Tag Archives: goals

Vacationing vs. living like locals: Can we afford an extended stay in Europe?

For the past few days, Tony and I have been going over an idea that might be completely insane.

I’ve written a lot about our plan for a two-week vacation in Europe next May. Both of us always wished we’d taken the opportunity to study abroad in college, and this vacation seemed like the next best thing — one last big trip before we start our family.

One thing has continued to plague me, though. We didn’t really want a vacation. We didn’t want to stay in hotels and live like tourists for a whirlwind two-week trip. We wanted the opportunity to live like locals, absorb the culture, and experience life in another part of the world. We don’t want to move abroad permanently, though. Living 800 miles from family is hard enough; I can’t imagine living an ocean away.

While talking about this, we started considering a crazy idea.

Tony will finish student teaching in December 2010. It’ll be another 4-6 months before he can start looking for teaching jobs for the following fall. We were already wondering how to spend that time. What if we spent two or three of those months in Europe, living like locals instead of tourists?

Obviously, two or three months in Europe will cost more than 2 weeks. But after doing some research, I’m surprised to discover the difference isn’t that huge. Living like a tourist costs $200-$400 a day with restaurant meals, hotels, and excessive travel. Living like a local costs much less, and since we’d be there in the late winter/early spring, everything would cost less than we’d pay in May, the beginning of the high season.

Our biggest expense would be housing. Renting a furnished apartment in France is less expensive per night than a hotel, but still more expensive than we’d pay in normal rent. We’d likely spend about $425 a week on housing or $1700 a month (utilities included). Ouch. But we could make up for the high cost of housing by cooking our own food, avoiding expensive tourist activities, and living frugally.

Based on rough calculations, we’d need to save $7,500 – $10,000 for two months in Europe. Here’s the breakdown:

Airfare: $1200
Housing/utilities: $3400
Food: $800
Travel: $500 (Trains, bus fare, etc.)
Fun stuff: $800
Total: $6700

I added up all of our regular living expenses that we’ll have to pay while we’re away. We’d be paying these expenses whether we were traveling or not, but I’m including them since travel will delay our job search:

Debt: $400
Travel health insurance: $250? I’ve done some research, but not enough to have a solid estimate.
Cell phone: $200
Total: $850

Based on these calculations, we’d need $7,550 to pay for the trip and our living expenses. I’d be more comfortable if we could save a full $10,000, which would give us a nice cushion when we return to cover our living expenses without using our emergency fund.

That means we’d have to save an additional $1,550 -$4,000 on top of our emergency fund and the $6,000 we already planned to save for Europe. We’d have an extra 7 months to do it. If we really buckle down and put every extra penny into savings, I think we can meet that goal and then some.

Maybe it’s just a pipe dream. It’s certainly not practical at all, but I kind of like the idea of doing something a little crazy and impractical before we settle down and live like adults — as long as we don’t add to our debt or spend our emergency fund. I can think of a million more practical uses for $7,500 — debt repayment, part of a down payment on a house, paying cash for a used car, an extra plush emergency fund. None of them are as appealing to me as this once in a lifetime experience.

So what do you think? Are we completely out of our minds?

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?

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.

My biggest financial mistakes in college & what I learned

Now that I’m frugal, it’s hard not to look back on the choices I made in the past with regret. Luckily, I came to my senses pretty early in life. I could have done a lot more damage throughout my 20s if we hadn’t decided to change our lifestyle before we got married. But I’d be a lot better off if I’d avoided the mistakes I made in my teens and during college.

In the hopes that others may learn from my mistakes, here are the biggest financial mistakes I made before and during college:

I didn’t save for college.

I got my first part time job at 15 years old. I paid for my own car insurance and gas, but other than that I had no bills or responsibilities. I didn’t save a single penny. Where did my money go? I blew it on stuff that I didn’t need.

What I learned: Plan ahead for the things you want. We’re saving now so we can pay cash for our trip to Europe, we’re already saving for retirement, and we’ll start saving early for our children’s college educations.

I didn’t apply for scholarships.

I only applied for a couple scholarships. My grades were above average, and I was active in the school newspaper. If I had taken scholarships more seriously, I would have qualified for at least a few.

What I learned: A little extra work can save you a lot of money. Scholarship applications are the college equivalent of coupons, menu planning, and other frugal pursuits.

I took out private student loans to cover living expenses (and lived extravagantly).

My parents paid my rent, and federal loans covered my tuition. I was responsible for food, car insurance, and utilities. My job at the student newspaper took up a lot of time, but I managed to work part-time my junior and senior year. If I had worked more and lived frugally, I wouldn’t have needed to borrow high-interest loans. Now I’m stuck paying $20,000+ at 8%.

