Tuesday, July 27, 2010

Have A Plan B

Tip #267 - Have A Plan B. There are so many factors that come into play when trying to save money - where to live, where to work, where to invest, whether to take a vacation, where to shop, etc. And in each of these categories we have choices we need to make that affect our bottom line. We often plan our financial lives around the choices we make - the job we have, the house we live in, the places we spend our money. But sometimes the choices we make do not last. Then the plans we made based on those choices fall apart. So what do we do? We have a Plan B - already planned before our Plan A falls flat. Because lack of planning is often what causes us to spend more money.

Let's look at some examples. Let's say you are part of a family where the husband works and the wife wants to go back to work and needs to find care for her child. You might have a great option with a neighbor down the street who does daycare in her home for a very reasonable cost. You figure out the income you will make versus the cost of daycare and find it worth it to go back to work. Everything is great for three months when the neighbor informs you that she is going to stop doing home daycare. Now what do you do? Well, if you have a Plan B, you fall back on it. Go to your second lowest price daycare that you reseacrched and enroll there.

But what if there is no Plan B? Can you find another reasonable daycare setting in a short amount of time? Or will you have to quit your job or work for awhile with nothing to show for it because your hastily found new daycare is costing you too much? Having a plan B ahead of time will save you running around at the last minute, possibly helping you avoid paying too much for daycare, and potentially helping you keep your job that you otherwise may have had to quit.

Let's take another example where you have a good job but in a declining industry or in any industry at all for that matter. Have you given any thought to what you will do if you lose this job? Do you know where you would start scouting out jobs? Would you have your spouse take on a job? Having a Plan B ahead of time will help you find a new job more quickly than if you haven't come up with some other job options until your job ends suddenly.

Lastly, what if you are investing for college for your child. Your plan is for your child to go to State University which will provide a good education for a fairly reasonable amount. You are saving for college with a specific dollar amount in mind that would cover the cost at State U. But what if your child fails to get in to State U? What is your Plan B? Don't wait until he gets that rejection letter to come up with one. Make a plan B now. Plan B might be a community college for a year or two before reapplying to State U. Or perhaps Plan B is for him to attend a more expensive private college but have your child come up with half the cost to pay for it.

Whatever the Plan B is, the earlier you make the plan, the better prepared you are if your original plan falls through. Coming up with a hastily designed Plan B after the fact will usually result in higher costs.

Obviously, a Plan B will not solve all of the curveballs that life throws our way. There is only so much we can predict and plan. But it will lessen the financial impact if your first choice fall through.

In Real Life (IRL) -
My husband is at somewhat of a crossroads in his job. He has already been informed that his company will close down in 18 months or so. So we have some time to come up with our Plan A as well as a Plan B. Our first choice plan is to move with his job. But because a move to a new city with a new job often does not work out, we are coming up with an alternative Plan B and even a Plan C becuase job searches are one of the most important financial decisions. Our Plan B is to have him look for a new job in our current city, while Plan C is to have me start working to tide us over if a new, equal paying job cannot be found.

Did we have a Plan B in place before he was told of his job closing? Well, not really. So we have been given the gift of time in that regard. But that is not always the case, and this situation has taught me the value of being prepared in case things change.

We've had to fall back on Plan Bs in the past for smaller, less important finacial choices. And it's always helped dramattically when there was already a Plan B in place rather than have to come up with one on the spur of the moment. For example, I was planning a birthday party for my little one who turned 3 last week (hard to believe!). In the unpredicatble July weather, I needed to have a plan B for the outside party I had planned. What if it rained (it didn't!) or if it was 100 degrees outside (it was!), what would I do? I could hastily find a restaurant or other indoor venue at the last minute when the weather report came out and could be considered accurate. Instead, I came up with a Plan B in advance. (I did this because of past experience has taught me that the weather never cooperates when I plan parties.) And because I did that, we were able to have a nice party indoors within our budget. If I did not have a Plan B in advance we would have scrambled at the last minute, and probably spent more money than I needed to.

