Category Archives: Money

How much is convenience worth to you?

Dollar billsI am allergic to paying for shipping. At least that’s how it feels when I get to the checkout page for an item I want to buy online, see the shipping charge, and back out at the last minute.

Shipping feels like such a wasteful way to spend money to me. If I can purchase the item for the same or close to the same price in a store without paying extra for shipping, I will do it — even if it’s inconvenient for me.

But I know everyone doesn’t feel this way. You could make a pretty compelling argument that $7 is worth the convenience of having the items shipped right to your door. Kacie at Sense to Save has been experimenting with grocery delivery. So far she’s been able to get free shipping for her groceries, but I know there are people out there who would rather pay that fee to have groceries delivered to their doors rather than trudge out themselves. Obviously, grocery shopping is a much more labor-intensive endeavor than picking up a few things at a store, so I can see how this could be a fee worth paying. Grocery delivery isn’t available in my area, unfortunately, but there are weeks when paying an extra 10 bucks to save the time it takes to shop for food would be worth it to me.

There are two factors I consider when I decide whether it’s worth it to pay an upcharge for convenience — time saved and percent markup. For example, if I’m paying a $10 markup to have $100 worth of groceries delivered to my door, I’m paying an extra 10% to save 2 hours of time. Depending on what’s going on that week, it might be worth it to me.

But usually the shipping charges are a much higher percentage for less time saved. For instance, yesterday I was shopping a sale at a clothing store, and the shipping charge was $7 for my $25 order. That’s a 28% markup, and it would likely take me 15 minutes to pick up the items in the store since I knew exactly what I wanted. Even though it was inconvenient to head out with my 3-year-old and 2-month-old, I couldn’t bring myself to pay that $7 in shipping. It may “only” be $7, but if I spent $5-$10 on shipping every time I made a purchase, it would add up astronomically.

I will also pay more for merchandise than I planned just to avoid shipping charges. If I have to buy $50 of merchandise to get free shipping, but I only have $35 of items in my cart, I will add $15 more in merchandise to avoid the shipping charge. I’d rather pay $50 for merchandise than $42 for $35 in merchandise plus a $7 shipping charge.

The only time I pay shipping is if I can’t get the item in a store or the online price is so good that even if I pay shipping, the total cost is still less than I’d pay in store.

There are lots of other situations where I won’t pay a convenience fee. I paid my water bill in person every month for two years to avoid a $3 convenience fee (I live just a few blocks from my city’s utilities office). Thankfully, they finally began offering auto-debit with no fee, so I don’t have to remember to go to the office every month on the 15th. I will drive all the way across town to find an ATM that doesn’t charge a fee when I need cash. I never have pizza delivered and always opt to pick it up myself to avoid the $2 delivery charge plus tip to the driver.

How do you feel about paying for convenience? Is it worth the money to you?

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Lifestyle inflation is no joke

I started my new teaching job at the beginning of March, but due to the pay schedule I didn’t receive my first paycheck until the first week of April. It’s been two years since the last time I had a regular paycheck of my own, and it was quite a thrill when the money showed up in our bank account. I felt that old “pay day” elation, and let me tell ya, it’s a powerful drug.

My plan for my income from the start has been to devote it entirely to beefing up our savings and paying down our student loan debt. Because I’m not sure how long I’ll be earning this money, it was never intended to be lumped into our regular income. But my bi-weekly paychecks are almost equal to the amount we’ve allotted to “day-to-day purchases” — groceries, household goods, and spending money. Suddenly, it felt like our “day-to-day money” had doubled.

Let’s just say, it’s been a pretty fun couple of weeks. I enrolled Judah in a summer gymnastics program, switched from my current gym membership to a more expensive YMCA membership (with a hefty enrollment fee), and did some damage in Target a few times.

Then I realized: this is how it happens. Your income increases, you tell yourself, “Just this once — we can afford it now.” And before you know it, your monthly budget has increased with no extra savings to show for it. It’s the very definition of lifestyle inflation.

