Category Archives: Money

What would we do in a financial emergency?

Yesterday Kacie at Sense to Save wrote about what she would do in a financial worse case scenario like a job loss or sudden medical expenses. I’ve actually been thinking about this a lot lately. Unfortunately, an acquaintance’s husband recently lost his job, and it made me wonder if we’d be prepared for a similar situation.

Our emergency fund is nowhere near complete. We actually only have enough to cover us for about a month and a half. Yikes. But we’ve only been working on it for about four months, and we plan to make it a top priority in the coming year.

Obviously, just as Kacie suggested in her post, the first thing to go would be discretionary expenses (cable, entertainment, cell phone extras, etc.) Our budget is pretty bare bones already, but cutting discretionary spending would probably free up $250 or so max. That’s easy enough.

But what if that wasn’t enough? What then? I think it’s important not just to have a plan for financial emergency, but also a plan for financial catastrophe.

For us, it would mean putting my student loans back into forbearance (a lender-approved pause in repayment that wouldn’t negatively affect my credit score, but still leads to interest accrual). That would free up another $200.

Next we would consider downsizing to a smaller apartment. We currently live in a 2-bedroom because we like the extra space (a 1-bedroom can get a little cramped with two people and a dog). We considered downsizing last summer, but then our landlord offered to renegotiate our lease and lower our rent. We decided it wasn’t worth it after we crunched the numbers (including a $300 loss for nonrefundable security deposits) and considered the hassle of moving and living in a smaller apartment.

In an emergency we might try to get out of our lease or find a subletter. Moving to a smaller apartment could save us another $200 a month.

Until we have a 6-month emergency fund in place I consider it a priority, but if we had to choose between saving and eating, I’d be willing to cut back temporarily.

With all of those expenses cut, we could reduce our spending by about $1000 a month. Wow, that would make a huge difference. Of course, it would be uncomfortable. But there’s no room in the budget for comfort in times of extreme hardship, is there?

Finally, in the event of an extreme emergency, Tony would drop out of grad school and find a full time job. He’s currently paid a stipend to teach, but it’s much less than he’d make in a full time job (if he could find one in this economy).

We might even consider packing up and moving back home where we have a support network. That would be an absolute last resort if we had no other options. Tony only has about 18 months left in his program, so I’m hoping nothing too extreme happens before he finishes. :)

How about you? What’s your plan for financial emergency?

Introducing the “Holiday Food & Financial Diet”!

Photo by rwhitlock

I don’t know about you, but the weeks between Thanksgiving and Christmas are a dangerous time for my waistline and my bank account. The holiday spirit tempts me to overspend on entertainment and gifts, and the holiday parties and meals tempt me to eat and eat unhealthy foods.

This has been a weekend of gluttony, and with our trip home for the holidays coming up in a scant 24 days, I’m looking ahead to another week of overeating, overspending, and expensive travel. This year, I want to nip it in the bud. I don’t have the will power to resist on the holidays themselves, but the least I can do is control myself in the weeks in between.

So how are we controlling our diet and spending in the next few weeks?

1. We’re reducing our consumption of meat.

We have a couple steaks and a few chicken breasts in our freezer. We’ve decided to pick up some extra chicken breasts to last us through the month, and then ration our consumption for the next few weeks. This will not only reduce the amount of meat we’re eating and buying — it will also ensure that we’re not leaving a freezer full of meat when we head out of town for Christmas.

2. We’re trying month-long menu planning.

I typically only menu plan on a week by week basis. This month, we’re going to try planning out our meals for the next three weeks in one fell swoop. This will allow us to maximize purchases, ration our meat consumption throughout the month, and clear out the pantry before our trip.

3. We’re cutting our entertainment spending and staying home instead.

With our big trip back to Indiana coming up, we’ve decided a few weekends at home won’t hurt us. This will not only free up some extra money for travel and gifts, but it will reduce the temptation to overeat at a restaurant or splurge on movie theater popcorn.

We’ve cut our usual $50 for entertainment out of the budget. Typically this goes to the occasional movie or meal out. This month we’ll stay home on the weekends, utilize the library, and revisit some movies we haven’t watched in ages.

