Tag Archives: savings

How much do your kids know about your finances?

Tony and I don’t have children yet, but we will someday. As we sort out our finances and plan for our future, one thing that we’ve discussed is how much we’ll tell our kids about our personal finances.

My parents were always pretty open with my sisters and me about their finances. It could be scary to know as much as I did at times, especially when I was too young to fully understand.

Looking back, I appreciate their openness. It allowed me to learn from their mistakes. If they had kept those things from me, I would have missed some valuable learning experiences. I want to be the kind of parent who teaches my kids from my own mistakes.

Tony’s parents chose a different tactic to teach him about finance. They weren’t as open about their personal financial issues, but they did work hard to teach him general lessons about money management and finance. Tony opened a savings account at a very young age, and even had some experience with loans early on. If he wanted something he couldn’t afford, his parents loaned him the money and allowed him to pay it back with his weekly allowance.

I didn’t get a lot of practical experience with money management skills until I moved out. My parents were very generous when times were good, but we didn’t receive a weekly allowance. When we needed money or wanted something, we simply asked for it. If they could give it to us, they did; if not, we went without (though that was rare).

The current economy has made me think a lot about this topic. How open should you be with kids about personal finance?

I think I’d like to use both tactics. I want to combine age-appropriate openness with practical money management lessons like the ones Tony’s parents taught him.

For instance, I wouldn’t sit my 5-year-old down and say, “Daddy lost his job, so we might be homeless in 8 months when our savings runs out.” But I would explain to him the changes we’d be facing, such as fewer outings and extra purchases.

As my kids get older, I want them to know more — especially when it comes to our own mistakes. If poor investment decisions lead to a loss, I would want my teenage children to understand what we had done wrong and learn from it. I certainly plan to explain to them my own mistakes with student loans and credit cards so they can benefit from the lessons I learned after college.

My point is that I don’t plan to keep our finances a secret from our children. I want them know and understand as much as they can about how much it costs to maintain a house, feed a family, and save wisely. I want them to know how much we make — and spend — in a year.

On the other hand, I acknowledge that the lessons they learn best will come from personal experience. That’s why I’d like to allow my children the opportunity to make their own financial decisions from as early an age as possible. We’ll give them an age-appropriate allowance and let them decide how to use it. When their own money is gone, I won’t give them more unless they plan to pay it back. My hope is that this will better prepare them for budgeting and money management when they’re on their own.

What works for you? Do you believe in full disclosure or do you prefer to stick with a general education?

Save now for car maintenance & repairs

Photo by jeffwilcox

Tony and I share a single car. It’s only about two years old, and we bought it brand new. Because we have just one, and we plan to drive it for at least 10 years if we can, it’s particularly important that we take good care of it.

This month is going to be a big one for car expenses. Not only do we owe $90 for our yearly county auto tax, but we’re also taking a 2,000-mile road trip to see family for the holidays. To prepare for the trip, we’re getting the oil changed a little early and having our fluids and tires checked to make sure everything is in top shape.

The grand total will be about $140. A year ago I would have been stressed to have such a large expense added on to our Christmas shopping spending and travel expenses. Not this month, though.

Last summer, we began saving $25 a month in a special car savings account. We have about $135 in the account now, so we only have to spend $5 out of our regular budget to pay our taxes and keep our car running smoothly for the trip.

Because it’s a relatively new car and it’s still under warranty, $25 a month is enough for us to pay for routine maintenance. However, as the car gets older, we’ll need to save more. Once the warranty is up, we want to have a good chunk of change saved to cover more expensive maintenance as well as repairs.

Yes, a car problem would certainly fall under the realm of acceptable uses for our emergency fund. But if we can anticipate regular maintenance and scheduled repairs (such as new tires, brakes, and other incidentals), we won’t have to dip into our emergency fund.

I don’t even miss $25 a month since it’s deducted at the beginning of each month, but having that money there when we needed it has made our holiday season a lot less stressful.

We keep a similar account for “dog maintenance.” (Ha.) This pays for yearly vet appointments, shots, and flea and heartworm prevention medicines. We only pay for this stuff once a year, but deducting money from our budget each month is so much easier than coming up with the money in one lump sum every year.

Other uses for these types of advance planning savings accounts include haircuts, birthday/Christmas gifts, out of pocket medical expenses (if your insurance provider doesn’t offer a tax-free HSA), and any other yearly expenses.