Thankfully, I realized it before it’s too late. It still feels like “extra money,” so I have time to adjust the budget and reallocate the money before it becomes a serious habit. Only now it will feel a little like deprivation for the first few paychecks, because I already experienced the powerful drug of spending it.

I’m not saying that there’s no room to loosen up when your income increases. If you get a raise or find some other source of extra income, it’s okay to loosen up some areas of your budget. Just make sure you have a plan to put some of that money to good use, too. Save some money, repay some debt, increase your retirement contributions, and then spend a little. The point is that if you’re not mindful of how you spend income increases, you’ll get stuck in a cycle where you spend every penny you earn forever and ever. It’s a good way to feel broke no matter how much you make.

Don’t let this happen to you. Make a plan for your income increases before the money hits your bank account, and stick with it. Your future self will thank you for it.

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How to break the cycle of paycheck-to-paycheck living

This post was originally published on June 8, 2010.

Paycheck-to-paycheck living has become all too common, especially in this economic climate. Unfortunately, it’s a vicious cycle, and when you’re in the middle of it, it can feel impossible to break out of it. It seems that every time you start to get ahead, there’s a car problem or a medical emergency or some other sudden expense that lands you right back where you started. I know from personal experience.

Nothing reminds you of how unsustainable paycheck-to-paycheck living is like losing your income. My husband and I supplemented a low income with our savings account for 8 months in 2010, and I can’t help but think about how different our situation would be if we hadn’t broken free of the paycheck-to-paycheck cycle.

The good news is, it’s not impossible to break the cycle. It takes time and patience and perseverance, but you can dig yourself out of the rut of paycheck-to-paycheck living. Here’s how:

Stop blaming your income.

One of the biggest complaints of people living paycheck-to-paycheck is that they simply don’t make enough money. It’s easy to tell yourself that your income is the problem, and that making more money is the answer. The problem with that line of thinking is that lifestyle inflation usually goes hand-in-hand with income increases when you’re living paycheck-to-paycheck. The sad truth is that it doesn’t matter what you make; you will find a way to spend it all. So stop blaming your income, and start thinking of ways to fix your situation now.

I know there are people who legitimately struggle with low income. If you’re in that situation, and you’re taking advantage of all of the government programs available to help you get back on your feet and still struggling, the only advice I can give you is do what you can to survive for now. It won’t last forever. But someday when you’re earning more, remember this time. It will motivate you to save a cushion that will protect you from going through this again.

Spend less than you make.

If you’re stuck in a paycheck-to-paycheck rut, the only way to start digging your way out is to start spending less than you make. The very first step is to build a budget and cut any and all unnecessary expenses. If you’re ever going to get ahead, you need to free up some money in your budget to give yourself a cushion. Take a serious look at your spending habits. If you’re struggling to make ends meet, it’s likely that you’re overspending.

If you’ve taken a serious look at your finances, and you continue to struggle despite the fact that you’re not eating out or making unnecessary purchases, it’s possible you fall into an income category that could qualify you for government assistance. Consider taking advantage of those programs to help you dig your way out of your rut.

Save for emergencies.

If you’re living paycheck-to-paycheck, this scenario is probably familiar: every month, you try to put money in the bank, and every month something comes up that forces you to clear out your savings account. Before you can truly break the cycle, you need to be prepared for emergencies. Once you’ve cut your spending, start putting every extra cent into savings. Don’t be discouraged if you hit a few setbacks. Just keep saving. Eventually, you’ll build a cushion of $1,000-$2,000 for financial emergencies.

Pay this month’s bills with last month’s paycheck.

The ultimate goal is to get ahead of your expenses. Once you’ve saved for emergencies, it’s time to build a cushion on your checking account. If you’ve built a budget, then you should know approximately how much you spend each month. Instead of spending extra money, put it aside to put yourself ahead. Once you’ve saved an entire month’s worth of expenses, you’ll no longer be waiting until payday to send a check or restock the refrigerator.

Be disciplined.

