Thursday, December 1, 2011

Prepare For Emergencies - Part 3

Tip #295 - Prepare for Emergencies - Part 3. In parts 1 and 2 of this series, we are talking about being prepared for emergencies - not just financially, but emotionally and physically as well. We defined that an emergency is unexpected, sudden and can devastate you financially, emotionally, and/or physically. In the last post we described how to be prepared for a job loss. Today, we'll talk about being prepared for a diagnosis of a serious illness and death of a family member.

If someone in your immediate family has a serious illness diagnosis, that constitutes an emergency - it's usually, sudden, unexpected and has financial, emotional, and physical consequences. How can we be prepared for that? While, we can probably never be fully prepared, we can do steps in advance of this happening that can make a sudden diagnosis a bit easier to digest.

First, review your health insurance plans. Know what your insurance covers, in general. Be aware of any health services that your office offers such as a Flex spending plan and counseling. Second, obtain a list of specialists from your general practitioner, so you have a place to start if you need to scout out a doctor. Third, keep up your network of friends, neighbors, and local and even long-distance contacts. If your husband is suddenly diagnosed with multiple sclerosis, it's likely that you know someone who has a family member or friend who you can contact to get the low-down of the disease, treatments, and local doctors. Fourth, be aware of time off policies for work. You will need to clarify the policy once you need to use it, but being armed with knowledge in advance helps save time when a diagnosis becomes a very busy time. Last, make sure you have that emergency fund in place. This is the time that you may need to dip into it. No matter how good your health insurance, doctors' visits may involve co-pays, gas and car maintenance costs, time off from work, special foods or other products, and greater living expenses such as food-on-the run, babysitters, etc. Once the emergency is known and the initial newness of it has worn off, this will likely become a budget category for you or cause you to raise your budget in the expense categories just mentioned.

A similar-type emergency but one more extreme is the loss of a family member. If the family member is a spouse that is the breadwinner, then the financial consequences, not to mention the emotional ones, can be devastating. What can you do before a death in the family to prepare for this unexpected event? First, you can make sure any breadwinner or the person who provides a service to your family (cooks, childcare, driver) has life insurance. This life insurance should be enough to cover the expenses - at least for a few years - that this person usually takes care of - housing, food, utilities, childcare, etc. If there are children in the picture, it should cover them for at least as many years until the children are grown. Without getting into a whole post about life insurance, just make sure that you talk to someone (hopefully an unbiased person) about your life insurance needs before you need it, and make sure you are covered before the unthinkable happens.

Another way to plan for this type of emergency is to have a will. I cannot overestimate how important this is. When someone dies, if their will clearly states where funds will go, the beneficiary will receive the money much faster than if it has to go into probate. Third, make sure other policies have the correct beneficiary status updated. If you have a 401(k) at work, for example, is your spouse your beneficiary or is it still your parents (from the time you were single an started the job)? As you get older and have more accounts, it gets harder to keep track of this. So check on this status once per year to make sure they are updated to your current situation.

If the death of a family member is not a breadwinner or does not provide any type of services that would cost money, the loss is going to be an emotional one more than anything. There is no way to prepare for such an emergency, other than to have a good network of family, friends available to you. By being a caring, loyal friend when times are good for you, will likely lead to others stepping up to help you when you need it.

In Real Life (IRL)
- In September, a family in my town lost their son to a tragic, unexpected, and sudden accident. One minute the boy was happy and playing. The next minute, he was gone forever. No one would have predicted it. I did not know this family before the accident. And other than through the web and from friends and local events, I still do not know this family personally. But I have seen the outpouring of love and helpfulness by their neighbors, their church, their community, and from their online friends and even strangers that has helped hold this family up.

Their son's loss of life did not impact them financially, but the devastation that his death brought to them cannot be overestimated. I do not think there is a thing a person can do to prepare, in advance, for this type of tragedy. Other than to be a good person and friend to your family, friends, and community, as it appears this family was. Because at such a horrific time in their lives, I believe their family and friends (and their personal religious convictions) are the only things holding them up. I hope no one I know or any readers here ever experience such a loss, but to see how this family is handling it, you can read the mom's blog: An Inch of Gray. She is a beautiful writer. While it is depressing reading about their tragedy, it is uplifting to see how this woman is handling a devastating emergency.

No one will ever be fully prepared for sickness or death. But doing anything that you can in advance, like the steps mentioned above, and admitting to yourself that life involves both sickness and death and no one will ever avoid them entirely, may make it slightly easier if such unexpected tragedy strikes.

Thursday, October 13, 2011

Prepare For Emergencies - Part 2

Tip #294 - Prepare for Emergencies - Part 2. As I mentioned in Part 1 of this series, nowadays we hear over and over about saving for an emergency fund. But without defining what an emergency is, it's hard to know when you are "allowed" to spend that fund. I define an emergency as something that is unexpected, sudden, and catastrophic in at least one way (financially, emotionally, or physically). When an emergency strikes, it's best to have plans. But of course, we cannot prepare for every type of emergency there is. But we can do some sort of planning for typical emergencies. What are typical emergencies? I can think of some common ones:

1. Loss of a Job
2. Serious Illness Diagnosis
3. Mother Nature Strikes
4. Death of a Family Member
5. Unexpected Big Expense (Need new car, new roof, etc.)

Most emergencies fall into one of these categories. So before any of these types of emergencies happen, make a plan with how you would deal with them if one of them does. Part of this would be having the ever-so-talked-about emergency fund. This emergency fund will help out in all five of these scenarios. Clearly for number 1 and 5, the emergency is that you need money to pay for either a big expense or to cover your everyday living expenses. For scenario 2, 3, and 4, the financial emergency may be secondary to other pressing emotional and physical needs, but would clearly be needed in most cases.

So in order to plan for an emergency, you should start an emergency fund. There are articles and blog posts galore dedicated to this topic, so I won't get into them here. But you should decide on an amount you want to save - 3 months' - 12 months' salary is typical and plan a way to save up for that money either all at once or little by little. While you are working on that, come up with other plans to deal with your 5 emergency scenarios.

1. Loss of a Job. Before you lose a job is the best time to plan for the time that you might lose one. In addition to having an emergency fund, you can do other things in advance of losing a job. Keep your resume updated at all times. Why wait until you've lost a job to update it. It's harder to think back on all that you've accomplished and it takes time away from job hunting. As you accomplish things at work, add it into your resume, revise it, keep up on current style and have it at the ready.

Secondly, network now. Again, don't wait until you are without a job to contact your old fraternity brother from college. Then it will seem like you are using him. Keep up your contacts continuously. Belong to organizations that you enjoy and make contacts with. Join occupational groups. then when a job is lost, your contacts are already in place.

Third, have a plan b for a second source of income. Perhaps you are a 9-5 accountant at a big firm. If you lose your job, you want to get another similar job, but have a plan b for a second source of income. Perhaps you can do taxes on the side while job hunting. Or you can teach accounting at a community college. Before you lose your job, think about what other jobs you can do as a side income. It doesn't have to be related to your field. If you are an accountant who loves to knit, you might want think about (in advance of losing a job) where you can sell your products while you are looking for a full-time accounting job.

Fourth, prepare for any emotional stress you will be going through. Think about a counselor you might need to turn to during this time or whether you have a friend who is a good listener who can help you.

In this economy, loss of a job is not an unlikely scenario for many people. Be prepared for this possible event. So if the unfortunate happens, you have a plan in place to cover your expenses and find a new job as quickly as possible.

If you want to be super organized, keep a list of your emergency preparedness plans (not unlike what to do in a fire drill). Then when the unthinkable happens, and you may not be thinking straight, you can go to your list and follow it. So as to not make this post too long, we will discuss preparing for the other scenarios in future posts.

IRL (In Real Life) - While dishing out this advice, I don't necessarily practice what I preach. Sometimes I fly by the seat of my pants. Job loss has been an emergency that we've been dealing with over the past few months. And, honestly, I wasn't prepared for some of it. While not exactly "job loss" I had planned to go back to work part-time when my son started preschool at age 3. Fortunately, we weren't counting on my income because it turned out my company did not need me back. When I left in 2007, the economy was still in pretty good shape. By 2010 when I wanted to return - not so much. Honestly, I never considered this possibility because times were good when I left. Fortunately, we had adapted to just living on my husband's income so it wasn't a total emergency, but I did plan on using my part-time income for future expected expenses.

