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.

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?

Make Savings A Priority

Tip #270 - Make Savings A Priority. When thinking about money, many of us think about how we would spend it - a new car, a vacation, new clothes, etc. Most of us don't think about how much we would save. Saving is actually secondary in most people's thoughts with regard to money. However, if having money is one of your goals, then you need to make savings the primary thought. Many of us would like to be "rich." but if all we think about is how we would spend money, then we aren't like to become "rich." Instead, we need to make saving, rather than spending, a priority. Once savings becomes a priority, the getting rich part will fall into place.

If you were to make a budget on how you will use your hard-earned money, you would need at the top of the list a housing budget, a food budget, a utilities budget (such as water and heat), a transportation budget (to get you to and from work), and a healthcare budget. The above items are priorities in most American lifestyles. After that, you should budget for savings - how much you want to put away for YOU. You want to have some wealth to your name, don't you? Then decide how much you want to save each month for you. This money will give you the power to do things you want to do when you wan to do them.

After you decide on how much you want to save for yourself, then you budget however you want with the leftover income - cable t.v., a yearly vacation, a daily coffee, dinners out, etc. The key is to make sure you make savings a priority above your wants. To simplify, your budget should look like this:

Budget:

Needs
Savings
Wants

Once we start making savings a priority above our wants, we will, over time, have enough money to take care of our wants and other needs that arise. Depending on your income, and your expenses for your needs, you may still have enough money for wants in your monthly budget. But you shouldn't spend all of your money on wants after your needs have been satisfied. Savings should take priority over wants in your monthly budget. Then down the road when a chance to take a ski vacation comes up, you can look to your savings to do it. Or if you decide you want to add a deck to your house, you can do it. Or if your son suddenly falls and breaks his leg, and you have to pay all kinds of doctor and hospital copays and leave work early without pay to drive him to various appointments, you can do so because you have money in your savings account. You wouldn't be able to pay the doctors with the daily cups of coffee that you drank over the previous years.

In Real Life (IRL) - When I was younger I made savings a priority in my budget. I shared housing with friends when I was single. I split utilities with roommates. I limited my eating out. I didn't waste money going to bars. And I socked $200 away per month in a mutual fund. And I did this on about $20,000 per year in Washington, DC. (I was fortunate not to have a car payment or student loans.) I also budgeted for one vacation per year and going out with friends (although usually to inexpensive locales).

Over time, I saw my savings account grow because having savings was important to me. Believe me I could have spent away $200 per month pretty easily - higher-end clothing, dining out in nice restaurants on a regular basis, buying a fancier car, living on my own rather than have roommates, etc. But instead, I made saving money a priority, and after 10 years of saving $200 per month, I had more than $25,000 to show for it. (I actualy had more than this because I upped my savings as my income grew.)

Of course everyone's situation is different. Some people will have more needs to pay for than others such as medical expenses, student loans or debt repayment. And therefore, their savings will be less than others. But the key is to do the savings on a regular basis above frivolous wants that cut into your chances of attaining wealth over your lifetime. As long as savings becomes a priority, you will find you have more power to spend moeny as you please down the road.

Don't Let Deals Chase You

Tip #269 - Don't Let Deals Chase You. There is a lot written in the online world about how to "save" money. However, in order to "save" money, you need to spend some, which really isn't saving money at all. There are deals being thrown at us from blogs, credit card companies, auction sites, online stores, and emails from daily deal websites. Unfortunately, often these deals often cause us to spend more money than we normally would even if we get a good buy on what we bought.

If you want to truly "save" money - that is put money away in your bank account, the only way to do it is to not spend it. Getting 50 percent off tickets to a football game is not going to save you money unless it was already in your budget to buy football tickets at full price in the first place. Driving to the drugstore to pick up yet another bottle of shampoo when you already have 10 bottles in your bathroom cabinet costs time, gas money, and wastes space for something of which you already have an adequate supply. And clipping that Buy One Get One Free Ice Cream Sundae won't save you money if you can enjoy a similar treat for less from the supermarket.

If you are truly interested in saving money - that is putting away money - then do not let deals tempt you to spend more than you would otherwise, no matter how good of a deal it is. The only way you can save money on deals is if it is an item in your budget that you had planned to pay full-price for already. Then at time of purchase you look for a better price on it. That will lead to savng money. Spending money on haphazard items that were not in your budget in the first place, will only cause you to spend more money and have the exact opposite effect that you think a "deal" will do. So, if you want a deal then go after one on something you had already planned to buy. Don't let the deals chase you and cause you buy something you weren't planning to purchase.

In Real Life (IRL) - I am bombarded on a daily basis from deal sites - some that come into my email, some that are through sites I visit, and some that come in my mailbox out at the street. While I feel I have pretty good restraint when it comes to spending money, I am often tempted to buy something that is a good deal. If I get a flyer for a hotel that is having a special, I will read through it and ponder the idea of making a quick getaway trip since it's such a good price (vacations are a weakness of mine). I am subscribed to some daily deal sites that send me emails everyday about deals in the area. I have yet to buy something from one of them, but I have been pretty close a couple of times. And I read blogs that talk about saving money and have lists and lists of items you can purchase at a good price. Problem is, I don't need most of those items.

And while I can pass on good deals or waste a bit of money frivolously without going into debt, there are many others who are struggling financially now and do not have a dollar to spare, no matter how good of a deal something is. And I am afraid a person who wants to save money - that is build up their savings account, reading all of these deal sites can cause the reader to actually go out and spend more than they even normally would. Yes, they may have more goods and/or experiences to show for it than if they had paid full price for these items, but if they are spending more money on things they normally wouldn't buy, then they are worse off than before they frequented all of these deal sites.

If you are one of those people who is struggling financially and hope to put away more towards savings each year, make sure that you are not sucked into buying things that are a good deal, thinking that you are saving money. Let your budget driving your buying decisions. If you are have $300 in your budget to spend on a hotel for a weekend getaway, then shop around for a deal. But don't let an email promising you 50% off a hotel cause you to take a vacation that you would not have taken. Your budget should control your purchases. Don't let the deals control what you buy. That will not save you money.

The Savings Are In The Details

Tip #262 - The Savings Are In The Details. Have you ever noticed that the small things are often what make the greatest impact? By virtue of being so small, they hardly get noticed at first until they all come together and exert their influence. When writing a budget or looking at where we can save the most money, we usually take into account the big stuff such as our rent, our car payment, and our insurance. But some of us don't bother looking at the small stuff. For example, would anyone consider a stop off at 7-11 on a hot day for a 99-cent Slurpee to have an impact on our wealth? What about that take-out you get each weekend from your favorite pizza/Chinese/burrito place? Does tossing a magazine on to the conveyer belt every few shopping trips to the grocery store make a difference to your savings?

Well, of course they do! Unless you have specifically in your budget accounted for $24 for your once-per-month $2 magazine habit, it is making an impact on your savings. And the frequent trips to the drive-thru are eating away at your savings if they are not part of the plan. Picking up small gifts for your little ones at the Dollar Store influence your savings rate as well.

If small things make a big difference, then what can we do about it? The best thing is to try to plan as best as possible all of your small purchases. How many people include greeting cards into their budget? Very few; I imagine. Yet a trip to the Hallmark store can often lead to double-digit purchases. Same thing with postage stamps. Mailing out 2 birthday cards per month will set you back over $20. But are they in your budget? Probably not. How about the last-minute stops on the way home from somewhere or when you are out? The suntan lotion you pick up on the way to the beach. The large soda at the mall because you are thirsty. These types of purchases sneak into your savings account and attempt to wipe it out.

