Category Archives: Money

Resolutions for another frugal year

I’m so excited about the year ahead! For the first time, I feel like I’m looking ahead with a clear set of goals and the resolve to actually achieve them.

In the interest of keeping myself honest, here’s what I hope to accomplish in the coming year:

  • Finish building our 6-month emergency fund. We’re a third of the way there now, but I hope to finish it by the end of the year.
  • Spend less than our budget. We’re doing a lot better than we used to, but we continue to go over budget by $50-$100 every month. Technically we’re not spending more than we make because we save at least $300 a month, but we’re cutting down our actual net savings by going over budget each month.
  • Make a dent in our student loan debt. Now that we’re credit card debt free, I want to really crack down on our spending and send every extra penny to our student loans so we can be completely debt free sooner.
  • Learn more at my job and grow my skill set. Someday when we have children, I’d like to work from home, so it’s important that I learn as much as I can now to build my credentials and qualifications.
  • Enjoy the present, and try to stop looking ahead to the next big thing. This is a constant work in progress for me. Planning ahead is essential to reaching long term goals, but sometimes my constant planning makes me lose sight of the present. I need to find a balance between appreciating what’s now and planning for the future.

What are your resolutions for the new year?

Reflecting on my first frugal year

Today is the last day of my first full year of frugality. I’ve only been blogging for about half of it, but we’ve spent all 12 months of 2008 cutting costs, saving, and pay down debt.

I’ve learned much more than I can confine to this post (you’ll have to head into my archives for some of the highlights). But here’s the big stuff I’ve learned in the past 12 months.

Budgets aren’t limiting — they’re freeing.

Before I started budgeting, I felt guilty about every extra penny I spent and stressed that I wouldn’t be able to cover the necessities. Now I know exactly what I can afford to spend, and I know what I need to leave for the necessities and savings. A little money goes a lot further when you budget.

We need much less money to live comfortably than I thought.

Before we moved here, our combined income was almost twice what it is now. But we always felt broke because we were blowing our money on restaurants and unnecessary purchases. I couldn’t imagine living on our current income then.

With a little discipline, though, we’re able to live a richer life on half the money. We still do all of the same things we used to enjoy (like movies, eating out, and books), we just enjoy them less frequently or find frugal ways to enjoy them for little or no money. Now we have money leftover for savings and debt repayment.

We actually “need” very few things.

Our ideas of needs and wants were severely out of whack before we started living frugally. Now we know that we don’t need two cars; we don’t need to own a house; we don’t need new clothes every other month. All we really need is each other, healthy food on the table, and a warm place to sleep. Once we recognized the difference between needs and wants, we were able to set priorities so we could still enjoy some of our wants without interfering with our long term goals.

Realizing how little we actually need also gives me great peace, especially in this economy. By eliminating extra wants, we could cut our monthly spending in half in the event of a financial emergency.

Stress free finances are the greatest luxury of all.

There was a time when I thought skipping weekly meals out and entertainment spending would mean getting less enjoyment out of life. Boy, was I wrong. I enjoy life so much more now that we’ve cut those things out, because I no longer feel stressed and scared about my finances.

It’s been a fantastic year, and I’m anxiously looking ahead to next year’s challenges and successes. I hope to learn even more!

Guest post from a new investor looking for advice

This is a guest post from one of my most frequent commenters, Bobbi. She doesn’t have her own blog, but I hope she’ll considering starting one now! There’s no better time than the new year!

I’m also going through a similar dilemma with my year-end bonus, so I can definitely relate. Please weigh in and help Bobbi make a decision about what to do with this money and how to start saving for retirement now.

First, I would like to say that I feel truly blessed to have a job in these hard times, much less to have received a “year end” bonus from my employer. Thank you Bob! Second, thank you to “Living Well on Less” for letting me guest post.  This is my first. :)

A little background: I am a mid-40 something woman with a grown daughter. I don’t spend more than I earn (anymore), and I work for a small business that has been in business for 10+ years. The business is doing pretty well in spite of this crazy economy (we are very versatile in what we do). However, I do not have a 401k or retirement at all so I am trying to build my own. I have no mortgage, so I am able to save every month.

