Tag Archives: spending

Don’t spend your tax refund before you get it

I know, I know. I shouldn’t be getting a tax refund, because I should have my deductions set correctly to avoid giving the government an interest free loan. I know. But the fact is, I typically err on the side of caution. I’d rather give the government an interest free loan than owe a huge lump sum of money during tax time.

This year, we’d probably be expecting a refund anyway since we got married half way through the year. Because I make twice as much as Tony, we’ll most likely get a tax discount for filing jointly. Which means we’d be getting a little money back anyway.

How much? The fact is, I don’t know. But in the past, I’d have plans for what I was going to buy with that money regardless.

I’ve used my tax refund to buy a new wardrobe, take a vacation, and buy more electronics than I want to think about. Sometimes I was so broke that I had to wait until I received the refund to spend it. Sometimes, though, if I knew it was coming, the spending spree started before I even received the check.

This year, I’m not spending a dime of it. I already know what I’m going to do with the money, and it doesn’t involve a spending spree. It’s going directly into a savings account to help us cover the two months out of the year when Tony won’t receive his teaching salary.

I bristle at some of the tax preparation commercials I’ve been seeing on TV lately. “Need a vacation? Bring your taxes to us, and we’ll get you the tax refund you need to pay for it.”

The fact is, a tax refund isn’t “extra money.” It’s money that you should have been getting in your paycheck all year, which means the same rules apply to your tax refund as your regular income — don’t blow it.

I realize there are situations where a lump sum tax refund might be helpful. For instance, if you’ve been avoiding major car repairs because you don’t have the lump sum to pay them. That’s completely understandable. By all means, use your refund to get your car in working order.

But if you’re considering using your refund for something unnecessary, I urge you to think of that money as regular income. Can you really afford to spend it? Do you have a 6- to 8-month emergency fund in place? Are you debt-free? Are you fully funding your retirement accounts and education savings accounts? If the answer to those questions is yes, then maybe you can afford a big vacation or a new wardrobe right now.

But if you’re like me — with a tiny savings account, way too much debt, and a non-existent retirement account — then you’d probably be better off putting that money to more practical use.

Maybe I was being a little too frugal

photo by hlakhani

I think I went a little overboard with my frugality. I know, it’s hard to believe that’s possible, but hear me out.

Last week, I made the decision to join a gym. For the record, I went with the 12-month commitment at $20 a month. Because we were already paying for the membership, I didn’t want to put any extra money toward my exercise budget. Even though I was primarily jogging, I didn’t want to spend money on new sneakers. So I pulled out the old pair I’ve had for 9 years.

My feet were killing me after every work out. At first I chocked it up to being out of shape. You’re supposed to be sore at first, right?

It was particularly painful Thursday night, though. I found myself limping on my way home. When I finally took off my shoes — excuse me for being too graphic — I found that my ratty old sneakers had drawn blood. Ouch.

When Tony saw what had happened, he was angry with me. “I thought frugality was about making smart choices with your money, not depriving yourself to the point of physical pain.”

He’s right. The frugal choice would have been to shop around and find a good deal on a good pair of running shoes. I shouldn’t be spending hundreds of dollars on sneakers, but I also shouldn’t be working out with old shoes that tear up my feet and threaten damage to my knees and other joints because they don’t offer proper support.

Last night, Tony and I went to several shoe stores. We found a reasonably priced pair of running shoes on clearance for $40 and used some of the Christmas money that I was going to put toward my gym membership to pay for them.

I was concerned about investing too much in working out because I was afraid of not sticking to it. Tony made a good point, though. Even if I don’t stick to it, a good pair of sneakers is a good investment. Most importantly, it’s an investment we can afford right now.

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?

Online or in-store shopping: which is more frugal?

Photo by engnr_chik

Who doesn’t love online shopping? It’s fast, convenient, and often offers lower prices. But it’s not always the most frugal way to shop.

I bought all of my nieces’ and nephews’ Christmas gifts through Amazon. They were shipped right to my door, and I did all of the shopping right from my couch. It doesn’t get more convenient than that.

But what happens if one of them already has the gift? What if it’s defective or they just don’t like it? In the past, I loved including gift receipts with any and all gifts. There’s no way to include a gift receipt with gifts purchased online.

It’s also easy to overlook shipping costs when shopping for online deals. Sure, the item itself might be $5 cheaper than in stores, but you’re not saving money if you’re paying $6 to ship it.

Time is another important factor. Are you shopping at the last minute? If so, it’s best not to risk holiday shipping delays for a few bucks off.

