Category Archives: Money

Just say no to the birthday lunch

It’s lunch time, and I’m sitting at my desk eating last night’s leftovers alone. Don’t feel sorry for me, though. The hardest part is over.

You see, I’m a faithful brown bagger. The majority of my colleagues go out to lunch every day, but there’s usually one of two fellow brown baggers who stay behind. It’s someone different every day, but I usually have someone to eat with me. But today is someone’s birthday, so I’m eating alone.

Saying no to the birthday lunch is no easy feat. In addition to the email reminders I’ve received for the past few days, about 10 people stopped by my desk this morning to remind me. “It’s Susan’s birthday today! I know you normally bring a lunch, but you’re coming today, right?” I politely declined. “You’re not coming? Oh, come on, you can eat leftovers any day! It’s Susan’s birthday!” Through all the pressure, I stood my ground. Not easy considering the fact that birthday lunch pressure is even greater than the everyday pressure to go out to eat.

Many people just cannot fathom why I wouldn’t want to join them. They think that if they ask me several times with varying degrees of insistence, I might change my mind. Some people get downright pushy. While I appreciate the invitations, enough is enough.

Now before you label me an evil antisocial birthday hater, hear me out. I love birthdays. I’m usually the first in line to offer well wishes and sign cards. I even used to make an exception to my brown bagging rule and join my co-workers on birthdays.

Then I started noticing how much those little exceptions were costing me. It’s not just birthday lunches. It’s all the little things that aren’t a part of the budget, but you tell yourself, “Oh, just this once can’t hurt.” Then it’s the end of the month, and you’ve blown a hundred dollars on “just this once” exceptions.

Birthday lunches used to be one of those little exceptions for me. The last office birthday was two weeks ago. There is another birthday today, and another in three weeks. I know, it sounds like I’m overreacting. Surely with all the penny pinching we do, I can afford to go out to lunch to celebrate a colleague’s birthday once a month. After all, don’t I believe in making extra room in the budget for the little luxuries? But I just can’t justify spending $10 on a lunch out when I have leftovers from last night that will be wasted if I don’t eat them today. To me, that’s not a luxury; it’s just wasteful.

Going out to lunch isn’t just a waste of the $10 I would spend at the restaurant. It’s also a waste of the delicious chicken Alfredo that my husband made last night … enough to feed a family of four, and just the two of us to eat it.

It’s hard to say no, especially when people act dumbstruck. They have a point. Who doesn’t enjoy getting out of the office to enjoy a nice lunch? I know I do. But I’ve made a commitment to save money, and unnecessary restaurant meals were the first thing to go. We have plenty to eat at home, and it costs a fraction of what I would pay at a restaurant. If I don’t draw the line at this birthday, then when will I? If we don’t set limits and stick to them, then what’s the point of setting limits?

I do believe that it’s important to make room in your budget for extra luxuries that are really important to you, but lunches out just aren’t a priority for me. I’d rather use my entertainment budget to enjoy a meal out with my husband once a month or a Sunday matinee. It may sound selfish, but if you don’t make those choices and stand by them, then you’re no longer making “little exceptions”; you’re just overspending.

I don’t want to blow my budget with a hundred little exceptions this month. So I’m just saying no.

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Savings vs. debt: What’s your priority?

Most personal finance gurus agree on a wide range of money topics, but there’s one that causes continual controversy: When creating a budget, should debt or savings take precedence?

When we set our first zero-based budget using mint personal finance software,  we struggled with this one. Right now we’re focusing on paying down credit card debt. As of November we’ll be completely credit card debt free, and that money will then go toward a sizable chunk of student loan debt.

I’ve read “The Total Money Makeover” by Dave Ramsey, and I think his plan makes sense for people who are settled into a home where they plan to stay long-term. Unfortunately, that’s not the case for my husband and me.

We decided that focusing on debt isn’t the best option for us. Instead, we figured out how much money we have left over at the end of the month once all of our bills and living expenses are paid. It’s about $500. So we’re devoting $250 to our savings and $250 to student loan debt.

