Category Archives: Money

What a savings account can buy

When I tell people we’re moving in 6 weeks, it always leads to the same conversation:

“Oh, so you found a job?”

“Nope. Not yet. But I’m looking.”

“So your husband found a job?”

“Not yet.”

That’s when they look at my like I’m nuts.

I don’t blame them. Back when I was living paycheck-to-paycheck, the idea of quitting my job without another one lined up would have seemed pretty nuts to me, too.

It’s not polite to ask specific questions about our financial situation, so most people leave it at that. They sort of raise their eyebrows like we’re nuts and assume we’ll be mooching off our parents for months while we job search. I don’t ever bother to correct them, even though their assumption isn’t really true.

Yes, we’ll be staying with Tony’s family temporarily, and it’s extremely kind of them to give us the chance to get settled in Indiana before we find an apartment. And yes, the absence of a rent payment from our budget for the few months that we stay there will help keep our savings account healthy. We won’t be mooching, though. We’ll be paying all of our own bills, chipping in for groceries, and helping out in any way we can to repay their kindness. But the truth is, we’re staying with them more out of convenience than financial necessity.

My husband is hoping to find a teaching job. Because the availability of teaching jobs depends so much on geography, we don’t want to lock ourselves into a certain area with a lease. We want to be open to move where ever the jobs are. Staying with family while we look makes the most sense.

Financially, though? We’re in a better place than we’ve ever been. Because we’ve been saving for the past three years, we have enough cash savings to carry us through a full year without any income. We won’t be living without income, though. We plan to earn money through part-time jobs or substitute teaching while my husband searches for a full-time teaching job. I also make a little bit of money from freelance writing and advertising on this site. That income will stretch our savings even further.

Obviously, the sooner we start earning income again, the better. I don’t want to completely wipe out our savings accounts while we search for jobs. I’m just not too stressed about the fact that neither of us has anything lined up yet. The sooner we find jobs, the more money we’ll be able to keep in our emergency fund and move to our house fund. For now, though, our savings has bought us peace of mind and the freedom to move closer to family despite the fact that the job market is sluggish, because we’re not dependent on our paychecks every week to live.

I doubt I’ll ever view our savings the same way again. Sometimes when I looked at that balance, I saw all of the things it could buy: a new car, a new computer, a million other things I wanted but didn’t need. It was tempting to spend at least some of it.

Now I see that the best thing a savings account can buy is freedom and peace of mind. We’re free to move closer to our families, free to be a little picky as we job search, and free to enjoy our vacation to Europe right before we settle into our new home. All of that is worth so much more to me than any material thing our savings account could buy.

Photo by alancleaver

Desperately seeking a subletter

One of the big things on my “to-do before we move” list — the thing I’m dreading most — is figuring out what to do about our apartment. We’re moving at the beginning of May, but our lease isn’t up until the end of July. This means we could end up paying three months’ rent for an empty apartment unless we can find someone who wants to live there until the end of the lease.

According to my landlord, in North Carolina, we have two options for avoiding this. The first is to give the landlord 30 days’ notice that we want to terminate our lease early. They’ll put the apartment back on the market, and if they can find a renter, they’ll let us out of our lease. This is ideal, but it’s also unlikely. Unfortunately, there are two other 2-bedroom apartments that will be vacant as of April 30, which means those two will be rented out first.

The other option is finding a subletter. This is a lot more work on our part. Not only do we need to find someone who is interested in renting the apartment, but we have to stay on the lease for those three months while a stranger lives in the apartment. We remind liable for rent if they default.

From what I can tell, here’s the process we’re facing for finding a subletter.

  1. Find someone who is interested in renting the apartment from May until July.
  2. The subletter must fill out the rental application and pass a credit check and background check in order to be approved.
  3. We sign a new lease with the subletter. If the subletter defaults on the lease, we are responsible for paying the rent.

I hate the idea of doing it this way, but I really want to avoid paying rent for those three months when we’re not living here.

We live extremely close to Tony’s university, so I’m really hoping we’ll find a college student (or two) who needs a place to stay for the summer. I posted a listing on Craigslist, but no one has responded to it. After spring break, we’ll be posting some flyers around campus advertising the opening. Beyond that, I’m not really sure how to go about finding a subletter.

Anyone have any suggestions on how to find a reliable subletter?

Photo by jessandcolin

Confession: I love my tax refund too much to correct my withholdings

No matter how much you know about money or how well you  manage yours, chances are there are things you do that you know are wrong, but can’t give up. For me, it’s overpaying taxes.

Here’s my confession: even though I’m married and file my taxes as a business due to various income sources, my tax withholdings are still set to the max.