4. We set a budget of $50 each to shop for each other — and we’re sticking to it.

Both of us were willing to give up receiving gifts from the other, but neither of us wanted to give up the fun of shopping for the other. Finding that perfect gift for the person you love most is so much fun. The trick is to avoid the temptation to go overboard. Last year, we were limited to $50 each, and we had a lot of fun finding small, practical but thoughtful gifts to put under our tree. We decided to maintain the tradition. Nothing big or flashy, just small tokens.

5. We kept our Christmas shopping list short.

It can be so tempting to shop for anyone and everyone in your family this time of year. I firmly reminded myself that the people I love who love me will understand that we’re not in a place financially where we can buy flashy gifts for our extended family. We used an Amazon gift card I received through MyPoints to shop for our nieces and nephews who are 5 and under, and we’re putting together gift baskets for immediate family.

I’ll revisit this topic throughout the month to let you know how I’m doing. I hope you’ll join in, too! The holidays themselves may throw off your financial and fitness goals, but if we can control ourselves for a few weeks in between it might not be so bad!

If you’re planning on joining in, please leave a comment and let me know how you’re cutting back for the next three weeks!

What was the poorest time in your life?

Photo  by larimdame

empty wallet

This month, the Extended Group Writing Project at PFBloggers asks a very interesting question: What was the poorest time in your life? It made me think. A lot. So I decided to chime in.

I want to begin by clarifying that I’ve never fallen into the category of genuine poverty. To me, poverty is the point beyond budget cuts when you can’t just cut the budget to make ends meet, because you’re already living with so little. When you’re truly poor, you’re not worried about debt and savings. Your main concern is keeping a roof over your head and food on the table.

Thankfully, I’ve never been there, and I’m certainly not comparing my experiences with debt and low income to genuine poverty. That being said, it’s definitely possible to FEEL pretty poor even when you’re not living in poverty.

My first inclination was that a year ago, right after we moved here, was the “poorest” time in my life. Tony’s teaching job didn’t pay nearly enough to make ends meet, and I struggled to find a job for months.

Technically, we had more money in the bank than ever. We’d spent a year saving $10,000 for moving and living expenses. But with very little income, we sure felt pretty poor. It’s a really scary thing when your bank account is dwindling with very little coming in.

The more I thought about it, though, the more I came to realize that my first inclination was wrong. Last year was not the poorest time in my life.

Our living expenses may have been much higher than our income, but our circumstances motivated me to get serious about personal finance. Even though our financial situation was bleak, I felt more empowered than I ever had before. I started budgeting, cutting unnecessary expenses, and tackling debt. Despite our low income, we managed to get through the year without adding to our debt. We even paid off a huge chunk of my credit card debt.

Because I was making the decisions about where our money went, I didn’t feel deprived or scared about money. It was exactly the opposite. When we stopped spending money out of choice rather than out of necessity, we suddenly felt incredibly rich. We realized just how far the money we had could go if we weren’t blowing it.

We made smart choices to make our savings last. For the first time, I was paying my bills a month ahead of time instead of waiting for a paycheck at the last minute. We didn’t have money to buy a lot of stuff or eat out, but we didn’t have to worry about paying our rent or buying groceries. When I think about that, I realize that I didn’t feel poor at all a year ago. Quite the opposite, actually.

On the flip side, I lived pretty opulently in college. I went out to eat a lot. I bought a lot of “stuff.” On the outside, I appeared to be anything but poor. But I never had money in the bank. I blew through what I had so quickly that I often came dangerously close to overdrawing my account. As soon as I got a little money, it was gone. I was stressed every time I swiped my debit card, because I wasn’t sure there was enough in my account to cover it.

One night, my gas tank was so low that my car started sputtering. I knew I had to get gas, but I also knew that I had less than $5 in my bank account. I pulled into the gas station and put one gallon in my tank to make it home. When I got home, I had to check my account to make sure I hadn’t overdrawn it.

That’s the poorest I’ve ever felt.

