Category Archives: Money Management

Financing a car vs. paying cash for an older vehicle

Let’s say you have $5,000 available to purchase a car, and you need it right now. You can technically afford to add a monthly payment to your finances, but of course that will take away from the amount you’re able to save each month.

You need to decide whether you want to use that $5,000 as a down payment for a financed car or use it to pay cash for an older car with a lot of miles on it.

Let’s look at some of the pros and cons of each:

Paying cash for an older car


  • No monthly car payment
  • More money to put toward savings
  • Lower insurance rates
  • Lower taxes


  • Higher maintenance fees
  • Unreliable
  • It’s a gamble. You may drive it for years with no problems, or the engine could die and leave you without a vehicle a few months later.
  • Depending on the age and type of vehicle, gas consumption is likely to be higher than a newer car.

Financing a used car


  • Certified cars come with warranties that promise reliability.
  • Less likely to have problems soon


  • Still a gamble. You don’t know how the previous owner cared for the car, so you could end up with a car payment and high repair costs.
  • Higher financing interest rates than brand new vehicles

Financing a new car


  • Guaranteed reliability through warranties.
  • If you’re the only owner, you can care for it diligently and drive it for 10+ years.
  • Possible tax incentives on cars with better gas mileage.
  • Lowest possible interest rates for financing.


  • High monthly payment.
  • High taxes.
  • High insurance rates.

I don’t really have an answer. To me, it’s a toss-up, and used cars are a gamble. You might save a lot of money, but you’ll end up funneling it back into the car for repairs. We haven’t decided what we’ll do for our next car, but we’re leaning toward financing a certified used car.

Here’s why:  I drove a lot of old beaters in high school and college. My dad is a relatively good mechanic, so this wasn’t a problem in high school. When I broke down, he’d pick me up, and get my car running again. But in college, I ended up stranded a lot with no choice but to tow my car to a garage and charge the repairs on a credit card. Ouch.

When we moved to North Carolina, Tony and I made the decision that we’d rather share one new, reliable car than have two unreliable beaters. So that’s what we did. And I don’t regret it. We bought a reasonable economy car, but it was brand new. Yes, there’s a payment every month, but I’d rather pay a car payment every month than wonder when I’ll be stranded again by a breakdown.

Many personal finance bloggers will say, “Yes, you’re likely to pay for repairs on a used car, but it still won’t add up to the amount you’ll lose in depreciation and interest on a financed car.” That’s true. But honestly? It’s not about the money for me. There was absolutely nothing I hated more than breaking down at a stoplight or being stranded in the cold after working late. I’d rather pay 100 car payments than deal with that again.

What about you?

Photo by smcgee

How a tight budget can be a blessing

Three years ago, we moved to North Carolina with a small nest egg but no real plans. Tony had a job waiting for him (an extremely low-paying teaching assistantship), but I spent three months looking for a full-time job in my field before I starting working part-time. We were frugal out of necessity. it’s scary to watch money leaving your account every month with no income. We didn’t know how to budget, though, and three months with no income depleted our savings pretty quickly.

Once I started working part-time, things were still extremely tight. During those 10 months, I learned most of what I know about finance out of necessity. Our limited income required that we prioritize our spending and avoid buying anything that wasn’t completely necessary. Frugality was easier then, because the temptation to spend wasn’t there. We were just trying to survive without getting behind on our bills.

Not only did we survive, but we paid off most of our credit card debt during that time. By the time I finally found a full-time job, though, our savings account was pretty much empty. We spent the next year and a half building it back up and saving for other goals.

Ever since our income increased, though, staying committed to frugality has become harder. Now that the need to plan and save isn’t quite so urgent, it’s tougher to make the right choices. Three years ago, if we overspent, we might not be able to pay our rent. These days, the consequences of overspending aren’t as concrete. It may mean that it takes us a little more time to buy a house or pay off our student loans, but we’re in no immediate danger.

Because of this mindset, I’m actually looking forward to hunkering down and going back into survivor mode after the move. I’m hoping that the months we spend searching for jobs will help us recommit to frugality, and once we’re finally in our own place building our savings again, we’ll have a renewed motivation to meet our goals quickly.

If you’re currently living in survivor mode, I have a little advice: Take advantage of this time without temptation and learn to be happy with what you have. Commit to this lifestyle now while temptation is low. As your income increases, don’t let your spending increase with it.

In my experience, tougher times can be a blessing. It’s a time to reflect on what’s really important in life, learn to be happy with less money, and develop habits that will help you save even more as your financial situation improves. As tight as I know things will be for us after the move, I’m looking forward to taking advantage of this opportunity to focus on our priorities.

Learning to jump right back on the wagon

This post originally ran on January 22, 2009. A year later, I’m still struggling to stay motivated, especially after temporary setbacks. Besides, I think we can all use a little encouragement as the novelty of New Year’s resolutions fades.

