Category Archives: Money Management

Celebrating our first (frugal) year of marriage

married
He just pronounced us married!

One year ago, my husband and I were celebrating our wedding day. I can’t believe how quickly this year has flown!

I’m so proud of what we’ve accomplished in just a year. Our main goal was to begin our life together on the right financial track, and I’m confident that we’ve accomplished that goal and then some!

Here’s what we’ve accomplished in one short year:

It hasn’t been easy for my husband, but he has been incredibly supportive as we adapted to this new lifestyle. When we began living frugally, I was the one constantly reminding him of our goals. Now I love it when he’s the one reminding me. We’re a great team, and I’m excited about all that we’ll accomplish together in the future.

After an amazing year with an amazing partner, I’m looking forward to many frugal years to come!

Surviving the summer without spending our savings

Tony’s summer vacation has officially started. He won’t be teaching or taking classes again until the end of August. Unfortunately, this means we’re losing a third of our income for the months of June and July.

We’ve been anticipating this temporary loss of income all year, so we prepared by putting aside most of the money we’ll need to cover Tony’s salary without using our emergency fund. But now I’m looking at that money, a pretty hefty chunk of change for us, and thinking about all the things we could do with it if we could save it.

Our original plan was for Tony to find a part-time job. Any extra money he made would go toward replenishing that savings. We’re not giving up on that plan yet, but it’s tough out there. He’s applied for about 20 part-time jobs so far with no returned phone calls. When he follows up, he’s told, “Don’t call us, we’ll call you.”

It’s frustrating, but this is exactly why we saved the money. We knew it might be difficult for him to find a part-time job this summer, especially since we share a car and he’s limited to jobs that are accessible through walking or our city’s limited public transportation. So the money is there if we get into trouble, but even if he doesn’t find a job, we’re challenging ourselves to spend as little as possible for the next three months.

Here’s what we’re doing:

We’re temporarily halting savings.

It seems silly to take money out of savings only to put it right back in. We currently save about 60% of Tony’s income every month including retirement. For the months of June and July, we won’t be putting the full amount into savings. It seems counter-productive, but the point is to live only from our income without dipping into our savings. If we can make it through the summer without spending it, then we’ll be able to double what we would have normally saved in two months.

We’re participating in a no spend month.

I’m intrigued by the idea of a “No Spend Month,” from SmallNotebook.org. We’ve never tried a cash budget system, but we’re going to give it a shot one month this summer. We’ll probably wait until August when our finances are likely to be tightest.

We’re working from a three-month budget.

Every month I set a zero-based budget based on our expenses and income. This summer, since our monthly income is reduced, I’ll be setting a zero-based budget for three months instead of one.

Here’s why: Because I’m paid every other week, there are two months out of the year when I get three paychecks in a month instead of two. July is one of these months. Because I base our budget on our total monthly income instead of my yearly salary, this feels like “extra money.” When it’s split up over the course of three months, it helps cover some of the gaps of our lost income. So I added up all of the paychecks I’ll receive over the next three months, divided them by three, and set a monthly budget based on that.

We’re cutting our overall expenses — slightly.

After adding up our total income over the next three months and cutting out savings for two of those months, we come surprisingly close to our normal monthly income without moving money from savings. We’ll make a few adjustments to spending to cover the remaining gaps. I’m hoping that the no spend month at the end of the summer will help us increase our savings by even more.

Anything extra will go straight to savings.

If Tony does find a part-time job, it won’t change our plans. We want to save as much as possible this summer, and any extra income will go directly toward savings. We’re still hoping he’ll find something, because this will help us save so much more!

If all goes according to plan, we should be able to double the amount we would have put into savings this summer. Here’s hoping we can do it!

The bottom line: Frugality is about quality of life, not money

For me, frugality isn’t just about money. It’s not just about a bottom line. It’s not just about asking myself, how much did I earn this month? How much did I save? How much is in the bank?

Goals are so important to frugality, but they can also make frugality a little counter-productive. When you spend so much time setting goals and scrimping and saving, it’s easy to lose sight of the real goal — happiness and peace of mind.

Yes, frugality is about saving money. But the true bottom line is quality of life. The whole reason I want to get out of debt, save money, avoid living paycheck-to-paycheck is because I want to live better. I don’t want to worry about money. That’s why it’s so ironic when frugality occasionally leads me to do just that — worry about money.

When I worry about money now, it’s so unnecessary. It’s not because I can’t pay my bills or buy groceries. It’s because I forgot a coupon at home and paid an extra 30 cents for groceries, or a slight setback prevented us from hitting our savings goal for the month. Those are the times when I have to stand back, look at how far we’ve come, and remind myself to relax.

I continue to be mindful of my spending and save as much as I can, but I draw the line when it crosses over from mindfulness to worry. I’m frugal because I don’t want to worry about the money issues that really matter, like making ends meet or covering emergencies. If I still worry about money after all of this hard work, then what’s the point?

If you sweat the small stuff when it comes to frugality, take a step back and ask yourself why you’re clipping coupons, budgeting, saving. No matter what your overall goals, chances are your motives are the same — you want a better life. But fretting about every last penny isn’t the life I envision when I think about my best possible life.

When you’re kicking yourself for leaving a coupon at home, worrying about how long it’s going to take you reach your final goals, just take a step back, breathe, and remember the real bottom line.

Ask yourself: Is this improving my quality of life? Many of my frugal habits do: menu planning, budgeting, saving. At the end of the day, those things make me calmer and happier.