I know, this might not make sense to some of you. However, all but 1/3 of our student loan debt is low-interest federal loans. The interest rate for those is 4%, which isn’t much higher than the 3% interest rate on our ING savings account.

I briefly considered putting the high-interest private student loan debt before savings. If we devoted all $500 of our extra money at the end of the month to those loans, we could pay them off in 3 years. After that, if we continued to devote $500 a month to paying off the federal loans, it would take another 8 years to pay those off. Of course, I’m hoping that as our income increases, we’ll have more money to put toward debt so we’ll be able to pay them off faster.

The problem is, we need to save to pay my husband’s tuition for the next two years so we can avoid even more student loan debt. With so much to save, we really can’t afford to leave our savings alone while we get out of debt.

So for now we’re splitting the difference. Aside from the minimum payment for the federal loans, all $250 of our debt money is going toward the private student loans until they’re paid off. When those are paid off, we’ll start paying off the federal loans.

It’s not completely equal, though. At the end of the month, unexpected income or surplus money that we didn’t spend goes toward credit card debt for now. Once we’re out of credit card debt, our savings accounts will take precedence and extra income will go there.

The $250 budgeted toward student loan debt is fixed until further notice. If our income permanently increases through a raise or other source, we’ll reconfigure this plan. Once my husband is finished with school, bringing in a full salary, and we’re settled in a city where we plan to stay long-term, we’ll rent a cheap apartment and start attacking our debt. We don’t plan to start saving a down payment for a house until those student loans are out of our lives.

The point is, no solution is one size fits all. This is what works for us right now, but we’ll adapt our debt to savings ratio as our lives and plans change.

What are your thoughts? Does debt or savings come first in your budget?

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Mid-month progress report & TGIF link round up

Whew! I feel like this week has flown! Since we’re right in the middle of the month, now is a good time to check up and see how I’m doing on my first real budget!

Most of our expenses are fixed bills that we pay at the beginning of the month. Things like the electric bill, gas bill, rent, etc. So I’m tracking our progress based on the categories that we spend throughout the month, including groceries, miscellaneous shopping, and entertainment.

How are we doing? We’re $9 under the halfway point for our grocery budget, $6 over in the shopping category (that’s a catch-all category where I’ve budgeted $50 toward miscellaneous toiletries, cleaning supplies, and other necessary purchases throughout the month). I hope to cut down our spending on this category as I get used to taking advantage of the CVS deals. We’re right on target in our entertainment budget … $25 out of $50 spent. Woo hoo!

I’m feeling really motivated now that I know that we’re still on track! Hopefully we can continue this momentum throughout the month!

Here’s a round up of the posts that inspired me and helped me stay on track this week!

  • She also writes a fabulous series every Friday on frugal date nights. This week she offers some great tips for frugal outdoor dates. I’d love to try some of these ideas if it wasn’t raining this weekend!
  • Tiffanie at We Like Money wrote about salvaging old items instead of throwing them away. It can be so tempting to throw away old items, especially when they’re not that expensive to replace. But those can add up (in your bank account and in landfills) so it’s important to make sure there’s no fixing it before you throw it away. Sometimes a little cleaning up is all it take
  • Finally, this great post at Wise Bread breaks down the actual amount you save if you’re a one vehicle home and explores whether it’s worth it to live outside of the city where housing is cheaper if you’re spending all that money on your commute. Some great facts in here! It doesn’t take rocket science to figure out that two cars cost more than one, but it’s amazing to see all the numbers in black and white. I can’t even imagine how we could afford a second car!

So that’s it for this week. Tomorrow we’re headed to the farmer’s market and our local co-op to compare prices and get some questions answered. Come back for the final verdict on whether we can afford to spring for organic produce! Happy Friday!

Spending money can save you money

When it’s time to tighten your budget, the first rule is “cut all unnecessary spending.” Since we started cutting expenses, there have been many “extras” that we’ve cut out. Restaurants, movies, and shopping trips for unnecessary items, to name a few.

Budgeting has changed the way that I look at my money. I’ve begun to dread extra expenses outside of our normal monthly living costs, because it forces me to renegotiate the budget to avoid overspending.