I came up with a plan b which was to just take any part-time job I could. And this past spring I did. It was a not-much-above minimum wage job, but it was near my house and fit my schedule. Imagine my surprise when after the summer, they let me go (supposedly temporarily until the retail season kicks back up again).

I would have come up with a plan c, except in that time period, my husband found out they were closing his office. Again, while this wasn't exactly job loss, since they offered him a job in a new location, it had many of the same qualities of it. Picking up and moving to a new locale is not an easy or cheap endeavor. So much of what I suggested above came into play as my husband considered finding a new job so we didn't have to move. Unfortunately, we weren't fully prepared. His resume was sorely out of date. And while I helped him polish it, I don't feel it was the best because it was done hastily. And while he didn't specifically network in advance in order to find a job, he did have a lot of contacts from some volunteer work he does as well as professional organizations he belongs to. And while they got him some interviews, nothing really panned out.

So we are not only dealing with sudden expenses of selling a house, moving, storing, and fixing things around the house. We are dealing with high emotions on both our parts and our kids' parts. This "job loss" has become a major life change for our family that will take months, if not years, to adjust to. We could have had better plans in place for this emergency. As going through it has made me realize that having an emergency fund is not enough to get you through when an emergency strikes.

Monday, August 29, 2011

Prepare For Emergencies - Part 1

Tip # 293 - Prepare For Emergencies. In almost any financial article you read these days, you will see advice to have an emergency fund. Often it says the fund should equal 6 months' to one year's worth of expenses. But beyond that, these articles often do not give you much guidance. What constitutes an emergency? Should I have contingency plans? Do I need to consider all of my expenses? How do I deal with emergencies physically and emotionally as well as financially? What do I do after the emergency is over?

Because of these many unanswered questions, I thought I'd write a few posts with more detail regarding planning for emergencies. What is an emergency? Is the 20-year old roof leaking considered an emergency? How about your new car needing a new radiator? Your husband breaking his leg and not being able to work for a month? Are any of these emergencies? Are all of these emergencies?

I think we first need to define what an emergency is. Each person's definition may be slightly different. My definition of an emergency is something shattering that is sudden and unexpected that impacts your financial, emotional, and physical life. In that case, the 20-year old roof leaking would not be an emergency. It might be sudden and shattering but one could reasonably expect that a 20-year old roof would leak so it is not unexpected. That event could have been predicted with some certainty. A new car needing a radiator might be sudden and unexpected but it is not shattering, and therefore isn't an emergency. Your husband breaking his leg and not being able to work for a month is shattering, unexpected, and sudden and meets my definition of an emergency.

Each person's interpretation may be different on what is shattering. To someone in dire finances, the cost of a new radiator may be. So the first step in preparing for emergencies is to figure out what an emergency is. It might be the same as my definition or slightly different. Most likely it will have the sudden and unexpected component to it. The "shattering" component may be slightly different depending on your financial, physical, and emotional circumstances. To some a car breakdown even if sudden and unexpected is emotionally draining and possibly financially draining and would constitute an emergency. For others a car breakdown is no big deal either emotionally or financially. It might make sense to put a dollar amount on your shattering portion - something like any sudden and unexpected event that costs over $1000 is considered an emergency. Or any sudden and unexpected event that will cost us over $200 each week for the next month is considered an emergency.

So, our first step in preparing for emergencies is to define what an emergency is. Then we can figure out the following steps - which is meeting the emergency head-on. We'll discuss them in future posts.

In Real Life (IRL) - I've been thinking a lot about emergencies lately because we've had a lot of potential ones. At the end of July, my dad told me that he had prostate cancer. He is 74, and fortunately it is slow-growing form of cancer that is treatable. Nevertheless, the "C" word, which I hate more than almost anything, is scary. While the financial consequences for me aren't really affected by my dad's diagnosis, my emotional ones and physical ones were dramatically. I had a hard few days digesting this information, and living far away (3 hours), it has some physical constraints, too.

But that wasn't the only piece of "emergency-like" news I heard. A day after my dad told me his diagnosis, my husband called me from work and told me that he got word that his office is closing at the end of October and that he was offered a job at the home office in North Carolina. While this news wasn't totally unexpected as they gave us warning a year ago of this happening, in May they told us there were no current plans to close his office. So it was somewhat unexpected timing, and the date seemed sudden as I thought they'd give us 6 months' lead time. If my husband takes the job, then there are financial consequences of moving, packing, selling the home, travelling to find a home, renting or buying a home, etc. If we don't move, we have other financial consequences of looking for a new job or being without for awhile. Combined, my dad's news and the job news, was making me an emotional wreck.

A few weeks went by and things settled a bit as my dad found out treatment options, and my husband and I did a scout out of neighborhoods in North Carolina and considered some options locally. Then one day in mid-August, our house starting shaking and things started falling off the walls and bookshelves. An earthquake had hit Virginia. Scary indeed! And while it didn't end up being an emergency, it certainly opened my eyes to how an earthquake could easily cause one! And of course, a few days later, we were in hurricane-preparedness mode. Fortunately, it turned out to be a non-event here, but in the past we've had a flooded basement, downed trees, and no electricity as the result of a hurricane, so I know how quickly that can become an emergency.

So to say that emergency preparedness has been on my mind lately would be an understatement. It has made me evaluate our preparations for emergencies in life - not just financially but emotionally and physically, too. I'll discuss these further in my next posts.

Monday, August 1, 2011

Most Everything Is Sellable

Tip #292 - Most Everything is Sellable. Back in the days before the Internet, you might try to make money by putting up a sign at the local grocery store advertising your old lawnmower for sale. Or you might put a placard in your car announcing its sale. But you would never dream of selling your extra garage door remote or the brochure or manual that came with your brand new 1972 Chevrolet Nova. Maybe you'd put some stuff out in your next garage sale and earn a quarter or two off of your old things. But most likely you'd throw away your brochure when the car was junked. The garage door opener remote would probably be thrown in the back of the drawer in case you met someone who has the same garage door opener brand and model as you.

Well, those days of the pre-Internet are long behind us. And today most everything is sellable. Things that may have once been considered junk to you are thought of as prized possessions for someone across the country or halfway around the world.

So this tip is: do not throw anything away until you have checked whether it has value or not. Do not just assume that what you have is junk. An old pen from Pan-Am Airways? It might be worth a few bucks. Your son's set of chapter books that he is no longer into? Probably has some worth to someone. An old brochure from a 1950's range - chances are someone wants it. A keyless remote to your old car? Likely that someone wants it.

Of course not everything you have is sellable, but chances are there are more things that have worth than you realize. So before you throw things out, check online - eBay is probably your best bet - to see if items like yours are selling for any money. And if they do, put it up for sale and make money on your unwanted things. Happy selling!

In Real Life (IRL) - Again, I've been away for weeks. No excuses, I just haven't made blog writing a priority. And in the past week, I've been house hunting! We finally found out for sure that my husband's office is closing this fall. And I am realizing how much I need to get rid of in my house before we sell it. So much to do! Part of what I realized when going through our things is that a lot of these things that seem like junk may be useful to someone. We have an old 2001 Dodge Caravan brochure (from our car that kicked the bucket last month). While it has no use to us anymore, I am sure there is someone out there who owns a 2001 Dodge Caravan who would like to have the glossy brochure and specs from his car. My husband also has a bunch of other brochures from different times when he was car hunting. He just handed me a pile and asked me to see if there's any worth for them on eBay. And a cursory glance shows that some of these brochures do sell. Who would have thought? Certainly not me! I would have put them right in the recycling bin.

Unfortunately looking up and selling items takes a lot more time than throwing away! But if I think they will make enough money, then on to eBay our junk will go. What kinds of things do you have laying around that may be worth money that at first glance wouldn't seem like it?

Wednesday, June 15, 2011

Beware of Incremental Increases

Tip #291 - Beware Incremental Increases. Once you have your budget laid out and you are into a routine of spending that you are comfortable with, it is sometimes easy to take things up a notch without realizing it. For example, you may be great about eating your meals at home, bringing along water bottles in the car, and walking the one mile to school rather than driving and staying within your budget. But once you've been doing that for awhile, you might stop "just this once" to get drinks at McDonald's for the kids. Or you might start to order take out when you've had a bad day even if it's not in the budget. And while all of these things may be okay to do once in awhile, when it starts to become habit, that it becomes dangerous (to your finances anyway). Suddenly these changes become the new normal, and without realizing it, you have started spending more money than you budgeted for.