But the ones that don’t — worrying, depriving myself, sacrificing my comfort or happiness for a little bit of money —  shouldn’t be a part of my lifestyle.

How do we measure up to national averages?

One of the main concepts of frugality is that life isn’t a competition when it comes to finances. I try to avoid comparing myself to other people, because we inevitably fall short in terms of material possessions.

Just for fun, though, I took a look at some national averages to see where we fall on the spectrum. I was actually surprised to discover that in some ways we’re right on target. I had hoped we’d be considerably more frugal than the national average, but it turns out we’re pretty average.

Housing

I couldn’t find any hard and fast statistics newer than 2004. As of 2004, the average American spent 21% of their income on housing costs. But that was 5 years ago, and so much has changed since then. According to CNN Money, mortgage costs should equal no more than 28% of your income. Our rent is about 26% of our monthly income, so it looks like we’re pretty average in that respect.

Savings

This is my favorite category. :) As of February, the national personal savings rate reached 4.2%. We save a minimum of 21.5% of our after-tax income every month. Yay us!

Food

I’m sort of bummed about where we fall here. According to the USDA food plans, families of 2 living on a “thrifty” food plan spend $82.10 a week on food. Doesn’t sound too thrifty to me. We typically spend $60 a week at the grocery store, but our monthly food costs are closer to $400 total, or $100 a week.

We’ve become increasingly lazy about monitoring food costs, and those extra trips to the grocery store and occasional meals out really do add up. So we’re closer to the “low-cost” food plan, which is about $104.60 a week (again, that doesn’t really sound “low-cost” to me). We’ve always struggled with food spending, and this little comparison exercise has really opened my eyes. We need to crack down.

Debt

The average American owes $8,329 to credit card companies. We owe $0 to credit card companies. Woo hoo! When it comes to student loan debt, we fall above the national average, though. The average American student graduates with about $21,900 in debt (that’s $43,800 per couple). We owe about $60,000 to student lenders, or about $30,000 each. That’s about 37% more than the average. :(

Retirement

Again I struggled to find recent statistics for what the average American saves for retirement on a monthly or even yearly basis. I guess there are too many factors. But a number that gets tossed around a lot as a “recommended savings amount” is 15% of your income. We’re just getting started on retirement savings, and we made the decision to start slow for now at a 3.5%. Not so good, but our plan is to ramp up our retirement savings when we finish paying down our debt and get our liquid savings where we want it to be.

This was an eye-opening exercise that really showed me where our strengths and weaknesses lie. We should be able to easily cut our food costs, netting us about $160 a month for savings and debt repayment. We just renewed our lease, so there’s not a lot we can do about our housing costs until we move, but when we move we’ll try to get below the national average. I’d like to fall on the lower end of the scale in all of these categories (except savings and retirement, of course).

How does your budget compare to national averages?

Always track your rebate claims

In February, I bought a year’s supply of contact lenses at Costco after searching for the best price. One of the main reasons I decided to go with Costco was the $20 rebate on a year’s supply, which brought their price down to the lowest.

Costco allows online rebate claim submission, and it was pretty simple. I filled out a form with information that was readily available on my receipt. I figured it would be several weeks, maybe even a couple months, before I received my check, so I kind of forgot about it.

Yesterday it was time to replace my contacts with a new pair of lenses. For the first time since I’d submitted the claim, I thought about my rebate. It had now been over two months since I submitted it, and I haven’t received a check.

I logged onto the Costco site and checked the status of the claim using the claim number they emailed me. It was so easy that I couldn’t believe I hadn’t checked it before. According to their records, the check was sent on March 17 and should have arrived 7-10 business days after that. It didn’t.

When I called the rebate hotline, they were extremely helpful. Within about 5 minutes they were able to determine that my rebate check had been sent and returned to them. The customer service rep assured me that a new check would be in the mail by Monday sent by certified mail to ensure delivery.

While the hotline was extremely helpful in resolving the problem, I can’t help but wonder what would have happened if I hadn’t thought to check on it. It’s only $20, an amount that many people might not bother to follow up on. If I hadn’t called last night, I probably never would have received a check.

It would have been nice if they had recognized the problem and resolved it without a call, but to be fair I don’t really expect them to track that sort of thing for me. It’s my money, after all. If I don’t care enough about it to track it, why should they?

People who regularly submit rebates for Walgreens and other stores usually have intricate systems for tracking this sort of thing. I don’t regularly submit rebates (only when I happen to buy a product that offers one), so I easily could have let it slip my mind.

When I bought my computer, it came with a $200 rebate. You better believe I tracked that one. I sent the required materials by certified mail to ensure that they weren’t lost, and frequently checked the status on my claim until I received my check. After all, $200 is a lot of money.

But $20 is just as important when it comes to getting a little money back after a purchase. It’s so easy to submit and track rebates these days, there’s no reason to lose track of that money. I takes more trouble to clip coupons than it did to log in and check on that rebate, and coupons usually only save cents. I would be careful to keep track of a $20 bill; why lose track of a $20 rebate?

Comfort & complacency – frugality’s worst enemies

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

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

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

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

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

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

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

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

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

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

Simplifying our banking system

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

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

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

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

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

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

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

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

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

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

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

Frugality is good for the Earth

earth

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

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

Reduce.

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

Reuse.

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

Recycle.

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

Maintain.

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

Grow.

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

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

Photo by aussiegall

Why I’m using credit cards again

credit-cards

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

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

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

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

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

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

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

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

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

Photo by andresrueda