Get Started!

You’re reading this blog, so I'm guessing that you want to get out of debt; that you want to take control your finances.  Let me ask you, what are you doing about it?  Are you reading this blog, other personal finance blogs or books but you’re unable to take that first step?  Are you tired after a long day at work?  Do the kids have you running around to the point of exhaustion?  Are you just not up for sitting down and hammering out a budget?  

I get that!  In fact, I get all of that!  There comes a point, and I’ve been there, when enough is enough; realizing that making the minimum payment on your credit cards is getting you nowhere, hoping you have enough money to get you to the next paycheck, hoping you have the money to pay the bills at the end of the month or dwelling or the fact that you’re not saving for retirement.  The stress this causes is unbearable!  Would you rather spend an hour a night over a few nights, organizing your finances, taking control in an effort to reduce that stress?  

If so, try this:

1. Tonight, we’ll call it Night 1: Sit down and write down what your financial goals are.  Where do you want to be in 5 years?  10 years?  30 years?  Then ask, “Is this attainable doing what I’m/we’re doing?”
2. Night 2: Write down all of your debt!  All of it!  List it ALL out and be honest!  Any of those secret credit cards you’re hiding from your spouse, get ‘em out! List them smallest to largest! 
3. Night 3: Look at your bank and credit card statements and write down what you spent last month.
4. Night 4: Using the information you gathered on Night 3, attempt a budget.  Be realistic! If you need a form check out Dave Ramsey’s budgeting form’s here.  Try the quickie budget first, and then go from there.  We use these forms and it’s worked for us, however, Mint.com or Quicken might work for you. 
5. Night 4: Figure out what you can do to save more money or how you can increase your cash flow.  Check out my Snowflaking post for some ideas.

Get started!  This stuff isn’t complicated!  It may be hard but it’s not complicated!  It’s hard to have the discipline to stick to a budget!  It’s hard to have the maturity to delay gratification; only purchasing something when you really need it.  It’s hard to sacrifice!  

Is it worth it?  Hell yeah!  When Andrea and I got on the plan, we knew where every dollar was going and it we finally felt like we were in control.  The stress started to melt away.  Was it hard?  Yeah!  Did it take time to finally figure out how to get our budget straight?  Yeah! Was passing on the new flat screen hard?  Yeah!  However, the feeling we had when we finally paid off that last debt was UNREAL!  To know that the only thing we had left to pay off was the house, was a feeling of freedom that I can’t describe.  While I can’t describe the feeling, I really want you to know it first hand!   Take that first step!  Take it tonight and take control of your money!

Frugal Is Not Cheap

There are very few things that I’m willing to go “cheap” on.  For example, I’ll go cheap on dishwasher detergent, dryer sheets and coffee filters (maybe even the coffee maker itself).  However, I consider myself to be frugal.  Merriam-webster.com defines the two words as follows:

Frugal - characterized by or reflecting economy in the use of resources 

Cheap – at minimum expense

I believe in buying quality.  I don’t believe in paying for fashion or over paying for quality but I do believe in buying quality.  I subscribe to Consumer Reports to find the best performing item that I’m considering buying.  Consumer Reports also has a best value feature.  Once I find the particular item I’ve decided to buy, I find the least expensive price.  I’m not buying cheap product, I’m buying a good product at the place I can find it for less.  Economy in the use of resources!

A good example is t-shirts.  On one shopping trip, Andrea decided she would try to save some money (I love her!). She thought she’d save some money by purchasing cheaper t-shirts ($9.99).  Unfortunately, these t-shirts started wearing thin within 6 months.  After those 6 months, she had to buy new t-shirts, another $9.99.  For a year’s worth of t-shirts she paid roughly $20.  A good t-shirt runs $25-$30 bucks and lasts her 2 years after which she uses that t-shirt forever as a workout shirt.  $10 ever 6 months for a t-shirt ($40 bucks over 2 years) or buying a $30 t-shirt that lasts forever!  While Andrea was trying to save money, it actually cost us more money to buy the cheap t-shirt!  We learned and incredibly valuable lesson and it has really paid dividends. 

You can apply this logic to almost, ALMOST, anything you buy. 

Cheap is not leaving a tip.  Cheap is buying an inferior product because it costs less.  Cheap is sneaking into a movie.