I know it’s stupid. I know that my tax withholdings should be set so that I’m paying the right amount of taxes out of each check, owe nothing, and get no refund. I know that the smart thing to do is invest or save that extra money every week so I’m earning interest. I just can’t kick my tax refund habit, though.

The truth is, I don’t trust myself. Saving that money throughout the year takes a lot more discipline than letting the IRS hold on to it. Sure, my checks would be a little bigger every other week if my with holdings were set correctly, but an extra $200 a month can be frittered away so easily.

Earning interest requires putting every penny in the bank. That can be really difficult for someone like me who battles the evils of lifestyle inflation. I work hard to combat it, and for the most part I avoid major inflation, but when you’re living on a very tight income, it’s incredibly difficult not to add expenses as income increases. When that money comes in a lump sum, though, it’s a lot easier for me to commit it to savings or something purposeful.

We received our tax refund today, and it’s already been moved to savings to finish up our Europe fund and give us a pretty big head start on our moving fund.

I wish I had the self discipline to earn interest on that income all year, but in the end it would only add about $50 to my total. I know, $50 is better than nothing, but I can’t say I regret it. It’s unlikely I would save an additional $200 a month if my withholdings were set correctly. It would likely be spent on other things. Besides, nothing feels better than moving a big lump sum of money into savings and seeing my percentage increase overnight. Tax refunds are my personal finance guilty pleasure.

What about you? Do you like to get a refund every year, or do you set your withholdings correctly?

Photo by cbcastro

Two bank accounts = too much confusion

When I first switched to my ING checking account, I absolutely loved it. I still love my checking account with them. But we are finally experiencing some of the confusion I feared when we made the switch.

Because ING Direct is an electronic bank, our account must be linked to a brick and mortar bank. This allows us to cash and write paper checks. Aside from the occasional birthday check from my grandma, we rarely cash paper checks. Unfortunately, though, because of the timing of my husband’s paycheck and the way that ING’s paper check mailing process works, we still use our brick and mortar bank to write our rent check.

It’s been relatively easy for the past several months. Tony’s monthly paycheck is split up — the rent money is automatically deposited into our brick and mortar bank on the last day of the month, and the rest of his paycheck goes into our ING account. We write the rent check, give it to the landlord, and everything is fine.

This month I made a mistake, though. A few of our online bill pay accounts still have the account information from our brick and mortar bank. I must have selected that account accidentally when I paid a bill at the end of the month, because $100 of our rent money was deducted from the bank before the rent check cleared.

When I logged in to see if the rent check had cleared on the 2nd, I realized there wasn’t enough money to cover the rent. If the check cleared without enough money, we’d have to pay a $25 returned check fee.

It takes two business days to transfer money from ING to the brick and mortar bank, so there wasn’t enough time to transfer money in order to avoid a bounced check.

Luckily, I caught the mistake in time to make a cash deposit at the brick and mortar bank. Because the check hadn’t cleared yet, I was able to deposit cash into the account and avoid a returned check fee. The check cleared at midnight on Feb. 2 without a problem.

I learned a few lessons from this headache. First of all, I removed our brick and mortar account information from all of our online bill pay accounts to avoid selecting it accidentally again. From now on, I’ll also be checking our brick and mortar account to make sure I haven’t made any mistakes before I turn in the rent check.

This is the second big mistake I’ve made in as many months. Last month, I actually forgot to pay a bill (a first for me), and we ended up paying a late fee. I don’t know what’s up with me lately, but the biggest lesson I learned from this? I need to get on the ball. I don’t know if it’s stress from all the planning and changes ahead or what, but my lack of focus could end up costing us if I’m not more careful.

Photo by potteryandeverythingelse

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

Pros

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

Cons

  • 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

Pros

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

Cons

  • 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

Pros

  • 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.

Cons

  • 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.

Prioritizing our goals for the months ahead

Now that our emergency fund is complete, and we’re less than $1000 away from our goal to pay for our Europe trip in cash, I’m starting to think about what goals are next for us. Even though we’re unlikely to make much progress in the months ahead, it’s time to set our priorities and figure out where to start funneling our resources.

We have several goals for the next 3 years or so, but we’re still undecided on the order of things. Here’s a rough sketch:

Save $6,000 for moving expenses.

It will cost us under $1,000 to physically move our stuff. Tony’s family has generously offered us a place to stay while we get settled in and look for jobs, but we have several expenses that we’ll have to pay (health insurance, car insurance, cell phones, student loan payments, and groceries). We’ll need about $1,000 a month.

We’re hoping to find part-time jobs right away to extend our savings. My hope is that $5,000 plus whatever we make part-time will be enough to cover our expenses until we find jobs. Of course, in this economy, there’s no telling how long it could take. If we run out of “moving money” before we have jobs, that’s what our emergency fund is for. But I’m crossing my fingers that we won’t have to dip into that.