So when you are considering how much money you can save each month or writing up a budget, make sure you take into account all of your spending - including the very small purchases you make. And on the other end, if it's not in your budget, then don't stop at Wendy's on the way home from the pool for a Frosty. Skip tossing the TV Guide into your shopping cart. And think ahead about all of the things you will need before setting out for the day or the weekend - snacks for the children, drinks for everyone, a swim diaper for the public pool. The fewer small purchases you make, the larger your savings account will be.

In Real Life (IRL) - We are packing for our annual family vacation to Cape May. And it is in doing this packing for a family of 5 that I realize the devil is in the details. Nothing bugs me more than having to purchase something while on vacation that I have a duplicate of sitting at home - a pail and shovel, bug spray, and flip flops. These small things are so easy to forget, and they can add up to a small fortune at tourist destination.

We know we will buy groceries at the higher-priced supermarket at the beach, but it's part of our vacation budget. We plan to spend a certain number of dollars on attractions and ice cream cones. But we don't budget for stops at the t-shirt store to buy a sweatshirt for a cold day. Or for the ponytail holders that we forget from home. Or for the overpriced toddler hand-holder/leash for a feisy 18-month old (which was a lifesaver!). These are all small purchases we have found ourselves buying because we didn't plan properly. Yes, we do have a catch-all category for those miscellaneous items. But truly, I'd rather have $20 in my bank account than an extra sweatshirt that I don't need in my dresser drawer.

So when budgeting, think about all purchases you make - not just the big ones. The small ones count, too. This is why experts often tell you to keep track of expenses for a month or two in order to write up your budget. Because it's so easy to forget things like stamps and drinks and sunglasses. In addition to having an accurate budget, do your best to plan what you will need when you leave your home. That is usually when you buy these small things. If you think you will be out all day, throw a water bottle in the car, bring a hat for the little ones, and pack that sweatshirt in case it gets cold. The more prepared you are, the less you will spend. And on the tail end, unless it is an emergency, resist throwing money at unbudgeted items that you can do without - the drive-thru milkshake, the cute souvenir that will sit in a drawer for years unplayed with, or the latest gossip magazine. Being aware of these small things will make your savings account bigger in the end. And that's what saving money in real life is about. We're off to Cape May for the week. I will post more when we come back unless I find that there is suddenly WiFi at our hotel. (I haven't included the Internet Cafe in my budget, sorry.)

And as a PS to our earlier post about possibly moving: my husband turned down his job opportunity. Lots of things about it didn't add up for us including the financial aspects. So we are staying put. Fortunately, we have a while to decide what our next steps will be. Thanks for your support!

Dissect Your Budget - Part 12 - Miscellaneous, Savings, and Wrap-up

Tip #249 - Dissect Your Budget - Part 12 - Miscellaneous, Savings, & Wrap-up. I"m going to wrap up this series today by talking about miscellaneous items and savings. Remember that you need to write up a budget that works for you. If you want to cover eating peanuts at a baseball game under entertainment, consider that cost when deciding on the budget amount for entertainment. If you want to consider it under the food item, then do so. Or it may happen so infrequently that you cover it under miscellaneous. If you are in schoool, you would have a line-item for tuition and books - broken out separately or combined, it doesn't matter. As long as everything is covered.

The miscellaneous category is often a catch-all for things you don't think about - like postage stamps or library fines. Bus as you use your budget more and more, the miscellaneous category should get smaller and smaller as you see a trend in items you spend. Parking meters costs can get wrapped into the transportation/auto line item. Postage stamps can get wrapped into entertainment or gifts if they are a regular occurance. Any non-regular, "surprise" expense can go in miscellaneous.

Lastly, let's talk about savings. To me, savings is one of the most important categories to have on your budget. Most people don't think to budget for savings. And because of that, people have very little saved. But if you budget $400 to spend on food and $200 for entertainment, why not have a budget for savings. Then each month you take that amount and put it away somewhere - into a savings account, money market fund, mutual fund or wherever you see fit. This savings category should cover your 401(k) savings, too as well as any IRA, education savings or other big ticket item savings you are doing.

And really my whole point of doing this dissect your budget series was to increase the amount of money that goes into your savings (or toward debt if you have any). So go through your budget with a fine-tooth comb. See where you can reduce your expenses and put more in your pocket.

In Real Life (IRL). My budget looks like this for 2010. Please note that thw two biggest categories in terms of amount after our mortgage is our IRA or retirement savings and our college education savings for our children.

Mortgage $2,300
Phone $45
Cable $45
Computer $45
Electricity $125
Water $25
Gas $200
Cell phones $35
Gasoline $240
Travel $200
Car Insurance $125
Food $400
Preschool $300
Activities $50
Religious School $50
Summer Camp $150
Entertainment $80
Vacation $200
Clothes $100
Gifts $150
Auto/Maintenance $100
Condo Loan $415
IRA $834
Education IRA $500
Misc/Giving $133

To me, making sure that all of your expenses have a place on your budget is one of the most important rules of budgeting. That's why having a miscellaneous category is important to catch all those expenses you don't expect or forgot about. And secondly, having a budget allows you to set an amount that you are putting away for savings for retirement, for a home, for college, or for the future in some other way. Without having a line item for savings, you won't save! So dissect your budget, try to cut down on non-necessities or think of creative ways to make them cost less so you can increase the amount that goes towards savings. For other ideas on how to save money, check out Frugal Fridays.

Dissect Your Budget - Part 11 - Gifts

Tip #248 - Dissect Your Budget - Part 11 - Gifts. I am winding down with this "Dissect Your Budget Series" as we start getting into categories that not everyone has. The next post will be the final one in this series.

Gifts are something that most people do have as part of their expenses. Obviously it's not a need and could be slashed if desperate. But even if you are not desperate, this is a category that could probably be cut down dramatically. Gifts can be a very expensive expense if you shop at retail stores a week before an event - a birthday, wedding, anniversary, new baby, etc. But if you plan for these regular life cycle occurances, you can keep the costs down dramatically.

1. Shop thrift stores and yard sales. Now more than ever, there are dozens and dozens of products that are being sold at these venues that are new in the package or new with tags. Some of them would make great birthday gifts for your child's friends. Many are generic enough that they can be brought as a hostess gift or put into a grab bag at the office at Christmas time. Plenty are sweet, cute, practical, and perfect for a new baby. Just because it doesn't come from a retail store does not mean it cannot be given away as a gift.

2. Make something. This does not mean you need to be crafty. You don't have to know how to sew or build to make something nice and useful to someone. A batch of homemade cookies can be nice surprise for the teen boy who helped you shovel your snow. A basic, homemade lasagna would be very welcome to new parents. A handmade card to someone in pain can turn her day around. My favorite is gift baskets filled with practical items such as food or household supplies.

3. Do something. If you cannot make something then do something. Call the mom with the new baby and ask if you can pick up her child from preschool. Offer to shop at the grocery store for someone who is sick. Invite a friend's child over for a playdate. Plant someone's garden for them Or paint your mom's laundry room. Or organize your niece's closet. Don't just offer to do something, but actually do it.

4. Re-gift. I did a post on this a while back. And I'm not embarrassed by it. We get way too many gifts nowadays. If I didn't give some of them away, I would need to buy a bigger house. This is especially perfect for children's birthday parties when gifts are sometimes duplicated or don't really meet your child's interests. It's okay to pass them along as a gift to another child who likes what your child received. Once it's given to you, you own it. You can do whatever you please with it.