These days, I’m thinking as much about fitness as I am about finance. I’m still working on losing weight and living healthier, and I’m constantly fighting my vices — with overeating and overspending.

With the novelty and motivation of New Year’s resolutions wearing off, you may find yourself slipping up, too.

One thing I’ve learned is that it doesn’t matter how often you fall off the wagon. Everyone lapses. The real test for success is how quickly you rebound.

It seems that too often one little mistake can snowball into a catastrophe. In a moment of weakness you eat a donut or splurge on an expensive pair of shoes. Suddenly you’re thinking, “Well, my diet/budget is blown for today. I might as well make it count.”

That kind of logic led me to gain more weight and rack up more credit card debt in college than I care to admit.

This time I’m trying something new — forgiving myself and starting over. Not tomorrow or next week or after the weekend, but right now, right after I realize I’ve made a mistake.

After overeating or overspending, I used to bargain with myself. If I ate too many pieces of pizza on Friday night, then the weekend was shot, so I might as well wait until Monday to start over. In college, I used the same bargaining process when it came to my finances. “Starting next month I’m not going to use my credit card anymore,” or “After this weekend, no more eating out.”

The truth is, one mistake never really derails anyone. The real catastrophe comes from the self defeat that follows that one mistake. If you decide to give up for the rest of the day, week, or month, then you only make a bad situation worse. Your one mistake becomes a major derailment.

When you give up, even temporarily, after every little mistake, you find yourself feeling defeated a lot of the time.

Next time you find yourself straying from any goal, don’t put your efforts on hold. Don’t wait to start over. Do it right away.

Once you’ve eaten the donut or spent too much money, there’s nothing you can do to take it back. Don’t dwell on it and let one mistake derail you. Instead, wipe the slate clean, and move on.

Using ING as our primary bank

INGYesterday, I wrote about our money management dilemma: when we keep extra money in our checking account, we’re more likely to overspend, but without a cushion we’re vulnerable to overdraft fees. We only keep enough money in checking to cover our living expenses, so I’d like a safety net to avoid fees if I make a mistake.

We considered opening an additional savings account with our primary bank to use as overdraft protection. Unfortunately, our brick and mortar bank requires a minimum savings balance that’s higher than I want to keep there considering the low interest rate.

Instead, we’re switching to ING Direct as our primary checking account. My ING checking account is attached to a line of credit that serves as overdraft protection. If I miscalculate and overdraft my account, money will automatically be transferred from my line of credit to cover it. I’ll be charged a low interest rate on the money I’m borrowing until I replace it.

Because my emergency fund is linked to my ING checking account, I’ll be able to immediately transfer money into my checking account to avoid paying interest. There are no fees for the transfer, just the interest rate until the money is paid back. Since it’s highly unlikely that I would overdraft my account at all, let alone more than a few dollars, this is a great solution for us.

Most of our bills are paid electronically, so an electronic checking account won’t cause a problem. The only problem is our rent. Our leasing agent requires a paper check, and we often don’t have enough in our checking account to pay it until my husband is paid on the last day of the month, but it takes 5-7 days to mail a check.

Our solution is simple: the rent comes out of my husband’s paycheck every month. When my husband updated his direct deposit information, he set it up so that the rent money will go into our brick and mortar bank and the rest of his paycheck will go into ING. That way we can write a check and pay the rent from our brick and mortar bank on the day he’s paid without having to move money around or wait on a paper check to be mailed.

I’ve written before about my hesitance to switch to ING for primary checking, but after some research I discovered a few things:

  • There is nothing a brick and mortar bank can do that ING can’t do. The only difference is the delay in sending checks, but it’s completely free to do so.
  • Their customer service hours are better than most banks. Representatives are available 8 a.m. to 8 p.m., 7 days a week. Based on my own experience, they’re always very helpful and courteous.
  • We’ll earn a little interest on our checking account. It’s only 0.25%, but hey, that’s better than 0%.
  • ING is FDIC insured, so our money is safe.
  • There are no fees for cash withdrawals at AllPoint ATMs.

I updated our account information for all of the bills that are automatically drafted from our checking, and changed our account information for direct deposit of our paychecks. I moved most of the money over to ING, and once everything clears, I’ll move the rest. I’ll let you know how it goes!

Interested in opening an ING account? Use one of my affiliate links and make an initial deposit of $250 or more, and you’ll get a $25 bonus! I’ll get a $10 kickback for telling you about it. :)

Note: This bonus also applies to savings accounts. ING Direct has some of the best savings accounts around with no minimum balance, an interest rate of 1.3%, and easy account management that allows you to open several separate sub-accounts for separate savings goals.

Open an ING account

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Open an ING account

These referral links are good for only one account, so if the first link doesn’t work, move on to the next one or contact me and I’ll send you a valid link!