My dilemma is what should I do with my bonus ($2,000) and I am hoping your readers can give me some advice. :) I am not an investor right now, but one of my goals for 2009 is to learn more. Right now I need to do something simple. These are the choices I am considering:

  • ING savings account – 2.75%
  • FNBO savings – 3.252%
  • My Credit Union ‘daily interest’ account – 1.29% (daily)
  • 24 mo CU CD – 4.69% (12/09 maturity date)
  • IRA – Roth or standard – ?
  • I have a credit card @ 0% interest until March with a balance of $1500.
  • Car loan around $19,000

I don’t know much about Roth IRAs and I’m not even sure I can open one with this amount. I am leaning toward taking half and paying on the credit card and putting the other half in some sort of savings. I would love to hear what your readers would do or if they can give me more information on the IRAs.

Thank you and happy holidays to all!

I recommended that she pay off that credit card debt and start the new year with a clean slate! What do you think she should do? And can anyone give her some advice on the best way to save for retirement when you’re getting a bit of a late start?

Tempted by the end-of-year bonus

I wasn’t expecting to receive a bonus from my employer this year. We’re in a recession, after all. So imagine my surprise when I received a bonus of about a week and a half’s pay. That’s quite a lot of money considering how little we spend.

I find that extra money is a lot easier to control when it’s expected. For instance, we know we’ll receive a tax refund this year. We’ve been anticipating it all year, and we already know where it’s going (savings).

However, when someone hands you a check out of nowhere, it can be tempting to blow it. After all, I was doing fine 5 minutes ago before I received the money. It’s not like I’ll miss it if I just spend it, right?

I have a feeling that no matter how committed I am to frugality, I’ll always have these moments of temptation. In that moment of weakness after I looked at the amount on the check, I started thinking about new furniture, a new TV, and a thousand little, inexpensive things I could use this money to buy. It would be a lot of fun to just blow this money. But then it would be gone, I wouldn’t be any closer to reaching my goals, and I’d regret it.

I quickly reminded myself that we’re in debt, and we’re nowhere near reaching our financial goals. Blowing money on things we don’t need is a good way to keep ourselves from reaching those goals.

So what is the practical side of me considering using the money on? Here are some thoughts I’ve had:

Summer fund

Two months of the year, Tony doesn’t receive a paycheck for teaching. He’ll find a part time job, but chances are it won’t pay as much as his monthly stipend. Last year we adjusted our budget and tightened things up to accommodate for our lower income. I’m considering throwing my bonus into a savings account to help us a little during those summer months of lower income.

Emergency fund

Our emergency fund is about 1/3 of the amount we want. This money could help us beef it up a little.

Debt

This is the least appealing option. After all, my bonus is dwarfed by our $60,000 in student loan debt. However, every little bit does help.

Retirement?

This is a tough one. Tony and I are 24 and 25, and neither of us has a retirement account. We’ve wanted to open a Roth IRA for some time, but it has taken a back seat to debt and savings. I’m considering using this bonus to jumpstart our retirement saving. While I don’t think it’s enough to open an account (I think I need at least $3,000 for that, but I’m not sure), it could at least get us started until we have enough saved to transfer it to a Roth IRA.

While I really want to get started on retirement saving, I’m hesitant since we are considering moving in a year and a half. We really need all of our savings to be liquid so we can use some of it for the move if that’s what we decide to do. So I’m leaning toward putting off retirement savings for another two years until we’re settled down somewhere.

I could use some advice. What would you do?

Starting the new year credit card free!


photo by b.franchina

This morning I sent my final payment to American Express. We’re officially credit card debt free!! In the past year, we’ve paid off almost $5,000 in credit card debt. I’m pretty proud considering how low our income was for a big part of the year. :)

Unfortunately, we still have quite a ways to go before we’re totally debt free — we have a combined total of about $60,000 in student loan debt. :( But we’re a lot better off than we were a year ago. Now I know what works, and I can apply the same principles to our student loan debt.

I’m hoping to have my $20,000 private loan paid off in 2 years. It’s a pretty lofty goal considering it took us a year to pay off less than $5,000 in credit card debt, but we have more income now and we’re getting better at frugal living.

The student loan debt is overwhelming, but I keep reminding myself that I once felt that way about my credit card debt. High balances and high interest rates made it feel impossible to get ahead. But I just kept sending those payments every month, watching the balance slowly decrease until it was manageable.