5. Stock up. When you find great deals, by extras to give away as gifts. Ninety percent off sales are those times when you want to buy more than one. Chances are you will find an occasion to use what you buy. And if you don't, charities are always willing to accept them with very little expense wasted on your part.

I'm not suggesting that all of your gifts should come from the steps above. A parents' 50th anniversary or a best friend's wedding warrants a special gift whether you can find it on sale or not. But even then, sometimes it's what you do that is a bigger gift than some extra stuff that they don't need.

Consider carefully what events you have coming up for the rest of the year - one wedding, a baby shower, about 5 birthday parties for your child, your anniversary, and your family's birthdays. Then as you shop and see inexpensive things that might fit these events, buy them so you are not waiting until the last-minute to purchase.

In Real Life (IRL) - This year I have a $150 per month budget for gifts which sounds like quite a lot. And it actually is, considering that I do most of the above suggestions. But last year our budget was $100 per month and we found that we were short when many unexpected events came up such as relative's weddings and Bar-Mitzvahs. It is custom here on the east coast, at least where I'm from, to give money for these events, especially if you are family. If we really didn't have the money, we could have given less or bought a cheaper gift. But we do, and I don't like to be cheap when it comes to special events for family. And with a family of 5, we give big cash gifts. This year, we have several more that we are aware of, so I upped our budget to account for it.

Having said that, I have no problem buying 10 games at the store at Christmas time when they are half-price to give away to my daughter's classmates for their birthday parties. On cyber Monday (Monday after Thanksgiving), American Girl has excellent deals on doll clothes and other accessories. I spent about $100 that day but should be able to get about 10 gifts out of them. $10 is about my target price for birthday parties, unless it's a special friend.

Lately I've been shopping at a thrift store about once per week while I have an hour to kill between a class with my son and picking up my daughter from preschool. Over the past two months I have found new, sealed Cranium games for about $2 each at this store! These are excellent games that cost abut $15 new. Whenver I see sealed items like that, I pick them up. My daughter used two of the games last week for a classmate's birthday party that she went to. We also found a cute new-in-box soft photo album for a baby that we have put away. My husband often has co-workers who have babies, and they usually make up a big package of toys, clothes, and diapers for the new parents.

I have given gifts of dinners, muffins, cookies and other homemade goodies to friends who have passed on their baby clothes to me or have driven my daughter to and from activities. They probably weren't doing it in order to get a gift but I wanted to show I was thankful for their help. These gifts were cheap to make, but they showed I was thankful.

And because I'm practical, I love giving gift baskets. Baskets are very cheap at thrift stores or I reuse ones that we receive. Then I fill with "gourmet" items from Trader Joe's, homemade goodies, or other special foods that people enjoy but probably wouldn't spend the extra money to buy. For new babies, I fill with diapers, baby wash, wipes, and other necessities. For the new house, I fill with household cleaners, paper goods, and other necessities. These can be very cheap to make if you use items you have purchased inexpensively when on sale and with coupons. And it prevents the recipient from having to run out at the last-minute and pay full price to buy things she forgot in the excitement of the event.

There are many ways to keep your gift budget down. It takes some forethought and planning but it can be done. Think of all of the events you have coming up this year and think of ideas you can use for gifts for them. You can even write them down on a piece of paper and put it in your purse so when you are out and about you can keep track of what you need and buy them inexpensively when you see them.

Dissect Your Budget - Part 10 - Medical Expenses And Health Insurance

Tip #247 - Dissect Your Budget - Part 10 - Medical Expenses and Health Insurance. Okay, here comes another collective groan from my readers. And to be honest, I have put off writing this post because there are so many factors that come into play with healthcare costs; it's not the most interesting subject; and obviously things are changing in the US. Having said all that, it's a big expense in most people's budget, and it should be considered carefully.

Healthcare insurance costs are one of those expenses that you'd rather not have, but when you need it, you wish you had the best. Only individuals can evaluate the best healthcare insurance for themselves, taking into account age, risk factors, general health, and cost of premiums. The best place to look for insurance is at your place of employment. Usually, but not always, you will get the best deal from your company because they get discounts for group insurance. Often the company will pay a part of your premiums, too.

Some employers will offer a few different levels of health insurance or even health insurance from different insurance companies. When open season comes around, make sure you evaluate your choices carefully. You don't want to save a few dollars in premiums each month only to find that you are playing a lot out of pocket at the doctor's office or jumping through hoops to get to see a specialist. On the other hand, you don't want to pay for the best insurance and never use it.

In addition to offering health insurance, many companies will also offer a flexible spending account or FLEX plan. For most people, this is a great deal. The FLEX plan basically allows you to set aside money pre-tax to use for medical costs that you will incur for the year. Then when you pay for co-pays, prescriptions, any specialist visits that aren't covered or other qualified medical expense, you use this set-aside money. If you pay about 20 percent in taxes, that means that a $50 co-pay will only cost you $40.

If your company doesn't offer health insurance or other medical benefits, then you should look into a plan on your own. Sometimes organizations you belong to will offer group insurance that might be cheaper than what you can get on your own. Or, you can open a high deductible health plan on your own (or through some companies) by investing in a Health Savings Account or HSA. An HSA operates like an IRA account, in that you can contribute a set amount each year towards the account. You don't pay federal taxes on the money, and the money can stay in it year after year if you don't spend it. The money is only to be used for qualified medical expenses.

If you are lower-income, it would be wise to look into any health insurance or benefits that are offered from your state or other government sources. Health insurance and medical expenses are a topic that could have pages and pages devoted to it and never be exhausted. I am not an expert or even very knowledgeable about it other than to skim the surface. But the point of bringing up this topic is that health insurance and medical costs are expensive and often a significant part of one's budget or sometimes the cause of one's downfall into debt. It is not a topic to be ignored, but studied for your personal best interests. Where healthcare will be in the future in this country is anybody's guess, so by staying on top of your situation and what is available to you will be the best way to keep your costs down in this area.

In Real Life (IRL) - I dreaded writing this topic because I only have experience with employee-sponsored health insurance. I've never gone out and bought insurance on my own nor have I used government available insurance, but I know it's out there. Our family has been blessed to have good health insurance available to us by my husband's company. When my husband accepted his job as a branch manager of a small office for his company, one benefit we got was fully-paid for health insurance! That is almost unheard of except maybe among top executives. We were so fortunate not to have to fork over hundreds of dollars each month to health insurance.

But all good things much come to an end, they say. And when my husband's company got bought out a year ago, he lost this nice perk. Our insurance costs now total about $500 per month, which is still fairly reasonable. Luckily, his new company offers a FLEX plan which his old company did not offer. So all co-pays, prescription costs, and uncovered medical costs come out of this tax-free money that we set aside at the beginning of the year. While not perfect, since it's hard to predict how much we'll use, it does help to have this benefit.

Because we have the funds and since we have a family of five, with three young children, we do opt for the best insurance my husband's company offers. We might be wasting money each month for benefits that we won't use, but it gives us peace of mind that if something big should come up, we will be covered. Having said all that, we don't pay for some extra riders that are offered by his firm. At some point, we just have to play the numbers game and hope it works in our favor.

One last thought, I had a friend who's husband's firm offered health insurance but they company didn't kick in much help on the premiums, so they were fairly expensive. They chose to buy private insurance with a large deductible instead. And while they were living near me, it still ended up to be cheaper for them by doing that than going the company's route.