Should you keep a cushion in your checking account?

nickels and dimesA little over a year ago, we moved most of our money into our savings account. We didn’t want to keep very much money in our checking aside from what we need to cover our monthly expenses.

I decided to leave a $1,000 cushion in our checking account. The idea was that $1,000 would serve as the zero mark. It would just sit in the account, unspent, serving as a cushion so we’d never overdraw our account in the event of a miscalculation.

Fast forward 14 months. Each month we went just a little over budget. $50 one month, $25 the next month, $100 the month after that. The motivation to stay completely on target wasn’t as strong because there was extra money there. Now, our $1,000 cushion is gone. Even though we have a pretty health savings account, it feels a lot like living paycheck to paycheck.

I’ve considered putting a little money aside each month in the budget to rebuild our cushion, but here’s the thing: I don’t know if I want a cushion.

Even though I don’t like the feeling of an empty checking account at the end of the month, we’re less tempted to overspend a little here and a little there when we’re cutting it so close. But it still feels like living on the edge. One error and we could be hit with overdraft fees (our bank hasn’t yet allowed opt-in and opt-out for overdrafts like Chase and Bank of America).

I feel like we’re stuck between two crappy choices: the risk of overspending vs. the risk of overdrafting.

I’ve decided to open a new savings account with my bank (our main savings is with ING) and put $100 or $200 in it to reduce the risk of steep charges in the even of a miscalculation. It’s unlikely since I watch our spending so closely, but I don’t like worrying about it.

The thing is, our dwindling cushion wasn’t due to error. It was due to poor judgment. As long as we had “extra” money in our account, we were more likely to make poor choices. As I said last week, we don’t make big purchases, but we nickel and dime accounts to death.

How do you handle this dilemma? Do you keep a cushion in your checking account, or do you move all of your extra money to savings to protect it?

Photo by heypaul

Why I’m happier on a tighter budget

Yesterday I confessed that we kind of blew our budget this month.

After a summer living on cash, we went a overboard once we started using our debit cards again. It wasn’t that we went completely nuts and totally disregarded our budget. It was much sneakier than that. It was a few things here and there at the grocery store, because we can afford it now, right? It was stopping on the way home from work to pick up a few things because why not?

For us, it’s never something huge that blows our budget. We’re too careful about big purchases for that to happen. Big purchases are always planned out, saved for. What blows our budget are the fifty or so purchases throughout the month. $1 here, 50 cents there. Then suddenly we’re a week from the end of the month and we’re already out of money.

Living on a cash budget, that didn’t happen. Each and every purchase was given the same consideration as a major purchase. Even if it wasn’t, we were protected from spending next week’s budget today because we didn’t have the money on hand. All we had was what we were allowed to spend for the week.

As I’ve said before, my favorite part about living on cash was that there was no Monday budget dread. I didn’t look at the budget on Monday morning and kick myself for overspending on the weekend. We withdrew what we wanted to spend, and that was what we spent. It was so much less stressful for me to have those decisions made ahead of time instead of keeping track of everything in my head. I could just enjoy the weekend without adding things up in my head, because I knew that we were spending the right amount.

My point is, we have decided to live on a cash budget going forward. With so much to save, we can’t afford to let a hundred little purchases eat away at our savings. We’re getting serious for the next 15 months so we can have it all: Europe, a stress-free move, a healthy emergency fund, and our own home sooner rather than later.

And instead of feeling restricted by our tighter budget, I feel free from the stress and worry of trying to keep track of all of our purchases in my head. Life is too short to spend it worrying about every little purchase.

The beauty of a monthly budget

budgetingWhen our no spend summer ended in August, I told myself we weren’t going to go overboard. I told myself we were going to keep our budget just as tight. I was wrong.

Just as I feared, we went a little overboard for the past month. So overboard that it’s only the 23rd and we’ve already spent all of our food budget. Oops.

But you know what I love about a monthly budget? I love that we only have to scrimp for the next 7 days, and then it’s a whole new month. I love having a clean slate at the beginning of every month. Last month’s mistakes don’t matter, because all that matters now is this month’s budget. I can start all over again.

Here’s how I get back on track:

Don’t wait until next month.

As soon as you realize you’re overspending, stop. We stopped a little too late this month, but we’re doing what we can now to control the damage and start fresh next month.

Make some changes to this month’s budget.

If you’ve overspent in one category, see if you can cut discretionary spending in another category to make up for it. I’m cutting down on entertainment and household expenses spending for the next week to make up for a little bit of our overspending in food.

Forgive yourself and move on.

Beating yourself up doesn’t change the fact that you overspent. It just makes you feel bad. Everyone makes mistakes. When you make a spending mistake, the important thing is to stop the bleeding, control the damage, and ride it out until next month when you can have a fresh start.