Our tax refund will give us quite a good start, and now that we’re done saving our emergency fund and Europe, we can devote all of our monthly savings to this goal, so saving this by May shouldn’t be a problem.

Buy a second car.

I know we’ll eventually need a second car. I want to wait until our current car is paid off before we begin shopping for a new one, but this will depend largely on our living situation once we move. If we’re both working on separate sides of town, it won’t be as easy as it is now for us to share a vehicle.

For now, we’re playing it by ear. Our car will be paid off in May 2011, and depending on our situation, we may need a second car sooner than that. So we’re starting to save now for a down payment at the very least, but if we have more time we might be able to pay cash.

Buy a house.

This is the big one, and it’s the goal that intimidates me most. I’m not against having a mortgage, especially if it’s a sensible one, but I’d like to save $20,000 in cash before we even consider buying a house. Saving that much money is a really tough commitment to make when I look at the cost of rent in the Indianapolis area, though. Considering our modest price range, it’s likely that a monthly mortgage payment would cost us less than rent.

Our plan is just to start saving, and then wait and see what our situation is. We may start doing some serious looking to figure out exactly what it would cost us, and if it makes sense to do it sooner, we may.

Pay off our student loans.

We still have a significant amount of student loan debt between the two of us. We’re currently paying them down slowly but surely, but eventually we plan to get much more aggressive to pay them off more quickly. At this point in our lives, though, I think security and stability is more important. I want to be debt free, but paying off those loans more quickly would eat up a huge percentage of our financial resources. So this goal remains on hold for now. It will likely wait until we’re settled homeowners.

I know that it’s unlikely that we’ll make much progress in the months ahead. Things are going to be very tight for us right after the move. We’ll be in survivor mode again, spending savings with no income, but we’re reasonably prepared. I can only hope that it will be very short time period before we’re able to start saving again.

I also have to remind myself that three years ago saving an emergency fund, moving halfway across the country, and paying cash for a trip to Europe seemed just as impossible. These are bigger goals, but we can achieve them if we stay focused.

Photo by alancleaver

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.

Our emergency fund is complete!

emergency fundTake a look at the progress bars in my sidebar! We’ve completed our emergency fund in just about 15 months and it feels FANTASTIC! Over the past year, we’ve saved about 30% of our income. Not too bad, huh?

We weren’t projected to complete it until next month, but I went ahead and moved some of our Europe fund into our Emergency fund to finish it up. Now we can focus on funding one savings account.

Over the weekend, we stashed our emergency fund in an ING 12-month CD. The interest rate on our ING Direct savings account has been steadily dropping since we opened the account. We started with a 3% interest rate, and about 15 months later it’s down to 1.3% and still dropping. With the CD, we lock in a 2.1% interest rate for 12 months.

I know what you’re going to say. Isn’t the Emergency fund supposed to be liquid savings? Doesn’t a CD smack you with penalties for early withdrawal? Well, here’s the thing: The penalty for early withdrawal is 3 months of interest regardless of when we withdraw. So the penalty is the same if we withdraw tomorrow or 11 months from now. If we leave the money alone for 12 months, we’ll earn at least an additional $80 in interest. Worst case scenario, we have a catastrophe and we have to withdraw early. If that happens, we’ll lose a little of that extra interest.

Based on my calculations, 3 months of interest would equal about $20. So even if we withdraw early, we’ll still make about $60 more with the CD than our regular savings account (and that’s if our savings interest rate doesn’t continue to decrease, which is unlikely).

If we run into a little hiccup that requires us to move some money out of savings, we could always borrow from the Europe fund, which is still in a regular savings account, without any penalties.

The way I see it, if we have to withdraw from our CD a little early to cover our car insurance deductible, for instance, then so be it. We’ve really got nothing to lose. We’ll give up a little of that extra interest. So what? The money is still accessible in the event of an emergency, and we’re not technically losing money that we invested. Just interest, which would be fine with me if it was a true emergency.

Another reason we made the decision to open the CD is to protect our savings. Now that we’re banking primarily with ING, it’s a little too easy to move savings into our checking account. I wanted an added layer of deterrent for us to leave it alone now. There’s no way I’m giving up 3 months of interest just because I want to buy something.

This is our second milestone (the first was paying off all of our credit card debt), and it FEELS GREAT. When we first started our emergency fund, I felt so overwhelmed. Our budget was so tight, how could we manage to save such a large amount of money? But I have to tell you, it is so worth the scrimping. Since I opened our emergency fund, I’ve turned into a savings junkie. I love the feeling of looking at our account, and feeling secure in the knowledge that we can handle anything that life throws our way. It’s so empowering.

If you haven’t opened an emergency fund yet, why don’t to grab one of my referral links and get started? :)

Photo by endlessstudio