So look carefully at all of your options. If your company offers good insurance, you are good to go. If not, investigate all of your options. Talk to people who carry the insurance that you are considering. Ask friends or family who are more knowledgeable about healthcare than I, and then decide what works best for you.

Review Your Quarterly Finances

Tip #246 - Review Your Quarterly Finances. We're going to take a little break from the budget series to discuss reviewing your quarterly finances. Since it is the beginning of April, the first quarter of the year has already ended. Hard to believe! It is a good idea to review your finances on a regular basis - but not too often, or you may get caught up in moving investments around too much or not seeing any progress. Too infrequently and then you cannot make appropriate adjustments in a timely manner. Checking them about four times per year is a good amount.

What you should do four times per year:

-Review your budget - find line items that you allowed too much money and areas that you allowed too little and make any necessary adjustments.

-Check your savings accounts - are you meeting your goals for how much money you want in each of these accounts, such as your car savings, retirement savings, college savings, etc.

-Do a net worth statement - figure out your net worth by writing down your assets, liabilities, and calculating your net worth. Have you seen an increase in overall net worth since the last quarter?

-Look at your investment rates of return - check out the rates of return that you are earning on your various investments. Are you getting the most you can for the amount of risk you are willing to undertake.

After reviewing your finances for the quarter, make any changes that you feel are necessary. Perhaps you realize you aren't saving as quickly as you would like and want to increase your income. Or maybe you see that your bank is offering a special on CDs that is better than the current rate you are getting. Or you may be right on track and give yourself a pat on the back for following your goals from the beginning of the year. It makes sense to take a look at your finances and make adjustments if necessary. It can get you back on course before you fall too far away from your goals or at least give you confidence that you are doing things correctly. For four times per year, it's worth it to check out how you are doing financially.

In Real Life (IRL) - I have to admit that I look forward to the end of each quarter. I enjoy seeing how much progress we have made financially. (Although it wasn't as much fun a year ago when the stock market was plummeting.) In years past, checking our quarterly finances has allowed us to make adjustments to our newly-formed budget that wasn't refined. It has enabled us to fix some budget categories to better reflect how much we were spending or to adjust our spending to meet our budget. I was able to analyze some investment returns and reallocated some of our money.

Now that we have been doing this for quite awhile, I find that we aren't making as many adjustments. Our budget is pretty set in stone based on earlier experiences. And our goals have remained fairly steady. However, I did make an adjustment in a 401(k) investment when I reviewed our investments yesterday. I'm not sure why this one investment fell under my radar for the past year, but it did. And yesterday when I reviewed it, I realized that I had $8,000 in one account that basically earned $0 in the past year. I was able to exchange it for another stable account earning at least a couple of percentage points.

In addition to that I was able to share with my husband how much our investments and savings have grown. Sometimes my husband gets discouraged when I limit our dinners out per week or tell him that it's not in our budget to do a certain activity. But when I share with him how much our savings have increased, he becomes encouraged that we are on the right track. Try reviewing your finances once per quarter, and you will find that you can better manage where you are and where you are going, financially.

Dissect Your Budget - Part 9 - Entertainment

Tip #245 - Dissect Your Budget - Part 9 - Entertainment. When we began dissecting our budgets at the start of this series, we were dealing with mostly necessary items. After food, clothing, shelter, utilities, transportation to and from work, the bottom of the budget list starts to become more and more optional. Obviously, if you need to come up with another $20 per month to buy milk for your children, then taking a weekend at the beach becomes a distant second choice as a way to spend that money. Only you know your financial situation. The more leeway you have, the more you can spend on optional items. The tighter your funds, the less you can spend. Keep that in mind when dissecting your budget. But remember, even with a budget of $0, you can still entertain yourself and "take a vacation" - even if it's just camping out in your sister's living room for the night.

Entertainment is definitely a budget category that has a lot of give. The budget can range from almost nothing per month for some to probably in the thousands of dollars for others. Your job is to analyze how much you are spending in this category and how you can reduce that amount in order to put that money toward more needed categories such as paying off debt or saving for retirement.

I generally think there are about three levels of costs for entertainment for most people. On the high end, we can buy tickets to professional sports teams, play expensive sports such as golf, go to professional theatre, eat out at fancy restaurants, and go to privately run swim clubs.

But what if you want to do these sorts of things but don't have a lot of leftover money in your budget after spending on more necessary items? For less money you can buy tickets to minor league baseball games, buy a tennis racket and play on public courts, go to community theatre, eat out at inexpensive, local restaurants, and swim in county-run pools.

But for some even those types of costs might be too much. On the budget plan, entertaining yourself or your family can be nearly free. Watch a local high school football game, exercise by running in the neighborhood, attend a play at a local elementary school, cook a special meal, and turn on sprinklers in the yard.

Even if you live in the middle of nowhere, there should be free or very cheap entertainment options available around your house, if not in your neighborhood and community. Entering homemade jelly in the county fair won't cost much but might bring a day of fun to a family who gets to enjoy the sights of the fair even if they can't afford rides or games. Play old board games that are lying around the house, travel in your favorite armchair by watching a travel video or reading a travel book or blog.

As long as you don't feel like you have to see the latest concert, buy the newest bestseller, or eat at the nicest restaurnats, you can keep your entertainment budget at a minimum if it's necessary. Be realistic about how much you have in your budget for this category and spend accordingly.

In Real Life (IRL) - I always loved the phrase "champagne taste on a beer budget" because I think many people are guilty of this. Watching how others "live" on television makes us think that everyone is out having a good time, going to parties each night, dining on steak, and joining country clubs. And if we try to emulate that lifestyle without having the funds to back it up, then we will fall into debt very quikcly or get way behind on our financial goals.

I have several "real life" friends who are in similar positions as my family - we live in the same town, have 2, 3, or 4 children, and the husband works, while the wife stays home with the kids. I haven't looked at any one of their bank accounts so I can only guess at how wisely my friends are spending their money but I'll take a stab. At one extreme, one friend buys all of her children's clothes at hip stores, takes them to the latest concerts, does frequent expensive vacations, buys the latest expensive toys and gadgets such as Wii and American Girl dolls, and eats out at nice restaurants, paying for babysitters each time. Everytime I turn around I hear some other great place they are going to, thing they are doing, or item they are buying. As far as I know they do not come from wealthy families, although the husband does seem to have a good job (hopefully a very good one!).

On the other end of the scale is my family who buys clothes at consignment sales, takes my kids to see plays put on by local high schools, goes on a budget beach vacation each year and a very cheap trip to Florida, staying with family, does not own anything like Wii (although my daughters are currently pooling their money to save up for one - they are up to $48), looks for American Girl items at thrift stores and Craigslist, and goes out with husband only when parents are in town to watch the children.

I AM NOT JUDGING! I AM JUST WONDERING? Does my friend's husband make that much more money that they can afford all of this entertainment? Or are they not putting the maximum per year into their IRA and 401(k) plans and not putting money away for their kids' college funds? Do they have an emergency fund? Or are they racking up debt? It's not just this one friend. She is probably the extreme. But many of my friends will go out to eat at a drop of the hat, spending $50 for dinner and another $30 for a babysitter. Tickets to Dora Live are bought for $50 per person including the 2-year old without much thought. Is this kind of entertainment spending appropriate for them?