Sadly, that wasn’t an isolated incident. Stuff like that happened to me a lot in my college days. I had no control over my money, so I didn’t feel like I was making the decisions. Obviously, I was just making the wrong ones. But every time my account balance dipped that low, I didn’t think about all the things I spent my money on. I only thought about what I couldn’t afford.

I still hesitate to refer to that as being “poor,” because it was my own fault. If I hadn’t spent my money on pizza and movies, then I would have had enough to pay for gas. The point is that feeling poor isn’t about the stuff you have or money in the bank. Some people feel “poor” if they can’t afford all the things they want. For me, feeling poor is stressing about whether I can afford the things I need.

Planning ahead for the big stuff

Photo by martie

frugal goalsLiving frugally eliminates a lot of life’s spontaneity. Because we’ve made the decision to live with as little debt as possible, we save for every purchase instead of charging it. We plan ahead for everything and scrimp and save to reach our goals. But planning and saving take a lot of time.

Yesterday on a long walk with the dog, Tony and I had a conversation about where our money will go when our debt is paid and our savings is fully funded. Mostly we were just dreaming about what we’d do with our money if we were free to spend it however we like.

By planning now, we can map a plan for saving. We can also keep our eyes open for frugal ways to make it happen sooner. Here’s our tentative plan for buying the things we want and building our future.

New furniture and television

All of our furniture is second-hand. We’re still sleeping on the second-hand double bed my grandmother gave me before I moved away to college. We bought our only couch and dresser drawers second hand as well. (I actually love the dresser and will probably keep it, but we really need a second chest of drawers since we’re sharing one now). Someday we’d like to have new bedroom and living room furniture. It’ll probably be a pretty long time since it’s pretty low on our list of priorities.

Also bought second-hand, our TV is pretty much an antique. It’s not even a flat screen (gasp!). But it still works. Stations are now broadcasting in wide screen, so our TV cuts off the sides of the picture. It really bugs my husband. Eh … doesn’t really bother me much. A TV isn’t a necessity at all, so this will also wait a while.

Sometimes I check Craig’s List, but I’m never impressed with the cost considering what they’re selling. I’m happy to wait a while until we can save up for furniture we really like rather than dropping a chunk of change on something we don’t. When we replace our TV it will most likely be second-hand, too, but I see no reason to do it until the one we have stops working. I’m keeping my eyes open, though!

A house of our own

Someday we’ll finally settle down in a nice suburb near a university that wants to hire Tony for a tenure-track teaching job. Then we’ll buy a little house with three bedrooms, a big open kitchen, a wood-burning fireplace, and a nice big fenced-in backyard with room for a garden. (I haven’t been thinking about this one at all. :) ) First we have to get Tony through school and pay down our student loan debt. Soon we’ll start saving for a 20% down payment. It’ll be years before we get there. I still like to dream, though.

A family

I’ll be honest, I wish it could happen sooner rather than later. But I want to be able to stay home with our baby. Until Tony is finished with school, we need my full-time salary. We’re planning now so we can start a family in the next three years, but it’ll probably be another two years before we can really start thinking about it.

This list used to be even longer, but through craftiness and frugality we found a way to get some things sooner. Come back tomorrow, and I’ll share that list with you!

What about you? What would you spend your money on right now if it didn’t take years to save?

Being frugal means being flexible

Over the weekend, I posted my goals for November. In summary, I planned to pay off the entire remaining balance on my credit card and finish half of our Christmas shopping without reducing the amount budgeted for savings.

Well, this week I received a letter from my student loan company that threw off my plans. My student loans are currently in voluntary forbearance, which is a lender-approved delay in repayment. It has no negative effect on my credit score, but the loans continue to accrue interest.

It’s obviously not an ideal situation. However, when I made the decision I had just transferred my credit card balance to a card with an interest-free introductory period. I was simply too overwhelmed by both payments, so I decided to focus on one at a time. I wanted to focus on paying down my credit card debt before the interest-free period ended, and start paying down my student loan debt once my credit card was paid off.