It is these small, incremental changes that you need to be careful about. It is so easy to get used to these new "luxeries" without realizing that you are spending more money. Sure, it may be just a few dollars once or twice a week, but over time, they add up with little notice. For example, suppose you are a working woman and bring your lunch from home to work each day. But one day you are running late and don't make your lunch so you buy at the office. The cost is $6 - about $4 more than it costs to make your lunch at home. The next week, you hit the snooze button one extra time knowing that you can skip making lunch again and buy in the cafeteria. Before you know it, you are buying lunch about once per week at the office. Seems harmless, no? Well, in a given year that means you spent about $200 extra on lunches that you didn't budget for. That may or may not be harmless, depending on your financial situation and your other miscellaneous costs.

Suppose you also have gotten in the habit of picking up a magazine each week at the checkout counter at the supermarket each week. Again, this is something that wasn't in the budget. At about $5 a pop, it puts another $250 dent in your finances. Add in that you start meeting a friend about once per week for a drink for an additional $250 or so. All taken together, you have been spending an extra $700 for small changes that you hadn't budgeted for at the beginning of the year. These might all become important items for you to have in your life in order to keep things going smoothly and stress-free. But, they also add up to a fairly big expense, and if they become habit without being in the budget, you will not meet the financial goals you set for yourself in the beginning of the year.

So stop and evaluate the small, incremental conveniences that may have crept into your routine that you haven't budgeted for. And see if you can put them back into their place as special purchases rather than regular ones, until you can adjust your budget and include them formally.

In Real Life (IRL) - I started this post several weeks ago, and cannot remember what event made me realize that some small habits had crept into my routine that were starting to put a dent in my wallet. It was either the quick stop at McDonald's for drinks for the kids on a very hot day (and I had forgotten to bring drinks with us) or the soda I was suddenly adding into my shopping lists when I had virtually stopped drinking it for months and months. Or maybe it was the packs of gum that my daughter was asking that I buy for her when I stop at the drugstore (with her money at least). Whatever it was, I knew that none of these purchases were expensive on their own but buying them on a regular basis as they were tempting me to do would surely take money away from targeted saving account. I knew I would have to do better.

While I do think big purchases have a greater impact on my finances than smaller ones, I realize that smaller ones occur much more frequently and without nearly as much research or notice. And I know that there is some truth to the saying "watch your pennies, and the dollars will take care of themselves." And while I don't think we should necessarily deprie ourselves of small treats when we can afford them or for special occasions, I believe it is the little things that we don't realize we are spending money on that can set us back on our financial goals. To that end I am making a concerted effort to be aware of when I am started to spend money on little things on a regular basis That I have not planned for. I hope you will, too.

Monday, May 30, 2011

Start Small

Tip #290 - Start Small. Do you ever think about people who are poorer than you and feel sorry for them? You might think it's sad that they don't have money to go to the movies or the funds to take a vacations. Do you ever think about all of the things that you can do that they cannot? Perhaps. But what about people who are richer than you? Do you feel sorry for yourself that you cannot join a country club or that you do not have a personal driver? Probably not.

Do you know why? Because most people do not miss the things that they never had. Most people do not feel like they are missing out on life because they do not have a live-in maid. Just like those less fortunate than you do not feel that they are missing out on life because they cannot go to the beach each summer.

How does this relate to saving money? Well, it is harder to cut back on your lifestyle than to never have had that lifestyle at all. Therefore, you should start out small with your purchases. Here's an example: Suppose a family decides that they want to rent a comfortable apartment that will accommodate all four of them? They rent a three-bedroom and enjoy all of the space they have. But after a year of living there they realize that the extra space they have is costing them too much. In an effort to save money, the decide to cut back to a two-bedroom apartment. In doing so, they miss their extra space. They feel like they are living with less and they yearn to have their old space back. But suppose they had started small? They would not have missed the extra space because they never had it in the first place.

When someone is starting out on their own, it is best to start out with a less-costly lifestyle and gradually build it up as you are financially able. Even if you temporarily know you are living on two incomes without kids and can afford finer things, make them a special treat rather than part of your everyday lifestyle. If you gradually increase your standard of living, you will appreciate each new upgrade rather than if you start out big and need to cut back.

In Real Life (IRL) - When my husband and I were both making an income and we had no children, we had the ability to live it up a bit. We could have eaten out quite a bit, taken extravagant vacations, and lived in a fancy apartment. But we knew that in the near-future we'd be cutting back to one income when we had kids. So fortunately, we saved most of our extra money and lived a more meager lifestyle. Although, it wasn't intentional not to live large because we knew cutting back would be harder psychologically, it worked out that not getting used to a fancier lifestyle was a benefit to us. Had we been used to staying at Marriott Hotels, Comfort Inns would be more challenging for us today. Had we been used to buying new cars every few years driving one for 10 years would be difficult. Had we been used to a fancy apartment with granite countertops and stainless steel appliances, a 50-year old home with an outdated kitchen would have been hard to get used to.

There are always exceptions. When we got married and went on our honeymoon, I remember the travel agent convincing me to go for the luxurious hotel with the fancy outdoor fancy pool when I was looking into staying at a more modest hotel. As it was a once-in-a-lifetime event, I am glad we did it. But that was a special occasion. For our regular vacations those first few years we still looked for the best deal on a nice, comfortable hotel without going overboard. While I wouldn't want to look back on my life and say "Gosh, we should have flown to Paris when we had the opportunity," I think starting out small and gradually increasing your standard of living is easier and more doable financially than getting used to luxuries that you will need to later cut back on. Start small.

Instead if you start out slowly and build up your lifestyle, you will not miss what you didn't have.

Tuesday, May 17, 2011

Find the Right Balance to Meet Your Financial Goals

Tip #289 - Find the Right Balance To Meet Your Financial Goals. There are many ways you can meet your financial goals. Some ways work well at different times in your life. And some ways work well for different people and their circumstances. But in many cases, a combination of three main methods may be the best way to meet your goals such as increasing your savings. You can earn more money. You can decrease your expenses or you can make more return on your investments. Each of these singly will increase your savings. But finding the right balance among all three of them will work better to maximize your savings.

Let's look at an example. You are a family of three - husband, wife, and an 8-year child who will go to college in 10 years. You have $100,000 saved in a retirement account that is earning 5% per year and $20,000 saved in a college account for your child, earning 4% per year. You hope to retire in 25 years. Suppose your household makes $60,000 per year after taxes. Mortgage, utility, and food expenses add up to $30,000 per year. Health and wellness expenses add up to $6,000 per year. Automobile, gasoline, and clothing expenses add up to $8,000 per year. Lastly, entertainment and travel expenses add up to $6,000 per year. This leaves you with $10,000 per year for savings. Out of that savings, you put $8,000 toward retirement each year and $2,000 toward your child's college account.

After you sit down and crunch the numbers, you realize that you will not reach your goal of saving $100,000 (in today's dollars) for your child's college fund. In fact, you realize that you will need to save a total of $4,500 per year (about $2,500 more per year than you are currently saving). Then you look at your retirement numbers and calculate that in order to earn $1,000,000 at the time of retirement, you need to be saving $14,000 per year ($6,000 more than you are saving now). And you also realize that you will most likely need to buy a car in about 5 years and need to save $5,500 per year for that. All total you figure you need to increase your savings by $14,000 per year to reach your goals. How should you go about that?

One way to increase your savings is to cut down on expenses. However, you already live a frugal life and don't have much that you can realistically cut without making dramatic changes in your life. After scrutinizing your budget, however, you calculate that you can save $1,000 per year by using coupons and shopping at less-expensive grocery stores. You decide that your family can forgo your annual vacation and cut $2,000 of your entertainment/travel budget. And by shopping at thrift stores for clothes and riding your bike instead of driving places, you think you can cut another $1,000 off your budget. So you have come up with $4,000 more money that you can put toward savings. However, you are still $10,000 short of your goal.

Another way to increase your savings is to improve your investment return. Suppose your child goes to school in 10 years, and your investment toward college is earning only 4% return. After speaking with a financial advisor, you realize you can take on slightly more risk with this investment and think you can earn an 6% return on your money. This means you need to save $4,000 per year for college (an extra $2,000 per year). For retirement, you know you can take on more risk and can probably earn an 8% return on your money. In this case, you only need to save $5,000 per year toward retirement to meet your $1,000,000 goal, which actually frees up $3,000 per year for savings elsewhere. By this example, you only need a total of $14,500 in savings to meet your goals. But you are still $4,500 short of your goal.