I don't think we all need to be waiting for grandparents to visit so we can go out to a nice dinner, but we should make sure our entertainment budget makes sense within our family's income, expenses, and debt. If in any way, shape, or form, you need to pay down a loan, save more for retirement, or add more fruits and vegetables into your diet, seriously consider analyzing your entertainment budget and finding inexpensive ways to keep you and your family amused. (You can always find last year's fad at the thrift store anyway.)

Dissect Your Budget - Part 8 - Vacation

Tip #244 - Dissect Your Budget - Part 8 - Vacation. All work and no play makes Michele a dull girl. It also makes me anxious, frustrated, stressed-out, and tired. I am not alone in this. That is why I think each budget should have a line item in it for vacations. What? You cannot afford a vacation you say? You're trying to save money? That might be the case, but I guarantee that taking a break now and then from the working world will only make you more productive, more creative, and more motivated than if you do not take a break.

Besides, who said your line item on your budget has to be for trips to Europe or cruises to the Carribean? It doesn't. In fact, if you are trying to save money, this is one area where you can cut your expenses dramatically! If you are used to spending money for one big trip per year plus one trip to the beach, then make some changes. Instead of your one big trip, make it a small trip to a less expensive locale. Or drive to a cheaper beach than one you are currently going to. Maybe you go to a lake house every year. Why not budget for a camping trip instead or a no-frills cabin? There is something cozy and fun about roughing it. And the further away from your real life that it is, the more like a vacation, it will seem. Maybe you can visit a friend in another city, but make sure you extend the invitation back for a visit at your house.

Travel off season, even if it means taking the children out of school for a few days. Or visit somewhere where it is "out of season" for that location but "in season" for you. For example, in the south, schools generally resume in August while in the Northeast and Mid-Atlantic, many children are still on vacation. You can save a bundle on vacation by traveling in late August to a beach in the south rather than in July.

When on vacation, balance expensive activities with cheap or free ones. For example, a day at the amusement park might be your expensive day, and possibly the highlight of your trip. But balance the week with some cheaper activities - like a day at a zoo, nature center, or just laying on the beach. This would be much cheaper than doing four consecutive days of amusement parks. When choosing activities, look local. A local, public waterpark may be a quarter of the price of a private one.

Get creative in your planning. Visit all travel websites for the best deals. Check into any group rates such as AAA. Talk to people who live in the city or town that you are visiting. I love visiting the forums at city-data.com. You can pick any state in the US and some cities and countries abroad and post questions to residents who live there. Most people on this site are very helpful and will narrow down your must-sees and your waste-of times. They may even tell you how to get the best deals.

Vacation is anywhere that you don't live. Try not to get in a rut and visit only much-hyped cities such as New Orleans, Miami, New York, and Chicago. Places such as Cleveland, Pittsburgh, El Paso, and Kansas City surely have great sites at much cheaper prices than the well-known cities.

If your current vacation budget is $200 per month, challenge yourself to lower it to $150 per month and see where you can cut corners on your vacations without cutting out the vacations themselves.

In Real Life (IRL) - I love me a vacation. If someone told me we were going to Fargo, North Dakota tomorrow, I would be so excited. Because it's completely different than where I live. Of course, it's not a top-destination vacation spot, but I'm sure that I could find enough activities there to last me a week, have fun while I am doing it, and not spend a lot of money.

When planning vacations, I try to find spots that aren't resorts or expensive destinations. In winter, I can have as much fun on a Fort Lauderdale beach as a Carribean one, without spending money to fly to an island and spend money on expensive, flown-in food. For our honeymoon, we went to Costa Rica for the same reason. A carribean island would have been much more expensive but given us the same type of enjoyment.

When I was single and a friend of mine and I used to take trips, we often went the last two weeks in May, returning on Memorial Day weekend just when vacation season was gearing up. The result? We had nice weather, fewer crowds, and hotel rooms that were 2/3rds (or less!) of the price two weeks later.

Here is a real-life example of how I saved money on one particular trip. My friend and I were going up to New England for vacation at the last minute. On our wish list were the city of Boston, Cape Cod, and Nantucket. We had one week to do it - the last week in May through Memorial Day weekend. The way we originally had the trip planned was to drive up to Boston, spend a few days there and then head over to Cape Cod for a few days and take the ferry to Nantucket. First I called the hotels in Boston. Everything was pretty pricy as cities are the priciest during the week because of all of the business people. Then I called the hotels in Cape Cod: they were all booked! After all, it was Memorial Day Weekend! Ugh, we had a problem on our hands. I was beginning to think that our last-minute plans wouldn't work out. Then all of a sudden, it occured to me - why not reverse our trip? Go to Cape Cod first during the week - before the holiday weekend, and while prices were still relatively cheap. Then we would hit Boston on Memorial Day Weekend when all of the business people had cleared out. Brilliant! Our plans were not only a "go" but the hotel prices were much cheaper, too. (Okay, maybe it wasn't brilliant; maybe we were just being dense, but at the time it was definitely an "ah-ha" moment).

The point is, we all need a vacation at some point, but they don't always have to be big and fancy. Look for ways to make them cheaper, but still get the break and relaxation you need. For other money-saving ideas, check out Frugal Friday.

Dissect Your Budget - Part 7 - Insurance

Tip #243 - Dissect Your Budget - Part 7 - Insurance. I just heard a collective groan from the readers of this blog. Because while shopping for places to live - even if it's a smaller house to save money - is a lot of fun. And going on treasure hunts in the thrift store for clothes on the cheap is often an adventure. Even finding alternative means to get to work isn't too bad of a job. But looking for lower-priced insurance is about as much fun as getting a tooth extracted, without getting the milkshake afterwards. But in an effort to examine all aspects of your budget in order to lower your expenses, looking into your insurance costs is a must.

Insurance can cover various parts of your budget - there is car insurance, health insurance, life insurance, and homeowners insurance, as well as possibly a few others. We touched on car insurance in the previous post. Today, let's discuss, property/casualty insurance also known as homeowners and renters insurance. We will discuss helath and life insurance in a post related to healthcare costs. Regardless of whether you rent or own your home, you really need to have insurance on it. Part of that insurance (property) covers the cost of replacing/repairing your items should they get stolen, lost, or ruined in a disaster. The other part of the insurance - casualty insurance covers you if someone should injure themselves on your property. A lot of renters do not bother to buy renters' insurance because they figure they don't have many expensive items to replace. But if someone burglarizes your house and steals your camera, television, and your computer, you would be spending a lot of money replacing these items. In contrast, renters' insurance is cheap. For just a few dollars per month you would have protection from big lossses. More people are likely to buy homeowners insurance as the potential for loss is much greater. Also, most mortgage lenders require the borrower to have homeoners insurance.

Regardless of whether you are a homeowner or a renter, it is a good idea to have at least a minimum amount of insurance on your home or contents. Assuming you have insurance, there are ways to bring down the costs. The first way is to take stock of what type of coverage you really need. There are numerous online calculators that can help you determine how much insurance you need. Be mindful of the ones sponsored by insurance companies, however, since they have a vested interest in your buying more insurance. After you determine the type and how much coverage you want, you need to decide how much of a deductible you are willing to pay as a deductible if something happens to your home. Some people prefer to carry high deductibles to keep costs down and to use the insurance in only catastropic events rather than small ones.

After you have decided on the amount of coverage and the deductible, it is time to shop around. Coverage costs can vary quite a bit among insurance companies. The first place you want to contact is the company that insures your car. They will usually give a discount if you have multiple policies with them. Next, you should talk to friends and neighbors. In some areas (such as Florida), there are only a few companies that will insure there, so it's best to hone in on that information. Lastly, you can search the internet or just call around for competing quotes.