This can be a good thing. It forces me to really examine unnecessary spending and put it through a basic litmus test: “Do we really need this?”

It can also be dangerous. It makes me hesitate spending money on some things that may not be required, but could ultimately save us hundreds of dollars in the long run.

When considering whether to cut “unnecessary” expenses, it’s important to consider the future, too. Maybe you won’t see a return on your investment immediately, but shelling out the money for certain expenses can end up saving you money later on.

Here’s a list of the “unnecessary expenses” that we’ve added to our budget because of their long-term saving potential:

1. AAA membership

We signed up for AAA right before we drove back to Indiana for our wedding. It’s a long trip, and we didn’t want to get stranded in the middle of nowhere by a flat tire, car problem, or stupid mistake like locking our keys in the car. Membership normally costs $42 per person for a year, but we received a direct mail piece offering membership for a discounted rate of $20 per person for a year.

In my opinion, it’s worth it even at $42 per person. AAA Members receive roadside assistance that includes towing, jumping, fuel delivery, tire changing, and lockout services. If you use just one of those services even once in a year, it pays for itself. We haven’t had to use it yet, but even if we don’t, I think it pays for itself in peace of mind, especially when you’re traveling far from home.

Members also receive a huge array of discounts on car rental, hotels, and other travel and driving related expenses. This perk is secondary to me because all of the discounts are for things that we shouldn’t be spending money on anyway.

Next time we need an oil change, we’ll check the rates at the AAA Auto Care station near us, but we’ll only go there if it really is a deal. And of course, if we do need to get a hotel room or rent a car, we’ll take advantage of our AAA discount.

2. Car maintenance

I’ve recently started putting money into a savings account each month to pay for routine car maintenance like oil changes, but in the past these things have come out of our regular budget. It can cost anywhere from $18-$30 for a basic oil change service, but for some reason I hate having it done.

It’s really a no-brainer, though. Cars that are serviced every 3,000 miles last longer. Since we have a new car that was purchased in 2006 (a very generous graduation gift for us from my in-laws), we plan to drive it for at least a decade. That makes regular servicing even more important.

3. Veterinary Services and Medications

When you adopt a pet, it’s important to remember that you’re committing to a lot more financially than just the adoption fees and dog food. Every month our dog, Howie, requires heartworm prevention medicine as well as flea and tick prevention. He also gets a heartworm test, physical exam and several shots every year, including immunizations for rabies, kennel cough, and parvovirus. I think there might be other immunizations included in his yearly boosters, but I’m not sure what they are at the moment.

We get his monthly medication every 6 months through 1-800-PetMeds, which is a lot cheaper than what we’d pay at the vet. It still costs about about $16 a month for the medications alone.

Vaccinations are about $10-$15 each, so they end up costing roughly $40 a year. Our vet offers a 20% immunization discount on Thursdays, so we always schedule his appointments then. Heartworm testing is required to renew his heartworm prevention medicine each year, and that runs about $30.

His yearly preventative exams cost $50. We also spend $18 every three weeks for his dog food. We choose to feed him high quality dog food because it keeps him healthier. (If you’ve ever had to clean up after a dog that eats cheap dog food, you understand.)

As you can see, being a responsible pet owner isn’t cheap. Not including dog food, we spend over $300 a year to keep Howie healthy. But we committed to taking care of him when we adopted him, and in the long-run proper medical care could prevent major illnesses that cost thousands to treat. Putting money aside for these yearly expenses makes it a lot easier when it’s time to order another six-month supply of medicine or take him to the vet for his check-up.

On a personal note, you could argue that the best way to avoid these extra expenses is to not have a pet. That’s true. However, for us, the fulfillment and joy that we get from being pet owners is worth the cost of taking care of him. Studies have shown that owning a pet can increase your overall health and well being, so I would definitely say pet expenses have long-term benefits. Dogs really can be a wonderful addition to your family and well worth the money if you can work them into your schedule and budget.