My remaining balance on my credit card is a little higher than the amount I usually budget toward credit card debt, but I shifted things in the budget to allow me to pay it completely this month. My forbearance period on my loan is set to end in December, so it would have worked out perfectly. I would have made my final credit card payment this month, then used that money in December to begin paying down my student loan.

According to the letter I received from my student loan company, even though my forbearance period doesn’t end until December, my first payment is due November 28. Because my consolidation loan hasn’t finished processing yet, the minimum payment due is $300.

I started moving things around in the budget, trying to fit in this extra $300 payment. I found a little wiggle room in our discretionary spending, but our budget was already pretty tight because of Christmas. I didn’t want to cut too much and risk spending more than our income this month. Even after cutting several spending budgets, including a drastic cut to our Christmas shopping fund, I still came up short.

I came up with two possible options to make up the difference:

We could split the difference between the credit card debt and the student loan debt. It would delay our final credit card payment until next month, but allow us to pay the minimum payment on my student loan this month while we wait for the consolidation loan to process.

Or we could reduce the amount we put into savings this month. If we cut our savings amount in half, we could pay the student loan and still pay off my credit card.

Neither option is particularly appealing to me, but you know what? Tough. This is the way it has to be.

I made the decision to cut our savings for the month. I’ve been looking forward to paying off this credit card for a year now. When I opened the interest-free credit card last December, I figured out how much I needed to pay on my credit card each month to ensure that it was paid down before the interest-free period ended.

Even though we were on a very tight budget before I found a full-time job, we diligently paid the bill every month, always looking ahead to the final payment. Sometimes when I started to feel overwhelmed, the only thing that kept me going was the thought of making the final payment this month. The idea of delaying that another month is just too frustrating. I’m willing to cut our savings for a month to make it possible for us to pay the remaining balance.

I was really bummed when I realized my plan wasn’t going to work out perfectly. But you know what? At least we have the money to pay all of our bills. Even when our plans are unexpectedly derailed, we’re still able to put a little bit in savings. It’s not as much as we’d like, but it’s something.

There was a time when $300 would have been impossible to squeeze into the budget. There was a time when we absolutely just didn’t have that kind of extra money. If cutting back our savings a little for a month is as bad as it gets right now, then we’re doing a-ok.

What would you have done?

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Save money with these little changes (you’ll hardly notice, I promise)

Photo by photo-clips.com

With the holidays fast approaching, everyone is looking for ways to pick up a little extra money. What if I told you that you could save an extra $50-$100 a month with just a few little changes that you’ll hardly notice? You’d be crazy not to try it, right?

Here are the little ways that I save money every month.

Use just a little less.

Toothpaste, laundry detergent, dishwashing soap, shampoo and conditioner. The instructions on all of these items often suggest using more than you actually need. Try cutting the amount you use. You most likely won’t notice a difference except in the amount of time the items last.

Wear it once more.

I wear pants a couple times before I wash them, and I sometimes wear tops twice. We also hang towels to dry in the morning and reuse them throughout the week. If you or your spouse works in a labor-intensive or outdoor job that causes your clothes to get pretty dirty, this probably isn’t for you. But if you work in the home or in an office job, your clothes probably don’t require washing after every single wear.

If you throw them into a basket they’ll get wrinkled and smelly, of course. Rehang them in your closet. When it’s time to rewear an item, I often throw it into the dryer for 5 or 10 minutes on fluff to refresh it a bit. It’s usually good as new.

Eat a little less.

Do you find yourself throwing out leftovers at the end of the week? Are you snacking throughout the day out of boredom rather than hunger? If you cook only what you’ll eat, and eat only when you’re hungry, you’ll reduce your grocery costs and maybe your waistline, too.

Even better: designate one or two nights a week as “leftovers night.” You can clear out your fridge, and you won’t have to buy food to cook that night.

Buy generics.

Most of them are exactly the same as the name brands. I promise.

Stop paying for what you don’t need.

Are you watching all the channels included in your cable package? Do you lose unused cell phone minutes at the end of the month? Are you overinsured? Check into all of these services and policies to make sure your paying for only what you use and only what you need.