Again, you cannot have contingency plans for every little choice in life, but the more Plan B's you have with regards to financial decisions, the less you will spend and the more you will save when having to utilize last-minute backup plans. (Picture shown are some boxes I spent hours last week on turning into Thomas trains for our indoor birthday party.)

Wednesday, July 21, 2010

Be Disciplined

Tip #266 - Be Disciplined. Okay, this is a very common sense tip. But as I've been thinking over the past week what is it that really separates the savers from the spenders, I've concluded that having discipline is a big part of it. Obviously, there are certain expenses that some of us can't get away from - medical expenses and some education expenses come to mind. But, we have choices in much of our daily spending.

As we are pushing the shopping cart down the grocery store aisle, we can pick up the gourmet brand coffee, the ice cream treat that we don't really need, and the imported cheese. Or we can show discipline to forgo the ice cream altogether, put up with a cheaper brand coffee, and deal with good ole' American cheese. The difference between spending more and less at the grocery store? Pure discipline. Discipline to put up with generic products or to forgo certain foods altogether.

When we are out shopping for a car, we may feel swayed to buy a top-of-the-line luxury vehicle versus a basic model. Or we may be tempted to add in the deluxe options such as heated seats or power doors. It takes discipline to say no to these fancy cars and luxurious options and save money while doing so.

How about when renting an apartment? Do we go for the one with the washer/dryer in the unit updated gourmet kitchen with granite countertops or are we disciplined enough to deal with the apartment that has a laundry room on the ground floor and sports outdated 80's almond cabinets in the kitchen?

Maybe we have a hard time being careful with our money when we go out to eat or to a bar - it's easy to add another overpriced drink to the tab and another appetizer.

This last example is one that seems to cause a lot of problems for people. If we use credit cards, do we have the discipline to only purchase items that the amount of money in our bank account actually covers, rather than use the card to buy things that we do not have money for? In other words, do we have discipline to use credit cards wisely? Or are they used as "free money" instead?

Again, sometimes we don't have a choice on being disciplined about spending money - medical events happen, emergencies come up, and some things just have to be paid for, no matter what. But for those "optional" expenses, it's the discipline that we have that makes all the difference in our spending.

In Real Life (IRL) - Writing and doing are two different things. And while I think I am disciplined about not spending money in many categories, there are other areas that I fall short. So it takes control for me to stay out of the place where I seem to want to spend money in the first place. But if I do go there, it takes every ounce of discipline I have not to spend money on things that I don't need and wasn't palanning on buying.

For example, I love Trader Joe's. I think it is a great supermarket for many items. They have many choices of inexpensive, healthy choices. But there are other more expensive and less healthy (i.e. snack food) choices that are also available. So when I go to Trader Joe's to stock up on hormone-free cheese, frozen veggies, mini-bagles and our other TJ's staples, it takes a lot of discipline on my part to not also pick up their version of Pirate's Booty called Buried Treasure or something like that). Believe me when I say we don't need it in the house. It's usually gone in one hour flat. I don't need it on my waistline, and it's two dollars that I didn't need to spend. There are many other equally yummy snacks there that I don't need to be buying, but it takes a lot of discipline on my part to bypass them and keep the money in our pocket for more useful things.

Thrift stores are another place I need to be more disciplined about. The cheap prices are so attractive to me, that it's easy for me to spend money on things that I didn't plan on buying. It takes even more discipline for me to stay away from thrift stores in the first place, one in particular that is nearby because I really enjoy the treasure hunt. And even though I have a small eBay business, I have plenty of junk, er inventory, around here that I need to sell before I should be think about buying more stuff, so I just don't need to be going in the first place.

These are two places that come to mind that I need to be disciplined about in order to save money. On the other hand, I can freely go to a fair and not be tempted to spend big bucks on rides and games. That doesn't appeal to me that much. A new car dealership doesn't interest me that much either - I'm more of an AB car kind of gal (an AB car being one that works well enough to get me from point A to point B). And I can't tell you the last time I went to a shopping mall - well I can, it was when I went to take my son for a haircut several months ago - and we found out the Cartoon Cuts had closed. I haven't been back to the mall since. It just doesn't interest me at all. But I know some of these places, along with coffee shops, fast food restaurants, electronics stores, book stores, and others can be challenging for other folks in terms of them having a hard time not spending money there.