I’m looking forward to getting those student loans out of my life using the same method.

One perk of the shrinking economy — everything else is shrinking, too


photo by Mr G’s Travels

As the stock market crumbles and the job market shrinks, it’s easy to see the negatives of the troubled economy. After all, they’re right in front of us every day on the news, in our friends’ and neighbors’ struggles, and in our own homes.

Despite all of this, I can see one upside — America’s obsession with bigger and better seems to be waning out of necessity.

We’re all looking for ways to downsize:

  • Smaller houses are becoming the new trend instead of huge homes that cost a fortune to buy and maintain.
  • Though gas prices have sharply decreased in the past month or so, we’re still driving less.

I hate that more people are struggling with job loss and home foreclosures, but I love to see people spending smarter, conserving resources, owing less and saving more.

Though I know that these trends correlate with the struggling economy, I hope that newly frugal people will take away some valuable lessons from their new frugal habits. Though unnecessary spending will most likely surge again when the economy bounces back, I hope the memory of these uncertain times motivates people to at least save more and live within their means — even if they are spending more than now.

How much do your kids know about your finances?

Tony and I don’t have children yet, but we will someday. As we sort out our finances and plan for our future, one thing that we’ve discussed is how much we’ll tell our kids about our personal finances.

My parents were always pretty open with my sisters and me about their finances. It could be scary to know as much as I did at times, especially when I was too young to fully understand.

Looking back, I appreciate their openness. It allowed me to learn from their mistakes. If they had kept those things from me, I would have missed some valuable learning experiences. I want to be the kind of parent who teaches my kids from my own mistakes.

Tony’s parents chose a different tactic to teach him about finance. They weren’t as open about their personal financial issues, but they did work hard to teach him general lessons about money management and finance. Tony opened a savings account at a very young age, and even had some experience with loans early on. If he wanted something he couldn’t afford, his parents loaned him the money and allowed him to pay it back with his weekly allowance.

I didn’t get a lot of practical experience with money management skills until I moved out. My parents were very generous when times were good, but we didn’t receive a weekly allowance. When we needed money or wanted something, we simply asked for it. If they could give it to us, they did; if not, we went without (though that was rare).

The current economy has made me think a lot about this topic. How open should you be with kids about personal finance?

I think I’d like to use both tactics. I want to combine age-appropriate openness with practical money management lessons like the ones Tony’s parents taught him.

For instance, I wouldn’t sit my 5-year-old down and say, “Daddy lost his job, so we might be homeless in 8 months when our savings runs out.” But I would explain to him the changes we’d be facing, such as fewer outings and extra purchases.

As my kids get older, I want them to know more — especially when it comes to our own mistakes. If poor investment decisions lead to a loss, I would want my teenage children to understand what we had done wrong and learn from it. I certainly plan to explain to them my own mistakes with student loans and credit cards so they can benefit from the lessons I learned after college.

My point is that I don’t plan to keep our finances a secret from our children. I want them know and understand as much as they can about how much it costs to maintain a house, feed a family, and save wisely. I want them to know how much we make — and spend — in a year.

On the other hand, I acknowledge that the lessons they learn best will come from personal experience. That’s why I’d like to allow my children the opportunity to make their own financial decisions from as early an age as possible. We’ll give them an age-appropriate allowance and let them decide how to use it. When their own money is gone, I won’t give them more unless they plan to pay it back. My hope is that this will better prepare them for budgeting and money management when they’re on their own.

What works for you? Do you believe in full disclosure or do you prefer to stick with a general education?

Save now for car maintenance & repairs

Photo by jeffwilcox

Tony and I share a single car. It’s only about two years old, and we bought it brand new. Because we have just one, and we plan to drive it for at least 10 years if we can, it’s particularly important that we take good care of it.

This month is going to be a big one for car expenses. Not only do we owe $90 for our yearly county auto tax, but we’re also taking a 2,000-mile road trip to see family for the holidays. To prepare for the trip, we’re getting the oil changed a little early and having our fluids and tires checked to make sure everything is in top shape.

The grand total will be about $140. A year ago I would have been stressed to have such a large expense added on to our Christmas shopping spending and travel expenses. Not this month, though.

