Category — lessons learned

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

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

Budgets aren’t limiting — they’re freeing.

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

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

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

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

We actually “need” very few things.

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

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

Stress free finances are the greatest luxury of all.

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

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

Photo by sideshow blues

I hope you’re all enjoying a safe and happy holiday. Now is the perfect time to take a step back and think about all the people and things that are truly important in your life.

Here’s what I’m thankful for this holiday season:

• Seven months of marriage to my wonderful husband, who will be with me every step of the way for the rest of our lives. He’s been incredibly supportive and willing to hop on board the frugal train from the beginning. I’m so thankful for our shared goals and his willingness to make sacrifices to help us reach them.

• My parents, my sisters, their husbands, and my healthy nieces and nephews. I don’t see them as much as I’d like, but I’m thankful for their well being and their presence in my life.

• My new in-laws who accepted me completely as part of their family long before it was ever official and have provided us with endless support and love.

• A job that I enjoy (most days) where I’m learning a million new things every day.

• An unexpected career in a field I didn’t know existed before I was hired at my job, but that I’m so excited to be a part of now.

• A steady paycheck that allows me to pay all of my bills on time, put food on the table, and save for the future.

• Frugality and budgeting. Without it, I would still be financially lost and overwhelmed with no goals and no plan.

• The people who read my blog. This blog has been such a huge part of our financial journey so far. I truly love blogging, and I’m thankful to the people who take the time to read it. Without you, I’d be talking to myself.

• The coming year and its endless possibilities.

I hope you’re all taking the time to count your blessings this holiday season. Merry Christmas!

photo by kspeterson

Last year at this time, our financial situation was pretty bleak. I was working two jobs — a part time retail job and a temporary office job that paid well but only lasted until the end of February. Though we had some extra money coming in, we were saving aggressively because we didn’t know how long our savings would have to last.

We were also away from family. I couldn’t take time off work and we couldn’t afford to travel, so we stayed here, 800-miles from our families.

At the beginning of the season, I was dreading Christmas. I imagined us alone in our apartment with no family, no gifts, no decorations and only sadness.

We looked at our budget and decided we could afford to spend $100 on Christmas. In the past, we had gone overboard on gift shopping for each other. I had come to associate Christmas with fancy gifts and extravagant meals. I couldn’t imagine recreating Christmas with so little money to spend.

We were surprised, though. Finding practical frugal gifts was a fun challenge. I aggressively shopped sales to find little things to put under the tree. I used creativity to come up with ideas. I reassessed our priorities and shopped only for things that I knew Tony wanted and would use.

We had fun putting up our old decorations and fashioning new homemade ones.

Christmas Day we dined on cheap Chinese food and caught a half-priced matinee at the movies.

Instead of focusing on how little we had, we made the most of every dollar and every moment.

Remember: Gifts don’t last, but memories do.

The most important lesson we learned last year was that gifts really don’t make or break Christmas. Shopping is fun if you can afford it, but the best part of last Christmas is the memory.

Twenty years from now we won’t have any of the gifts that we gave to each other. No matter how much you spend on it, stuff doesn’t last forever. After 24 Christmases I can only remember a handful of gifts. Many of them didn’t even last a year. What I remember is the time spent with family and the traditions that cost very little or nothing at all.

Keep that in mind if you’re struggling this year. Even if there’s no room in your budget for gifts, focus on the memories.

Make this Christmas a happy memory. Cherish the good moments and remember that the bad won’t last forever. Remind yourself that “stuff” is fleeting.

If you focus on the negative, then all you’ll remember is the sadness. Instead, focus on the memories you want to keep forever.

If you told me last October that our $100 Christmas would be the best we ever had, I wouldn’t have believed you. A year later, I know that I’ll always cherish the memory of last Christmas not in spite of our struggles but because of them.

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

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

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

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

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

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

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

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

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

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

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

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

Photo by jeffwilcox

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

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

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

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

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

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

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

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

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

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

• Use ING Direct (email me for a referral link if you haven’t opened an account yet, and you’ll get a $25 bonus if your first deposit is $250 or more.) ING makes it extremely simple to maintain separate accounts, and you’ll earn a decent interest rate (right now 2.75%).

• Figure out how much you need to save each month to cover the total amount you’ll need for the year. For example, we get our oil changed about 2-3 times a year. If we were saving for oil changes only, we’d need about $90 a year, or $7.50 a month. Because we also save for taxes and we’re trying to build a surplus to carry over to next year, we save $25 a month.

• If you’re worried about working it into your budget, start small. Gradually increase the amount by small increments until you’re saving enough to cover your expenses.

• Don’t touch the money! It helps me to consider that money already spent, as if oil changes are a monthly expense instead of only every few months. That $25 a month has already been “spent” on car expenses, so it’s off limits. Then when it’s time to spend it, I just move it over from savings to my checking account.