4. Renters Insurance

We’ll probably be renting for a while, so we invest in a renters insurance policy. It covers our personal belongings in and outside of our apartment for just $18 a month 9 months out of the year. Our policy does cover us for the other 3 months of the year, we just pay the premium over 9 months for some reason. We’re covered up to $20,000, which is probably more than the total value of our stuff because most of what we own we bought second-hand.

I’ve always thought the term renters insurance was inaccurate, because it’s really personal property insurance. The most valuable things we own are our laptops and my engagement ring. Both are covered by our renters insurance, no matter where we are when the damage or theft occurs. For instance, if one of our laptops was stolen from our car while we were traveling, our renters insurance would cover it.

Damage to the property inside our apartment is protected by our renters insurance in the event of a break-in, flood, or other natural disaster (particularly important since we live in hurricane country). Most policies also cover personal injury to protect you from liability in case someone is hurt inside your apartment.

This is another expense that pays for itself in peace of mind. Landlords rarely cover any damage to your personal property, and usually have a provision written into the lease that says they’re not responsible for damage even if it’s their fault. Renters insurance is basically homeowners insurance for renters, so if your pipes burst or a hurricane destroys your apartment complex, you can replace your personal property. I say, better safe than sorry.

What extra expenses do you add to your budget to save money in the long-run?

It IS possible to have the wedding of your dreams on a small budget

My husband and I got engaged last July less than a month before we moved 800 miles away to a new city. Not only did the move cost us a fortune, but our income was cut dramatically. We were also in the process of paying down debt and trying to live on a lot less money, so the last thing I wanted to do was charge anything on a credit card.

With a little planning and a lot of compromising, we managed to plan a beautiful Indiana wedding from 800 miles away on a $5000 budget without increasing our debt or sacrificing what mattered most to us. The money came from our savings as well as some generous contributions from our parents.

The wedding culture can be all or nothing … for a long time I thought you either had to spend tens of thousands of dollars on your wedding or have a backyard barbecue with nothing in between. Last year, Kacie at Sense to Save wrote a series posts about how she saved money on her wedding, and I found it very helpful as I planned.

I did things a lot differently than she did, but it was encouraging to know that it’s possible to have a beautiful, traditional wedding without starting your life together thousands of dollars in debt.

I discovered that there’s an endless list of options between extravagant and super casual. You just have to determine your priorities, decide how much you can spend without putting yourself into debt, and sometimes talk yourself down from wedding mania with some realism.

Every Wednesday, I’ll be writing a post about a different aspect of our wedding and how we saved money and kept it simple. I hope this series can help some wedding planners put it all into perspective.

What I Learned on “The Suze Orman Show” last night

Suze Orman is my financial hero. I love her philosophies on money management because she focuses not only on money, but on the emotions surrounding our money. Too many financial advisers ignore the fact that money is one of the most emotional topics in our lives.

Suze believes that in order to make real progress in your finances and bring about real change, it’s important to address the fear, shame, and anger associated with your past financial decisions. Only then can you move on and start fresh. Otherwise, your financial demons will continue to haunt you.

If you’ve never seen her show or read one of her books, I recommend tuning in Saturday nights on CNBC or check out “The 9 Steps to Financial Freedom” or “The Money Book for the Young, Fabulous, and Broke” from your library.

I learn a lot from every episode. Here’s a round up of the best tips from last night’s show for those of you who aren’t dorky enough to watch it faithfully every week. Happy Sunday!

• When interest rates are low, like now, do not lock in interest rates for long-term accounts. It’s better to keep even large amounts of money liquid in savings and money market accounts for now. When the market rebounds and interest rates start to rise again, then is the time to commit to long-term investments like CDs and bonds.

It seems like common sense, but I would probably be tempted to lock in a large amount of money at 5% instead of my 3% interest rate savings account to get the additional 2% interest. However, I’d be kicking myself 3 years later when rates rose to 7% or 8% and I was locked into a 5% CD for 10 years.

• When a spouse or partner is going behind your back and racking up thousands of dollars in credit card debt, your biggest problem isn’t the debt; it’s the deceit. If you don’t sort out the issues behind the overspending and deceit then it won’t matter if you pay off the debt because your partner is likely to rack up more.