When you’ve got several thousand dollars in the bank, it can be hard not to feel so confident in your finances that you go right back to your overspending ways. Remember, though, your savings doesn’t change your income. What I mean is, if your paychecks equal $3,000 a month, and you have $5,000 in the bank, it may feel like you can spend $3,500 a month. But remember, your savings won’t last forever, and you’ll end up right back where you started in four months. Budget according to your monthly income. If an emergency forces you to tap your emergency savings, be diligent about replenishing what you spent. Otherwise, you’ll end up living paycheck-to-paycheck again.

What would *you* do with $640 million?

With the Mega Millions jackpot up to $640 million now, it seems like the whole country has been hit with lotto fever this week. I’m not a big believer in gambling — I think in most cases it’s throwing good money at extreme odds. Though in this case, I don’t think it hurts to spend a buck on a ticket. It’s only a dollar, and your chances are as good as anyone else’s, so why not?

Tony and I didn’t buy a ticket. We did have a fun conversation about what we’d do with that kind of money, though. Who hasn’t had the “what would we do if we won the lottery?” conversation?

What did we decide? Well, for philosophical reasons, we honestly don’t believe anyone should keep that kind of money to themselves. In my opinion, there is far too much need in this world for one person to hang on to that kind of wealth. We would continue to live a modest lifestyle for the most part. That doesn’t mean we wouldn’t benefit personally from winning a jackpot, though.

Here are a few things we’d do for ourselves:

  • Pay off our mortgage, remaining student loan debt, and our car loan.
  • Set up college trusts for Judah and our hypothetical future children.
  • Invest enough cash to net us $150k in interest every year for the rest of our lives.
  • Do some improvements for our house. We might remodel our kitchen or add on.
  • Buy the items that we’re currently saving up to get (a riding lawn mower, new bedroom furniture, a new mattress, new laptops).
  • Travel more. I figure, if we won the Mega Millions, we could at least afford to take a nice vacation once a year.

Here are a few things we wouldn’t do:

  • We wouldn’t buy a huge new house. We may decide to move eventually, but it would be to a relatively modest home. For right now, we’re happy where we are, and we love our home. Being mega millionaires wouldn’t change that, and our family just doesn’t need a giant mansion.
  • Tony wouldn’t quit his job. He loves teaching. He might not want to work full-time so we’d have more time for our family and travel. I know he’d want to continue teaching in some capacity, though.
  • We wouldn’t go out and buy a bunch of new cars or ridiculous toys that we don’t need.

We’d also use the money to help our families.

  • Pay the remaining mortgage debts and student loan debts for our parents and siblings.
  • Set up education trusts for our nieces and nephews.
  • Ensure that our parents will have a comfortable retirement.

The rest of the money would go to charitable contributions. We had a lot of fun discussing which causes we’d support, and how we could use that kind of money to really help people who need it.

I would want to set up a charitable foundation to help the families of children with catastrophic illnesses pay medical bills, replace lost income during treatments, and help with any other expenses they might incur as a result of their child’s medical care. Tony would like to support the arts by offering a grant for young writers. We’d both like to contribute to our alma mater, Indiana University, and support organizations like NPR or PBS because we’re big consumers and supporters of public radio and television.

What would you do with the jackpot?

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Saying goodbye to our awesome gas rewards program *sniff*

With gas prices pushing $4, I knew it was only a matter of time. And now it has finally happened. Our amazing gas rewards program will soon be no more.

For the past 4 years, we’ve put all fuel purchases on a branded credit card. We always had to fill up at the same station, but in return, we received 5% cash back rebates for fuel purchases. I loved the cash back, and paying for gas in one bill every month simplified our budget, so it was win-win.

The letter we received outlined a new “rewards” program. It’s incredibly confusing, but from what I can gather, it seems like for every $100 we spend, we’re given the opportunity to fill up a single tank at a 15-cent-per-gallon discount. The discount accumulates with each $100 we spend. If we accumulate a $1-per-gallon discount (after spending $700 on gas), we can request a $15 statement credit. It shakes out to roughly 2% cash back if we continue to buy gas from this brand and choose the statement credit option.

The thing is, it’s not convenient for us to use this particular gas station anymore. When we first bought our house, the closest gas station happened to be this brand — it was literally right around the corner. Right around Christmas, though, the location suddenly closed. To keep getting our 5% rebate, I was driving clear across town every time I filled up. Without those rebates, it’s not worth the hassle.