Even if you have insurance and love the company you are with, it is still worth it to look into other companies' policies every few years. Prices change, needs change, and competition changes, so another company might better meet your needs at a different time. Sometimes inertia can be bad for the bottom line. Insurance is not something any of us want to spend a lot of money on, but it is something that most of us should have. Finding the best price for what you want is the best way to keep this cost down.

In Real Life (IRL) - I mentioned in the last post that my husband works in insurance. Specifically, he is an insurance underwriter. So while I am the main finance person in our household - setting the budget, deciding on where to invest, and what to save for (with his input, of course, but he's just not that interested), I defer all insurance purchases to him.

Having said that, my husband called around and found a good deal on homeowners' insurance on our condominium in Florida, which was not an easy feat due to all of the hurricanes there. When the roof on the building was recently redone, my husband found out that we could get a better deal on our insurance because of the extra protection it provides. By paying a mere $20 for some kind of certificate certifying the roof, we were able to cut our yearly insurance premium by over $100.

In the meantime, my parents who own a condo in the same complex were paying much more in insurance than we were. In addition, my husband was able to walk them through the steps to bring down their insurance premium because of the new roof. Just a few simple phone calls, a bit of back and forth, and another certificate on their part, and my parents were able to lower their bill, too. It's not fun to make those calls, bring up your insurance bill in converstation at cocktail parties, and research the best rates. But in the end, when the savings goes into your pocket or into your bank account, the extra work is worth it.

Dissect Your Budget - Part 6 - Transportation

Tip #242 - Dissect Your Budget - Part 6 - Transportation. In this series, we are taking an in-depth look at each line item in our budget in an attempt to squeeze out some of the "fat" that is in there in order to put away more money. So far we have talked about housing, utilities, telephone/Internet/television, food, and clothing. Next on the list is transportation. To many people, this would be "automobile" but that would not be the case for everyone, so transportation covers this area more generally. This line item is a "need" in nearly everyone's budget (in the US). It is the very rare household that would not need a way to get them to their job or to the store to get groceries. Some people in NYC might get away with it - if they walk to work and to the grocery store - but even then they probably have a bike, take the subway, use a cab or need to rent a car occasionally, all of which have costs associated with them.

Depending on how fine you like to break up your budget categories, this area takes into consideration auto maintenance, gasoline to run your car, car payments, public transportation (if you use it), and car insurance. This can be a very big line item or many small ones. We will discuss them as a group today. So how can we reduce our transportation costs? If your household needs a car, the first thing would be to buy a car that is a good value. In other words, a Honda is probably a better value than a fancier Lexus. A Kia may be a better value than a Honda. Consider your car a way to get from Point A to Point B or as we used to say in college, "an AB car" - it gets us where we want to go and nothing more - no fancy features, expensive styling, or name brand status. If you need a car to drive you to your job, get one that is reliable and will last a long time, and that doesn't have extra features that you don't need. Find one that is good on gas and one that does not involve costly repairs (Saabs come to mind). All you need is a car to take you where you need to go.

When buying a car, find one that is most affordable to you. For many people this might be a used car. Some suggest buying one that is two years old when most of the depreciation has happened. If you go this route, make sure you have a good mechanic who can spot trouble. I prefer to buy new cars that aren't being sold after a year or two because something is wrong with them. If you are really low on funds, then find a solid used "beater" car. Whichever you choose, keep your car for 10 years or more. A good car with proper maintenance should last at least that long. The biggest expense is the initial expense. The longer you keep the car, in general, the less per year that the car costs you.

In addition to the car itself, there are other ways to reduce your transportation costs. Check out gasbuddy to find out the cheapest gas prices in your area. It probably doesn't make sense to go out of your way to get gas there, but you might find a cheap gas station on your everyday routes. Get the best insurance for the cheapest price. Call around for different insurance quotes. You can probably lower your insurance costs with a few phone calls. Some companies that are know to have low insurance rates are USAA, GEICO, and Erie Insurance. Or you may want to consider changing your policy - perhaps with a higher deductible. If the car is old enough and not worth much you might want to take the collision off your policy or lower the amount of it. Keep your car maintained - rotate tires, change the oil, keep the air pressure full on your tires, and do other routine maintenance to keep your repair costs down.

Use your car less. Look for alternative ways to travel - walk, ride a bike, or take public transportation, if available. Combine trips. Pick up milk on the way home from work - don't make a special trip. Carpool with friends when you go out or with co-workers when you go to the office. If you are a two-car household, consider whether you really need two cars. Maybe when your second one stops working, it will be worth it to not buy another car. All of these options may take an adjustment to your mindset and your schedule, as using methods besides solo driving takes longer and more creativity than jumping in your car and going. But all are good for the bottom line (and for the environment). They are worthy of consideration.

If you are one of those people who relies on public transportation, think creatively to bring your costs down. Most public transportation methods offer monthly or frequent-user passes. Try the bus instead of the subway if it's cheaper. Challenge yourself to walk ten blocks rather than take a cab. Bike to work. Or maybe you can chip in for gas for a co-worker who drives by your house on the way to work.

There are many ways to bring down your transportation costs. Many will take extra time or more effort or creativity. But when combined with savings on other items in your budget, it can be very worth the effort to put more money in your pocket.

In Real Life (IRL) - We are a two-car family. And I hate to admit that my husband commutes about 25 miles to work EACH WAY. Oy. In our defense, we picked our housing location because it was midway between both of our jobs. But now that I am not working, it seems silly that my husband works so far from where we live. But at this point, we love where we live, so we have to put up with the commute and the expenses that come with it. I, fortunately, drive my car very little during the day. As long as the weather is nice, we try to walk at least one way to preschool as well as to the library, piano lessons, and gymnastics at our local community center. I might put 20 miles on my car per week, if that. Because I put so few miles on my car, my husband and I have switched cars for the past year to put off buying a new car. His car is getting up there in miles, and mine was pretty low. By doing that, we have delayed making a huge purchase, and it is giving us time to save up for a new car.

When walking takes too long, we sometimes ride our bikes to do errands. We have a bike trailer for the kids that we bought for recreation purposes, but it works well for groceries, too. On the rare occasion that I go for a Mom's Night Out or when my kids go to activities, I try to carpool with other moms as often as possible. When we go downtown, we always take Metro. We have a stop that is just a mile from our home. And for nine years when I worked downtown, I always took public transportation. In fact, our company paid toward our Metro use. Combined with walking to the Metro stop, it made for a nearly free commute for me - almost unheard of. My husband has called around for the best insurance prices (he works in insurance so I leave this job up to him). And he is very strict about maintaining our cars. They are currently eight and nine years old, respectively. We hope to keep them for as long as possible.

Can we do better? Yes. We could bring those costs down more. I wish my husband would carpool with someone who lives relatively close to us. But because of office dynamics, he doesn't wish to do so. I wish we could cut out some unnecessary trips to thrift stores or grocery stores. I try to stop on the way home from other places, but it's just sometimes easier to go out alone at night without the kids. And lastly, I wish I didn't waste gas in the carpool line when it is raining or cold (I'm a cold-weather wimp). As I said, there's always room for improvement. How can you reduce your transportation costs?