As Suze says, in this day and age it’s often not, “Til death do you part; it’s til debt do you part.” I agree. Solid relationships are built on trust, and your finances are an essential part of that trust. Making sure you’re on the same financial page as your partner is one of the most important steps you can take to ensure the long-term success of your relationship.

• FDIC insurance only covers $100,000 per depositor per financial institution, so if you’re holding more than that in a traditional bank, split it up into different financial institutions to ensure that you’re protected.

• When it comes to investing, “It’s better to do nothing with your money than to do something you don’t understand.” Do your research before you do anything. Enough said

• When Suze denies or approves someone on the “Can I Afford it?” segment, she hits a pedal under her desk to control whether the “Approved” or “Denied” graphic comes up on the screen. Who knew?

• Suze would rather you invest the $60 a month you’re paying to watch her show on cable into your savings or retirement accounts. Really, she said that.

• Private student loans are evil. The lenders can set the interest rates as high as they want, and you can never get out of it. Not even if you file for bankruptcy. Do NOT take out private student loan debt. Not for you, not for your kids. Period. I have personal experience with this one. I wish someone had told the young, naïve 18-year-old me to stick with federal loans if any.

Basic budgeting can help you lose weight (without costing you money)

Money Saving Mom wrote an insightful and realistic post today about frugal weight loss. Because I’ve struggled with both debt and my weight and I believe the two are alike in more ways than one, it inspired me to throw in my two cents.

Two years ago I lost 40 pounds without spending a dime. No gym membership. No diet program. No special meals or exercise equipment. I think it’s really important to stress to frustrated dieters that you don’t have to spend money to lose weight. In my personal experience, stressing about finances often led to overeating. The more I spent, the more I stressed, the more I ate. So for me spending money on weight loss was counterproductive.

The single most effective part of my diet was planning my meals and tracking each and every calorie that I ate. In essence, I created a “food budget.”

You can’t expect to get out of debt and save money without a budget, so how can you expect to lose weight without being accountable for what you eat and when you eat it? Every day I planned what I was going to eat for breakfast, lunch, dinner, and two snacks, and I tracked how many calories I “spent” on different foods in my food budget.

I determined how many calories I needed to be consuming (you can do this by entering your information into this handy calorie calculator). Much like a budget helps you avoid spending more than your income, a food budget helps you avoid eating more calories than your daily allowance.

It doesn’t have to be time consuming. I used FitDay to track calories, exercise, and goals. Registration is completely free, and the site has a huge database of common foods so you can estimate how many calories you’re eating. I compared the database information to many of the foods that I knew the nutritional information for, and it was pretty accurate. All you do is search for the food you ate and add it to your online food diary. You can also manually enter the nutritional facts for your favorite foods and save them to add them again later.

The site keeps track of your most common foods and makes it easy to add them without searching. It does all the math for you, so it’s easy to stay on track.

Not knowing exactly how many calories there are in a food is like buying something without even looking at the price tag. Would you hand over your debit card and walk out of the store without at least looking at the receipt? I don’t think so.

I learned more about nutrition and dieting in the first two weeks of tracking calories than I had in a lifetime of yo-yo dieting. Like a financial budget, my food budget mapped out where I was “overspending” calories so I could make targeted changes.

For the first week of my diet, I ate a bagel with a tablespoon of cream cheese for breakfast. When I looked at my food budget and realized I had been wasting 100 calories every day on cream cheese alone, I quickly determined that it wasn’t worth it and switched to high fiber cereal to save the calories. Sound familiar to you budgeters?

Tracking calories wasn’t just informative, it was empowering. I loved being able to make informed choices about what I ate. Knowing that a piece of cake would cost me more than half a day’s calories made it a lot easier to turn it down. On the other hand, I was pleasantly surprised when I found out that a mini Reese’s cup was a minuscule 40 calories, an amount I could easily afford to work into my budget and enjoy guilt free from time to time.