We may eventually close the credit card. Since it’s not the first credit card for either one of us, it won’t shorten our credit history. As long as we increase our limits on other credit card accounts to account for the lost lending power, it should have minimal impact on our credit score. For now, though, I think we’ll just stop using it.

I still like the system of paying for gas in one lump sum every month, since that’s what we’re used to. I don’t want to open another credit card, though. So I started exploring my options.

There is another gas station around the corner from our house that offers a reward program. It’s a punch card, and we’ll receive a discount of 5 cents off per gallon for every 100 gallons we pump. I’ll take it!

Next I had to figure out which credit card to use. I looked at the rewards for the credit cards we currently have, and I wasn’t impressed. Each of them offered some kind of rewards program, but it’s one of those deals where you get a point per dollar, and then redeem 5,000 points for a $5 gift card or something. In other words, not a great deal.

There are other cards out there with better rewards, but that would require opening another credit card. So I did some more hunting, and found that American Express has a pretty decent cash rewards card with no annual fee that offers 2% cash back on gas. Since we already had an American Express card, I wondered if I could just switch my account to the cash rewards card without opening a new card. A quick phone call was all it took to make the switch. It’s obviously not as great as our flat 5%, but it’s the best deal I could find without opening a new account.

It’s about the same amount of money that we’d receive if we continued using our current card and bought gas from that brand. The benefit of switching is that we’ll get the reward for buying gas at any gas station, so we’ll have more freedom.

Our plan now is to put all gas purchases on the cash back card, and pay it off every month to avoid interest just like we’ve been doing all along, of course. (Remember: the rewards program isn’t worth it if you’re paying high interest rates or an annual fee.) We’ll also use the reward program at the gas station near our house for fill-ups at home. The bonus to this new system is that we’re no longer required to use the same gas station to get our rebate. This will make things much easier when we’re traveling since we won’t have to hunt for a certain gas station brand, and it will also allow us to price compare and fill up at cheaper stations.

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Simplify your money

At the start of the year, my friend Kacie inspired me to explore new options for simplifying our finances and bill pay process. I’m still working out some of the details for these new systems, but I’m going to share them with you here, in addition to the systems we already have in place for simplifying. Be sure to share your ideas in the comments!

Go paperless.

If you haven’t done it already, chances are you think about it every time you open a paper statement and see the words, “Go paperless now!” My advice is to just get it done. To keep a record of statements, open the electronic version when it becomes available and save it as a PDF on your computer. You’ll feel better without all that paper mail bogging you down, and it will simplify your filing system, too.

Automate your budget.

Rather than manually tracking expenses in a spreadsheet or on paper, sign up for a service like Mint.com. Mint will automatically track and categorize your spending. With very little management, you can see a complete picture of your spending and budget categories as well as charts showing you whether you’re on track for meeting your monthly budget limits.

Automate your bills.

Kacie has been working on this herself, and it inspired me to figure out a system that works for us. Right now, I navigate to each bill’s website and pay each bill online individually. I like the immediacy of paying online through the site, because I receive a confirmation immediately, and then it’s done.

I don’t like automatic electronic funds transfer, because it basically gives the payee unlimited access to your account forever. (I learned this the hard way when our previous health insurance company continued debiting our account for 4 months after we canceled the policy despite the fact that I elected to stop automatic debit months before we canceled. I eventually had to file a fraud claim with my bank and have them blocked from my account, at which point they sent us a letter notifying us that they were canceling the policy due to nonpayment. PFFT. FINALLY.)

Check with your bank to see how their automatic bill pay system works. Setting up each individual payee will be a pain the first time, but then it’s done and you can pay each bill through your bank’s website with a single click.

Split your paycheck to even out pay periods.

My husband is paid twice a month — on the 15th and on the last business day of the month. I try to balance our bills so that we’re paying about the same amount in fixed bills from each check, but our mortgage payment really throws that off. If we were extremely disciplined, this wouldn’t be an issue. We could just leave the surplus from the other check alone, and use it in the next pay period. Unfortunately, that’s not usually what happens. What happens is we see that surplus in the first check, and we overspend for the first two weeks of the month. Then at the end of the month after the bills clear, things are really tight until the next pay day. It’s annoying.

