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?

Consider A Pet's Expenses

Tip #259 - Consider A Pet's Expenses. A pet can be a wonderful thing to have. Pets can give you companionship and unconditional love. They can help teach responsibility to children. They can provide company to the lonely. They can help boost people's mental health. They can bring families closer together. There is no denying the many benefits that pets can give to humans. But along with these benefits come costs - real financial costs.

Most pet owners would probably agree that they wouldn't live without their pet for anything, regardless of what they cost. And I understand that feeling. However, if you are not already a pet owner, you should carefully consider the costs of a pet before you get one. It's easy to be persuaded by a soft playful kitten or a loveable puppy, but make sure that you are aware of the realistic expense of owning a pet.

Startup Costs - If you don't already have a pet, there are several products you might need when you first get one. Obviously these items vary depending on the type of pet you get. You might need a gate (or more than one), a collar, a leash, an aquarium, special lights, a cage, a pet license, food containers, and travel containers. Your pet may also require professional training if he is a young puppy.

Food Costs - This cost is a regular expense for a pet throughout his life. Nowadays, many veterinarians recommend costly pet food for the best nutrition for a pet. While deals can be found online or buying in big quantities, it is an expensive, regular cost.

Health Costs - Like people, animals have health needs. When young they may need to be spayed or neutered. They may need certain shots such as rabies and others. Dogs may need to be treated for heartworm or ticks on a regular basis. And they should have yearly veterinarian visits. In addition, they may have periodic health problems that will arise that will need to be addressed. Some find pet insurance to be worth the cost but that is another added expense.

Grooming Costs - Dogs may need regular grooming vists depending on if their fur sheds or not. Even if they don't need year-round visits, they may need haircuts in the summer depending on their coat. Dogs may need regular visits to get their nails trimmed or you may need to invest in a pet grooming kit yourself. While I know it's controversial, some people fully or partially declaw their cats. Pets often need their teeth cleaned.

Living Costs - If you are a renter, you may have a harder time finding a place to live if you have a pet - primarily a dog or a cat. This limitation can prevent you from finding an affordable place to live. If you rent in an apartment building that allows pets, there is often an extra deposit fee and many times a monthly pet charge, also. If you live in a house, you may have to invest in the cost of a fence. There may be cost of replacing carpet, sofas or other materials sooner than normal because of pet wear and tear. If you and your spouse work , you may need a pet walker to come in during the day.

Travel Costs - When acquiring a pet, you must figure in the cost of someone watching it for you while you travel. Kennel costs are upwards of $20 per day in many areas. Alternatively, you can bring pets to certain hotels, which often have an extra per night fee for a pet. You can also find local folks who will walk and watch your pat while you are away.

Non-necessities - There are little costs that may add up for pets. These are not necessities but many with pets choose to spend money on them, such as pet treats, rawhide bones, toys, catnip, pet beds, outside pet homes, dog bows/bandannas/clothing, and others.

I did not give associated costs for most of the above items because costs vary widely depending on size and type of pet and where you live. And again, I am not suggesting people should not get pets, but you should be realistic on the costs of having one. Talk to pet owners in your area to find out the price of vets and kennels. Ask those with a similar type of pet to the one you want how much they spend in food per month or regular health maintenance. Be realistic on how often you travel away from home and whether bringing your dog to grandma's is a possibility or if you need to board your pet each time you visit. If you are realistic with the pet costs, you will be a happier pet owner.

In Real Life (IRL) - It has been just over a year that we have been living without a pet. And while we miss having our dog to play with and love, I must say that I am not missing the expense that came along with her. We had a budget of $75 per month for our dog, which covered food and heartworm medicine plus a yearly vet bill. (This number may seem low as our dog was acutally on a cheaper brand dog food from before my husband knew better. The vet said that because she did fine with it that it wasn't necessary to change her diet to a more expensive food.)

Since the dog was my husband's when I met him, I don't know how much he paid for startup costs with the dog but he owned a pet bed, an outdoor igloo, a pet carrier, a gate, dog bowls, and a few other things. So, I am sure he easily spent several hundred dollars on those costs.

We had a few irregular or unexpected costs that came up periodically while we had the dog, like the time she had an abscessed tooth or the time we traveled to China for 18 days to adopt our daughter. And there was the time there was a fight between our dog and a neighbor's dog where we offered to pay for the other dog's vet bills. There was also the several-hundred dollar pet fee when we rented an apartment home. There was the medicine she went on for incontinence when she became elderly. And the cost of ridding our house of fleas one memorable (not!) summer.

At thie present time we have no plans to get a pet - not because of the expense - but because with three young children I don't want the extra resposibility that would fall mostly on my shoulders. I'm sure we will get another dog at some point, though, and we will make sure that we are realistic about the costs that will need to be added to our budget to get one. For other frugal ideas, check out Frugal Friday.