And the credit card crisis our country is facing? It's not because credit cards are pure evil. It's because many people are not disciplined enough to forgo buying things that they don't have the money for. And credit cards give them a way to buy these things even if they don't have the money.

What it all comes down to is that we need to figure out for ourselves where our personal weak spot is with regards to spending money. Is it the big items that we just say, "What's another $1000?" and go for extras like the bells and whistles on a new car? Or is it everyday stuff that we have a hard time controlling our spending with - coffee shops, drugstores, and eateries?

Perhaps, we are not disciplined enough to say no to salespeople - whether it be the hairdreser trying to sell us shampoo or the high school kid selling wrapping paper at the front door. If we can all identify our weaknesses, then we can work on having enough discipline in those areas to avoid going there in the first place or saying "no" when we do. Easier said than done, I know. But you know what they say? Recognizing our problems is half the battle to solving them. It just takes discipline to go the rest of the way. For other money-saving ideas, check out Life As Mom.

Wednesday, July 14, 2010

Sell Gold

Tip #265 - Sell Gold. Gold has been at an historic all-time high lately. I am not promoting gold as an investment vehicle or not. I'll leave that to the investing professionals to advise. What I am suggesting is that you look through your jewelry boxes and find those old, gold chains that have been broken for years. Or those pairs of earrings that are missing one half the set. Or those outdated charms that have not been around your neck since 1982. Gather up all of your gold scraps and bring them over to a local gold or coin dealer and find out what they will pay you for your stash. If there is more than one place in town, then shop around.

But before you go, learn a thing or two about gold. First find out what the current rate is on gold. There are probably many sites that will tell you the current price on gold. One is called goldprice which gives you the price of gold in ounces. Or you can change the measurement to grams, which is a more measurable weight for small quantities. Currently, it says that gold is about $1200 per ounce or $38 per gram. But remember that is PURE gold - 24 Karat gold. If you have 14K gold, then it is not worth as much. To find out what 14K gold is, take 14 divided by 24 and then multiply that number by the number of grams it weighs. Then multiply that result by $38 (or whatever the current value is). That should give you a rough estimate of its worth. You can do the same for 10K or 18K.

The next thing you should do is check Ebay. If you have a bunch of 14 karat gold necklaces that altogether weigh 3.5 grams, then look up "scrap 3.5 grams gold" and you should get an idea of what they are selling for. When I did the calculation 14/24 * 3.5 * 38, I came up with about $77. Sure enough, the range this amount of gold sold on eBay was between $70 and $76. I wouldn't expect to get quite so much at the gold and coin store because they need to make a profit, too.

Even though I am a seller on eBay, I prefer not to sell gold on there. If I can find a local source for selling it that's hassle free and gives me a decent amount of money, then I prefer that. With the fees on eBay and the possibility of loss or buyer dishonesty, I would rather earn a few less dollars and not have any hassle. I'd be happy getting $60 for that amount at the gold store.

One note of caution before selling gold. Remember that what I am talking about above is scrap value. This gold is being sold for its melt down value. Gold will have more worth if it is an historic piece, a name brand, or it is intricately designed. You do NOT want to sell a piece like this for scrap value as it could be valued for much more. An example would be an old piece, one with a Tiffany name or one that has a lot of workmanship in it.

Lastly, make sure the item is free of stones before you sell or have the jeweler give them back to you.

Once you have determined that you are just selling a back of an earring, a broken chain, and a few old charms that only have scrap value, figure out its worth, compare what you found out to what they are selling on eBay, and then bring it into your local gold, coin, or jewelry dealer. If you are comfortable with the price he offers you, sell it, and put your newfound cash into your savings account. It will do better there than sitting in your jewelry box.