Realizing that there is only so much that you can cut your expenses. And while the return on investment you can make is technically infinity, it is unlikely that you want to undertake that kind of risk, you know you can increase your income to bring in more money. If you have a school-age child, perhaps you can take on a part-time job 20 hours per week earning $10 per hour. In one year, you can make about $10,000 per year ($7,500 after taxes), $6,500 short of your goal that you needed.

Now let's combine all three strategies. Increase your return on investments, and you only need to save $14,500 total per year. Combine that with cutting expenses of $4,000, and you are now only $500 short of your goal. Mix in the $7,500 you can make with your part-time job, and you now have an extra $7,000 to play around with. Add back in that vacation? Cut down your work hours to 15 hours per week? Reduce your retirement risk? It's all up to you. Find the right balance of all three strategies. By utilizing all of them, you can tailor your desires with your needs to put hold on to more money and meet your savings goals.

In Real Life (IRL) - I have been out of the workforce for 4 years. Other than selling on eBay which nets me a few thousand per year, I haven't brought in a steady paycheck of any kind since early in 2007. In order to live on my husband's income, our first line of defense was to cut back on spending. When we had two good incomes, we had extra money flowing to go out to eat when we wanted or to go on a quick weekend jaunt somewhere fun. But when I stopped working, all of that changed as we had very little extra money above our expenses. But at that point in time, staying home with my baby was more important to me than eating out in a restaurant (as if I had time. Ha!). So in order to cover our expenses, we lowered them. We cut out restaurant meals. We cut out weekends away. We cut back on shopping.

And while I was always a good saver for the future, there is something about having a baby that makes you feel a huge responsibility. Will we have enough for her schooling? Who will care for her if something happens to us? Do we have enough money for the future? In that regard, we researched saving for college, I took out life insurance, and we increased our retirement savings. We also analyzed how much risk we were willing to undertake to meet these goals.

Then child number 2 and 3 came, and we suddenly had more expenses - preschools, activities, more health insurance and dental insurance, an addition to our house. Fortunately, my husband's salary increased, which covered some of our increasing expenses. We stuck to our budget and stayed with our investment strategies. But the expenses kept coming - car expenses, braces, higher college costs, Bat-Mitzvahs in our future. And at that point, we realized, we did not want to cut out any of our other expenses or take from savings to pay for these new ones.

We live as frugally as we want to. We don't want to cut out any more restaurant eating. We don't want to stop going to the beach every summer. And we are comfortable with our investments. We don't want more risk. We weathered the economic downturn a few years ago pretty well since we mixed in low-risk investments with our high-risk ones. Sure we may be able to make more on our investments, but not without more risk and sleepless nights that we are not willing to undertake. And with our children getting older and going to school for longer hours, it makes sense that at this point, increase our income is the best way to increase our savings account.

Last week I went on my first job interview since leaving my job four years ago. And I am starting work in two weeks just three miles from my home! I am excited that with my income, we will be able to cover the expenses we will have, while still maintaining the savings that we want to do and keep our investments at our desired risk level. At this point in time, increasing our income makes sense, along with our level of frugality and investment risk that we are comfortable with. It is the right balance for us. When our children were younger, fewer expenses and less income made sense. When I was younger and single more risky investments and higher income made sense. How do you maintain your lifestyle, keep your savings and be comfortable with your investment risk? What kind of balance is right for you at this stage of your life?

Thursday, May 5, 2011

Using Credit Is Okay Sometimes

Tip #288 - Using Credit is Okay Sometimes. I'm going to say something on here that I don't see on many personal finance blogs. I have read dozens of personal finance and money-saving blogs over the past few years. And the almost universal theme I see in all of them is that the writer started his blog because he racked up a lot of debt and learned how to dig himself out and wants to pass his experience and advice on to others. Sometimes this advice is in the form of "Throw away all of your credit cards," "Live a debt-free life," or "Wait until you have the money set aside before you buy what you want." In fact even Dave Ramsey got started down his successful career because he was in a lot of debt at one time and pulled himself out of it.

Now here's my comparison to that line of thinking. If you are an alcoholic and want to stop drinking, then looking to alcoholics who have given up alcohol and have been living a sober life for years is a great place to start. And like alcoholics, people who have absolutely no willpower when it comes to going on a shopping spree with their credit card and no money in the bank to pay back the bill in 30 days when it comes due, that advice most personal bloggers give is probably sound.

But what if you were never an alcoholic? What if you hardly ever drink or just like a glass of wine with your meal once in awhile? Whose advice do you look for so that you won't become an alcoholic? The answer? Probably no one's. Why would you be looking at a reformed alcoholic for drinking advice since you don't abuse alcohol? Now substitute alcohol for credit cards. If you aren't out-of control with them - if you use them to make big-item purchases or to go away on vacation, why is that bad for you? It's not always. There are plenty of people out there who are just not educated in finance who just want to figure out how to best build up their savings, how to spend less, or how to invest. To those people, I say, it is okay to have credit cards. It's okay to take out a loan if you need one. It's okay to float your money for a month to earn interest - as long as you have a financial plan and a budget, and are living within your means.

Let's look at some scenarios of when using credit is okay or not okay:

Example 1: Marnie has a budget and a financial plan. One of her goals has been to buy a car. She's been saving money for 5 years for it and has $10,000 in a CD earmarked for the car. The CD is earning 6% interest, and it is coming due in 6 months at which time she will buy her car. But her car dies suddenly and she needs to buy one this week instead of 6 months from now. She can get a loan from her credit union for 4.5% interest, and she can pay it back in 6 months when her CD comes due. Should she take out a loan? Many people tell her she should never take out a loan on a decreasing asset. But if she breaks her CD, she will lose her interest. Besides, she is borrowing at a lower rate than what she is earning. Is using credit okay in this situation? My advice? Take out the loan. Marnie's story shows she is responsible with money. She has been saving long-term for a goal, and she has a budget and a plan. When her CD comes due, she can pay back the loan and all is good. If the interest she is making is greater than the loan she is taking, then by all means she should take the loan.

Example 2: Mindy has $12,000 on her credit card balance. She pays the minimum $250 each month on the card. Her dad told her, it will take her 15 years to pay off her balance by just paying the minimum, but she doesn't care. She thinks as long as she can pay the minimum she is in good shape. Plus she tells herself that she always has $350 leftover each month that she can put toward the card, but she chooses to only put the minimum amount towards it and spend the remaining $100 on a night out.

Mindy's friends call her and tell her they have found a fabulous deal on a cruise - 6 days in the sunny Caribbean for just $800. Mindy knows that she can afford it because even if it makes her minimum payment higher on her card, she can still pay it and forgo going out to dinner each month. Is using her credit card wise in this situation? I think all of us would probably agree here that Mindy is not responsible with money. She might, in fact, be termed a crediholic. She cannot give up using her credit card and has no understanding of how little she is paying back when just paying the minimums. My advice? No way! Have someone sit down with you and work on a plan to accelerate your credit card repayment instead and explain how credit cards work.

Example 3: Craig is 35 and single. He has $350,000 saved toward retirement and puts away $20,000 more per year towards it. He also has 6 months' worth of money in the bank in case of an emergency and two savings accounts set up - one for for a car and one for a house. He should meet his car goal next year, and his house goal in three years. His take-home pay is $7,000 per month and he uses his credit card buy all of his items - his groceries, clothes, vacations. He pays off his balance each month. Lately, Craig has been reading personal finance blogs and most of them say that credit cards are bad. He wonders if he should get rid of his cards and start paying cash from now on. What do you think? My advice? No. He sounds like he is set for retirement, his car, and his house. Sure, he may spend more money in the grocery store for an impulse buy that he might not do if he paid with cash. But he can limit is losses with credit cards and they give him some insurance if he uses it for air travel or car rental. And for big purchases, as long as he is deciding on how much to spend before he buys, then using credit is a better deal. It not only gives him some refund power if there is something wrong with the product, but it also gives him 1% reward with each purchase. As long as his financial plan is sound, then he does not need to live like a pauper - giving into an occasional carton of ice cream at the grocery store will only help him enjoy life more.