Shopping online may be more convenient overall, but it requires extra research and care.

Compare online and in-store prices, and be sure to factor in shipping costs when shopping for the best deal.

Consider the likelihood that the gift will need to be returned. For gifts like clothing that must be tried on, it might be worth it to spend a little more in-store so you can include a gift receipt. If it’s an appliance, book, or other item that you know the recipient wants, online shopping is the way to go.

Find out the person’s clothing sizes before you start shopping, and make sure they don’t already have the item you buy.

Because I knew I wouldn’t be able to include a gift receipt, I was extra careful when I shopped for my nieces and nephews. I checked with my sisters to make sure the gifts were a good fit. I also read product reviews to ensure I was buying quality toys that weren’t likely to be defective.

Shipping was free, and I paid for the gifts with an Amazon gift card I received through MyPoints. You can’t get a better deal than free, but if I had been paying out of my pocket, I would have comparison shopped to make sure I was getting the best deal.

In our culture of convenience and technology, it’s very easy to convince yourself that online is always better. Be sure to look at the whole picture before you make a decision, though.

Christmas presents, not status symbols

Over the weekend, Tony and I were picking up a gift card as a Christmas gift for his grandparents. A month ago when we worked out our Christmas budget, we agreed upon an amount that we could afford. But as we stood in line I found myself second guessing our decision. “Do you think this is enough?” I asked him.

This isn’t the first time this has happened. I ask myself that question almost every time I buy a gift. “Is this enough?”

That’s a pretty silly question, though, isn’t it? Enough for what? After all, anybody who would receive a gift only to think it isn’t good enough really doesn’t deserve the gift at all.

Of course I wasn’t worried that Tony’s grandparents would feel that way. They’re probably not expecting anything from us at all, and they’ll be thrilled that we thought of them. So where does this doubt come from?

The more I thought about it, the more I realized that this doubt is more about me than it is about them. I enjoy giving gifts to the people I love because it makes them happy, but the desire to give more than I can afford comes from the same place as the desire to buy fancier things than I can afford.

It’s a tough thing to admit, but in the past I’ve used gift-giving as a status symbol. I’ve charged up credit cards and spent money I didn’t have on gifts. I’m sure the people who love me would be horrified if they knew that buying them gifts was putting me at financial risk. I certainly wouldn’t want anyone to risk their financial security to buy something for me.

I told myself that I was being generous. I wasn’t being generous, though. It was quite the opposite. Buying those fancy gifts made me feel good about giving them. Sure, it made the person who received the gift happy, but that’s not the real reason I was doing it. The people I love would be just as happy with a thoughtful gift that I could afford to give, whether it be something small, homemade, or even baked. The truth is, I liked the way it made me feel to give fancy gifts.

The past couple years have taught me valuable lessons about spending that I’ve learned to apply to gift-giving. Spend only what you can afford, and give only what you can give.

I’m still tempted to break my gift budget, but I have to remind myself that the people who love me would much rather I didn’t risk getting myself into trouble. After all, the safety and financial security of the people I love is much more important to me than receiving Christmas gifts. When I’m tempted to overspend, I remind myself that the people who love me want the same security and safety for me much more than they want presents.

The holiday season is a great time to make the people I love feel special. Spending more than I can afford just isn’t the way to do it.

Introducing the “Holiday Food & Financial Diet”!

Photo by rwhitlock

I don’t know about you, but the weeks between Thanksgiving and Christmas are a dangerous time for my waistline and my bank account. The holiday spirit tempts me to overspend on entertainment and gifts, and the holiday parties and meals tempt me to eat and eat unhealthy foods.

This has been a weekend of gluttony, and with our trip home for the holidays coming up in a scant 24 days, I’m looking ahead to another week of overeating, overspending, and expensive travel. This year, I want to nip it in the bud. I don’t have the will power to resist on the holidays themselves, but the least I can do is control myself in the weeks in between.

So how are we controlling our diet and spending in the next few weeks?

1. We’re reducing our consumption of meat.

We have a couple steaks and a few chicken breasts in our freezer. We’ve decided to pick up some extra chicken breasts to last us through the month, and then ration our consumption for the next few weeks. This will not only reduce the amount of meat we’re eating and buying — it will also ensure that we’re not leaving a freezer full of meat when we head out of town for Christmas.

2. We’re trying month-long menu planning.

I typically only menu plan on a week by week basis. This month, we’re going to try planning out our meals for the next three weeks in one fell swoop. This will allow us to maximize purchases, ration our meat consumption throughout the month, and clear out the pantry before our trip.