Use the library.

We used to waste a ton of money buying books and renting movies. Now we use the local and university library instead for free. Even if they don’t have the book or movie we want, we can usually borrow it from another library with the interlibrary loan program.

What about you? What little changes have you made to save money?

October budget round up & November goals

Another month of spending more than we earned. Sigh. We were a total of $93 over budget for this month.

We started the month with a trip to Seattle. We bought our plane tickets months ago. For this month, we budgeted for gas to drive to and from the airport, parking, boarding costs for the dog, and meals on the run at the airport. We did a pretty good job of staying on budget for the trip, but we struggled to get back on track after we got back.

The result was an out of control $125 overage in our food budget. Part of the problem is that I knocked the budget down about $50 from our normal monthly food budget to account for vacation spending in other areas. Then we ate out a handful of times, including a pretty expensive sushi meal for my birthday. Those meals out really add up.

There’s good news, too, though. We were on track in all other spending categories. We were even under budget in a couple, which made up for about $32 of our out of control food spending.

The bottom line is that we spent $93 more than we made this month. Not good. We managed to reach our monthly goals for savings and debt payments, but my goal is to make sure that our output, including debt and savings, is less than or equal to our income. In that respect, we failed this month. :(

For November, my obvious goal is to make sure we’re not spending more than we make. Eventually, I’d like to get to a point where we’re under budget consistently and sending that extra money to savings and debt. We have a long way to go before we get there, though.

This month will also mark my final credit card payment (yay!). That’s one bill I’m looking forward to paying this month.

I’m still waiting to hear from Chase about my personal student loan consolidation. Once my credit card is paid off, I’ll start focusing on paying off my student loans. Hopefully the consolidation will go through, which will lower my interest rate and minimum payment and make it possible for me to pay off the debt sooner.

We’re beginning our Christmas shopping, so I moved some funds around from other areas to give us some extra “spending” money to put toward gifts. We’ll have to keep everything else pretty tight to meet our goals. We’re shopping for our five nieces and nephews and our parents. For our nieces and nephews, I redeemed MyPoints for a $50 Amazon gift card. I’ll use that to shop for toys. We’re buying a number of small gifts to make a gift basket for our parents, so we’ll be spreading those purchases out throughout November and December.

How did you do this month?

Classic frugal mistakes newbies make

I’ve learned a lot of lessons and made plenty of mistakes over the years. If you don’t do it right, frugality can actually end up costing you money or alienating people around you.

Here are some common frugal mistakes. Some of them I’ve made myself, some of them I’m seen others make, but all of them offer important lessons about frugal living.

1. Buying something just because it’s on sale.

It’s easy to get caught up in the mark-down of a sale item. If an item’s regular price is much higher than the sale price, it’s tempting to convince yourself that it’s a good deal. But if you don’t really need the item — if you’re only buying it because it’s marked down — then you’re actually losing money. Just because the item is 50% off doesn’t necessarily mean you can’t find it cheaper somewhere else, either. This is particularly important to remember as we head into the major post-Thanksgiving, pre-Christmas sales.

2. Compromising quality for a lower price.

I’m not talking about the subtle quality difference between name brands and generics. Most frugal folks don’t even notice a difference in that case. I’m talking about buying junk to save money. I learned this lesson the hard way when I bought ink cartridges through an online retailer, and they didn’t work. I ended up getting a refund, but the point is that I wasted a lot of time and energy on junky cartridges to save only a few dollars.

The tricky part is that it’s hard to know whether you’re buying junk or not until you’ve tried it. The best you can do is educate yourself on products and their low-cost alternatives, seek out reviews, and try to be sure you’re getting quality products at a low price. In the end, though, it takes a lot of trial and error to find a balance between quality and price. Make sure you’re not gambling on big ticket items, though.

3. Not budgeting for surprises or irregular expenses.

I love zero-based budgeting. The only problem is that it’s very easy to assign all of your income to various expenses without leaving room for irregular expenses like oil changes for the car, haircuts, or gifts. These are expenses that don’t qualify as emergencies, but don’t really fit anywhere in the monthly budget. I’ve only been sticking to a budget for about three months now, but every single month something comes up that I wasn’t expecting or that I forgot to add.