Dissect Your Budget - Part 5 - Clothing

Tip #241 - Dissect Your Budget - Part 5 - Clothing. Like food, clothing is one of the ncecessities in life. But just like we can get by with hamburger meat versus filet mignon, non-brand clothing meets our needs as well as Ralph Lauren and Versace. At a most basic level, we need clothing to keep us covered to protect us from the sun in the summertime and to keep us warm in the wintertime. In addition, depending on the climate we live in, we need outerwear to further protect us from harsh cold. Once we have these basic clothing needs met, everything else is just fluff. Being in style and wearing clothing without rips and stains are nice, but at a very basic level, they are not necessary.

Having said all that, living in the United States, we do have a certain basic clothing expectation. And unless you are truly counting your pennies for your next meal, we have a general standard to uphold. But it is not necessary for one's clothing budget to be large. As an adult, our size generally will not vary much from year to year, and most of us should be able to get by with a basic wardrobe. Now that a new season is upon us, it is a good time to go through your clothing. Pull out clothes that haven't been worn in more than a year and donate them. Parse your wardrobe to a certain number of pants, shirts, dresses or skirts, undergarments, socks, shoes, nighttime wear, and outerwear. Make sure you have enough clothing to cover one to two weeks of basic outfits. In addition, you should have a couple of occasion outfits for religious services and special events. Depending on your needs, you may also have a few outfits for exercise, outdoor activities, or other specific regular activity.

Once you have thinned out your wardrobe, take inventory of what you have and what you are missing. Do this for each person in your family. Write down what articles of clothing you need to buy in the coming year to round out your wardrobe and break it up so monthly expenses on clothing are even. For example, you might need two pair of pants, three shirts, one dress, one pair of pajamas, one spring jacket, and a pair of work boots to complete your wardrobe. Estimate what that will cost and then divide it by 12 to make that your monthly clothing budget. It doesn't mean that if you see a great deal on shirts, that you should just buy one, but you should stick to your overall yearly budget and try to spread the costs throughout the year.

Speaking of costs, I mentioned above that it is not necessary to have designer brands to meet your clothing needs. If money is tight, you can find decent clothing in discount stores such as Marshall's, TJ Maxx, Ross, Kohl's, WalMart, KMart, and Target. End of season sales are a great time to buy needed articles of clothing. And in the US, end-of-season often comes smack in the middle of the season so that you can still get use of the item during the current year. If you don't have an aversion to pre-owned clothing, then thrift stores and consignment stores are fantastic places to get deep discounts on clothing. Used clothing is especially helpful for young children who outgrow clothes season to season. In spring and summer, there are consignment sales all over the country selling used kids' clothing for much less than new. You can even score designer clothes for a fraction of the original price at both thrift stores and consignment sales. Another method of getting low-cost clothing is to swap clothing with a good friend, a sister, or at an organized clothing swap.

The main point of your clothing budget, however, is to stick with only buying what you need. If you only need two shirts, then don't buy three no matter how good the deal is. And that pair of sandals that will make your freshly painted toes look so nice? Not necessary, unless you have it in the budget.

In Real Life (IRL) - I have written many times that I am not a shopper. And to a fault, I am not, at least when it comes to retail stores. My clothing can certainly use some updating. And ever since I have stopped working nearly three years ago, I have less of a need to go shopping for clothes. So buying too many clothes or more than is in my budget is generally not a problem for me. Although I have been guilty of buying 'just one more cute dress' for my youngest daughter because there are so many of them out there and at such good prices. And I realize that is where other people go over budget on themselves for clothing, as well.

Back when I was younger in the 1970's and '80's, there were not sales year-round like there is now. And there weren't as many discount stores around like WalMart, Ross, and Kohl's. We had Sears, Penneys, and KMart for a long time until Marshall's came to our city. That was it. Thrift stores were not regular stopping points on a shopping trip for most middle class people. Today it is much more acceptable and even expected to buy used. So in a way we are lucky because there are so many "cheap" clothing options today. But they come at cost, and that cost is overbuying. Cheap prices lead us to buying more than we need. And that is why we need to keep a good inventory of what items really are necessary in our clothing budget and sticking to it. Buying more than we need because it's a good deal or beacuse something is adorable is where we waste our money. Make up a clothing budget for the year and stick to it. And when you want to hand over the $20 bill for that unnecessary cute pair of sandals that is not in your budget, ask yourself if that twenty will be better in your retirement savings account or paying off some credit card debt rather than on your feet?

Dissect Your Budget - Part 4 - Food

Tip #240 - Dissect Your Budget - Part 4 - Food. Along with shelter, clothing, and water, food is the fourth item on the list of items that humans need to survive. Therefore, food must be in everyone's budget. But costs on food for the month can range from tens of dollars to thousands of dollars. Clearly, filet mignon is not a necessity but eating some kind of protein, over the long term anyway, is. So clearly we need to evaluate our food budget. Do we have money for the filet mignon or will ground beef serve the purpose? Along with it being a necessary budget line item, food is probably also one of our bigger line items. It is also one that has a lot of flexibility. In fact, there are hundreds of blogs dedicated to keeping your food budget low. Generally, the major ways to reduce your food budget is to do any combination of the following:

1. Cook from scratch
2. Plan your meals in advance
3. Buy at set target prices
4. Use coupons
5. Buy in bulk
6. Reduce meat consumption
7. Eat out less

These strategies are all very good ways to bring down your food budget. Some of these will work better for some people than others. Let's discuss each strategy as a way of lowering your food bill:

1. Cook from scratch - While cooking from scratch may sound daunting to some, it is not an all-or-nothing event. You may start small by just cooking one or two meals per week. Or perhaps start by buying cake mixes instead of the whole cake. Then once you've mastered that task, learn to bake the cake from raw ingredients. There are great websites on the Internet that provide lots of easy recipes. My favorite is allrecipes.com which has people rate each recipe, so it's easy to pick out good ones. I also like tammysrecipes which is a blog of many basic, healthy meals. And smittenkitchen is a fantastic foodie blog that will excite you to start cooking, although some recipes might be a bit challenging. Even by incorporating some "scratch" cooking into your life, you should be able to cut down on your grocery bill.

2. Plan your meals in advance - It sounds so simple, but knowing what you are going to eat will cause you to be more likely to actually cook your meal rather than grab the phone for take-out. You don't have to be formal about it. Even just having ideas in your head for dinner for the next week will be a step in the right direction to cooking meals and cutting down on cost.

3. Buy in bulk - while this may not always be the cheapest way to buy, it is usually at least a fair way to buy. Sure you may do better by clipping coupons and matching them to price sales, but not everyone has time for that. Buying in bulk at Costco or other warehouse stores might be just the ticket to bringing down your food bill. This is especially true for basic ingredients rather than processed or prepared foods.

4. Buy at your target price - As you shop for groceries, get to know what the costs are. If you know that the cheapest you can buy chicken for $2 per pound then don't buy chicken until it's $2 per pound. And then stock up on those items when you find them at your lowest price.

5. Use coupons - Clip coupons from the newspaper and online. By using coupons and matching them to sales, you can reduce your food costs dramatically. They may not be available for all products you use, but unless you are completely strict about brands, you should be able to use some coupons in your grocery shopping. There are hundreds of sites dedicated to how to use coupons to their fullest. My favorite is moneysavingmom. She alerts you to new coupons and gives weekly posts on the best deals at many stores.