I can give many more examples where I think it's okay to use credit cards or take loans. Conversely, I can think of several examples, and know many in person who need to stay clear of debt of any kind. Which type of person are you?. Are you a crediholic? Can you not control yourself if you have a credit card in your hand? Do you like to buy things "above your means" such as a fancy sports car and put it on a loan? If so, give them up and follow what many financial bloggers are saying about credit cards or debt. On the other hand, are you responsible with your money? Do you have a savings account? An emergency fund? A financial plan for the future? Do you take out a loan only when you know you are doing it for the right reasons and can pay it back in a reasonable amount of time? Do you decide in advance what you will buy and then happen to pay for it with a credit card? If so, then it's okay to use credit and take out a loan. Just like an alcoholic, crediholics should stay away from debt and credit cards. But just like there are millions of others out there who can control their drinking, there are many who can use credit and debt wisely, too.

In Real Life (IRL) - Our credit union has a great deal on IRAs. From January until April you can add more money to any existing IRA CDs. For example, I have some IRA CDs. One of them is earning 4.9%. I opened it a few years ago and there are still 5 years left until maturity. If I were to put my $5000 Roth money that I invest each year into a current IRA at this credit union (or anywhere else for that matter), I'd be able to earn 2.6% for a five-year certificate. On the other hand, during January to April, I can add on to a current IRA that I already have such as the one earning 4.9%. I love this deal and only found out about it last year.

I've always wondered how much longer they will continue to offer this deal. Last year I made 2009 IRA contributions in early 2010. But this year, I started to think about whether they would even continue this deal next year and decided I wanted to make all of my and my husband's 2011 IRA contributions now while I know they still have this offer. Problem was, I didn't have the money available for it. Sure, I knew by year-end, we'd have the $10,000 saved up to put toward our IRA. But in April? We only had $3,000 of it saved. So what did I do? I took a loan. Yes, I did. We have a home equity line of credit for $50,000. We owed nothing on it so it was available, and current rates are 3.25%. So I borrowed $7000 from it with plans to pay it all back this year with the money we would have put toward the IRA.

Did I do the right thing? I think so. I'm currently making more in the IRA (4.9%)than I am paying out on the Home Equity Loan (3.25%). Yes, the home equity loan rate can change but it would have to go above 5% for it to cost more than I'm earning on the IRA since the interest is tax deductible. Also, I am getting the gift of time. Even if the bank continues this great IRA add-on offer, I would have to wait to put the money in the IRA until January 2012, and I will have lost out on 9 months' worth of interest, while the money sits in a checking account waiting to be invested. So I am earning about $262 in those 9 months and paying out about $170 (before a tax deduction) if I keep the loan for the whole 9 months. Plus I am assured of getting this great deal from the credit union that might not be available next year.

Had I said to my husband "Let's go take the trip around the world we've been wanting to take and just use our equity fund, I would not think taking a loan in that instance is wise. Each situation and each person is different - sometimes it's wise to use credit. Other times it's not. What do you think? Do you think having some debt or using credit cards and taking out loans is okay?

Please check out other financial ideas on Frugal Fridays at Life As Mom.

Tuesday, May 3, 2011

How well will you do?

Here is an interesting game from Urban Ministires of Durham. Of course you are stuck with the scenerios they give you as well as only a few options. But it is an interesting look at how quickly someone can fall in the hole financially.

Play Spent

I'm embarrassed to admit that I came away from this game in the negative. Fortunately, I've made better decisions and have had better circumstances in real life. How did you do?

Friday, April 15, 2011

Review Your First Quarter Finances

Tip #287 - Review Your First Quarter Finances. It is that time of year again (actually a couple weeks past!) when we should probably look over how we are doing with this year's finances. But, if you haven't done your taxes yet, do that first! Once those are signed and sent, sit down with your budget, spreadsheet, notebook, calculator, or other financial tools you use to figure out your finances. If you are serious about getting your finances in order and motivated to put away money or pay off debt then you should have set some financial goals and written a budget at the beginning of this year. Our first-quarter review is basically just a review of how we are doing with those goals and how successful we are with the budget that we set for ourselves.

If one of the goals you set for yourself was to accelerate your payments on a car loan of $3500 and be finished with it by year's end then look up your statement online (or in the mail) and see how much you have paid off from January 1 until now. If you have paid off close to $1000 of it, then it looks like you are on your way to reaching your goal. If you have not done any accelerating of payments thus far, then analyze why that is the case. Did you have unexpected expenses? Have you been putting it off, hoping to pay more of it off later in the year? Have you spent any money needlessly that could have been applied to this loan? Is this goal still realistic? If you find that you are slacking then look over your goals again and why you want to achieve them to help find the motivation to get back on track. If you find that you grossly underestimated another expense in your budget, and you won't be able to pay off $3500 this year on your car, then adjust the goal to what you now think is realistic.

Look over your budget and compare it to you actual expenses that you have incurred over the past three months. Did you perhaps underestimate how much gas prices would rise? Do you need to raise the budget for that category? Find another category that you perhaps overbudgeted for, and take the money from that category. Have you found that you have been doing such a good job with cooking from scratch that you feel justified in lowering your food budget? Look over your categories again and analyze if you are doing all you can do to keep your expenses as low as possible. This is especially important if you are trying to build up some savings or get out of debt. Can you put your gym membership on hold for a few months while the weather is nicer? Can you take public transportation for cheaper than gasoline fill-ups?

This quarterly review is not necessarily a time to do a whole budget or financial goals overhaul. Instead it is just a point in time to review what you have done thus far in the year to see if you are headed in the direction and at the same pace that you plan, financially. It may be a time to make some small adjustments as mentioned above or perhaps a big change if things have changed drastically since you set your financial goals and budget (new job, sudden new addition to the household, etc.) But overall, it should be a time to just review how you are doing financially 1/4 of the way into the year.

In Real Life (IRL) - I did my taxes later than normal this year (just finished them last weekend!), so I have yet to sit down and do my quarterly review that I am pretty faithful about doing. I hope to find some time this weekend to do so, however. Part of what I do each quarter is look over our budget - and I do think I may need to up our gasoline budget as I did not anticipate the approximately 50-cent increase per gallon that we've had since the beginning of the year. With my husband driving 50 miles round-trip to work each day, that works out to about an extra $20-$25 per month in gasoline for which I didn't account.

I don't usually change our financial goals but I look them over and see if we are on track to reach them or if I am putting things off. Our mortgage is our only debt, so our goals involve putting $2,000 per year into each of our children's college account and $5,000 into each of our Roth IRA accounts. Pretty much come rain or shine, this is the minimum of what I want to do. Rather than change that goal, I would likely find ways to come up with the money (by selling more on eBay or taking one less vacation).

So rather than look at my goals to change them, I calculate my net worth each quarter to see where we are - how much we have in our retirement account, how much is in each of the kids' college funds, how much we have left to pay on the mortgage, etc. I like to use it as a basis of comparison with last quarter's net worth or last year's net worth. It gives me an overall picture of how far our financial goals are taking us. For example, my daughter turned 9 at the end of last year. With her late birthday, she wont' be started college till 2020. I can look at our net worth statement and see that at this time last year we had approximately $21K in her account. Then I can look at our current net worth and see that she has $23K in her account. By looking at our net worth, I can start to use this information as part of an analysis of our long term goals, which will be a topic for another post.

For now, I am going to gather our statements and check out how well we are doing against our budget. I know we are behind on making our deposits into our Education Savings Accounts and Roth IRAs, but that seems to be par for the course for us lately, seeing as I just made part of our 2010 IRA deposits a month ago (you have until April 18 to do so this year!) I hope everyone can make time for an early-in-the-year financial review. I find the process to be very worthwhile.

Monday, April 4, 2011

Organize Your Papers for This Year's Taxes

Tip #286 - Organize Your Papers for This Year's Taxes. Every year when January 1 or so rolls around, we start to think about our taxes. We begin to get envelopes in the mail on a regular basis that say "Important Tax Return Document Enclosed." And we start a pile of our tax documents. Then around February 1, the more ambitious of us start working on our taxes. And as we progress, we start searching for that little slip of paper the neighborhood trumpet player left with us that says we donated $10 to the high school band. And we start looking in our checkbook for all the checks we wrote to little Sadie's preschool. And inevitably at some point as we work on our taxes we have a nagging suspicion that we donated a desk chair to a local charity but never got a receipt for it, and we are suddenly making phone calls to organizations asking for slips of paper or lost statements. At least some of us are.