Frugal is hitting up a buffet.  Frugal is buying a used, reliable car for less than a new car of the same model.  Frugal is watching movie and making popcorn at home.

So Frugal isn’t buying the least expensive product, it’s buying a quality product at a lower price.  Frugal is being cost conscious.  

Are you cheap or frugal?  What are you frugal about?  What do you go “cheap” on?

Work Together!

When it comes to your family’s finances, it’s incredibly important to work together, communicate, to not force the other person into doing it “your way” and to be honest. The responsibility of managing the finances should not fall on one person alone, even if both people in the relationship want it that way.  In order to be financial healthy and have a healthy relationship, the responsibility should be shared.  And if anything should happen to you, the other person knows exactly exactly the status of the finances and where to find all of the financial documents. 

Communication is key.  If you’re fighting to get out of debt while your significant other is spending away, tension over the finances is either a part of your life or will be soon.  One of the leading causes of divorce in America is financial trouble.  Both people should be aware of the money situation and have a say.  Andrea and I communicate constantly throughout the month as well as at our scheduled monthly budget meeting… over a bottle of wine.  It’s funny, not only do we talk about the budget but we have a couple of glasses of wine and talk!  Just talk!  It’s great!  You may need to start with weekly budget meetings to help define your goals, establish a budget and get into a routine but the main takeaway here is to sit down, on a schedule, and talk about your finances. 

Don’t force your position!  If you are not on the same page it’s time to get on the same page but do it constructively.  If you feel you are being financially responsible but the other person is not, it’s important not to accuse, blame or demean but to say what you are feeling in a positive way!  No one likes to be put on the defensive or to have an idea forced down their throat. Explain that your goal is to have your family be financially healthy and prosperous.   I would suggest asking the other person to start by reading Dave Ramsey’s “The Total Money Makeover”; that you’d like to work as a team when it comes to the finances and that this book could help you reach your goals.

Be honest!  If you make a mistake (e.g. – made a purchase you shouldn’t have or neglected to pay a bill on time) own it!  You’ll prove that you are open and honest; that your spouse can trust you to tell the truth when you make a mistake.   The consequences of not being honest could be a fight or, if there is a history of dishonesty, divorce. 

If you share the responsibility, communicate effectively and are both honest about your finances you’ll be on your way to financial health as well as a healthy relationship.   Work together!

TAXES: To withhold or not to withhold?

It’s tax time and when it comes to my taxes, I’m on the fence about how to adjust my withholding's.  Do I increase my allowances so that I get a nice fat check come March or do I do I decrease my allowances so that I break even at the end of the year?  I understand the arguments on both sides, yet with today’s savings rates, here I sit…on the fence.

If I claim Married 2 (as opposed to the Married 4 I claim now), I’ll be giving the government an interest free loan over the course of the year.  At what cost?  I would be giving the government extra $60 dollars a pay period and at current interest rates (0.84% available at Ally Bank) compounded daily, I would earn a grand total of $12.10 for the year. 

If I were to invest that $60 a month in a mutual fund, say one following the S&P 500 Index, last year I would have earned $0(I may have even lost money considering the big downturn in August!).  However, the same money, with a return of 8% would yield a $63.95 return.  A return of $12 makes me to want to lend it to the government so that come March and receive a large check.

The ever popular, and helpful,  pro/con list(or pro/pro list as the case is here):

Break even Pros:

1. Bigger paycheck and therefore more monthly cash flow.
2. Earn interest by saving on my own.

Big Refund Pros:

1. Nice windfall once a year.
2. Forced savings.

I think for the time being we’re going to try to get a big tax refund.  Since interest rates aren’t enticing me at all and we save 15% for retirement as it is, a nice little windfall to increase our emergency fund, pay down or mortgage, splurge a little or even all three is worth it right now.  If monthly cash flow seems to get tight and I can’t squeeze anything else out of the budget, I can always adjust my withholding's later.  

How do you manage your withholding's? 

Snowflaking

Snowflaking is something I came across while trying to figure out how to get out of debt.  I’m not sure who coined the term but it’s a take-off of Dave Ramsey’s snowball.  You take little bits of money you find, earn, frugally save and apply it to your debt.  This would be in addition to anything you’re currently paying on your debt snowball.  These little “flakes” are paid to the debt you are currently working on.  Don’t wait for the bill to be due, start making little payments once or twice a week.  There may be limits your particular institution has on the  number of payments you can make per month so check that before you start.