If you’d like to start a savings account for your own regular yearly expenses, here’s my advice:

  • Use ING Direct (email me for a referral link if you haven’t opened an account yet, and you’ll get a $25 bonus if your first deposit is $250 or more.) ING makes it extremely simple to maintain separate accounts, and you’ll earn a decent interest rate (right now 2.75%).
  • Figure out how much you need to save each month to cover the total amount you’ll need for the year. For example, we get our oil changed about 2-3 times a year. If we were saving for oil changes only, we’d need about $90 a year, or $7.50 a month. Because we also save for taxes and we’re trying to build a surplus to carry over to next year, we save $25 a month.
  • If you’re worried about working it into your budget, start small. Gradually increase the amount by small increments until you’re saving enough to cover your expenses.
  • Don’t touch the money! It helps me to consider that money already spent, as if oil changes are a monthly expense instead of only every few months. That $25 a month has already been “spent” on car expenses, so it’s off limits. Then when it’s time to spend it, I just move it over from savings to my checking account.

Planning ahead for the big stuff

Photo by martie

frugal goalsLiving frugally eliminates a lot of life’s spontaneity. Because we’ve made the decision to live with as little debt as possible, we save for every purchase instead of charging it. We plan ahead for everything and scrimp and save to reach our goals. But planning and saving take a lot of time.

Yesterday on a long walk with the dog, Tony and I had a conversation about where our money will go when our debt is paid and our savings is fully funded. Mostly we were just dreaming about what we’d do with our money if we were free to spend it however we like.

By planning now, we can map a plan for saving. We can also keep our eyes open for frugal ways to make it happen sooner. Here’s our tentative plan for buying the things we want and building our future.

New furniture and television

All of our furniture is second-hand. We’re still sleeping on the second-hand double bed my grandmother gave me before I moved away to college. We bought our only couch and dresser drawers second hand as well. (I actually love the dresser and will probably keep it, but we really need a second chest of drawers since we’re sharing one now). Someday we’d like to have new bedroom and living room furniture. It’ll probably be a pretty long time since it’s pretty low on our list of priorities.

Also bought second-hand, our TV is pretty much an antique. It’s not even a flat screen (gasp!). But it still works. Stations are now broadcasting in wide screen, so our TV cuts off the sides of the picture. It really bugs my husband. Eh … doesn’t really bother me much. A TV isn’t a necessity at all, so this will also wait a while.

Sometimes I check Craig’s List, but I’m never impressed with the cost considering what they’re selling. I’m happy to wait a while until we can save up for furniture we really like rather than dropping a chunk of change on something we don’t. When we replace our TV it will most likely be second-hand, too, but I see no reason to do it until the one we have stops working. I’m keeping my eyes open, though!

A house of our own

Someday we’ll finally settle down in a nice suburb near a university that wants to hire Tony for a tenure-track teaching job. Then we’ll buy a little house with three bedrooms, a big open kitchen, a wood-burning fireplace, and a nice big fenced-in backyard with room for a garden. (I haven’t been thinking about this one at all. :) ) First we have to get Tony through school and pay down our student loan debt. Soon we’ll start saving for a 20% down payment. It’ll be years before we get there. I still like to dream, though.

A family

I’ll be honest, I wish it could happen sooner rather than later. But I want to be able to stay home with our baby. Until Tony is finished with school, we need my full-time salary. We’re planning now so we can start a family in the next three years, but it’ll probably be another two years before we can really start thinking about it.

This list used to be even longer, but through craftiness and frugality we found a way to get some things sooner. Come back tomorrow, and I’ll share that list with you!

What about you? What would you spend your money on right now if it didn’t take years to save?

Being frugal means being flexible

Over the weekend, I posted my goals for November. In summary, I planned to pay off the entire remaining balance on my credit card and finish half of our Christmas shopping without reducing the amount budgeted for savings.

Well, this week I received a letter from my student loan company that threw off my plans. My student loans are currently in voluntary forbearance, which is a lender-approved delay in repayment. It has no negative effect on my credit score, but the loans continue to accrue interest.

It’s obviously not an ideal situation. However, when I made the decision I had just transferred my credit card balance to a card with an interest-free introductory period. I was simply too overwhelmed by both payments, so I decided to focus on one at a time. I wanted to focus on paying down my credit card debt before the interest-free period ended, and start paying down my student loan debt once my credit card was paid off.

My remaining balance on my credit card is a little higher than the amount I usually budget toward credit card debt, but I shifted things in the budget to allow me to pay it completely this month. My forbearance period on my loan is set to end in December, so it would have worked out perfectly. I would have made my final credit card payment this month, then used that money in December to begin paying down my student loan.

