Category Archives: Money

Comfort & complacency – frugality’s worst enemies

A year ago, our situation was drastically different than it is today. Our savings was depleted after months of bringing in less than we needed to make ends meet. We had a little money in the bank, but not enough to sustain us for very long.

We were living frugally out of necessity. Though our spending was cut to the absolute minimum, I estimated that our savings would last only a few more months. I could count the number of restaurant meals we’d had in a year on one hand, and we never spent money on anything but necessities. We were in frugal survivor mode.

A month later we were married, enjoyed a frugal honeymoon in Washington D.C. that we’d saved all year to take, and came home with a little nest egg from generous friends and family who had attended our wedding. I wanted to save the money, but I feared that our situation would force us to spend it to continue paying our bills in a few months when the rest of our savings ran out.

Thankfully, I was hired at my job a week later. The additional income helped us start saving again, pay down our remaining credit card debt quickly, and turn our financial situation around.

Eleven months later we have no credit card debt, 60 percent of our emergency fund in the bank, and we’re on our way to paying cash for a vacation in Europe all on the equivalent of one full-time salary. We’re considerably more comfortable and nowhere near as stressed about money. And yet, we’re still in danger.

The more comfortable we become, the easier it gets to edge toward the lifestyle we’ve fought so hard to resist. When I look at our bank balances, I feel calm instead of stressed. But that makes me more likely to forgo cooking dinner for a meal out. We can afford it now, right? When I see a good deal on clothing or books, I’m tempted to drop the cash. I deserve a little treat for my hard work, don’t I?

Comfort breeds complacency, and while I’m okay with being a little more lax about our spending than we used to be, I don’t ever want to be complacent. I always want to be mindful of our spending to ensure that every penny we spend is for good reason. I’d rather go out to dinner to spend a date night with my husband than head to a restaurant because I’m too tired to cook. I’d rather save our money for one memorable experience than fritter it away on a thousand little things I won’t remember a week later.

Now that we have more income and more savings, our finances are less stressful, but our impulses are harder to control. When I see a big screen television on sale or browse a bookstore, I’m no longer resisting because I can’t afford it. After all, the money is right there. I could easily withdraw it from our savings account and buy any number of things. The more comfortable we become, the harder we have to work to fight it.

Lately I’ve felt complacency creeping in, replacing the desperation to keep our heads above water that we felt last year. I’m aware of just how much money we’ve saved and so tempted to spend it. The struggle to pay our bills has been replaced with the struggle against our culture and our spendthrift natures.

Every day I remind myself that our goals are more important than frivolity. It’s a constant battle, but it’s one that I’m willing to fight. The reward of accomplishing our financial goals is much greater than the brief satisfaction we’d get from instant gratification.

Simplifying our banking system

When Tony and I first combined our finances, we decided to open one joint account for the majority of our spending, bills, and other banking, and a personal account for each of us. The plan was to keep a small balance in our personal accounts and use them for discretionary spending, gifts, and other personal expenses.

It’s been almost two years since we combined our finances, and the personal accounts have turned out to be more hassle than we expected. We very rarely used the personal accounts. Last month a debit card mix-up almost cost us in overdraft fees. After that, we decided to go ahead and simplify our banking by consolidating our accounts.

The first step was the make sure we didn’t have anything linked to those accounts. Since the personal accounts were never meant for paying bills, this was relatively simple. Tony’s paycheck was being direct deposited into his personal account. Once the funds cleared, he transferred the money to our joint account. Why we made things so complicated by doing it this way, I have no idea. He alerted his payroll department to the change, and they set it up so that his paycheck will be deposited into our joint account from now on.

A 10-minute phone call today was all it took to transfer the tiny balance from our personal accounts and close them out. It felt pretty good to cut up the personal debit cards. Already our financial system feels much simpler.

Last week I received an email from ING Direct, the online bank where I keep all of our savings. Right now they’re offering a $25 bonus to savings account holders who open a checking account and make three purchases using their debit card.

