at a bill closer to $2,500 a year — that's over $200 a month. Also, if you smoke continuously in your home you can expect its value to run anywhere from 2 percent to 15 percent less than comparable properties in your area.

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Smoking price tag: $6,150

Just how much will being a regular smoker cost you? Keeping in mind the quality-of-life issues such as lost time with family and friends due to chronic health problems and/or an earlier death, the numbers paint an expensive picture. A pack-a-day smoker who spends $10 a day on cigarettes, another $1,300 a year in life insurance premiums, plus $1,200 annually in lifestyle costs (such as the dentist, smell, depreciation of car and home), will spend $6,150 a year on their habit. That's $246,000 over an adult lifetime (of 40 years), and if that money were placed in a savings account earning 1.5 percent, that amount would be $337,210; if it were earning an average of 6 percent in an IRA or other investment, that money would be $1,025,742. That is all without health complications, such as treatment for lung, throat, mouth and oral cancer, which can add much more in lifetime costs; even with a medical spending cap under health-care reform, there will be hundreds of thousands gone in lost wages due to an inability to work and/or by going on disability.

Resolution #3: Pay off credit-card debt
Let's clear the air. Credit cards — and debt — are not evil in and of themselves. However, using credit cards to finance things that don't earn you a return or are not an investment in you and your future just costs too darn much. Credit cards, if used wisely, can end up paying off instead of costing, but for many folks, using credit cards is all about living beyond your means. This is where the cost gets much too high.

The average annual percentage rate (APR) on a credit card was 11 percent in 2005. As I write, it's closer to 14 percent. As the recession progressed, it wasn't out of the ordinary to hear from dozens of folks a day saying that the interest rate on their credit cards went up to 29.99 percent or more, from rates as low as 7 percent! Many of these folks had done nothing wrong besides woken up on the wrong side of a credit-card bill during a credit crunch. I had a card with a 7.99 percent rate go up to 17.99 percent because of the "economic climate." That's $100 more for every $1,000 owed over the year!

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How do you lose income on credit-card debt? Well, that money you're paying back, plus interest, plus fees, is money that could be put to work for you. Let's go through a couple of scenarios taking not only that $3,000 balance, but the $209 in interest you'd pay over one year at 14 percent:

  • save in a high-yield savings account earning 1.5 percent = $3,257 (with taxes and inflation, make that $3,144);
  • save in a 401(k) earning at an average of 7 percent = $3,434 (with inflation at 3.1 percent, make that $3,330);
  • invest in a taxable mutual fund earning 8 percent = $3,402 (after taxes at 25 percent and with inflation, make that $3,299).

So if you hadn't spent that $3,000 on the credit card, but had instead put it into your IRA, you'd have $3,434 in one year instead of owing and paying out $3,209 over one year. By owing that money, you lost $434 in potential income, not to mention peace of mind.

Excerpted with permission from “The Real Cost of Living” by Carmen Wong Ulrich (Perigee Trade, 2010).

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