According to the letter I received from my student loan company, even though my forbearance period doesn’t end until December, my first payment is due November 28. Because my consolidation loan hasn’t finished processing yet, the minimum payment due is $300.

I started moving things around in the budget, trying to fit in this extra $300 payment. I found a little wiggle room in our discretionary spending, but our budget was already pretty tight because of Christmas. I didn’t want to cut too much and risk spending more than our income this month. Even after cutting several spending budgets, including a drastic cut to our Christmas shopping fund, I still came up short.

I came up with two possible options to make up the difference:

We could split the difference between the credit card debt and the student loan debt. It would delay our final credit card payment until next month, but allow us to pay the minimum payment on my student loan this month while we wait for the consolidation loan to process.

Or we could reduce the amount we put into savings this month. If we cut our savings amount in half, we could pay the student loan and still pay off my credit card.

Neither option is particularly appealing to me, but you know what? Tough. This is the way it has to be.

I made the decision to cut our savings for the month. I’ve been looking forward to paying off this credit card for a year now. When I opened the interest-free credit card last December, I figured out how much I needed to pay on my credit card each month to ensure that it was paid down before the interest-free period ended.

Even though we were on a very tight budget before I found a full-time job, we diligently paid the bill every month, always looking ahead to the final payment. Sometimes when I started to feel overwhelmed, the only thing that kept me going was the thought of making the final payment this month. The idea of delaying that another month is just too frustrating. I’m willing to cut our savings for a month to make it possible for us to pay the remaining balance.

I was really bummed when I realized my plan wasn’t going to work out perfectly. But you know what? At least we have the money to pay all of our bills. Even when our plans are unexpectedly derailed, we’re still able to put a little bit in savings. It’s not as much as we’d like, but it’s something.

There was a time when $300 would have been impossible to squeeze into the budget. There was a time when we absolutely just didn’t have that kind of extra money. If cutting back our savings a little for a month is as bad as it gets right now, then we’re doing a-ok.

What would you have done?

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Frugal ways to keep warm without turning up the furnace

Photo by mharvey75

Lately the blogosphere has been abuzz with tips for reducing heating costs while staying warm this winter. Kacie at Sense to Save wrote a pretty complete list of tips to beat cold this winter. I recommend you check out her post, but first here are some extra tips from me for staying warm in the house without turning up the heat.

While I live in a pretty warm climate, the temperature does drop to 30 degrees or so in the evening, sometimes lower at night. What I really want is a cozy fireplace, but we don’t have one of those. We were able to stay pretty cozy without one last winter, even with the thermostat set at 60 degrees.

If you live in a colder climate, you might not be able to keep your thermostat that low. Find your personal limit — the temperature where you’re a little chilly, but not endangering yourself, your family, or your pets. Bundle up with some warm clothes, socks, and slippers.

Still cold? Then use these tips to warm up:

Exercise!

Get up and get moving! When I get cold in the evenings, I throw on a sweater and do some yoga. Physical activity stimulates blood circulation, keeping you warmer. It’s also good for you, and it’ll keep those extra pounds from creeping up during the cold winter months.

Dress your bed for the weather.

Invest in a down comforter and warm flannel sheets. A down comforter can be a big initial investment, but with proper care it will offer years of warmth with lower thermostat temperatures. Down alternative is just as warm for a lower price. Our down comforter was a gift, so it cost us nothing. And it keeps us toasty all night even though our bedroom is the coldest room in the apartment.

Invite your pets to snuggle with you.

Animals emit a remarkable amount of body heat. My dog is like a little mini furnace. Whenever I’m chilly, I invite him onto the couch or bed to snuggle with me. We keep each other warm, so I don’t have to worry that the apartment is too chilly for him. It’s win-win.

Add a little extra warmth.

I love the idea of the homemade heating pad. Unfortunately, I don’t have a microwave. So I just use a plain old heating pad under my blanket set on low. It’s like a little mini electric blanket. I feel like it would be overkill if I was covered up completely with an electric blanket, but a little heating pad provides just enough warmth without overheating me. Sure, it uses a little electricity, but not as much as the furnace would use pumping heat throughout the apartment.

Sometimes when my husband’s feeling extra sweet he’ll lay the heating pad on my side of the bed and turn it on while I’m getting ready for bed. My side of the bed is all warmed up by the time I lie down! Isn’t he sweet?

Quilt.

I’ve taken up hand quilting in the past few months, and it’s really one of the best ways to stay warm on a cold evening. It gives me something to focus on, keeps me moving, and best of all I have a cozy quilt covering my lap while I work.