But why? It is so easy to start a folder or envelope for next year's taxes that everything tax-related gets put into as it comes in. It does not have to be sophisticated - a folder will do but something with sides like an envelope is better, so there is less chance of a small piece of paper falling out. Write on it "2011's Taxes" in big letters and keep it in an accessible place. What should go in it? Of course, each person's tax situation is different. And those who itemize their deductions would need to keep more receipts. Things that may need to be included are:

--Any donation slips you receive for donating material goods
--Any receipts you receive for donating money to charity
--Copies of your statement or checks that show you paid childcare
--Receipt of payments made to higher education
--Copies of medical payments not covered by insurance
--Travel expense receipts or a log of mileage for work you did for charity
--Receipts for home improvements that may qualify for energy-saving deductions

If you keep these all together throughout the year, it will be much easier when you sit down at tax time to do your taxes (or even if you hand over your paperwork to a tax preparer). The best time to get organized is as soon as you finish last year's taxes when tax paperwork is fresh on your mind. So if you have just finished your taxes or are about to sit down to do them this weekend, get a folder or envelope together for this year's taxes and start collecting the necessary paperwork.

In Real Life (IRL) - Organization is not one of my strong points. I tend to "keep things in my head" such as dates, activities, and such. And while I do pretty well with that system, my memory is nowhere near perfect, and I have forgotten several things from time to time. When it comes to taxes, a paper trail is more important than using one's memory, especially if it comes to getting audited. Fortunately, I have a husband who tends to be more paper organized and keeps all of our donations slips together. But there are other activities that my husband is not involved in so much (like writing checks to the kids' preschools) that I must take the lead in being in charge of.

Once I started selling enough on eBay to call it a business and declare my income I have had to be much more stringent on keeping all of my receipts and price records of what I purchase. Forgetting about trips to a yardsale or not keeping receipts from a thrift store only makes my job more difficult when it's tax time and causes me to miss out on legitimate business expenses. Having said that I am still not perfect when it comes to keeping track of all my personal charitable donations - the one I make in haste online for a friend of a friend or keeping track of my expenses that I have while working with a charity.

When I sat down to do my taxes this year, I found myself having to look up statements online to see if in fact I did make a donation to my college this year as I thought I had (I did, but misremembered the amount). And while I was looking up the statements I found another donation I made that I had completely forgotten about. Then I had to call the bank to have them send me old copies of statements that were not available online. Because of my lack of organization of paperwork, I had almost lost out on some decent tax deductions.

Also, if I had just kept track of my donations and expenses more thoroughly in the first place, I would have saved myself a lot of time and extra work. So for 2011's taxes, I have already set up a folder, and I am starting to add in receipts and log expenses in a notebook that I will keep inside so next year, my work at tax time will be much easier and more accurate.

How about you? Are you good at keeping papers organized for your taxes? Or do you wait until April to gather everything together and do some last-minute scrambling?

Saturday, March 26, 2011

Be Vigilant When Buying Secondhand

Tip #285 - Be Vigilant When Buying Secondhand. One of the best ways to cut down on expenses is to buy used (rather pre-owned which sounds so much nicer). Other than consumables such as food, gas, cleaning supplies, most items have a life span that can transcend two or more people. And for most things out there, the cost of the item is most expensive in the first half or less of its life than the rest of its life. Of course, we all know that's true for a car. But it's also true of electronics, movies, books, furniture, clothing, household items, and other things. This is generally the case because people pay a premium to be the first to use something, the item is the latest and newest out there, and because the chances are close to 100% that the item works, and if not, you can usually get a full refund. On the other hand, if you buy used, er, um, secondhand most people expect a discount. They know they are not the first to use the item. They are aware that it is not the most recent edition or latest fashion, but what they may not be aware of unless they are vigilant is whether the item is fully usable, fully functional, complete, and unbroken.

If you have been trying to cut down on expenses and have started to embrace buying preowned items, make sure you are not wasting money buying things that seem to be a good deal only to find out the item is damaged. In other words, do not be so excited by your screaming good deal that you forget to check the item over. What looks like a great deal instead may turn out to be a waste of money that could have been spent toward something else. Therefore, be vigilant looking over your items before you pay. Look over everything once and then do it a second time. Here are some common things to look for when buying used:

--Make sure that zippers zip properly
--Check that buttons (snaps, hooks, etc.) are present and accounted for
--Make sure elastic is not stretched.
--Inspect that there are no stains (or you are comfortable with the ones you see)
--Check if stitching is not coming unraveled (or you know you can fix what you see)
--Make sure the size is accurate. Preowned clothes have often been washed numerous time and may have shrunk. A preowned size 12 may be different than a new 12, for example.
--Check that no part of the item is stretched out

--Do not buy unless you can test it or it's returnable.
--Make sure all parts are included (blade is in bread machine, chain is in light fixture, etc.)
--If you are at a yardsale, ask the owner how it works and then ask to test it. For example, ask for a CD to test a CD player, plug in a tv or radio, test out a video game player. If you are at a thrift store, there are usually outlets to test things. And there are often DVDs laying around that you can use to test it. Lights should light up, the motor on the blender should purr, the blade in the bread machine should spin.
--If it's a battery-operated device, battery covers should be present and not corroded. Ask for batteries to test it or better yet carry batteries in your car so you can test things.
--Make sure cords are not moth-eaten or worn and are fully intact.

--Make sure all legs are sturdy for tables, dressers, etc.
--Check that upholstery is not ripped or stained (unless, of course, you are planning to recover it)
--Make sure drawers slide easily, doors close
--Inspect that all pieces are presents (shelves, handles, hinges, screws, etc.)

Household Items:--For glassware, run your finger around the rim to feel if there are any chips. Run it along the handle (for mugs) and along the bottom, too. Feeling is more accurate than looking
--Look for fading on pictures, decorated kitchenware, or the color on general items.
--Look for cracking of pottery, ceramics or other breakable materials such as lamp bases, vases, dishes, glass in a picture frame, etc.

--Check that the spine is not cracked
--Make sure there are no missing pages or loose pages
--Check for stains or mildew
--Inspect books for curled pages that indicate it may have gotten wet

Lastly, I would be remiss if I did not add that when you get home with your purchase, look on the consumer product safety commission website to see if any of your items have been recalled. Stores aren't supposed to sell these items, but I'm sure some squeak through. And recalled items probably abound at yardsales.

The list above is not meant to be comprehensive but just some suggestions on what to look for when buying used. All of the above are typical flaws you may find when buying items secondhand. Some of the flaws may be acceptable to you or may be easily fixed. As long as you are aware of them, there are no problems. It's when you impulsively buy something secondhand only to come home and find a flaw that the purchase becomes a disappointment and a waste of money. So please when you are buying things that are preowned, allow extra time to inspect what you are buying before you pay for the item.

If you cannot check everything to your liking because you do not have the time or the right tools to do so, then only spend money on the item that you can afford to waste. Think of it as something you are willing to take a chance on.

In Real Life
- I've mentioned in the past that I have joined the "buying used" bandwagon. And I have become an enthusiastic secondhand buyer. I buy most of my kids' clothes secondhand, their toys, some of my clothes, furniture, dishes, books, and, um, pretty much most everything.

This post comes from, unfortunately, a lot of experience buying preowned things that were not up to my expectations. I bought a boxed set of books at a thrift store that turned out to be mildewed and curled inside - the whole thing went in the recycling bin and about $4 in the trash (well in the thrift store's cash register). I've bought dishes that had chips that I didn't realize until I got home. They went in the trash. I've bought my children pants where I could not zip the zipper and skirts that didn't hook. I've purchased clothes that have light stains that I didn't notice. We bought a radio that we assumed would work but did not. We bought a swing that had been recalled (we were able to get a replacement through the company, though). We've bought furniture where the drawers did not slide smoothly, although it was such a good deal we didn't care nor expect it to be perfect.

And that is the key to buying used, I think. You shouldn't expect it to be perfect, because most of the items have at least been handled before or possibly used extensively. As long as price is commensurate with the wear and tear on the item and you are aware of any non-functioning or broken parts of the item before you buy, then all is good. Just make sure you look everything over before you pay.

PS. I have to apologize about my long absence. I thought I put a post up a few weeks ago explaining but I see that it is not here. I'm sure I wrote it, and thought I hit "publish post" but it's not here. Hmmm...I don't know. Anyway, I had some personal issues I needed to deal with but hope to be a more regular blogger (at least weekly) from now on. Thanks!

Tuesday, February 22, 2011

Set It And Forget It

Tip #284 - Set It And Forget It. Once you have a plan in place for your finances, it is okay to take a step back and let the plan unfold. You do not have to think about finances for an hour every day or even spend weekends making plans about your money.