I’ve been considering opening an ING Direct checking account for awhile. Since ING is online-only, it takes 3 days to transfer money from my savings to our checking account at Wachovia. By opening an ING checking account, I’ll have instant access to our emergency fund in case of an emergency. Transfers are instant, and I’ll be able to use our debit card to access the money. Of course, the $25 bonus just for using my debit card will be nice, too.

ING Direct also offers a relatively high interest rate for checking (currently 0.25%). I’ve considered moving all of my checking to ING, but even though I’ve never had an issue with their customer service (representatives are always helpful, friendly, and even available on the weekends), I still like using a brick and mortar bank for my regular banking. Maybe someday I’ll take advantage of the high checking account interest rate and switch over completely, though.

I briefly considered opening two separate ING checking accounts, one for me and one for my husband, so we could get two $25 bonuses. But then I decided I didn’t want to be back where we started with two extra checking accounts we don’t use. So we’re happy with one for now strictly for emergencies.

We’ll each receive a debit card for the ING checking account, and it will look completely different from our joint checking account debit cards, so we’ll be able to avoid any mix-ups.

I’ve been incredibly happy with my experience with ING Direct for my savings account. The interest rates are considerably higher than normal savings accounts (currently 1.5%). If you’re interested in opening your own ING Direct account, send me an email and I’ll send you a referral link. If you make an initial deposit of $250 or more you’ll qualify for a $25 bonus, and I’ll get $10 for referring you. Let me know and I’ll send it along!

I feel so much better now that we’ve simplified our money management. What about you? Is your system working for you, or is it time to reevaluate?

Frugality is good for the Earth

earth

Everyone’s thinking about ways to be more eco-conscious these days. We’re also thinking about ways to save money. Luckily, the two go well together. Most of the habits that are good for the Earth are also good for your budget.

Here are some little changes you can make to help your wallet and the planet:

Reduce.

Consuming less doesn’t just create less waste, it also costs less. Walk or carpool to reduce your fuel consumption (and gas bill). Turn up your thermostat this summer to save electricity. Take shorter showers to conserve water. All of these things will impact your budget and reduce your footprint.

Reuse.

Think before you throw anything away. Is there something else you could do with it? Find creative ways to reuse household items, donate old clothes to Goodwill, check Freecycle before you buy anything new, and list your gently used items on Craigslist to reduce someone else’s consumption and make a little money.

Recycle.

It’s tough to make money on regular recyclables, but it’s possible to earn a little recycling high-tech items. Computers, cameras, cell phones, iPods and other electronics that are too outdated to sell can all be swapped for Amazon gift cards at Gazelle.com. In many stores you can exchange your used ink cartridges for a discount on new ones.

Maintain.

Take care of the things you already own. Mend your worn clothes instead of replacing them. Regularly service your car to maximize gas mileage and extend its life. Check your tire pressure frequently to increase gas mileage and lengthen the time between replacing tires.

Grow.

Organic is best for health and the environment, but the cost can be high. Even for non-organic produce, you’re paying for transportation (and diesel engines are burning fossil fuels to transport them). Why not save some money and fuel by growing a garden? If you don’t have the space to grow produce, consider an herb garden. Herbs are pricey, but if you have a sunny porch or window you can grow your own for next to nothing.

What frugal habits do you have that are good for the environment?

Photo by aussiegall

Why I’m using credit cards again

credit-cards

Tony and I have been credit card debt free since January of this year. But for the past couple of months, we’ve started using our cards again every month.

Don’t worry, it’s not what you think. We still don’t carry a balance, and we probably never will again. But we also don’t want to leave our credit cards with a zero balance for longer than a month or so right now.

I’m sure you’ve heard about credit card companies reducing credit lines or even closing unused accounts. By not using your zero-balance credit cards, you may be targeting yourself for account closure.

As much as I hate that it works this way, your credit history is tied pretty strongly to your credit card history — especially if you’re like me and you’ve never had a car loan or a mortgage.