Take a long, hot bath.

When all else fails, I run a bath as hot as I can stand it, close the bathroom door to trap the heat, and soak until I feel warm. When I get out of the tub, I dry off completely and bundle up in cozy clothes before I open the bathroom door. Usually I head straight to bed and snuggle with my husband under the down comforter. Honestly, though, if the bath water is hot enough, the cold air feels great when I open the bathroom door.

Sip a glass of red wine.

Not only will it warm you up and put a little color in your cheeks, but red wine is actually good for your health in moderation. Not to mention tasty and relaxing. :)

Reduce your energy costs this fall with these tools

Photo by lollyknit

With the weather turning colder, high heating costs are on everyone’s minds, especially this year with energy costs higher than ever and the economy struggling.

The obvious frugal hacks are sweaters, socks, and low thermostat settings. Personally, I love chilly temperatures. There’s nothing cozier than snuggling under a blanket with some hot cocoa or tea bundled up in my warmest clothes. I gladly keep my thermostat at 60 degrees all year.

But keeping the thermostat low isn’t enough if your home isn’t energy efficient. How can you be sure you’re as efficient as possible when it comes to energy consumption? Here are some handy tools to help determine your energy rating.

• This fun, Halloween-themed Google energy tool shows you the frightening amount of money you could be spending on unnecessary energy expenses.

• Give yourself a home energy audit. Determine how efficient your home is, and how much you could save with upgrades.

• Find out how much your appliances cost or compare the cost of regular lightbulbs to CFLs with these calculators.

• Finally, if you’re looking to make changes, the U.S. Department of Energy offers tips at their website to cut energy consumption (and costs) for everything from winter heating to fuel costs.

Now is the time to make your home more energy efficient if you want to save money all winter. Don’t wait until the temperature falls below 0 to start saving money!

Why does the idea of using ING as my primary bank freak me out?

I’ve been using ING Direct for my savings account since June. I have absolutely loved my experience with them so far. My interest rate has dipped a little from the original 3% to 2.7%, but it’s still much higher than any brick and mortar bank.

One of the reasons I decided not to open a checking account with ING is because I was so happy with my brick and mortar bank. We’ve been banking with Wachovia for a little over a year, and we’ve been equally happy with their service. Even though we could earn 1.5% APY with an ING checking account, I decided the peace of mind of banking with a brick and mortar bank was worth more to me than extra interest. I liked knowing that I could talk to someone in person at a local branch if necessary.

Now that Wachovia is being bought out by Wells Fargo, I’m reconsidering ING as our primary checking account. I have no reason to believe the quality of service will decrease with the transition, but I don’t know. More importantly, I’ve realized that I haven’t had a reason to speak with a teller for over a year. In fact, now that I work 9 to 5, the rare paper check deposits that I make are usually done at an ATM anyway.

ING Direct is fully FDIC-insured, so my money is in no more danger there than it is at Wachovia/Wells Fargo. The idea of earning a little interest on my checking account does appeal to me. So why am I so nervous about taking the plunge?

There’s certainly some security that comes with the ability to stop in at a local bank branch if necessary, but in this electonic age it’s rarely necessary. In fact, calling and speaking to a customer service representative on the phone during my lunch break at work would probably be more convenient for me than going into a branch.

If we decide to move again at some point in the future, it would be nice to have most of our money in a bank that will move with us.

I’m strongly considering opening an ING checking account for our primary banking and leaving our Wachovia account open only as a linked account. First I wanted to ask all of you about your experiences with ING checking. Has anybody had any problems with using ING as a primary checking account? Is moving money from your linked account to you ING account more trouble than it’s worth? How is their customer service?

Could frugality be bad for the economy?

While visiting my sister and her family in Seattle over the weekend, I saw an article in the paper that surprised me: Frugal consumers hurt economy, too. In summary, consumers have been spending less all year, but the past two weeks have seen a major drop-off in consumer spending. They’re expecting even less spending in the fourth quarter. Partly to blame, the article says, are fearful consumers. As they spend less, the economy slows even more, leading to a consumer-driven recession.

Is consumer fear and less spending driving this crisis? Maybe so. But I disagree with the reporter’s use of the word “frugal.” To me, frugality is a long term lifestyle, not a temporary reaction to a bad economy. Overall, I can’t see how frugality could be bad for the economy in the long run.