If you set up some financial goals at the beginning of the year, along with a budget then you set the stage for a good financial year. If you direct deposited your paychecks (is there any other way these days?), as well as set up money to go into a savings account or to automatically pay off your credit card debt then the process is even better. If you have your bills automatically being paid then you are probably in good shape.

Let your investments take care of themselves. Follow your budget as closely as possible, keep up with your savings and your bills and step back. Then check back in a couple of months to see how everything is going. I like to check in on my finances near the following dates: March 31, June 30, September 30, and December 31. Any more often than that and people tend to micromanage themselves. They overspent one week at the grocery market so they try to fix it the following week only to find themselves with not enough food. Or they watch their mutual funds take a dive one day and transfer their money that only to find the funds have climbed back up the following day.

That's not to say that kinks don't need to be worked out the first time you set a budget. Or that perhaps you are overspending at the supermarket on junk food that you can eliminate. But give it time. One week or horrid spending should not be bad enough to upset your financial plans. Check what you are doing over a three-month period to reevaluate whether you are consistently wasting money or if you truly set the budget too low. For investments, tracking too closely can make you crazy and generally makes for some hasty buying and selling decisions.

Instead trust that what you set up at the beginning of the year is working. Follow it how you planned and then do an evaluation in another month or so. You can make adjustments at that point based on a longer-term financial activities. In the meantime, go out and enjoy your life. You set up your finances to do what you want, so let it go for a short while.

IRL (In Real Life) - Sorry I have been away for so long. I've taken a step back from finances over the past few weeks. I think it began with our beloved rabbi passing away. And I began reevaluating my life and that of my family's. Then my interest in my finances and writing about them on this blog fell further behind with some personal issues. And the more I let it fall behind, the less time I thought about it. Sometimes planning ones finances, thinking about it all the time, reading about it, writing about it, trying to save
money or put away money can become an addiction or take control of ones life.

Of course for someone new to managing their finances, it tends to take over as one learns about saving, investing, and so forth. But once you have the basics under control and have a plan in place for you and your family, it's okay and probably preferable to put them back in their place, taken out to be reviewed from time to time but not to be obsessed with or idolized.

It is healthy to take a step back and let the plans and processes that you have in place for your finances do their work. And then there should be infrequent checkups (I like once per quarter but even semi-annually is okay) to make sure that everything is proceeding according to plan.

I took a break and have been letting the process that I set up take over. I will be sitting down with my taxes in a few weeks and then doing a re-evaluation of our budget and goals at the end of the quarter. But lately, I've been trying to just enjoy my family and our lives. And it has been okay.

Tuesday, January 25, 2011

When Buying Used, Compare to Other Used Prices

Tip #283 - When buying Used, Compare to Used Prices. I am a big proponent of buying things used. Most of the time, buying things used will cut the cost of an item by at least 25% and sometimes as much as 95%. As long as the item is in acceptable condition and has enough life left in it, it is preferable to buy this way in order to save money. You have to find what is acceptable to you for buying used. It may include household items, furniture, clothes, toys, cars, or other things.

As with any item you buy, make sure you do the research first to find out exactly what it is you want to buy and secondly find out if you are paying the best used price for it. Most of the time, the used price will be better than the new price, but you really want to find out if the price you are paying is better than buying the item used elsewhere if it available elsewhere used.

For example, suppose you want to buy a small clock. You do your research and decide you want to buy a brand called LaPort (made up name for example). The best price you can find in the store is $79 and that is when it is on sale. However, you decide you really want to pay less than that and you scour the Craigslist ads. To your delight you find one listed on there for $40 and are thrilled. You check it out, find out that it is 3 years old and in pretty good shape. You buy it and are happy that you paid half price for this clock. So did you get a good deal or not? Well, it's really hard to say. Sure you paid 50% of retail but the item has some wear and has three years' of use on it. It would be expected that it would cost less than retail. The truth is, it's hard to tell if you got a good deal because you are comparing a used item to a new item. The best way to see if you got a good deal is to compare it to prices of the preowned items.

A good place to check out used prices for things is eBay. If you can beat eBay's price, then you are doing pretty well. Because eBay is such a large marketplace you can get a good idea of the value of the item. However, sometimes there is a bit of auction fever on there, and prices go unrealistically high. So the best policy is to look at several of your item and take the typical price your item sells for. If you are buying locally, the price should generally be a bit less than eBay's price not including shipping. So suppose after you buy the clock, you look on eBay and see that most of the used clocks are selling in the $50-$55 range plus $5 shipping, then you can feel confident that you got a good deal on your used one. But supposed the clocks are mostly selling for $25 then it appears you have overpaid a bit.

It may not have seemed that you overpaid at first because the price was better than if you had bought it new. But if you can get it elsewhere used for an even lower price, then it isn't a good deal. The reality is, used items should cost less than new ones, so the best way to tell if you have gotten a good deal is to compare it to prices on used items, not new ones. If the item is somewhat uncommon or hard to find used, then you have no choice but to compare it to new items and see if it is worth buying it at a lesser price for an item that has some wear or use on it.

Also, when buying used, there are other things to consider, how quickly you need the item, whether you can touch the item and test it out, how convenient it is to pick up the item, and the item's condition. Take all of those things into consideration, too when deciding if a used price of an item is fair. But just make sure you don't fall into the trap of only comparing the item to new prices, if it is available used elsewhere, as that is a better gauge of the true value of the item.

In Real Life (IRL) - As most of my posts come from circumstances and experiences I have had in real life, this one is no different. I am an experienced thrift store, Craigslist, and eBay buyer. I an generally a smart shopper and can gauge whether I am getting a good deal on things I buy. So I don't know what happened to me last week when I got caught up in the buying fever and overpaid for something used. Here is the story...

My son is a HUGE Thomas the train fan. All along he has been collecting the die-cast metal trains with plastic tracks. But at friends' houses and other places he has become enamoured with the wooden sets. And I was starting to see the value in the durability of these sets. So for the first night of Hanukkah I bought him a small wooden starter set (new and on 1/2 price sale) as his big present to open. I wasn't yet convinced I wanted to switch over to the wooden tracks completely but I had no other "big" gift for him, and I knew he'd enjoy it. Then one day a couple of weeks ago, my husband took my son to the thrift store. And while they were there a staff member put out a big tub of wooden Thomas tracks, bridges, and building. The price was $16 and absolutely was a steal. Needless to say, my husband bought it, and when they came home we set up all of the track on our train table.

And it was clear at this point, that we were not going to get away from collecting the wooden Thomas trains and tracks. On the next free day, I went over to AC Moore, a craft store that carries wooden Thomas trains to check out their prices. Like Michael's, they have 40% off coupons (and sometimes 50%) in the paper and on their website. I was shocked at how expensive the wooden trains were - $12.99 to $16.99 for a single train and $19.99 to $22.99 for a train with a coach. Ouch, even at half-price the cost would be a minimum of almost $7 per train with tax. The next day, I looked on Craigslist to see what people were selling. Unfortunately, most people were selling tracks or a train table which we didn't need. But one woman was selling a set that included 25 trains among other things for $100. "$4 per train?" I thought. I figured it was less than half price of the ones I saw at the store, so I went over her house and purchased them.

But after I came home I got buyer's remorse. I don't know why, as I am an experienced buyer, that I did not look around at prices of used trains elsewhere. I just compared the prices of the new trains at the store. And I only was interested in the trains. The seller included tracks and some other things that I didn't need, so while $100 was an okay price for the whole set, it really wasn't a smoking deal for just the trains. And I realized that when I started searching eBay for lots of used wooden Thomas trains. Many were going for $3 or less per train including shipping. I got a sinking feeling in my stomach that I overpaid because even though they were less than half price of the new trains, they were also significantly used. Some were missing pieces; paint was peeling on others. They should have been significantly less than new.

I was beating myself up over this purchase. How could I have been so dumb to jump on the first deal I saw? Why didn't I research the prices of used wooden Thomas trains first? I know it's because I went to the retail store first and was comparing the used prices to those prices, and it wasn't a fair comparison. If I had looked at eBay first, I would have realized that I could easily do better than $4 per used train. I feel a bit better about my purchase now because over the weekend I was able to sell off the tracks and buildings that came with that lot for $35 which brings my cost of the trains to less than $3 per train which is more in line with the going rate of used wooden trains. And I've learned my lesson when buying used.