Tip #179 - Magic Jack Is Magic. In today’s high-technology world, fewer and fewer people are relying on traditional landline phones to communicate. Many people supplement their traditional phone with cellular phone service, while others completely abandon their landline phone and exclusively use cellular service. But even beyond cellular technology, another popular method of telephone communication is through the Internet – services such as Skype and Magic Jack. While I cannot comment personally on Skype, we are marveling at how “magic” Magic Jack is. Before I do, I just want to point out that I am not associated with this company at all and am not being paid to talk about it. I also am not one who buys into latest fad things very easily.

Essentially, what Magic Jack does is make phone service through your high-speed Internet. The costs are very cheap. It costs about $40 to buy the unit and includes one year of telephone service. This service includes free local calls and free long distance calls to the United States, Canada, Puerto Rico and the US Virgin Islands. You can call other countries for an additional fee. Each year of service after the initial year is $20.

Set up is very easy. You just need to plug the unit into the USB jack in your computer, and then you plug your phone into the unit. It’s that simple! Some qualifiers: your computer needs to be turned on at all times if you want to make or receive calls. And of course you need to pay for your high-speed Internet service. However, it seems to me that most people – even those trying to save money – will cut most things out of their budget before they would even consider cutting out their Internet service, so that seems to be a small qualifier. Another qualifier is that their 911 Emergency Service is different than 911 service offered on traditional phone lines (you have to preprogram your address). It will not work during a power or Internet outage.

So, if one of the ways you are thinking about saving money this year is by getting rid of your landline phone, consider Magic Jack. Even if you have a cellular phone, this is cheap enough to run, and probably has a better connection than a cell phone does.

In Real Life (IRL) – My husband bought a Magic Jack Phone a few months ago. Our daughter was often tying up our phone talking nonsense with her 7-year old buddies. Since my husband is much more aware of new gadgets than I am, he promptly went out and bought a Magic Jack for our kids’ computer. We already have high-speed Internet, so for $40 for the year (and $20 per year thereafter), my daughter could talk to her friends till her heart’s content (within reason, of course). My husband hooked it up, and he and my daughter had fun testing it out.

The Verdict? The voice reception? Perfect. You cannot tell you are not talking on a traditional phone. Ease of use? Simple. It’s just a regular phone that’s hooked up near the computer. Benefits? Our daughter can use the phone without tying up our line. We can now call my husband’s friend in Canada for FREE. We never spoke to him very often otherwise because he’s the only person we know in Canada, so it seemed silly to get a special voice plan just for him; therefore our infrequent calls to Canada weren’t cheap. Negatives: So far none. As it is our second phone, we don’t have to worry much about the 911 issue, although frankly, it’s really not much different than our “traditional” phone through Verizon FIOS which also uses some kind of voice over Internet technology, and also wouldn’t work after a few hours after the power has gone out. Additional benefits? My husband has figured out that when we travel to hotels with wireless Internet, we can bring the Magic Jack with us as well as a small phone and make free phone calls.

Will it replace our cell phones? No. Will it replace our traditional phone? For us, not now, but perhaps one day. It certainly makes the $50 per month that we currently pay for unlimited local and long distance seem awfully expensive. Right now Magic Jack has a free 30-day trial if you want to try it out yourself. It might be worth it.

Being Disorganized Will Cost You Money

Saving Money Tip #177 - Being Disorganized Will Cost You Money. There are very popular television shows that focus on organizing people’s homes. Not only because clutter makes one’s home look, well, cluttered but because it also wrecks havoc on people’s lives. And doing things like having to clear off the dining room table every time you want to eat will not only be a hassle, but it will also cost you money.

How? You ask. Well, setting a proper dinner table is difficult when the table surface is covered. And eating dinner out of paper cartons then becomes that much more appealing. So clutter might lead to more take-out food or more dinners out.

What if you have taken the time to cut out supermarket coupons for your next grocery trip? But then when it’s time to go food shopping, you don’t know where you’ve put them, but you have to get the groceries anyway. Well, there goes several dollars that you would have saved.

Having your bills disorganized might lead you to pay some of them late leading to late fees and finance charges. Dave Ramsey, a popular financial planner likes to call this a "stupid tax." I think it’s a tax on the disorganized.

Maybe you are heading to the beach on vacation. But you have no idea where you put your goggles from last summer. Or your flip-flops. Well, for just a few dollars, you can stop at the store and pick up a new pair. Again, costing you several dollars for your disorganization.

Other examples might be more extreme. Suppose your disorganization leads you to misplacing your keys many mornings. That might lead to your being late to work, which may in turn lead to fewer or lower pay raises.

I can list pages’ worth of examples, but it won’t accomplish much more than what I’ve already done. If you are not organized, it is not only costing you some chaos in your life. It is also costing you big bucks.