Kacie came up with an idea that will remedy this problem, and I’m going to give it a try myself. She decided to add up all of her fixed bills (mortgage, utilities, etc.), and have half that amount deposited from each paycheck into a separate “bill pay” checking account. The remainder of each check will be deposited into a different account for daily expenses like gas, groceries, and other purchases.

For example, to make things simple, let’s say you earn $2000 a month. Your fixed expenses total $1500. Everything else is $500 a month. After paying your fixed bills, you have $400 left out of the first check and only $100 left out of the second check. Under Kacie’s system, you would deposit $750 from each check into the bill pay account and $250 into the daily expenses account. Now you have an equal amount for daily expenses each month, and your fixed bills are covered no matter when you pay them.

It might sound complicated, but I like the simplicity of having the same amount for expenses in each pay period. The symmetry will make budgeting much easier.

Pay the bills on pay day.

To combat the confusion of tracking a million different due dates, pay bills just twice (or once) a month. Every pay day, I go through and pay all the bills that are going to be due in the next two weeks. I have a list that I work from, so I know around what time the bills will be due even if the actual date fluctuates by a day or two. Once I pay all the fixed bills, I know that whatever is left in the account is available for day-to-day expenses.

How do you keep your finances simple?

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The most unpleasant topic in personal finance

I am embarrassed to admit that our son is almost a year old, and we’ve put this off until now, but right now we’ve begun the process of reevaluating our life insurance needs and writing our wills. Ugh, it’s the worst.

The truth is, applying for life insurance is a complicated process, and every time I sit down to actually do it, I start feeling overwhelmed and I hate the feeling I get in my stomach when I think about a situation where we’d actually need this life insurance and I decide to put it off for a little longer. I realize this isn’t a grown up way to handle the subject, but I imagine I’m not the only grown up who feels this way, so I’m admitting it now. If you’re feeling this way, too, I’ll tell you what I told myself: it’s better to get it over with, and then forget about it and hope that you never need it.

So. The big question: How much insurance do we need? For Tony, we’ll need a considerably higher amount of insurance since he is the primary earner. Tony already has a policy provided by his employer that equals two years’ salary. That’s certainly a start, and if we didn’t own a home or have a child, it would probably be enough for us. But in the event of the unthinkable, we want to pay off the mortgage, pay our remaining student loan debt, and provide enough income for me that I can continue to stay home with Judah and any future children until they’re teenagers.

For me, our needs are less. We’d basically want to pay off the house and remaining debt in the event of my untimely demise. We’ve chosen not to include education needs for children in our life insurance estimates at this time. We really just want to cover immediate needs. We may choose to increase our coverage later, but for now we think our money is better spent on accumulating savings and paying off debt rather than paying a high premium for a million-dollar life insurance policy.

Unfortunately, Tony has a pretty extensive family history of cancer, heart disease, and diabetes. I have heart disease in my family tree, too. So our premiums may be higher than people without these family histories.

This calculator from the nonprofit LIFE Foundation is a handy way to calculate your life insurance needs from an unbiased source. Insurance salespeople earn commission on most policies, so you might want to determine your needs before talking with a sales agent.

I’m contacting a few sales agents this week for quotes, and I’m going to determine what we need to do to get the ball rolling. I’m assuming the most annoying part of the process will be medical exams to determine our current health.

As for our wills, our needs are very simple. Since we don’t have a lot of assets at this point in our lives — mostly just a relatively small amount of cash savings, two tiny retirement accounts, and a house with a big old mortgage — our most pressing concern in writing a will is who will take care of Judah if both of us were to die.

I’m looking into alternatives to hiring an attorney right now. A service like LegalZoom may be sufficient for us at this time since our will is going to be simple. I’d appreciate any experiences you can share about that service as I determine if it makes sense to go the super budget route or pay a couple hundred to an attorney.