3. We’re cutting our entertainment spending and staying home instead.

With our big trip back to Indiana coming up, we’ve decided a few weekends at home won’t hurt us. This will not only free up some extra money for travel and gifts, but it will reduce the temptation to overeat at a restaurant or splurge on movie theater popcorn.

We’ve cut our usual $50 for entertainment out of the budget. Typically this goes to the occasional movie or meal out. This month we’ll stay home on the weekends, utilize the library, and revisit some movies we haven’t watched in ages.

4. We set a budget of $50 each to shop for each other — and we’re sticking to it.

Both of us were willing to give up receiving gifts from the other, but neither of us wanted to give up the fun of shopping for the other. Finding that perfect gift for the person you love most is so much fun. The trick is to avoid the temptation to go overboard. Last year, we were limited to $50 each, and we had a lot of fun finding small, practical but thoughtful gifts to put under our tree. We decided to maintain the tradition. Nothing big or flashy, just small tokens.

5. We kept our Christmas shopping list short.

It can be so tempting to shop for anyone and everyone in your family this time of year. I firmly reminded myself that the people I love who love me will understand that we’re not in a place financially where we can buy flashy gifts for our extended family. We used an Amazon gift card I received through MyPoints to shop for our nieces and nephews who are 5 and under, and we’re putting together gift baskets for immediate family.

I’ll revisit this topic throughout the month to let you know how I’m doing. I hope you’ll join in, too! The holidays themselves may throw off your financial and fitness goals, but if we can control ourselves for a few weeks in between it might not be so bad!

If you’re planning on joining in, please leave a comment and let me know how you’re cutting back for the next three weeks!

Black Friday? No thanks.

Sigh. Black Friday.

Thanksgiving has always been my favorite frugal holiday. Nothing but friends, food, and relaxation. Aside from food, I typically don’t spend any money at all the entire weekend after Thanksgiving. I’ve never headed out to the sales on Black Friday. I’d prefer to spend the Friday after Thanksgiving in my PJs grazing on leftovers and watching movies.

This year, we’re attending a potluck Thanksgiving on Thursday. We weren’t invited until last week, and we’d already spent the month collecting food for our own meal. So we’re having Thanksgiving 2 on Friday. That makes me feel even less motivated to go out and shop.

I think my problem is that there’s just nothing I need. Our Christmas shopping is done, and I usually try to avoid crazy sales unless I need something anyway. I don’t want to be tempted to buy just because the deal is great.

I’m curious about the deals, but I’m afraid to look at the circulars because I don’t want to be tempted. With our big trip back to Indiana for the holidays coming up next month, we really don’t need to be spending extra money right now. Even if it’s a good deal.

I know how hard it is for me to turn down a great deal. So I’ll most likely stay home this Friday relaxing. I probably won’t be able to resist looking through the ads, but hopefully there won’t be anything so compelling that I can’t resist. I’m not so into the crowds, to be honest. I don’t like feeling like shopping is a competitive sport. :)

My advice to those of you braving the sales racks? Look through the ads, make a list of ONLY what you need, and stick to it when you hit the stores. Don’t be tempted to buy just because it’s a deal!

Are you heading out this year? What are you buying?! (I have to ask. :) )

What was the poorest time in your life?

Photo  by larimdame

empty wallet

This month, the Extended Group Writing Project at PFBloggers asks a very interesting question: What was the poorest time in your life? It made me think. A lot. So I decided to chime in.

I want to begin by clarifying that I’ve never fallen into the category of genuine poverty. To me, poverty is the point beyond budget cuts when you can’t just cut the budget to make ends meet, because you’re already living with so little. When you’re truly poor, you’re not worried about debt and savings. Your main concern is keeping a roof over your head and food on the table.

Thankfully, I’ve never been there, and I’m certainly not comparing my experiences with debt and low income to genuine poverty. That being said, it’s definitely possible to FEEL pretty poor even when you’re not living in poverty.

My first inclination was that a year ago, right after we moved here, was the “poorest” time in my life. Tony’s teaching job didn’t pay nearly enough to make ends meet, and I struggled to find a job for months.

Technically, we had more money in the bank than ever. We’d spent a year saving $10,000 for moving and living expenses. But with very little income, we sure felt pretty poor. It’s a really scary thing when your bank account is dwindling with very little coming in.

The more I thought about it, though, the more I came to realize that my first inclination was wrong. Last year was not the poorest time in my life.

Our living expenses may have been much higher than our income, but our circumstances motivated me to get serious about personal finance. Even though our financial situation was bleak, I felt more empowered than I ever had before. I started budgeting, cutting unnecessary expenses, and tackling debt. Despite our low income, we managed to get through the year without adding to our debt. We even paid off a huge chunk of my credit card debt.