Last summer, we began saving $25 a month in a special car savings account. We have about $135 in the account now, so we only have to spend $5 out of our regular budget to pay our taxes and keep our car running smoothly for the trip.

Because it’s a relatively new car and it’s still under warranty, $25 a month is enough for us to pay for routine maintenance. However, as the car gets older, we’ll need to save more. Once the warranty is up, we want to have a good chunk of change saved to cover more expensive maintenance as well as repairs.

Yes, a car problem would certainly fall under the realm of acceptable uses for our emergency fund. But if we can anticipate regular maintenance and scheduled repairs (such as new tires, brakes, and other incidentals), we won’t have to dip into our emergency fund.

I don’t even miss $25 a month since it’s deducted at the beginning of each month, but having that money there when we needed it has made our holiday season a lot less stressful.

We keep a similar account for “dog maintenance.” (Ha.) This pays for yearly vet appointments, shots, and flea and heartworm prevention medicines. We only pay for this stuff once a year, but deducting money from our budget each month is so much easier than coming up with the money in one lump sum every year.

Other uses for these types of advance planning savings accounts include haircuts, birthday/Christmas gifts, out of pocket medical expenses (if your insurance provider doesn’t offer a tax-free HSA), and any other yearly expenses.

If you’d like to start a savings account for your own regular yearly expenses, here’s my advice:

  • Use ING Direct (email me for a referral link if you haven’t opened an account yet, and you’ll get a $25 bonus if your first deposit is $250 or more.) ING makes it extremely simple to maintain separate accounts, and you’ll earn a decent interest rate (right now 2.75%).
  • Figure out how much you need to save each month to cover the total amount you’ll need for the year. For example, we get our oil changed about 2-3 times a year. If we were saving for oil changes only, we’d need about $90 a year, or $7.50 a month. Because we also save for taxes and we’re trying to build a surplus to carry over to next year, we save $25 a month.
  • If you’re worried about working it into your budget, start small. Gradually increase the amount by small increments until you’re saving enough to cover your expenses.
  • Don’t touch the money! It helps me to consider that money already spent, as if oil changes are a monthly expense instead of only every few months. That $25 a month has already been “spent” on car expenses, so it’s off limits. Then when it’s time to spend it, I just move it over from savings to my checking account.

I confess, I’m not always frugal

Every month I’m learning more about saving and frugality. I freely admit, though, that I’m not as frugal as I could be. Not by a long shot. There are plenty of choices that I make that aren’t the most frugal, but I continue to make them anyway. Some of them are out of convenience, others compromise. Some are simply weaknesses that I’m continually trying to improve on. Here are my worst offenses:

Paper towels

I use dish rags and cloths for a lot of things, but sometimes I just want a paper towel for particularly tough messes. I don’t like keeping dirty or wet rags around the kitchen, so if I was going to switch to completely reusable rags, I’d be washing them constantly. Sometimes it’s just easier to use a paper towel. Of course, I use coupons to buy them, I always look for sales, and I try to keep my use to a minimum. That’s my frugal compromise.

Cable television

We don’t spend a lot of money on entertainment or meals out. The compromise? We spring for cable television with DVR. It’s expensive at about $60 a month, but it certainly makes it easier to stay home instead of going out and spending money.

Brand Names

For most things, I don’t mind buying the generic version to save money. But there are some items (including paper towels, dog food, laundry detergent and shampoo) that I spring for the brand name. In my experimentation, I’ve discovered that I really can tell a difference. Most of the time I can’t tell a difference between brand names and their generic counterparts, but if there’s a considerable quality difference, then I’ll spend a little more for the better product.

Food

The grocery store has always been our top weakness. We’ve worked really hard to cut our grocery spending down from $80-$90 a week to about $55-$60 a week. I wanted to cut it to $40 a week, but I found it to be too much of a struggle. So to make things easy on us, I decided to cut myself some slack. Somehow we still manage to go over budget on food every month, so this is definitely an area that I continue to work on. But I’ve stopped being quite so hard on myself about our failures. Every week is a learning experience.

I’m still working on doing better, and I continue to improve. But there are some things (like cable and paper towels) that I may never give up. Frugality is as much about compromise as it is about saving, so I try to keep a balance.

Do you have any frugal weaknesses?