I handle it by planning for certain expenses, like car maintenance and haircuts, by putting aside a few dollars every month. I also try to leave about 5% of our income for “miscellaneous expenses.” This doesn’t always work out, but it’s a good goal to strive for. If you don’t use the money by the end of the money, throw it into savings or debt.

4. Being “cheap.”

There’s a big difference between being frugal and being cheap. To me, the difference is in the effect your behavior has on others. Frugality should never come at the expense of others. The most obvious examples of cheap behavior are stiffing a good waiter to keep a restaurant bill low or showing up to a dinner party empty handed to avoid spending money on a bottle of wine or dessert dish. There’s a good reason that cheap has a such a negative connotation.

Besides, the way I see it, frugality is a fun game. I’m constantly challenging myself to find clever ways to live well and give more to the world around me without spending a lot of money. Being cheap is cheating. Where’s the fun in that?

5. Depriving yourself.

The most important lesson I’ve learned is that frugality is a lot like dieting — if you’re too extreme, you’re probably not going to succeed. Frugality isn’t about deprivation. There are certainly sacrifices involved, but it’s important to make sure you’re not completely depriving yourself of the little things in life that makes you happy. For me, that means treating ourselves to a restaurant meal once a month, budgeting $50 a month for entertainment, and finding frugal ways to continue our favorite hobbies.

It sure wasn’t this hard to get the student loans in the first place …

This week I received the loan application and promissory note for my private student loan consolidation. According to the letter, I’ve been “conditionally approved.” If all of my paperwork is sent back correctly and verified, I’ll be actually approved. If I’m able to consolidate these loans, I’ll cut the interest rate and minimum payment almost in half. I’ll also have a shot at paying them down in less than 5 years.

First I need to send in a long list of documents, including a recent statement from the lender with all the loan information, my latest pay stub, a copy of my driver’s license and degree, and a copy of my marriage license since the original loan is still under my maiden name.

I was on hold for an hour Tuesday night trying to get some questions answered about the documents. The list they sent me wasn’t as clear as the one above.

Once I’ve submitted all of the documents, loan processing will begin. They will verify my employment, check my references, etc. They already ran a credit check to conditionally approve me, but they may run a more detailed credit check before the loan is officially approved.

As I go through this process, I can’t help but think back to six years ago when I first took out student loans. It was a lot easier. I filled out FAFSA, which qualified me for a certain amount of student loans. Then I filled out an application, signed it, and they sent me money. They didn’t ask me any questions about employment or monthly expenses. They didn’t even ask if I fully understood the loan.

I absolutely take full responsibility for my decision to take out these student loans. It was my mistake, and believe me, I’m paying for it now. My point is just that I was only 17 years old when I started my freshman year. Because I was turning 18 within a certain number of months, they allowed me take out loans even though I was a minor.

I understand that student loans exist to ensure that every student has the chance to attend college. That’s great. However, it seems to me that if you’re going to allow a minor or even an 18 year old to take out a loan that can never be discharged, not even in bankruptcy, there should be stricter safe guards in place to prevent predatory lending, especially since repayment doesn’t begin until four or five years later. How can an 18-year-old know if they’ll be able to afford a $300+ a month payment in four years? Most of them don’t even know what their careers will be.

Student loans made it possible for me to go to college. That’s nothing to snuff at. But if I had known what I was getting myself into, I would have borrowed a lot less money than I did. I also would have stayed away from private loans and stuck with low-interest federal loans.

Obviously, I should have known better. But I didn’t, and neither do a lot of 18-year-old kids. I remember thinking that it was a lot of money as I filled out the application. I also thought, “I won’t have to worry about this for another four years. By then I’ll be a college graduate, making a ton of money!” Ha. Yeah right.

I remember how I thought about money at 18, and I think about the other 18 year olds I knew. I can’t help but think, “No wonder so many people my age are in this mess.”