Category Archives: Saving & Investing

Time for new tires — or why I’m glad we have an emergency fund

Last week Tony took the car in for an oil change and brake check. I wasn’t expecting the news he gave me when he came home. One of our tires had a bubble and needed to be replaced immediately. The other three were on their last legs and needed to be replaced as well.

Our car only has about 20,000 miles, so we weren’t expecting this for some time. There was a time when a surprise like this would lead to panic and, most likely, debt. I didn’t have $200-$500 available for new tires at any given time, so I would have charged it on a credit card (unless my cards were maxed out).

This time it was a surprise, but that doesn’t mean we weren’t prepared.

Every month, we save $25 for car expenses. We’d accumulated about $90 in that account since using it to pay for maintenance before driving to Indiana in December.

The $90 would help, but it wasn’t enough. If we replaced all four tires, it would cost about $450.

I wanted to be sure that it was necessary, though. After all, the tires only had 20,000 miles on them. We knew we needed to replace the damaged tire, but I wanted to make sure the other three really needed to be replaced before taking money out of our emergency fund. We did the penny test and discovered that the back two tires were still okay.

We decided to replace the front two tires. We’ll monitor the tread and condition of the two back tires to make sure they’re still safe, and try to save up the money to replace them within the next few months.

We called for quotes at three different places — AAA, Wal-Mart, and Firestone. Firestone was the cheapest by about $100. The total for two new tires at Firestone was $215 with installation and other fees. Because we save additional money for car expenses, we only had to use $125 from our emergency fund. No big deal.

This is the first time I’ve had to tap the emergency fund, and I can’t tell you how glad I am that we have it. Before our emergency fund, I lived in constant fear that something like this would happen (and it always did). Our emergency fund made a normally stressful situation much easier.

I also learned that we’ve been too lax about tire safety. Just last weekend I drove over 100 miles on those tires — and one of them probably already had a bubble. I’m so thankful that I didn’t blow a tire going 70 miles per hour on the highway. Yikes.

From now on, we’ll keep a closer watch on our tire pressure and tread and check for tire problems, especially before long drives.

I’ve got a new attitude

This morning, like every other morning, my alarm went off at 6 a.m. Since daylight saving time began, my morning wake up call happens before the sun rises. Some mornings, it feels like I’m waking up in the middle of the night.

I’ve been getting up at 6 a.m. for the past couple weeks to work out for 30 minutes, but I don’t have to be at work until 8:30. I lay in bed for a few minutes, and I found myself considering staying there for another hour.

What finally motivated me was a compromise. The thought of getting through my whole workout was overwhelming, but that didn’t mean I should skip it entirely. I made a bargain with myself — in exchange for getting up and making it to the gym, I’d shave 10 minutes off my normal workout.

My first thought this morning was that it had to be all or nothing. Either I’d get out of bed and make it through my whole workout, or skip it and stay in bed until 7 a.m. It didn’t occur to me right away that it’s okay to compromise, and it’s okay to do only what you can do right now.

As I pushed myself through my workout, I started thinking about how often the all or nothing mentality interferes with my diet and exercise — and my finances. When a surprise expense forces me to set aside money in the budget that normally goes to something else, it feels like my goals are shot for the month. If I can’t send the usual amount to savings and debt, then I’ve failed.

When I convince myself I’ve failed, then I start to lose the motivation to do it at all.

If I didn’t make it through a 30-minute workout this morning, then I failed. When I start thinking that way, why even push myself to get out of bed at all? If I’m failing either way, I might as well get an extra hour of sleep.

Instead of all or nothing, I’m going to start just giving my all. If a surprise expense reduces the amount that I can send to debt and savings, then I’m going to happily send what I can and praise myself for coming this far. If I can only make it through 20 minutes on the treadmill, then I’m going to be proud that I still got out of bed an hour early and made it to the gym.

Goals are important, and I’m going to continue setting them for myself and striving to reach them. But I think I’ve been missing the point for some time now. Instead of setting a hard and fast rule and beating myself up if I can’t reach it, I’m going to set broader goals and work to do a little more each time.

I’ve realized that my rigid goals are limiting me. If I’m just pushing myself to save a certain amount every month or make it through 30 minutes at the gym, then I’m less likely to do more than that.

Instead of setting a goal to work out for 30 minutes every single day, my new goal is to go to the gym every morning and work out as long as I can. Instead of saving the same amount every month, I’m going to look at my budget, set a number based on my expenses for the month, and make sure I’m saving as much as possible.

Hopefully, this new positive attitude will motivate me to exceed my previous goals. Most importantly, I won’t feel like a failure every time I hit a setback.