6. Reduce meat consumption - If you are serious about cutting your food bill, you may have to change what you eat. Eating meat every night is expensive. And it is not necessary for health reasons to eat that way. Try cutting meat out of some of your meals by having a few meatless dinners per week. Or, reduce the amount of meat you eat at certain meals so that it's not the main course but an add-in like meat sauce instead of meatballs. Lowering your meat consumption will reduce your monthly grocery bill.

7. Eat out less - This idea may be very hard for some people because eating out is very easy. But if you only do one thing on this list of ideas, this is it. Because eating out can cost more than four times what eating at home costs.

Using a combination of the above ideas should reduce your food bill. You might not have time or want to do all of them. But I guarantee that encorporating at least some of these ideas will save you money. But remember, that food is only one part of your budget. Once you have reduced your costs here, don't spend an inordinate amount of time trying to save a few more cents. There are many other budget items that can use your attention.

In Real Life (IRL) - I use a combination of all of the above ideas to reduce our food bill. I am reasonable about it, though. Since I have stopped working part time, I have been able to cook many more foods from scratch and I see the savings. But I don't cook all of our foods from scratch. I plan our meals in advance - usually in my head. If I have six ideas in my head for entrees for dinner for the week, we are good to go. I don't have an elaborate written plan. I do bulk shopping at Costco once per month for items that we normally eat and that are sold at consistently low prices. I do not buy large bags of potato chips or similar snack foods because that does not save us money!

Along the lines of buying in bulk, I have a target price in my mind for most items we buy. That is the best price I can generally get on regular sales or in bulk for the products we use. For example, I know I can get peanut butter on sale for $1.50 on a regular basis. So I only buy when it goes that low. (Again, however, I am not militant about it, if we run out before it goes on sale again, I will buy a jar or two for $2.00 until the next sale, and buy more the next round so I don't run out at the best price again.) I also use coupons to reduce our costs. I get them from a newspaper and online. I don't spend inordinate amounts of time clipping coupons and doing price matching, but I do spend some time before I go shopping for the week to see where I can get the best deals that week using sales and coupons. Combining coupons and sales usually result in better than my target price, and I view those as extra cheap prices but not my regular target price.

Eating less meat is normal for my family because I am a vegetarian. By default most of my meals are cheap. But since no one else in my family is a vegetarian they do get meat meals - just not everyday. When I buy meat at the grocery store, I realize how much higher the costs are. I have lived healthfully for 30 years without meat and know it is not necessary for a balanced diet. By eating meat only a few times per week, our food budget stays low. Also in an effort to keep our food bill low, we only eat out once per week. When we made a commitment to do that, it was hard at first. But now that I have been cooking from scratch more, I find that the foods I make are nearly as good as some of the restaurants we used to frequent. (Now if I can just get someone to clean up after me! That is what I miss the most about eating out.) I have found that eating out less was our greatest grocery saver. Sometimes when I'm in the market deciding between the $2 canteloupe or the $4 watermelon I have to laugh because that $2 extra I might spend doesn't come close to how much we spend if we eat out for the night. It's all relative.

As with all of our budget categories, I try to be reasonable about our costs but not militant about it. Of course, if you are in dire financial straits, then being militant might be necessary. Otherwise, there are many ways to reduce your food category and it will go a long way to saving money. For other ways to save money check out Frugal Fridays.

Dissect Your Budget - Part 3 - Telephone, Television, and Internet

Tip #239 - Dissect Your Budget - Part 3 - Telephone, Television, and Internet. In this series we are going beyond just writing up a budget but actually analyzing each line item in your budget in order to reduce your spending in some areas. In the first part we tackled housing, and then we tackled utilities. Today we'll discuss optional utilities such as telephone, television, and Internet. Before we do, I just want to add to the last discussion that you should make sure your appliances such as your refrigerator are running optimally. They should be kept clean and not over or underlaoded. Make sure your freezer and refrigerator are not keeping your food too cold. If so, you can lower the temperature. Dishwashers should be fully loaded before being run. you might be able to cut down on the amount of detergent you use and you can avoid things like heated dry.

Now on to telephones, televisions, and Internet. One hundred years ago these items were not expenses on anyone's budget. And just 50 years ago, people weren't paying for two of these items. Twenty years ago, we weren't paying for one of these. But suddenly all three are "must have" items on most people's budgets. But unlike housing, heat for warmth, and power for cooking food these items are truly optional. As such, we really need to take a deep hard look and figure out if they are really necessary in our budget depending on our financial circumstances. Obviously, if you are a web designer and you do some work from home, fast Internet access is necessary. And it would be rather difficult to convince someone in the United States that they do not need a telephone. But how many do we need and at what cost? Are some of theses services overlapping? Do you pay for long-distance on your landline but also get "free" long distance on your cell phone? Can you do away with a traditional landline and just use your cell phone or perhaps use Skype or Magic Jack? It's not 1985 anymore, and we have more choices than just Ma Bell.

Take a night to sit down and analyze the plans that you are on. Call around to competitors and find out if you can get on a cheaper plan when yours end. Or ask if you can bundle your plan with your current carrier. Consider getting rid of one of your telephone plans. Eliminate any options that overlap. Be honest with your needs. Do you have to have Caller ID? Are you paying for cheap calls to Canada that you do not use? Are you wasting all of your long-distance minutes on your cell phone and paying for that capability on your landline phone, as well? Chances are, there is a way you can reduce line item in your budget.

Finally, let's talk about the television bill - whether it's cable, sattelite, or other. Is this a necessary expense? If you are trying to save money, ask yourself if it's really worth it to pay $1 or $2 per day to watch t.v. Could you get away with some rabbit ears and watching videos on the high-speed Internet that you are already paying for? Could you save $40 per month by renting videos or borrowing them from the library? If your cable bill is $50 per month then you are spending $600 per year for television or could that money be put to better use in a college or retirement fund? Maybe you don't want to take such a drastic step. Maybe you can cut some of the extras such as digital video recording or HBO or the extra sports pack. Again, be honest with yourself and how often you are taking advantage of these extras that you pay for.

Remember, your budget is supposed to work for you. You have a limited amount of funds that needs to be spread around many different categories. The ones that are most important to you should get the funds. Necessities should come before wants. And wants should be prioritized. Within each category, try to get the best deal that you can and be efficient so you aren't paying for duplicate items or services unnecessarily. Your optional budget items are where you can make the biggest changes. Analyze them carefully.


In Real Life (IRL) - I am fortunate (or unfortunate) to live in a very populated part of the country. While it may be bad for some things, it is good for getting the latest and greatest technology pretty early. Along with these changes have also come competition. Years ago we had combined service for our telephone and Internet, but our cable was from a separate company. Then 3 years ago Verizon FIOS (fiber optic technology) came to our neighborhood and by bundling all three services - phone, Internet, and television with them, we would pay about $30 less than having separate cable. Two years later, we have added a second phone line to our house through Magic Jack for only $40 per year.

We are not efficient as we can be, though. We get free long-distance on nights and weekends on my husband's cell phone (which is paid for by his company), yet we also pay for this service on our landline phone. We also get "free" long-distance on our Magic Jack phone. Clearly, there is room for improvement on our part for this line item. However, we are locked into a contract now and it's not worth it to break it for this change. But when the time comes up to renew, we will need see if there is a better plan for us so we aren't paying for the same service twice.

As far as television goes, I'd be quite happy getting rid of it altogether, but my husband would have nothing to do with that. And while I would be happy spending the money that goes for television elsewhere, we are not not saving money because of this unnecessary "extra." If you are not as financially secure as you hope to be, however, please consider cutting down or at least optimizing the deal you get on these optional luxuries.