What I learned: Don’t borrow to live a lifestyle you can’t afford. It also taught me the importance of fully understanding all of my financial decisions before making them. I didn’t know what I was getting myself into, and now I’m paying the price. I wish I could take back my decision, but I’m stuck with these loans. Forever.

I ate out constantly.

At least 75% of the money I spent in college went to restaurant food. This wasn’t good for my bank account or my health.

What I learned: Eating out is expensive and unhealthy! Not only did I drain my bank account, but I gained weight. I appreciate how little we spend on food and how much healthier we are now that we menu plan and buy groceries.

I charged up credit cards and only made minimum payments.

Some of my credit card debt was due to a car that broke down every other week one summer. I didn’t have the money to pay for the repairs, but I had an “emergency” credit card.

Only $1,000 of my $5,000 in credit card debt went to car repairs, though. The rest? Couldn’t tell you. I have no idea where that money went. Probably pizza, clothes, DVDs, and bar tabs. I never missed a payment, but I only sent the minimum. It wasn’t until I graduated, after three years and who knows how much interest paid, that I got serious about paying them off.

What I learned: Plan ahead for emergencies and avoid credit cards. I lived in fear that my car was going to break down because I knew I didn’t have money to cover it. I feel so much better now with an emergency fund. It also taught me about interest rates. You can make minimum payments for your whole life and never make any headway. I’ll apply this lesson someday when we have a car payment and mortgage.

It could have been a lot worse. I had friends with twice as much student loan debt and $20,000 in credit card debt. Yikes.

What are the worst financial mistakes you’ve made and what did you learn?

How much money do you need?

This question has been floating around the blogosphere and beyond forever, but I’ve never really taken the time to answer it — not on my blog or even for myself.

We all dream about one day having enough money that we don’t have to worry about it anymore. But how much money would it take to get there?

Here’s what I’d need:

  • Student loans: $60,000
  • Home: $300,000? (I’ve never actually looked into how much we’d need for a home since we’re so far from buying one, but this seems like a fair estimate for a nice home in a good neighborhood.)
  • Cars: $40,000 (for two reliable economy cars)
  • Living expenses: If we invested $600,000 at a return of roughly 8% per year, it would net $48,000 a year. Without a mortgage, debt, or car payment, that would be plenty for us to live comfortably even after taxes.

So $1,000,000 would be enough money that we’d never have to work again. We’d probably make a little money writing, but the point is we wouldn’t have to work to live. Isn’t that a nice thought? I’m surprised that’s all it would take to sustain us for the rest of our lives.

How much money would you need?

An update on goals & a progress report

I can’t believe it’s only been about 8 months since we committed to frugality and began saving our emergency fund. Our progress has been slow, but it’s started to pick up since we paid off our credit card debt.

Beginning in January, we doubled our monthly savings amount. Hopefully that means the progress meter I added to my sidebar over the weekend will begin to move more quickly.

Our summer savings account is actually complete … we’re just waiting on a tax refund check from the state of North Carolina. Once that arrives, it’ll go directly into our summer savings account to cover Tony’s income during the two summer months when he doesn’t receive a paycheck for teaching. We’re hoping he’ll be able to find a part-time job over the summer, and all of that extra income will go directly into the emergency fund.

As for the Europe savings account … well, that’s pretty sad so far. Our plan was to finish funding our emergency fund and then begin saving aggressively for our trip to Europe. We’ve had a slight change of plans.

It’s easier for me to stay motivated toward a goal when I can watch its progress, so we decided to open a new savings account and save separately for Europe. Opening a new account for Europe doesn’t change the total amount we have in liquid savings, it just helps us to track our savings to reach the two separate goals.

Since Europe is a fun goal, seeing the progress meter move should be extra motivating. Whenever I want to make an unnecessary purchase or spend money, I can take a look at our progress and remind myself that our tight budget will be worth it in 14 months!

After assessing our progress and our goals, I realized that we weren’t saving enough to reach them. So I shifted my budget around and cut down some of our discretionary spending to increase our monthly savings amount by $100. I’m hoping we can sustain the increase, but we’ll have to see how it goes.

Our emergency fund will remain our top priority, but we’ve begun saving a small amount for Europe every month, too.

Based on our current rate of savings, here are my projections for completion:

Emergency fund: Completed by July 2010

Europe fund: Completed by May 2010

Hopefully, we’ll bring in some additional income this summer and we’ll be able to finish sooner.

I’m glad I took the time to assess where we are and where we need to be. I was able to make a change to our savings before it was too late! Have you assessed your goals recently?