I opened my first credit card at 18 years old. I didn’t open another one until I was 23 years old. If my first credit card account was closed, it would shave 5 years off my credit history. Since length of history is a factor in determining your credit history and score, it’s likely mine would take a big hit.

Even though we plan to live as debt free as possible, I’m not against the idea of holding a mortgage or another car loan someday. If I want to get a low interest rate, though, keeping my credit history healthy is crucial.

To ensure that my accounts stay open, I’m using them a little bit here and there. Using credit cards at all can be a little dangerous, so I’m very careful to set boundaries.

  • I never use them to purchase things that I want, only regular needs that I would be spending money on regardless (gas, groceries, and other necessary purchases).
  • I pay the balance as soon as I receive the statement.
  • I budget for these purchases just like any other purchase. This is crucial. I’m not using my credit cards to sidestep my budget. They’re just another way to pay for regular purchases.

It’s definitely a hassle, and I wish we could get away with not using them at all. But unfortunately this is a reality of our current economy. I want to protect my credit history and credit score so that when we’re ready, we can qualify for a low interest rate on our mortgage or (maybe) car loan.

Photo by andresrueda

Living life under the frugal microscope

Since the economy tanked, it’s become a little easier to live a frugal lifestyle without facing judgment. No matter how bad the recession gets, though, we still face people who just don’t get it. We’re constantly answering rude questions about how we choose to live our lives.

“Why are you throwing your money away on rent when house prices are so low?”

Because we don’t have money for a down payment and we’re not ready to lock ourselves into a mortgage anyway.

“You mean you share a car? Why?”

We don’t want to take on the expense of an additional car when we can easily survive with one. Not only would another car mean an additional car payment, it would also mean more insurance, more gas, and more emissions.

“What do you mean you don’t go out to dinner or buy yourself things? You work too hard not to enjoy life.”

We do work hard, but we’d rather save for future goals than spend all of our money today on things that matter less to us.

“Why wait for the things you want? If you want to take a vacation or buy something, just charge it now and pay it down later.”

I’ve lived through the stress of high interest credit card payments. No thanks.

It’s frustrating to face this judgment from people around us. Our closest friends and family are supportive, but we still face a handful of acquaintances that don’t understand our choices. Instead of accepting that we’ve chosen to live differently, they treat us like we’re deprived and practically living in poverty because we don’t make the same choices they do.

I must admit that it can be tempting to give in. I would love to eat out a couple times a week, refurnish our apartment now, take off this summer for Europe instead of waiting another year, take advantage of a housing market that’s pretty much bottomed out. But I know we’d never reach our goals if we gave in, and those goals are more important to me than getting what I want right now.

Fighting the temptation is easier than facing the judgment, though. Maybe someday I’ll be that person that truly lives the life I want to live without caring what others think, but for now it’s just annoying.

I feel like living the frugal lifestyle puts us under a microscope. Because our choices are different, people feel like they have the right to comment on things that are none of their business.

The worst part is, when I answer their questions, they tend to act defensive. I’m not judging their choices, and would never compare their situations to my own, but when they ask me why we live the way we do and I explain myself, there is always a feeling that I’m judging them for not saving, living on credit, or taking on a mortgage they probably can’t afford.

How do you handle the frugal microscope?

Planning ahead to keep cooling costs down

summer-fan
Photo by snapapicture

This may seem premature depending on what part of the country you live, but it’s already time for us to start thinking about summer cooling costs. The temperature here over the weekend was a beautiful 75-80 degrees. However, because we live on the third floor, a balmy 80 degrees outside usually means an uncomfortable 90 degrees in our apartment.

Last year we made it until the beginning of June before we turned on the air conditioning. Using fans and open windows, we were able to keep our apartment reasonably comfortable. On the hottest spring days last year it wasn’t pleasant, but it was bearable. We’d like to make it that long again this year.