Saturday, January 8, 2011

Entertain Your Family Cheaply With Parks

Tip #282 - Entertain Your Family Cheaply With Parks. Every summer and winter break I hear about my friends' visits to Disney World, Great Wolf Lodge (an indoor waterpark resort), local amusement parks, arcades, make-your own pottery places, professional theatre, and similar costly activities. All of these places are entertaining for children, are impressive to adults, and cost a fair amount of money. And if you have the money to do these types of activities every day of winter break or every week during the summer, then you don't have to worry about how your money is being spent. But if the idea of spending $60 per child per day for an amusement park or blowing $30 for an afternoon at an arcade doesn't appeal to you, look to parks for cheap entertainment.

No matter where you live, there are parks nearby, I am sure. They may be local playgrounds, county parks, state parks, wildlife areas, nature trails, or national parks. What they all share is that they all can provide low-cost entertainment and educational activities for you and your family. If you have young children, you probably know every local playground within a 5-mile radius of your house. And after a while, it might not seem like a big treat to go to the same playground over and over again. But what if you go outside your community and plan an outing to a playground in the next town? Look online for a town or city's website, and they will often describe the parks that are contained within their limits. A new place with different equipment can have a huge impact for entertainment purposes. Try to find reviews of playgrounds or talk to people who live nearby about which are the best parks around. I have found that most towns and cities have many average-type playgrounds, but there is often one playground that is a showcase of their town. It might include the latest play equipment, zip lines, water sprays, and other fancy features. Here is a town near my parents that has an amazing playground with a kids' castle in it. No admission required. My children would LOVE to spend the day here.

If you want to go somewhere for the afternoon beyond a playground, check out state or county parks in your area. Features at these types of parks may include hiking trails, water activities, and beaches. Even if you are not the outdoorsy type or if it is winter, some of them may have indoor educational buildings to explore. Just doing a quick search of state parks in my area (Northern Virginia), I came up with a wide variety of parks within an hour or two of my home: State Parks of Virginia.

Talk to people at the state or town/city parks to find out if there are any other consortium of parks in your area such as by the region. Around here there is a Northern Virginia Park Authority which is a group of parks in multiple nearby counties. These also happen to be the parks our family use the most. These parks are so varied that you don't feel like you are doing a typical hiking trail in the woods. The parks included swimming pools and waterparks for low-cost, historic homes, miniature golf, gardens, in addition to the typical playgrounds and hiking trails. Going to just one park a week from this group of parks would take us half a year!

Of course, we all know about National Parks and how great some of them are - such as the Grand Canyon or the Smoky Mountains. But even if you don't live near a well-known national treasure, there may be some smaller parks, beaches, battlefields, historic buildings, or wilderness areas near where you live that are run by the National Park Service. The best thing to do is go to the National Park Service website and choose your location to find out what is offered. When I choose my state, I see such varied locations as the Shenandoah Mountains (probably the most well-known around here) to civil war battlefields to historic homes to beaches to colonial farms to waterfalls. Even if I am not an outdoor wilderness, hiking-type person, there is so much to see through the National Park Service. What I like most about these options is two-fold:
1. most of them have indoor interpretive centers which are wonderful and educational on colder days, and
2. admission is usually by the carload - either $5 or $10. For a day's worth of entertainment, it's hard to beat that!

In Real Life (IRL) - My family and I just spent about 10 days in Florida visiting our parents. While we would have loved to have been handed a vacation package to spend a week at Disney's parks free of charge, we were not. And we wanted to keep costs down on the entertainment portion of our trip. What we did instead was look at the parks surrounding the area where our folks live. We spent under $50 to entertain all 5 us for 10 days! And we had so much fun! Most of the activities we did were the types that I mentioned above - parks of various types. We were in the Palm Beach County area of Florida. And as a quick example to show how cheap you can entertain a family using natural resources, here is what we did for 10 days and their cost:

Day 1: Visited Jupiter Lighthouse and beach - we did not climb the lighthouse because we did not have time as this was part of our drive down. This would have cost money. Cost: Free
Day 2: Went to City of Boca Raton's Patch Reef park. This park had brand new playground equipment and a splash pad with cannons and spraying palm trees. Cost: Free
Day 3: Went to City of Deerfield Beach's beach. Spent all day in the sand and ocean. Cost: Free
Day 4: Went to City Of Boca Raton's Sugar Sand Park. Spent time in the indoor science explorium and outside in their oversized, amazing maze playground. Cost: $10 for the science explorium (donation).
Day 5: Spent the day at an indoor flea market. Cost: $5 in fresh fruit purchase
Day 6: Went to Boca Children's Museum and a farmer's market. Cost: $9 for museum (with coupons - would have been $15) and $9 for fruit and jam purchase.
Day 7: Swimming in my parent's condominium pool and playing at a City of Delray Beach's playground. Cost: Free
Day 8: Went to the beach and playground on Miami Beach. Spent the day walking around South Beach and playing on the beachside playground and the sand. Cost: $1.25 to park (person leaving parking spot still had time on meter so this would have been $4).
Day 9: Went to Arthur Marshall Loxahatchee National Wildlife Refuge taking a hike and spending time in the interpretive center. We saw alligators and turtles in their natural habitat! Cost: $5 per carload.
Day 10: Went to Palm Beach County's Wakodahatchee Wetlands. We saw lots of wildlife! Cost: Free

The total cost of our activities including purchases was: $34.25 for 5 people for 10 days! My husband and I, along with our 3 children saw alligators, turtles, and birds, picked fruit, shopped, swam, built sand castles, climbed playground equipment, sprayed water at each other, played pretend in a children's size boat, supermarket, and bank, took a hike, ran around, learned about Florida wildlife and flora, and enjoyed fresh air, exercise, and sunshine for less than $5 per day. Take that, Disney!

Now that we are home, we plan to look into more of the local, state, and national parks in our area to find some more inexpensive, educational, close-to-home fun. What parks are near you that you can enjoy for low cost? For other low-cost ideas, check out Frugal Fridays.

Tuesday, January 4, 2011

Review your 2010 Year-End Financials

Tip #281 - Review your 2010 Year-End Financials. As I always recommend every quarter or at least semi-annually, review your financial status. If you keep track of your savings, loans on financial software such as Quicken or, it could be as easy as running some final numbers. Or if you keep things on paper, it might mean calling up your bank and other investment companies and getting your balance on each of your accounts and tallying them up. However you keep track of your finances, it is a good idea to write down a data point of your balances twice or four times per year. Year-end is an especially good time to check out your status.

By reviewing your finances at year-end, you can check on whether or not you reached the goals you set at the beginning of the year. If you had hoped to have $8000 in your 401(k) account by year-end, then it's easy enough to check your balance to see if you met that goal. If you set a goal of paying down your car loan to $6000 then you can compare it to the amount you owe on December 31.

Your goals should hopefully pretty much match up with your final balances. If they did not, you need to analyze why they did not. Did you hope to have $20000 in a home downpayment account but instead only had $16000? Figure out what went wrong. Was it the stock market that tanked rather than you not saving enough? Well, then analyze whether your down payment money should really be in the stock market. Did you simply not put enough money away? Why not? Did the money instead go to frivolous things such as cute but unneeded shoes or quick, fast-food lunches for the kids?

After analyzing where you may have fallen short you will then have the information you need to set a realistic budget for next year or to adjust your goals. For example, you may decide you will slow down the rate at which you are saving for a downpayment on a house or you may resolve to cut out impulse buys.

Whether you find out you are meeting your goals perfectly or that there is more work to be done, it is important to get an accurate gauge of your financial picture. It will be the first step to completing your budget and goals for next year.

In Real Life (IRL) - At year end, I actually get excited to see if we made the progress that we had hoped to make. Sometimes when the market is doing very poorly, the news doesn't look so great. Or when we have large emergency replace-the-furnace-type bills. But other times, I am happy to see the progress we are making.

We actually just returned from our annual visit with my parents and my husband's mother in Florida. So we still haven't reviewed our year-end financial picture. It will come as soon as the five suitcases are unpacked and the house is in order. But I have glanced at the numbers and we seem to be on track with what our goals were from the beginning of the year. One big goal was paying off our mortgage on the condo in Florida (where my mother-in-law lives). We achieved that one even earlier than we anticipated. And this freed up money to put toward our other goals. We met our children's college fund goals and our retirement goals as well.

One big goal that we didn't achieve was having me get a part-time job or increase significantly the amount I was making selling on eBay. I have a bunch of financial goals floating around in my head for 2011 as well as many upcoming expenses that I discussed in my last post. With these in mind, we will be writing out our formal budget and 2011 goals later this week. And I will come up with our exact financial figures from 2010 once I attack our mounds of laundry.