How do you come up with these little snowflakes?  It could be anything:

Side jobs such as:

Mowing lawns – do you have an elderly neighbor who can no long mow their lawn or a neighbor who just doesn’t have the time?  Offer to mow their lawn for a reasonable fee!

Babysitting – if you have a flexible schedule and you’re good 

with kids, start babysitting.

Online Surveys – you can make an extra few bucks by taking

online surveys.  I take surveys   on cashcrate.com.  For 10

minutes of time I can make a few bucks.  

You can also Sell your crap!  or Negotiate with the companies you do business with to lower your fees or rates.  

Donate!  Did you know you can donate plasma, sperm or eggs?  I know that it seems kind of radical but you can get paid for these donations!  

I went to college with a guy who did drug studies.  He would sacrifice a weekend night, stay at a facility and they would test anything from the rate at which a pill dissolves to how a medication affects a healthy individual.  He got paid pretty handsomely for being a human guinea pig…and he’s still alive(I know because we just became friends on Facebook).  

Apply the proceeds or savings towards your debt.  Every little bit counts.  If you come into money, find money, or make extra money apply it towards your debt right away instead of spending it on something frivolous.  No amount is too small!  If you find $10 on the ground, pay down $10 on your debt.  Keep track of your snowflakes; you’ll be amazed how much you will have paid at the end of the month!  Very motivational!  

I keep saying how these little snowflakes can be applied to your debt.  In reality, it can be applied to anything: debt, emergency fund, holiday fund, mortgage, etc.!  Just be sure to apply it in the order you would the debt snowball.

If you’re willing to get radical, you’ll have radical results.  Wow, that was straight out of an 80’s movie!

Gas Saving Tips

As I was driving into work this morning I heard a lady on NPR giving tips on how to improve gas mileage.  The three tips she gave were to keep your cars tire pressure at the recommended level, change your air filter and remove things from your trunk that may be weighing your car down.    This got me thinking, with the summer driving season coming up quickly, what are some gas saving tips you wouldn’t normally think of.  It also made me think about what recommendations are just not true. 

After some research I found these quick and easy tips:

• Drive more smoothly.  Speeding up, hitting the brakes, only to speed up again uses a lot more gas than keeping a smooth ride. Getting up to speed is where you use the most gas; maintaining that speed uses significantly less gas.
• Reduce drag: Remove the ski/luggage rack and drop the tailgate on those pickup trucks.  If you’re willing to do it yourself, wash and wax your car!  Every little bit helps, right?
• Replace your spark plugs.  Older spark plugs misfire more frequently wasting gas.
• Don’t fill up until you are empty!  It goes along with reducing drag.
• Park in the shade to reduce fuel evaporation.
• Keep it at or under 65 MPH.    Speeding increases drag.
• Avoid idling for long periods.  According to consumerreports.org, if you plan on idling for more than 30 seconds, turn off your car.
• Keep you tire pressure at recommended levels BUT do not over-inflate!  Over inflation may cause less friction by having less of the tire on the road but this can be very dangerous. Consider filling your tires with nitrogen.  Nitrogen is less likely to migrate through the rubber of the tire and it does not change pressure with temperature changes.  This creates a more stable tire pressure over the long run.

ConsumerReports.org offered the following myths:       

• A common tip is to buy gasoline in the morning, when the air is cool, rather than in the heat of the day. The theory is that the cooler gasoline will be denser, so you will get more for your money. But the temperature of the gasoline coming out of the fuel nozzle changes very little, if at all, during any 24-hour stretch. Any extra gas you get will be negligible.
• Some people advise you not to run the air conditioner because it puts more of a load on the engine, which can decrease fuel economy. But others say that opening the windows at highway speeds can affect gas mileage even more by disrupting the vehicle's aerodynamics. In our tests in a Honda Accord, using air conditioning while driving at 65 mph reduced the vehicle's gas mileage by over 3 mpg. The effect of opening the windows at 65 mph was not measurable.
• Our tests show that driving with a dirty air filter no longer has any impact on fuel economy, as it did with older engines. That's because modern engines use computers to precisely control the air/fuel ratio, depending on the amount of air coming in through the filter. Reducing airflow causes the engine to automatically reduce the amount of fuel being used. Fuel economy didn't change, but the Camry accelerated much more slowly with a dirty filter.