Over the weekend we spent $25 on a new fan for our bedroom. It’s portable, so Tony will be able to bring it into the living room where he works during the day or into the kitchen when we’re cooking.

Without air conditioning or heat, our electric bills are typically $45-$50. Once we turn on the A/C it will at least double, and the cost to cool our apartment will probably peak at $150-$160 in July and August. The temperature will probably remain in the 80s through October. Ugh.

I complain about the cost to cool our apartment in the summer, but our monthly average actually isn’t so bad. Our heat bills are pretty low in the winter. In 2008, we paid a total of $1,019.67 in electric bills for our 900-square-foot apartment. That works out to about $85 a month on average. Not too bad when you look at the big picture, but it’s still painful to see our electric bill triple in the summer.

Here are some ways we reduce the cost to cool our apartment:

  • Keep the thermostat set at 80 degrees. We try to keep it set at the lowest temperature necessary to keep humidity out and stay comfortable, but not frigid.
  • Close the vents in the guest room and keep the door closed so we’re not cooling a room we rarely use.
  • Keep the blinds closed in the afternoon to keep the temperature down.
  • Use fans throughout the apartment.
  • Minimize oven use, especially before sunset.

We’ll save $100 by waiting until June to turn on the A/C, and hopefully utilizing these methods throughout the summer will reduce our costs somewhat even after we turn on the air conditioner. Minimizing air conditioning also minimizes our energy use and carbon footprint, which is good, too!

I wish we were tough enough to make it through the entire summer without air conditioning, but temperatures reach 100 degrees frequently where we live. We were without air conditioning for three days when we first moved in at the peak of the summer, and it was too hot to do anything but sit in front of a fan covered in sweat. And let’s just say my husband is not a pleasant person to be around when he gets too warm. I’d rather have a high electric bill a few months out of the year than a crabby husband.

How do you keep cooling costs down in the summer?

My biggest financial mistakes in college & what I learned

Now that I’m frugal, it’s hard not to look back on the choices I made in the past with regret. Luckily, I came to my senses pretty early in life. I could have done a lot more damage throughout my 20s if we hadn’t decided to change our lifestyle before we got married. But I’d be a lot better off if I’d avoided the mistakes I made in my teens and during college.

In the hopes that others may learn from my mistakes, here are the biggest financial mistakes I made before and during college:

I didn’t save for college.

I got my first part time job at 15 years old. I paid for my own car insurance and gas, but other than that I had no bills or responsibilities. I didn’t save a single penny. Where did my money go? I blew it on stuff that I didn’t need.

What I learned: Plan ahead for the things you want. We’re saving now so we can pay cash for our trip to Europe, we’re already saving for retirement, and we’ll start saving early for our children’s college educations.

I didn’t apply for scholarships.

I only applied for a couple scholarships. My grades were above average, and I was active in the school newspaper. If I had taken scholarships more seriously, I would have qualified for at least a few.

What I learned: A little extra work can save you a lot of money. Scholarship applications are the college equivalent of coupons, menu planning, and other frugal pursuits.

I took out private student loans to cover living expenses (and lived extravagantly).

My parents paid my rent, and federal loans covered my tuition. I was responsible for food, car insurance, and utilities. My job at the student newspaper took up a lot of time, but I managed to work part-time my junior and senior year. If I had worked more and lived frugally, I wouldn’t have needed to borrow high-interest loans. Now I’m stuck paying $20,000+ at 8%.

What I learned: Don’t borrow to live a lifestyle you can’t afford. It also taught me the importance of fully understanding all of my financial decisions before making them. I didn’t know what I was getting myself into, and now I’m paying the price. I wish I could take back my decision, but I’m stuck with these loans. Forever.

I ate out constantly.

At least 75% of the money I spent in college went to restaurant food. This wasn’t good for my bank account or my health.

What I learned: Eating out is expensive and unhealthy! Not only did I drain my bank account, but I gained weight. I appreciate how little we spend on food and how much healthier we are now that we menu plan and buy groceries.

I charged up credit cards and only made minimum payments.