In my short experience with frugal living, I’ve become incredibly empowered when it comes to my financial future. With adequate savings and smart financial choices, I don’t have to let the crazy market dictate my spending. I can take a trip across the country in the middle of this financial chaos, because I know I’ve saved for it.

According to this article, increased spending is better for the economy. But isn’t overspending what got us into this mess? If reduced spending and a slowed economy are caused by fear, then couldn’t you make the argument that if all consumers made smart choices, saved adequately, and spent only what they could afford to spend, then market forces couldn’t lead to a consumer-driven recession? If nobody is financially insecure, then an erratic market wouldn’t have this effect on spending, would it?

I don’t claim to be an economist. I just can’t imagine that the solution to the country’s financial problems is increased spending at retail stores and restaurants. Yes, in the short run the decreased spending is slowing the economy, but in the long run, if we spent less and saved more, wouldn’t that make our economy stronger? It would certainly make us more financially secure.

I also realize that I’m talking about a perfect world here — one that doesn’t exist. The truth is that a lot of people live paycheck to paycheck, and when the market fluctuates like this, they realize that they don’t have enough to cover rising prices or carry them through in the event of a job loss. The consequence is a sudden decrease in spending that is felt throughout the economy.

In my opinion, the article got it wrong. It’s not the people who live frugally and save that hurt the economy. Frugal people are generally pretty secure in their finances, and in my experience their spending remains pretty consistent. They may not spend a lot, but they spend consistently. After all, consistent spending and budgeting are synonymous with frugal living.

It’s financial insecurity that leads to this type of wild fluctuation in the economy, and frugality generally doesn’t equal insecurity.

Am I completely off base here? What do you think?

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The hidden danger of budgeting?

Photo by jonnystiles

When we created our first budget, I felt instantly liberated. I knew our absolute spending limits. As long as we didn’t go over those amounts, I knew we’d have enough to pay for everything. I no longer had to wonder, “Can we afford this?” I knew exactly what we could afford. I also knew exactly how much we could afford to put toward savings and debt.

I view our budget as a challenge. “How low can we go?” That’s my mantra when it comes to discretionary spending for groceries, entertainment, and other shopping. Every penny we go under budget automatically goes toward savings or debt, and watching those balances go up or down is my favorite part of budgeting. It’s what makes me feel so free. I’m constantly trying to lower our budget for discretionary spending so I can increase our savings and debt repayment.

Over the weekend, I had an interesting conversation with my husband about the different ways that we view budgeting. It made me realize that everyone doesn’t view budgets the same way I do. For some people, budgeting can actually work against them.

After creating our menu plan and grocery list, we realized we’d be on the low side of our grocery spending limit. I was happy, as my goal every week is to lower our spending so we can be under budget.

My husband’s first reaction, though, was to start adding things to the grocery list … things that we don’t need. “We can afford it this week,” he said. “We’re under budget.”

Wha …? I had never thought about it, but it made perfect sense once he put it that way.

I see the budget as an absolute limit. Ideally, we’ll spend less than that, but we absolutely can’t spend more. My husband, however, viewed the budget as the number we’re trying to reach. If we go under, it’s a license to spend more. We can afford it, after all. It’s in the budget.

I have to admit, the conversation somewhat blew my mind. We’ve been married since May, but this is only our second month of strict budgeting. I had no idea he viewed it this way.

The conversation illuminated a hidden danger in budgeting. By setting hard figures, are we in danger of reaching them? Can a budget actually lead to overspending? When people like my husband manage budgets, do they overspend without knowing it? Maybe they could spend less, but they’ll never know because they’re constantly reaching to meet their budget goals.

It’s a scary thought. Luckily, my husband and I are working together to amend both of our bad habits when it comes to money. He shares my views on savings and debt repayment. He also feels liberated as our savings account grows and our debt diminishes, and he agrees that the best way to make them grow and diminish faster is to spend even less than we’ve budgeted to spend.

His view on the budget was just if we’re meeting our goals, why change them? The budget is an outline of how much we can afford to spend, so why not spend it? He didn’t see the harm in spending all of our budget as long as we’re meeting our goals for savings and debt.

Though we set our budget together each month and discuss how to manage our money, I handle the day-to-day finances. So his views on budgeting haven’t caused problems in the past two months. But it could have eventually if we never discussed it and explained our differing points of view.

I guess the moral here is something about the importance of communicating about money. Mostly, I just thought it was a fascinating perspective on budgeting, and something I never even considered. I always thought that people got into financial trouble by not budgeting, and never once considered the idea that for some people, the budget can be part of the problem. Huh.

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