Employing some of these tips may help you improve your gas mileage by up to 30%.  Are there other tips you use?

My Honda

I drive a 2004 Honda Civic that has 104,000 miles on it and I plan to drive it for another 150,000.  I wouldn’t classify it as a beater but by the time I’m done with it, it will be!   My Honda has a few qualities that I really like in a car, it’s a standard, it gets good gas mileage and it’s completely paid for.

One reason I continue to drive my Honda, as opposed to buying a new car, is because I have absolutely no desire to keep up with the Jones’!  Why should I care what my neighbor thinks about my car?  I don’t have a car payment!  When I see people driving in around in fancy cars my first thought isn’t, “Wow, that’s a beautiful car!”  My first thought is, “Huh, I wonder if they can afford that car?”  If they can, good for them!  I’m not against anyone owning a nice car at all.  I just think you should have a car that you can afford; that you can pay for in cash.  It reminds of the commercial where a guy lists off all of the awesome things he has and then says, “I’m in debt up to my eyeballs.  Can somebody help me?”  This guy was obviously too worried about impressing his neighbors instead of building wealth for his retirement or funding his kids college.  

What could you do with that car payment?  If you were to invest the average American’s car payment, $378/month according to Final Call News, over the next 20 years at an average rate of return of 10%, you would have $289,433.33!!!  Not too shabby!!

Do you have too much car?  Dave Ramsey’s rule of thumb is “all of your vehicles—cars, trucks, boats and their Sea-Doo sisters, motorcycles, and anything else like this—should not total more than half your annual income.” If you can’t pay off your car in 18-24 months and if that cars value is more than half of your yearly salary, you should consider selling it for a less expensive, reliable car.  That may be $1000 beater at this point in your snowball but at least you won’t have a car payment and you can apply that payment to the rest of your debt.

If you do sell your car, please go to kbb.com and find out the value of your car, regardless of how old it is.  I have a friend who asked me how much I thought his older car was worth. I suggested looking it up on kbb.com. That person assumed they knew what the car was worth but didn't and $1000 dollar mistake was avoided.  Know the value of your car before you trade it in!

So now you’ve either finished paying off your car loan or you sold a car and purchased a less expensive one.  Once you’ve paid off your debt and have built your emergency fund, it’s time to start saving for your next car; a used car.  Why do I suggest a used car?  A new car loses value very quickly over the first year of ownership and continues to lose value, albeit more slowly, over the next several years.   You can purchase a slightly used, and reliable, car for significantly less than if you went and purchased that same car’s current year model.  If you start saving now, by the time you're ready to purchase another car, you'll be able to move up in car and pay cash.

A friend of mine was in a car accident (he and his son are fine) and his car was totaled.   He told me how upset he was because he didn’t want another car payment (the car that was totaled was completely paid for).  I asked him how much his car was worth and he estimated about $6,000.  I told him to go buy a $6,000 car!!  He was very adamant that he was not going to drive around in a $6,000 car!  With 2 kids, he wasn’t about to put them in danger by putting them in a cheap car.  I explained to him that I drive my two kids around in a Honda Civic, I don’t fear for their safety and I was pretty sure he could buy a 2004 Honda Civic for less than $6,000.  After a few conversations, when all was said and done, he ended up getting $8,500 for his totaled car and paying cash for a used SUV.  I was very happy for him and he ended up thanking me for talking him out of buying a new car.  

Please consider your car situation.  Please don't think of a car as an investment; Cars are not investments!  You don’t want your investments going down in value, do you?!  Cars are depreciating assets.  Treat them as such.

I’d like to finish off with a few quotes from the Money Quotes page that I feel are very appropriate here:

“Act your wage!” - Dave 

“Car sickness is the feeling you get when the monthly payment is due.”  -Author Unknown

“We buy things we don't need with money we don't have to impress people we don't like." - Dave Ramsey

Sell Your Crap!

Do you have a lot of debt?  Do you need a little windfall to help you get started paying down debt or to start building an emergency fund?  Take a look around your house.  How much stuff do you have that you don’t need?  Do you have a basement full of crap?  Do you have children who have outgrown clothes, cribs, or toys? There are plenty of places you can sell your second hand items. 