In Real Life (IRL) - My mother-in-law came for a visit a couple of months ago, and she brought with her some gold coins that she had stashed away in the vault. She decided that she would rather have the money then have them sit in the bank collecting dust. And since gold was at an all-time high, she wanted to sell. Because the coins were a specific type with a name, we were able to just look its worth up on eBay rather than weigh it. We found that the going rate on eBay for this particular coin was $300. The next morning my husband and his mother went over to the coin and jewelry dealer to ask him what he'd pay them. The answer? $250. We were quite happy with that price. On eBay, if we could get the $300, we'd be paying over $30 in fees plus the cost of insurance to ship, the risk of loss or the buyer being unhappy, not to mention the time it would take to take photos, write up a listing, and package it. $250 in cash was much more appealing. So she sold her coins and was happy.

Then I decided I wanted to get in on the fun. I raided my jewelry box which held a broken chain, an old charm from my sweet sixteen that spelled out "luv" and a few earrings that were missing their mates. They were a mix of 14K and 10K. We weighed it, figured out the approximate price it was worth and then brought it over to the store. We were happy with the $30 I received. I then did a second look-through and found a heavy earring that I missed the first time around along with a couple of other pieces. This time I receive $60.

For the fun of it, my husband also brought over two gold pins that I once found at an estate sale for $3 each. They are beautiful gold lilies with a pearl in the middle. The jeweler offered him over $400 for the pair! But I didn't want to sell these for scrap gold. They were too pretty, and I really didn't know much about them. So they were put back in a safe place. But it was fun to find out that I made a good purchase a few years ago. I was so excited with our gold sales that we told my parents who gave us some old cufflinks that they had and a broken pair of earrings to sell.

Remember not to get caught up in the excitement of gold because it's at its height now, but consider carefully if you you have some junk gold laying around that now might be the right opportunity for you to sell it.

Thursday, July 8, 2010

Be Careful About Saying "What's Another $1,000?"

Tip #264 - Be Careful About Saying, "What's another $1,000?" I know there are many people out there drowning in debt. Not including a house mortgage, I have read many people's stories about owing others $20,000, $40,000, $70,000, or even over $100,000. This might be a combination of student loans, medical debt, credit card debt, and car loans. And when one has $65,000 in loans, it is very tempting to say, "What's another $1,000? Let's go buy that large screen television."

Please, please, please don't think this way. Another $1,000 is another $1,000. And while it may seem like a drop in the bucket when you owe $50,000 or more. It's not - it's $1000 plus interest over time. When you seem like you are drowning in debt, don't keep adding to your debt because you think it's just another small drop in the bucket. Instead, work out a plan to attack the debt that you already have.

On the positive side, I've also read many stories where people have said they have paid off $35,000 in debt in two years or $70,000 debt in five years. So it can be done. Instead of adding to your debt because the amount seems insurmountable anyway, make a plan to get out of debt. Write up a financial plan for the next five years, create a budget, find ways to reduce your expenses and/or increase your income, and start paying that debt down. Every dollar of debt does count. Even if the number seems extremely high and too much to conquer, do not feel helpless and keep adding to that debt. It will only make the number that much higher when you decide enough debt is enough. So take wherever you are at today and start to tackle it. Don't throw in the towel.

In Real Life (IRL) - Several years ago I went to see a well-known designer, Michael Payne from HGTV, give a talk at a Home Show. As he was telling us about remodeling, he said the four most dangerous words when doing a room or house remodel are "While we're at it..." The audience had a giggle about that, but this phrase has always stuck with me. When redoing a room or a house for tens or hundreds of thousands of dollars, it's easy to say, "While we're at it, let's do the bathroom for another $10,000: or "Let's add a deck for $15,000," because after all, if you are already spending $100,000 on a remodel what's another $15,000? Well, it's another $15,000, that's what it is - not too different from ther person who feels overwhelmed with his debt so he keeps on spending. It's a very dangerous place to be.

I have a friend whose husband is out of work. This family has always lived pretty well - and I suspect above their means. So when the husband lost his job, I thought they would finally cut back on their spending. Instead, I see no change in their lifestyle. They recently confided in me that they spent $3,000 to send their son to summer camp. I was aghast - literally. After all, who spends that kind of money when they clearly do not have it? And that's when the idea for this post occured to me. I suspect that they have so much debt that another $3,000 just doesn't seem to mean much to them anymore. After all, what is $3,000 when they maybe owe $60,000 or even $150,000? I can't say much to her; I have tried. The best I can do is be an example.