That’s what I love about monthly budgeting: you’re never more than a month away from a clean slate!

Photo by spiderpop

Lessons learned from our no spend summer

cashIs it really September 1st? It seems like just yesterday when I started no spend summer, but it’s been three months.

Tony received his first paycheck of the school year at the end of last week, which means our experiment is over. But I have to be honest, it feels like it ended at the end of July. Between the Paul McCartney concert, our vacation, our huge camera purchase last week, and some necessary car maintenance, August has been anything but a no spend month.

Despite the fact that our budget fell apart this month, we still accomplished what we set out to accomplish: we made it through the summer living on 2/3rd our regular income without spending any of our savings.

Here are the things we learned from living on a cash budget for (at least) two months:

We developed better grocery shopping skills.

Shopping with cash forced me to learn better budgeting habits for groceries. We were menu planning and list making, but too often before this summer, our total at the cash register was a surprise. We were shooting in the dark when we tried to stay within a budget each week. Now I estimate the totals of each item on our list based on previous purchases, and then I update those amounts as I put things into the cart. This allows me to keep track of how much money we’re spending and make changes at the grocery store if we’re over budget. This skill is essential to staying within grocery budget, and if this was the only thing I learned this summer, it would be worth it.

Cash budgeting is actually easy and freeing.

I used to have a negative attitude toward cash budgeting. Because I tracked my spending electronically, cash in hand was money that had already been deducted from my budget, so I was more likely to blow it. But I found cash budgeting to be incredibly freeing this summer. I no longer dreaded looking at my bank account on Monday morning, seeing how much we’d spent over the weekend, and adjusting my budget for the rest of the month. With cash, I knew exactly what I’d spent, and I knew that it was within budget. Tracking where that money went was simple with Mint, and knowing that we’d stayed within budget removed spending stress.

We became more creative and resourceful.

I’d like to say that we learned to live on MUCH less than normal, but I can’t. We cut our budget pretty close, and most weeks we spent all of our cash by Monday. In the past, we relied too much on the ability to run to the grocery store and pick up a few things in the middle of the week. But with cash budgeting, if we were out of cash and we realized on Thursday that we’d forgotten to add a crucial part of a recipe to the grocery list, we couldn’t just run out and pick it up. It forced us to make do, and we learned to look at our pantry differently.

While this is the official end of no spend summer, we’ve decided to continue cash budgeting. I have actually enjoyed the structure, and I’m hoping cash budgeting will allow us to save more each month so we can reach our goals for Europe, moving, and buying a house much faster.

If you’ve never tried cash budgeting, take it from someone who used to hate the idea, and give it a shot! You might find that you like it. :)

Photo by nicmcphee

Tracking spending on a cash budget

budgetingOne of the top complaints I hear about cash budgeting is that it’s harder to track spending with cash. When you’re swiping a debit card, it’s easy for to track spending electronically. When you’re spending cash, there’s a little more work involved.

I use to set and track my budget. The idea of changing my system completely, or using the envelope method was exhausting. So I came up with a system for tracking my cash purchases electronically.

I still use to track my spending. Mint allows you to split transactions. Before we were cash budgeting, we used the split transaction feature to categorize spending. If we bought dog food at Target along with other household purchases, we’d split the transaction so that the price of dog food was categorized with “Pet Expenses” while the rest of the purchase went under “Household Expenses.” Simple.

That feature makes it just as easy to split cash transactions. On Saturday, we withdraw our weekly cash allowance. We do our grocery shopping, pick up household purchases, and run errands for the week. I save all the receipts for purchases made with that cash.

Mint categorizes our ATM withdrawal as a single transaction. The following Saturday before grocery shopping, I split the ATM transaction based on the receipts I’ve saved.

To do this, just highlight the ATM transaction, click on “Edit Details,” and then “Split.” Enter the store and spending category. That amount will be categorized correctly in your budget. Cash we don’t spend remains categorized as “ATM Transaction.” If we spend it later, I go back to the original ATM transaction and categorize it correctly.

It reminds me a lot of something I watched my mother do every weekend when I was a kid: balancing a checkbook.

Electonic banking and money management software have made checkbook balancing obsolete. It’s possible to track purchases up-to-the-minute online, so most people are happy to be done with the hassle of checkbook balancing. But tracking spending manually makes me more accountable. It a little extra work, but it’s made me a lot more knowledgeable about where my money goes.

This system takes all the guesswork and stress out of budgeting for me. Instead of mentally adding things up in my head and checking my bank balance, I forget about budgeting until Saturday morning. I only take out the cash I can afford to spend, so there’s no danger of overspending. At the end of the week, I organize that week’s spending and start over again.

Have you ever lived on a cash budget? How do you stay organized and track spending?

Photo credit: spiderpop