 

When we moved into our house we teamed up with my parent’s and had a garage sale.  For a week’s worth of work you can get rid of a lot of stuff you don’t need or use and walk away with a little chunk of change.  

A few great tips we heard during our garage sale were:

1.     Advertise your garage sale on the web (e.g. - Craigslist) in addition to the advertising you do around your neighborhood.

2.      Friday was the big selling day, especially the morning. 

3.      Sell drinks and finger food to the shoppers.  They may have been shopping all day and would love a drink or snack. 

Next, take a look at your jewelry box.  Do you have jewelry that you haven’t worn in years?  Gold and silver are selling at near all-time highs.  Andrea and I looked through our jewelry and sold a few pieces for a nice little windfall!  I think we may scour our house to see what other jewelry we can come up with to unload.

Sell used books, DVD’s, clothes, or furniture!  Sell the stuff you don’t use or need. Take pictures; post it on Craigslist, eBay or any other site you feel comfortable with.  If you’re not comfortable selling things online, look for consignment shops in your area.  You’ll be surprised how much money you have sitting around your house in the form of crap you’re not using.

People have become extreme sellers just to get out of debt: selling their home and moving into an apartment; selling a car (going from a 2 car household to a 1 car household); selling Grandma’s silverware; even selling most of what they own.  Of course, if you have children you may choose not to get too extreme or you may just refuse to live without certain amenities.  How extreme can you be? What are you willing to give up to be debt free?

Shopping with a plan

Have you ever walked out of a store and wondered, "How did I spend so much?"
Did you have a plan? Did you know exactly what you needed when you walked into that store?
In terms of groceries, every Saturday night or Sunday morning, Andrea sits down and plans out the week's menu, writes out the list of groceries we need and posts the menu on the white board on our fridge. Sunday morning, after breakfast, we all head to the grocery store. At the store, Andrea hands me my list.  My youngest and I go one way and Andrea and our oldest go the other. After we're done we meet in the produce aisle then head to checkout. 25 minutes…in and out!
Creating a menu every week helps us in a few ways:

• It helps us create a healthy and kid friendly menu.
  Andrea and I are borderline health nuts. We are trying to teach the kids to eat the same, yet kid friendly, way.
• It helps us to stay on budget because we buy only what's on the list.
  We don't buy whatever looks good or fall for the end cap pitfall!
• We don't waste food.
  We eat what we buy so nothing sits on the shelves, unused, waiting to expire. Our fridge is full at the beginning of the week and bare by the end.
• It helps our evenings run more smoothly.
  Andrea and I both work full-time. Whoever gets home first can look at the white board and know exactly what to make for dinner.

You'll find that this strategy can become very useful when going to any store (clothes store, home improvement store, or any big box store). Having a list helps you avoid impulse buys, saves time and, most importantly, saves money.
What do you do, when shopping, to save money?

Negotiate!

There isn't a company out there that I won't force into a negotiation! For example, this past weekend I negotiated a reduced rate on my TV, internet and phone with our local cable company. We currently have our phone and internet service with the cable provider but we had our TV through a satellite company. We still had another 13 months left on our contract with the satellite company but the satellite service was poor and the price was about to increase significantly. I called the cable company and the best their first line customer service rep could offer was a 3 in 1 package for $135 a month. That would only have saved us about $10 a month and I still would have been on the hook for a $260 cancellation fee to the satellite company. I said, "Thanks, but if that's the best you can do I'd like to cancel my phone and internet service." For the record, I had no intention of cancelling our phone and internet service. The representative said that she could put me through to their Promotional Department and that they might be able to offer me something better.

The person to whom I was transferred in the Promotional Department offered to lock me in, for a year, to the same 3 in 1 package but this time at $125 a month. I reminded the rep that new customers are being offered $89.99 a month for a year. He said that wasn't available to me because I was a current customer. I said, "Thanks, but if that's the best you can do I'd like to cancel my phone and internet." He said he could transfer me to the Sales Department and that they might be able to help me further.

I explained to the next representative that I was willing to cancel my phone and internet and give my business to their competitor if I wasn't given the $89.99 a month for a year that was being offered to new customers. He also said the new customer offer wasn't available to me but that he might be able to get me into a "win you back" promotion. After waiting patiently for about 2 minutes, listening to the clicking of his keyboard, he said that he could lock me into the 3 in 1 package for $99.99 a month for two years AND that they would pay up to $200 of my cancellation fee from the satellite company. Now that's what I was looking for and then some!