Post-tax refund savings breakdown

I just finished filing our 2008 tax return using TurboTax Home & Business since I had to report a little freelance income for 2008. (If you’re not reporting freelance income, I suggest using TurboTax Deluxe.) The software costs about $40 on Amazon, but it makes it simple to do your taxes yourself. In my opinion, it’s worth the cost.

Since we got married in 2008, we’re getting a pretty hefty refund. It’s actually about $500 more than I anticipated.

We already decided that we’d be using the bulk of the money for savings. We’re putting 70 percent of our refund directly into our emergency fund. After that deposit, our emergency fund will be 55 percent complete!

It took us about 6 months to save that amount, so I’m hoping with our increased monthly savings amount we’ll be able to complete our emergency fund by the end of this summer (especially if we end up hanging on to some of our summer savings). Then we’ll start saving for our trip to Europe.

About 20% is going into our summer savings account to cover the fact that Tony isn’t paid to teach two months out of the summer. That fund is now complete. (Yay!)

My hope is that we’ll be able to hang on to a substantial chunk of that money and transfer it to our regular savings at the end of the summer. Our plan is to cut our spending as much as possible and try to live on my income alone for two months. However, it’s going to be a substantial pay cut (about 43% of our combined income), so I wanted to pay it safe and save enough to cover the difference. If we get into trouble, the money in our summer savings account will be there to bail us out without dipping into our emergency fund.

We’re using the remaining 10% of our refund to treat ourselves. Back in November, I booked a hotel in Washington DC for the last weekend in February at about $60 a night. The hotel is already paid for, but we decided to use a little of our tax refund to pay for a nice dinner and maybe some entertainment.

Originally we planned to spend no more than our monthly entertainment allowance on the trip ($50), plus the extra gas cost, which we’d pay next month when the credit card bill comes. Since our tax refund was a little more than I expected, we decided to use a little of the money for the trip. We still plan to spend as frugally as possible, though, and whatever we don’t use on the trip will go right back into savings.

Overall, our savings accounts have grown by about 50% as a result of our tax refund. Woo hoo!

If I had saved that money instead of loaning it to the government interest-free, I would have earned about $50 in interest. Sure, that’s extra money that I don’t have now. But when I consider the possible alternative (underpaying and owing a big chunk of money at tax time), it’s worth it to me to forego the interest income for peace of mind.

Whew. It feels good to be all done. :)

Thoughts from a first time investor

At the beginning of the month, we started contributing to Roth IRAs. We were both so excited to be getting our retirement savings started. Now about a month later our accounts are already down $1.60. No, that’s not a lot, but when you only have $100 they don’t have far to fall.

My point isn’t to whine about the $1.60. I knew going into this that the stock market is volatile, and that we’d see some downturns — especially right now. The point isn’t what’s in my account today but what will be in my account in 40 years. It’s just a strange realization as a first time investor.

I’m used to putting money away in a savings account. The interest isn’t much, only 2.4% right now. But at least when I put $50 in my savings account, I know that $50 will be there next month. My savings account is about security, not income, so it doesn’t bother me that it will only earn a few cents.

Now that we’re investing in the stock market, it’s difficult to realize that some of the money I put in is already gone. It just doesn’t seem right after years of saving for security. It’s discouraging to know that my money could be growing in a savings account — at the very least staying put — but in my retirement account it’s being slowly whittled away.

It’s also tough to know that I won’t see that money again for 40 years. I like knowing that our emergency savings is there if we need it. The same isn’t true for our retirement accounts. We can’t pay bills with that money if we get into trouble. Investing for retirement doesn’t feel like saving — it feels like paying another bill.

Saving is fun for me because I love to watch our money grow. The more money that accumulates in our account, the more secure I feel. I can’t say the same for our retirement accounts at this point. Right now investing is anything but secure. Not only are we losing some of the money, but we can’t touch it for 40 years.

I’m sure I’ll get used to the difference as we continue to contribute. I also know that this is nothing compared to people who have seen their investment accounts cut in half in the past 6 months. I guess I’m just really beginning to understand the investment process in a way that I didn’t understand it before.

How do you keep your spirits up as the stock market goes down? Do you avoid looking at your accounts? Maybe that would be best for now.

We’re saving for retirement!

Last week, I questioned when we should start saving for retirement. I got a lot of great advice from readers (thanks!). After talking it through and doing our own research, we’ve made the decision that the sooner we start, the better — even if we can’t afford to make huge contributions at first.

Neither of us receives a company matched retirement plan, so we made the decision to put all of our retirement savings into a Roth IRA for now. We’re in a very low tax bracket now, and tax brackets are only going to go up. With a Roth IRA we can pay very low taxes on the money now, and then withdraw it later tax-free. Someday we may have the opportunity to get company matches, and if that happens we’ll start contributing to a 401K up to the match.