I’m not going to lie, I feel a little sick just thinking about this stuff, but grown ups have to think about yucky stuff sometimes, so I’m sucking it up. I sure hope we never need to use ’em.

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Monthly debit card fees make cash-only budgeting smarter than ever

According to an article on the New York Times, big banks including Bank of America, Chase, and Wells Fargo are beginning to charge consumers a monthly fee for utilizing debit cards. Bank of America has announced that debit cardholders will be charged $5 per month if they choose to make debit card purchases in that month, while Chase and Wells Fargo are in the testing phase. The debit card fees are an answer to federal regulations capping debit fees charged to retailers for processing the cards. From the New York Times article:

Starting Saturday, big banks must comply with a new regulation that caps the fees they can charge merchants for processing debit card purchases. But some consumers are already seeing the impact of the change, in the form of higher fees charged on their checking accounts, as banks seek to recoup lost revenue.

Bank of America is the latest bank to say it will begin charging a monthly fee for checking accounts that use debit cards. Starting early next year, the bank will charge $5 a month, in any month that the customer uses a debit card to make a purchase. (If customers have a debit card, but don’t use it, they won’t incur the fee.) The fee won’t apply to A.T.M. transactions, and it won’t be charged to customers with certain premium accounts, a bank spokeswoman, Betty Riess, said. “The economics of offering a debit card have changed with recent regulations,” she said.

Bank of America joins banks including SunTrust and Regions in charging the fees. Other institutions, like Wells Fargo and Chase, are testing them, too. And over all, bank fees have crept up to record levels, a recent survey found.

I currently bank with ING Direct, which built a reputation on limiting fees to their consumers, but I’m curious to see how their recent merger with Capital One will affect this reputation. It could be that they’ll join in with other banks in charging these fees.

If you’re facing debit card fees from your bank, you have a few options for combating it. The first option is to switch to a bank that doesn’t charge these fees. Unfortunately, though, it seems that most mainstream banks could be moving in the direction of passing higher fees along to consumers as they lose revenue due to the new federal regulations.

To avoid fees all together, you could either move to a cash-only budget or pay monthly bills and expenses with a no-fee credit card and pay the balance in full each month through bank draft or check. Cash-only is obviously the safer option to avoid overspending to paying high interest fees for balances that carry over.

How do you plan to avoid high bank fees in the coming months? Has your bank announced any new fees now that this legislation is going into effect?

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Is sticking to your budget hurting your savings account?

This post was originally published September 3, 2009.

piggy bank

“Wait, wait,” you’re saying. “Budgeting helps you make better decisions with your money, which should be helping your savings account. Isn’t that the whole point?!” And you’re absolutely right.

However.

This summer, I learned a valuable lesson that I want to share with you. Sometimes being too rigid in your budget can actually lead you to make bad budget decisions.

This isn’t one of those posts about how you need to treat yourself every now and then to avoid burn out. This is about how sticking to a budget can sometimes make extra money feel, well, extra. And if it’s extra, why not just spend it? You deserve it after all that hard work budgeting, right? The problem is, this mindset can prevent you from growing your savings account.

I am constantly vowing to use the snowflaking method to increase my savings, but my strict budget gets in the way. If I receive unexpected “extra money” in the middle of the month, I often end up spending it. After all, this is extra money. I’m technically sticking to my budget, right? So I can spend this money on whatever I want.

It’s a bad habit, and it’s slowing down our savings progress. If we saved this extra money instead of spending it, we would be saving a lot more.

So how do we break this bad habit? I have a plan. Part of the problem is that I feel compelled to make a plan for unexpected money right away. Whether it’s $10 or $100, I decide how to spend it immediately, and more often than not it involves spending it on something we don’t need because, hey, it’s “extra.”

From now on, unexpected money will be deposited and ignored until the following month when it can be added to the budget. It’s much easier for me to commit money to savings when I’m creating a budget than it is for me to commit unexpected money to savings when the budget has already been set for the month.

I’m hoping that adding it to a budget will help me view it as part of our income instead of “extra money.” I’m much less likely to spend our regular income than I am to spend money that I don’t include as part of our income.

Is this a problem you face? How do you combat “extra money syndrome”?

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