I love negotiations, especially when I can save over a $1000 over the next 2 years!

Perhaps you can call your credit card company and ask them lower your interest rate; you'll be able to attack the principle more quickly. Maybe you can shop your car/home insurance to reduce your rates. While you're busy reducing your rates, you should consider raising your deductible from $500 to $1000 which will save you some cash. Call your cell phone company to see if you can reduce your payment. If you didn't know, Virgin Mobile offers unlimited data, texting and 300 anytime minutes for $35 a month; up that to 1200 min and it's $45 a month; unlimited data, text and phone and it's $55 a month. They're on the Sprint network so make sure they have decent service in your area.

Research! Call other companies or go their websites to see what they can offer you. Then call your current provider and tell them what you've been offered and that you're willing to switch. If the first rep doesn't help you, ask to speak to another. If the second or third rep can't help you, call the "other" company back!

Don't give up, don't be afraid to negotiate and don't be afraid to switch companies. The only loyalty that should exist, in this situation, is the loyalty to your wallet. Use the savings you just negotiated to build your emergency fund, add it to your debt snowball, fund your retirement contribution or throw it at your home payment. Whichever you choose, you'll be saving money just by making a few phone calls!

Account Oriented Budgeting

So I opened up my Kiplinger’s (April 2012) today, the one with “50 Top Money Tips” on the cover, to find the #5 money tip is “Set up an account for each goal – education, vacation, car, computer – or large, recurring expenses, such as insurance premiums.”  I called up to my wife and exclaimed, “Now Kiplinger’s is recommending the separate savings accounts!”   And my family thought I was crazy!  OK, just a little!

Too many times I had spent the utility money on something other than utilities because all of my money was lumped together in one account. I said, “Enough!”  I decided to save my money by category.  My goal was to have enough money, at the beginning of the next month, to pay my bills; to pay cash for my next car; to have our disability insurance paid for when the annual premiums come due in November; to have our dog Ella’s annual vet visit paid for when she has her checkups in March; to have my next oil change paid for when I roll into the oil change place...I think you get the point.  I call it account oriented budgeting!  

I have a pretty good idea of the things that we’re going to have to pay for throughout the year.  Of course things pop up (that’s why we have an emergency fund) but I wanted to be prepared for the monthly, quarterly, yearly (or longer) expense that I know are going to happen.  As I mentioned in the Financial Planning Basics page, I have a savings accounts for each of these recurring expenses. 

For example, I know every 10 days we have to fill the tanks of our cars; every 3 months we have to have the cars oil changed; every month our car insurance is due; every few years we have to put new tires on the cars and, eventually, we’ll have to replace the cars.  I sat down and calculated each recurring expense and came up with a monthly amount for that category.  

Oil changes:  2 cars @ $30 every 3 months, we save $20 a month in the budget. 

Gas (assuming $4 a gallon) we save $340 a month.  

The Gas and Oil category gets $400 a month (I round up to the nearest $10 because over time it creates a nice little buffer in that category).   You can see how this works below in the rest of the “Transportation” portion of our budget.                                     

TRANSPORTATION                                                                         

                Car Replacement             200                        

                Gas and Oil                      400                        

                Repairs and Tires             60                          

                Car Insurance                   80                          

                License and Taxes            10                                                                                                          

                Total                                 750         Pay Period          375

Every dollar has its savings account! Most banks will allow you to set up as many savings accounts as you want without charging you extra fees.  

You may think that this is hard to manage but it’s not.   If you sit down and budget every month, you can group your budget into categories (e.g.  – Transportation, Insurance, Housing, etc) and come up with a Pay Period amount that you transfer every pay period.  Our budget is a spreadsheet that has each category listed and the pay period amount.  Every two weeks when we get paid, I open our budget and I spend 5 minutes transferring the pay period amount from checking to the appropriate savings account.  

Every month when I pay the bills, I look at our bank accounts and I know we haven’t spent the gas money on groceries, or the vet money on disability insurance.  For an initial set up of an hour or so you can put your finances on auto pilot.  Did you ever think your finances would be on auto pilot?  Try account oriented budgeting and they will be.