Some of my credit card debt was due to a car that broke down every other week one summer. I didn’t have the money to pay for the repairs, but I had an “emergency” credit card.

Only $1,000 of my $5,000 in credit card debt went to car repairs, though. The rest? Couldn’t tell you. I have no idea where that money went. Probably pizza, clothes, DVDs, and bar tabs. I never missed a payment, but I only sent the minimum. It wasn’t until I graduated, after three years and who knows how much interest paid, that I got serious about paying them off.

What I learned: Plan ahead for emergencies and avoid credit cards. I lived in fear that my car was going to break down because I knew I didn’t have money to cover it. I feel so much better now with an emergency fund. It also taught me about interest rates. You can make minimum payments for your whole life and never make any headway. I’ll apply this lesson someday when we have a car payment and mortgage.

It could have been a lot worse. I had friends with twice as much student loan debt and $20,000 in credit card debt. Yikes.

What are the worst financial mistakes you’ve made and what did you learn?

How much money do you need?

This question has been floating around the blogosphere and beyond forever, but I’ve never really taken the time to answer it — not on my blog or even for myself.

We all dream about one day having enough money that we don’t have to worry about it anymore. But how much money would it take to get there?

Here’s what I’d need:

  • Student loans: $60,000
  • Home: $300,000? (I’ve never actually looked into how much we’d need for a home since we’re so far from buying one, but this seems like a fair estimate for a nice home in a good neighborhood.)
  • Cars: $40,000 (for two reliable economy cars)
  • Living expenses: If we invested $600,000 at a return of roughly 8% per year, it would net $48,000 a year. Without a mortgage, debt, or car payment, that would be plenty for us to live comfortably even after taxes.

So $1,000,000 would be enough money that we’d never have to work again. We’d probably make a little money writing, but the point is we wouldn’t have to work to live. Isn’t that a nice thought? I’m surprised that’s all it would take to sustain us for the rest of our lives.

How much money would you need?

An update on goals & a progress report

I can’t believe it’s only been about 8 months since we committed to frugality and began saving our emergency fund. Our progress has been slow, but it’s started to pick up since we paid off our credit card debt.

Beginning in January, we doubled our monthly savings amount. Hopefully that means the progress meter I added to my sidebar over the weekend will begin to move more quickly.

Our summer savings account is actually complete … we’re just waiting on a tax refund check from the state of North Carolina. Once that arrives, it’ll go directly into our summer savings account to cover Tony’s income during the two summer months when he doesn’t receive a paycheck for teaching. We’re hoping he’ll be able to find a part-time job over the summer, and all of that extra income will go directly into the emergency fund.

As for the Europe savings account … well, that’s pretty sad so far. Our plan was to finish funding our emergency fund and then begin saving aggressively for our trip to Europe. We’ve had a slight change of plans.

It’s easier for me to stay motivated toward a goal when I can watch its progress, so we decided to open a new savings account and save separately for Europe. Opening a new account for Europe doesn’t change the total amount we have in liquid savings, it just helps us to track our savings to reach the two separate goals.

Since Europe is a fun goal, seeing the progress meter move should be extra motivating. Whenever I want to make an unnecessary purchase or spend money, I can take a look at our progress and remind myself that our tight budget will be worth it in 14 months!

After assessing our progress and our goals, I realized that we weren’t saving enough to reach them. So I shifted my budget around and cut down some of our discretionary spending to increase our monthly savings amount by $100. I’m hoping we can sustain the increase, but we’ll have to see how it goes.

Our emergency fund will remain our top priority, but we’ve begun saving a small amount for Europe every month, too.

Based on our current rate of savings, here are my projections for completion:

Emergency fund: Completed by July 2010

Europe fund: Completed by May 2010

Hopefully, we’ll bring in some additional income this summer and we’ll be able to finish sooner.

I’m glad I took the time to assess where we are and where we need to be. I was able to make a change to our savings before it was too late! Have you assessed your goals recently?