The point is, if you have the tools to manage your finances, then you have the tools you need to manage your weight. Discipline, basic math, organization, planning, and budgeting are the keys to staying physically and financially fit. You wouldn’t spend money to get your finances under control, so why spend money on weight loss?

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Our first zero-based budget

We’re trying a zero-based budget this month for the first time. In the past, we’ve tried setting arbitrary limits on our spending (which didn’t really work). Other than that, we didn’t really track our spending beyond trying not to buy unnecessary things.

That philosophy has kept us from blowing our money, but we haven’t tracked our spending in a measurable way or designated a certain amount to a savings account until now.

A zero-based budget is a plan for your money that accounts for every single dollar of your income. After budgeting for fixed expenses and assigning limits for other expenditures like groceries and entertainment, you also assign a purpose to “extra” money by budgeting it toward savings, investing, or debt repayment.

I like the idea of a zero-based budget because it forces us to do something with the little bit of “extra” money we have after covering expenses and paying down debt. In the past, we’ve kept all of our money in our checking account. Anything we didn’t spend at the end of the month stayed in the checking account where it collected almost no interest. We were more likely to spend it – if not that month, then the next month or the month after that.

Our new plan is to keep only a cushion amount in our checking account to avoid catastrophe in the event of a spending mistake. We’ve cleared the rest of our money into savings. To avoid spending more than we make, we’re considering the cushion amount to be “zero.”

For the first time, we’re tracking exactly how much of our monthly income is left at the end of the month (if any) and putting it toward savings or debt (in ADDITION to the money we’ve already budgeted for savings and debt). If there’s nothing left or we spend more than our income, we’ll adjust our spending habits to ensure that we’re not spending more than we’re making.

I’m looking forward to having a solid number for our monthly expenses. It will give us more control over our spending and saving habits and help us determine how much we need for an emergency fund.

Rather than setting our budget in stone or setting arbitrary spending limits, we’re creating a flexible budget by tracking our expenses with Mint. New expenses spring up every month and some months our income may be higher than others, so our budget will be different each month.

We’ll sit down at the end of every month and set the next months’ budget based on what we spent last month, what we need to spend this month, and what we expect to make. Every dollar of income will be assigned somewhere. We’re challenging ourselves to spend below the budgeted amount where we can so we’ll have money left over at the end of the month.

We set our first zero-based budget at the end of last month, and we’re on track so far. More updates will follow as I’m sure the closer we get to the end of the month the harder it will become to stay within our budget.

A cash budget just doesn’t work for me

Since I started reading books and blogs about personal finance, there’s been one tactic that has jumped out at me that I don’t plan to ever use: the cash budget.

I understand that the point is to really pay attention to what you’re spending and to view money as a tangible, finite thing. It makes sense if you view cash that way. Unfortunately, my perspective on cash is much different.

For as long as I’ve been budgeting my money and paying my own bills (about 5 years now), I’ve used a debit card. In the beginning, I balanced a checkbook to track my purchases. Then online banking became so advanced that my purchases showed up on the site instantly.

I got into the habit of checking my online bank account balance daily. This is obviously risky if your balance is low (I almost overdrew my account a few times in college because I cut it so close). Now that I’m not living paycheck to paycheck, though, I always have a safe amount of money in my account. It’s just easier for me to use a debit card.

Now with sites like Mint, you can track your spending AND your budget. I used to watch my mom crunching the numbers and paining over receipts for hours every Saturday when she balanced her checkbook. The digital age has automated the process for us. Why not save some time and let my online banking and Mint do it for me?

Maybe I’m in the minority, but having cash doesn’t make me think harder about my purchases. Somehow after years of tracking my funds electronically, the way I view cash has been distorted.

I’ve come to think of the balance in my bank account at any given moment as the amount of “real” money to my name. Once it leaves my bank account and becomes cash in my hands, it’s no longer part of that bank balance, so I feel like I’ve spent it already. I’m more likely to spend it on something stupid.

On the other hand, when I swipe my debit card, I think of my bank balance – my “real money” – dwindling, and I’m more likely to think twice about my spending.

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