My husband is not even out of a job, but as I mentioned in an earlier post he was told that his office will be closing in about 18 months. And because of that, I have already cut back. I cut out a $125 camp that I didn't feel was necessary this summer. And I have continued to show my friend the benefits of thrift store shopping. But she doesn't catch on or isn't interested. So I keep my mouth shut. And instead I write on here anonymously so maybe others can build up their financial knowledge and make wise choices with their money. And while you're at it...save some money up, as well. For other ideas on saving money, check out Frugal Friday.

Sunday, July 4, 2010

Do A Mid-Year Review

Tip #263 - Do a Mid-Year Review. It's that time of year again. Whenver Independence Day rolls around it is a reminder to me that we just passed the middle of the year. And that means it is time to review what we have accomplished so far this year with regard to our finances and to evaluate whether we are on the right track to reach our goals.

If you wrote up financial goals at the beginning of the year, pull out that paper and look them over. Are you reaching your goals or have you forgotten about some of them? Are you about halfway with your savings goals or where you wanted to be with paying off debt? A good way to evaluate this is to write up a financial worksheet or net worth page. A net worth page just tells you your financial worth at a given point in time. It can be a useful tool to write one up once or twice per year so you can compare your net worth today to that of 6 months ago, 1 year ago or 5 years ago.

If you are still following the budget that you wrote up, and you should be, look it over and see if you were off the mark on any categories or if anything major has changed that would cause you to adjust some of the amounts, such as a raise, a loss of job, a rent increase, etc.

Take some time out this holiday weekend to evaluate how far you have come so far this year and where you are headed for the rest of the year. Get yourself back on track for your goals and then at year end, you will hopefully have met more of your goals.

In Real Life (IRL) - We had a few unexepected events happen while we were away. The second to last day of our trip, we discovered my daughter had lice (YUCK!). In addition to spending lots of money at the drug store buying things to get rid of it, we got home and had to wash all of the bedding that we left behind. As if that wasn't bad enough (it was!), we found water in our basement, yet again. A call to a waterproofing company and a couple hours of cleaning it up, and we collapsed in our beds that night. It wasn't until yesterday that I realized the mid-year mark happened.

So I took out our budget and financial goals that we wrote up at the beginning of the year. In reviewing our budget, the only major category we changed was summer camp. In light of my husband's job situation, we want to try to put away a bit more if we can. If his job ends in a year and a half to two years and if we decide we want to stay here versus move to North Carolina we are not counting on him finding a job making as much money as he is now. Because of that, we want to build up our savings a bit to cover any expenses we won't be able to afford at that time. Camp and other summer activities seemed like the easiest thing to cut. They are still doing some camps but not as many, and we will try to fill in with cheaper or free activities. We didn't specifically change our food or clothing categories, but we are trying to cut down in those areas if possible.

Next I looked at our financial goals we had set for the year. One of those goals was for me to find a part-time job come September while my youngest is in preschool 3 mornings a week. Although, with him not being potty-trained yet, he might not even be going in September. And even if he does, it is very difficult to fit in a job for 3 hours a day 3 days a week, especially with how often young ones get sick, school holidays, etc. Instead, I have decided to build up my eBay business more. I am going to set up some goals for number of items I wish to sell per week and how much I hope to make. I've done this before and it worked. But then I slacked off and just sold whenever I felt like it. Come September I will set aside a certain number of hours per day to devote to this work.

Lastly, I spent an hour last night updating our net worth worksheet. I like to do this four times per year, although I think twice per year is sufficient. Because of downturns in the stock market, our net worth actually went down slightly in the past three months despite paying down 3 months' worth of mortgage payments and setting aside a few thousand for retirement. Regardless, we feel good about where we are. We will have to dig into our household savings account to pay for the basement to be waterproofed. We are expecting this will cost several thousand dollars (ouch!), but it has to be done, especially if we end up movingn in the next couple of years.

And that's where we are at mid-way through this year. I hope that my readers find themselves moving along with their financial goals. Happy July 4th!