We only have about 3 months worth of expenses in our emergency fund. We didn’t want to raid our savings for an initial investment, so we looked for an investment firm that didn’t require a minimum investment.

Our main priorities are student loan repayment and liquid savings right now, so we can only afford $100 a month toward retirement or $50 for each of our accounts. We’ll increase that amount later as our income increases and our debt decreases.

After looking at several investment companies, we determined that T. Rowe Price is the best fit for us. The initial investment is $1,000 unless you opt for an automatic savings plan of $50 a month. Perfect.

Tony brought up a good point that I hadn’t considered. “Will we be able to stop contributing on the automatic plan if our financial situation changes?” I wasn’t sure if participating in the automatic plan without a minimum investment would require a time commitment for automatic investment.

Before we opened the account, I called customer service with a list of questions. They were very helpful, which only cemented my decision to go with T. Rowe Price. The answer to Tony’s question is yes, we can temporarily stop contributing. If we haven’t made a contribution for several months and our account balance is still under $1,000, they will ask that we bring the total up to $1,000 or close the account. But once our account balance reaches $1,000, we can contribute as much as we want whenever we want.

It will take us about a year and a half to reach $1,000. We decided that we could afford to make room for $100 a month at least until that point.

Because we have so much time until retirement and with stock prices where they are, we decided to invest predominantly in stocks.

T. Rowe Price offers a convenient option for beginning investors. You can select a diversified retirement fund based on the time you have until retirement. If you have a lot of time, the fund is more aggressive with a greater percentage of stocks. As our retirement year draws near, the investment portfolio will gradually become more conservative. The fund we selected is about 90% stocks with a very diverse portfolio and only 10% bonds.

Because we’re beginners, we decided to go with this option. In a few years when we have more knowledge and more money to invest, we can easily move our money to different funds if we choose. For now, this is a safe bet for us.

I’m feeling really good about our decision. Yes, that $100 would be helpful toward debt or liquid savings, but it will get a much greater return in a retirement account for the next 40 years. Starting now will increase our chances of reaching our retirement goals, and more importantly will get us into the habit of investing for retirement.

If you’ve been thinking about doing this for yourself, I strongly urge you to start researching now. I think you’ll be surprised at how easy it really is.

When is the right time to start saving for retirement?

Obviously, the answer is as soon as possible. But it’s hard to know when it’s time to really buckle down when you’re young and in debt.

Tony and I are 24 and 25, and I had hoped to start saving for retirement this year. But the more I look at our finances and goals, the more I hesitate to start now.

As a grad student, Tony obviously doesn’t have access to an employer-based retirement fund. Neither do I in my current job. So any retirement saving we do at this point will be on our own.

We’d like to open a Roth IRA and start saving a little every month, even if it’s just $50 each. We can always increase that amount later. But then I start thinking about our debt and our likely cross country move in less than two years and all of our other goals, and I can’t help but feel like that money would be better spent on debt and liquid savings at this point in our lives.

I know that saving for retirement is essential, especially for my generation. But I feel like 20-somethings in debt should focus more on becoming debt free. Otherwise, we could wind up paying student loan debt until it’s time to send our own kids to college.

Even though our income is relatively low, I almost never feel deprived. This is one area where I really feel the constraint of our low income, though. After our bills are paid and our necessities are covered, there just isn’t enough left over to save for emergencies, save for our future, and pay down debt. If I split up the extra money between the three, I feel like we’re not making any headway on any of them. But if I concentrate my efforts on one or two, then I feel guilty for foregoing the third.

My fear is that it will only get harder, especially since we plan to live on one income. If we can’t find room in the budget for retirement savings now, how we will be able to once we increase our financial responsibilities and have children?

I trust I’m not the only 20-something in this predicament.

When did you start saving for retirement? Is it crazy for me to wait another couple years?

Resolutions for another frugal year

I’m so excited about the year ahead! For the first time, I feel like I’m looking ahead with a clear set of goals and the resolve to actually achieve them.

In the interest of keeping myself honest, here’s what I hope to accomplish in the coming year:

Finish building our 6-month emergency fund. We’re a third of the way there now, but I hope to finish it by the end of the year.

Spend less than our budget. We’re doing a lot better than we used to, but we continue to go over budget by $50-$100 every month. Technically we’re not spending more than we make because we save at least $300 a month, but we’re cutting down our actual net savings by going over budget each month.

Make a dent in our student loan debt. Now that we’re credit card debt free, I want to really crack down on our spending and send every extra penny to our student loans so we can be completely debt free sooner.

Learn more at my job and grow my skill set. Someday when we have children, I’d like to work from home, so it’s important that I learn as much as I can now to build my credentials and qualifications.