Because I was making the decisions about where our money went, I didn’t feel deprived or scared about money. It was exactly the opposite. When we stopped spending money out of choice rather than out of necessity, we suddenly felt incredibly rich. We realized just how far the money we had could go if we weren’t blowing it.

We made smart choices to make our savings last. For the first time, I was paying my bills a month ahead of time instead of waiting for a paycheck at the last minute. We didn’t have money to buy a lot of stuff or eat out, but we didn’t have to worry about paying our rent or buying groceries. When I think about that, I realize that I didn’t feel poor at all a year ago. Quite the opposite, actually.

On the flip side, I lived pretty opulently in college. I went out to eat a lot. I bought a lot of “stuff.” On the outside, I appeared to be anything but poor. But I never had money in the bank. I blew through what I had so quickly that I often came dangerously close to overdrawing my account. As soon as I got a little money, it was gone. I was stressed every time I swiped my debit card, because I wasn’t sure there was enough in my account to cover it.

One night, my gas tank was so low that my car started sputtering. I knew I had to get gas, but I also knew that I had less than $5 in my bank account. I pulled into the gas station and put one gallon in my tank to make it home. When I got home, I had to check my account to make sure I hadn’t overdrawn it.

That’s the poorest I’ve ever felt.

Sadly, that wasn’t an isolated incident. Stuff like that happened to me a lot in my college days. I had no control over my money, so I didn’t feel like I was making the decisions. Obviously, I was just making the wrong ones. But every time my account balance dipped that low, I didn’t think about all the things I spent my money on. I only thought about what I couldn’t afford.

I still hesitate to refer to that as being “poor,” because it was my own fault. If I hadn’t spent my money on pizza and movies, then I would have had enough to pay for gas. The point is that feeling poor isn’t about the stuff you have or money in the bank. Some people feel “poor” if they can’t afford all the things they want. For me, feeling poor is stressing about whether I can afford the things I need.

Would you buy it if it wasn’t on sale?

Photo by theogeo

clearance saleThis time last year I was working in retail in a clothing store. I wasn’t making much money, but one of the “perks” of my job was an employee discount.

I bought a lot of clothing during this time. Not only did I take advantage of my 20% discount, but I scouted the sales and clearance racks. I never paid full price for anything. I thought I was getting a great deal. In all honesty, I really was. I usually paid about 20% of the original price.

As I look back, though, I’m reminded of the strange psychological effect of sale prices. Sale prices can turn a ho-hum item into something you must have.

Since I worked in the store every single day, I was in a unique position. Instead of stumbling on these great deals, I was aware of my changing perspective as the prices dropped. Many of the items I bought off the clearance racks, I didn’t even notice at full price. Though I stocked them, rehung them in the fitting room, and straightened the shelves after closing each night, I barely noticed them at all. But as soon as they hit the clearance shelf, I suddenly had to have them.

Looking back, I realize I wasn’t really shopping for clothes; I was shopping for bargains. It wasn’t that I really wanted the items I bought for such a great discount. I just loved the rush of knowing how much money I had “saved” compared to the original price.

Shopping for bargains is dangerous, though. If you’re not careful, you’ll go broke saving money.

Don’t get me wrong, there were items that I coveted from the day they came into the store. A beautiful cashmere sweater that originally retailed for $60 comes to mind. I absolutely wasn’t going to pay full price for it, but I kept a close eye on our inventory, hoping my size would be there when the sweater finally hit the clearance rack. It was, and I paid $8 for that sweater at the very tail end of the winter season in March.

For the most part, though, it wasn’t the price that deterred me from noticing full price items. It was that I just didn’t particularly like or want them. But as soon as the price dropped and it was a “deal,” my mindset changed completely.

Sale prices can be blinding. As the holidays approach and prices start to drop, it can be tempting to buy buy buy. I’ve said it before, though — if you don’t need the item, you’re paying too much (even if it is on sale).

Next time you’re tempted by a sale price, take a hard look at the original price. Ignore the sale price for just a moment. Try to ask yourself, “Would I want this if it was $60 instead of $10?” Regardless of whether you can afford to pay full price, would you even want it if it wasn’t on sale?

I absolutely wanted that cashmere sweater even at full price — I just couldn’t afford to pay full price. When I finally bought it for the clearance price, it was incredibly rewarding. It’s still my favorite sweater of all time. I can’t say the same for 90% of the clearance items I bought during my time working in retail.