Enjoy the present, and try to stop looking ahead to the next big thing. This is a constant work in progress for me. Planning ahead is essential to reaching long term goals, but sometimes my constant planning makes me lose sight of the present. I need to find a balance between appreciating what’s now and planning for the future.

What are your resolutions for the new year?

Guest post from a new investor looking for advice

This is a guest post from one of my most frequent commenters, Bobbi. She doesn’t have her own blog, but I hope she’ll considering starting one now! There’s no better time than the new year!

I’m also going through a similar dilemma with my year-end bonus, so I can definitely relate. Please weigh in and help Bobbi make a decision about what to do with this money and how to start saving for retirement now.

First, I would like to say that I feel truly blessed to have a job in these hard times, much less to have received a “year end” bonus from my employer. Thank you Bob! Second, thank you to “Living Well on Less” for letting me guest post. This is my first. :)

A little background: I am a mid-40 something woman with a grown daughter. I don’t spend more than I earn (anymore), and I work for a small business that has been in business for 10+ years. The business is doing pretty well in spite of this crazy economy (we are very versatile in what we do). However, I do not have a 401k or retirement at all so I am trying to build my own. I have no mortgage, so I am able to save every month.

My dilemma is what should I do with my bonus ($2,000) and I am hoping your readers can give me some advice. :) I am not an investor right now, but one of my goals for 2009 is to learn more. Right now I need to do something simple. These are the choices I am considering:

ING savings account – 2.75%
FNBO savings – 3.252%
My Credit Union ‘daily interest’ account – 1.29% (daily)
24 mo CU CD – 4.69% (12/09 maturity date)
IRA – Roth or standard – ?
I have a credit card @ 0% interest until March with a balance of $1500.
Car loan around $19,000

I don’t know much about Roth IRAs and I’m not even sure I can open one with this amount. I am leaning toward taking half and paying on the credit card and putting the other half in some sort of savings. I would love to hear what your readers would do or if they can give me more information on the IRAs.

Thank you and happy holidays to all!

I recommended that she pay off that credit card debt and start the new year with a clean slate! What do you think she should do? And can anyone give her some advice on the best way to save for retirement when you’re getting a bit of a late start?

Tempted by the end-of-year bonus

I wasn’t expecting to receive a bonus from my employer this year. We’re in a recession, after all. So imagine my surprise when I received a bonus of about a week and a half’s pay. That’s quite a lot of money considering how little we spend.

I find that extra money is a lot easier to control when it’s expected. For instance, we know we’ll receive a tax refund this year. We’ve been anticipating it all year, and we already know where it’s going (savings).

However, when someone hands you a check out of nowhere, it can be tempting to blow it. After all, I was doing fine 5 minutes ago before I received the money. It’s not like I’ll miss it if I just spend it, right?

I have a feeling that no matter how committed I am to frugality, I’ll always have these moments of temptation. In that moment of weakness after I looked at the amount on the check, I started thinking about new furniture, a new TV, and a thousand little, inexpensive things I could use this money to buy. It would be a lot of fun to just blow this money. But then it would be gone, I wouldn’t be any closer to reaching my goals, and I’d regret it.

I quickly reminded myself that we’re in debt, and we’re nowhere near reaching our financial goals. Blowing money on things we don’t need is a good way to keep ourselves from reaching those goals.

So what is the practical side of me considering using the money on? Here are some thoughts I’ve had:

Summer fund

Two months of the year, Tony doesn’t receive a paycheck for teaching. He’ll find a part time job, but chances are it won’t pay as much as his monthly stipend. Last year we adjusted our budget and tightened things up to accommodate for our lower income. I’m considering throwing my bonus into a savings account to help us a little during those summer months of lower income.

Emergency fund

Our emergency fund is about 1/3 of the amount we want. This money could help us beef it up a little.

Debt

This is the least appealing option. After all, my bonus is dwarfed by our $60,000 in student loan debt. However, every little bit does help.

Retirement?

This is a tough one. Tony and I are 24 and 25, and neither of us has a retirement account. We’ve wanted to open a Roth IRA for some time, but it has taken a back seat to debt and savings. I’m considering using this bonus to jumpstart our retirement saving. While I don’t think it’s enough to open an account (I think I need at least $3,000 for that, but I’m not sure), it could at least get us started until we have enough saved to transfer it to a Roth IRA.

While I really want to get started on retirement saving, I’m hesitant since we are considering moving in a year and a half. We really need all of our savings to be liquid so we can use some of it for the move if that’s what we decide to do. So I’m leaning toward putting off retirement savings for another two years until we’re settled down somewhere.

I could use some advice. What would you do?