In Real Life – I would love to be one of those super organized people. You know the type – those who have everything filed away and labeled and know where things are at a moment’s notice. Unfortunately, I am not. While I am not disorganized enough or my house cluttered enough to be featured on a television show (thankfully), I am not as organized as I would like to be. There are toys in pretty much every room of my house. There are papers piled up on my counters. And I have piles of clean laundry waiting to be put away. (My kitchen and dining room tables are clear, though!)

And this disorganization, although not as bad as some, has cost me. I have been known to not be able to find the car keys once or twice or ten times in the past year, causing me to get my daughter late to school and leaving me to rush through my errands. Surely, I could have gotten better deals if I had time to shop more leisurely. I have paid a bill late because I don’t have an official filing system for my bills, although that has only happened a few times in all my years. (Online or automatic payment are great remedies for this, by the way.) I have paid many a library book fine, and just last month had to pay for a book that we just plain couldn’t find. (We still never did find it, and I’m guessing my 2-year old son threw it in the trash, but the blame still lies with me.)

I have a friend who is very disorganized and sadly can probably be featured on one of those clean up the clutter shows. Her husband has told us how they’ve had to buy a new camera when they couldn’t find theirs, only to find it several weeks later. Or they’ve had to buy a new toy when their child misplaced one – again only to be found in their cluttered house months later.

So, while I don’t necessarily have any advice on how to become clutter free or the best organization system to use (there are many good books in the library for this), my point is for you to realize that being disorganized does more than just cause you to have a chaotic life. It leads to higher costs in many forms. Cleaning up your home and organizing your things can give you more money to save or live on. For other frugal tips, check out Life As Mom.

Don't Dig Yourself Deeper Into Debt - Part 3

Tip #168 - Don’t Dig Yourself Deeper Into Debt – Part 3. In Parts 1 and 2 of this series we discussed how to get out of consumer debt. In this last part of the series we will discuss how to stay out of debt.

After you have come up with an amount you need to pay off each month and have adjusted your expenses so that you can meet that payment (or increased your income to make that payment), then the final step is staying out of debt. By making a budget that lists all of your income and all of your outgo, you can stop spending more than you earn. But you need to strictly follow the budget to stay within your means. If your income is $5000 per month, then your expenses need to stay under that amount to stay out of debt. Simple in theory, but harder in practice. So let’s look at specific methods of staying out of debt.

The first step to staying out of debt is to not spend money before you earn it. Some people spend money before they get it because they know it’s going to come in their paycheck next week or next month. Well, let’s try to get out of that habit. Scrimp and save for a week or two or a month until you are all caught up with your paychecks, so that you are not spending in advance of earning the money. Once you are caught up, stick to your budget and don’t spend the money unless you already have it. It will take many sacrifices but once you are on the right spending cycle with your income, it will be much easier to live within your means.

The other step to staying out of debt is to not spend more than you have by not using your credit cards. Using credit cards allows you to spend money that you don’t have. If you just stick to money that you have in the bank and in your pocket, then you cannot go into debt. All of this sounds ridiculously simple, and while the concept of it is, the reality isn’t always so. A car breaks down and there is no money to pay to fix it, so you put it on your credit card. Or a special occasion comes up and you decide to front the money until you get paid the following week. As I said, it’s not easy. It takes a lot of discipline, hard work, and a realistic budget. That includes a line item in your budget for car repairs and a line item for special occasions. If you have an old clunker car, then you need a line item in your budget for repairs. Otherwise the budget isn’t realistic. If you have no money left in your budget for this line item, then you need to cut out a luxury in your life – the cable t.v. or the new clothes you like to buy. Again, it sounds simple on paper, but is harder to do in real life. However, in order to keep your outgo less than your income, you need to be prepared for things that come up and include them in your budget. This way you are not putting things on your credit card that you haven’t budgeted for.

In summary, to get out of debt, address your problem, figure out a payment plan to pay the debts back by increasing your income or adjusting your budget. If you don’t have a budget, make one, and make sure it’s realistic to meet your needs. Once you are following these steps and have gotten out of debt, you need to stay out of debt. Don’t spend money before you earn it and don’t ever spend money that you don’t have. Once you follow these steps, you will get used to your new way of life and you will wonder how you ever lived in debt before. You will feel freer and happier, and will probably sleep better at night, too.

In Real Life (IRL) – As with every thing else, once you address your problem that you are in debt, you are halfway there to solving the problem. I always read about people who follow Dave Ramsey to get out of debt. Out of curiosity I read his book and understand his appeal. He outlines about 7 steps to getting out of debt. It’s not a magic cure or anything truly out of the ordinary. It takes hard work, budgeting, and being committed to paying off your debt on a schedule.

While reading finance blogs and forums, I have read about many people who have paid off their debt using Dave Ramsey or similar plans, and I’m talking thousands and thousands of dollars’ worth of debt. That takes incredible discipline and a change of spending habits. Anyone who can do that has my admiration. It’s hard work to be sure. But the results are so worth it. Once you are out of debt and are living within your income, you can really start to live. You can go to sleep well at night knowing how your bills will be paid on time. Also, you can spend your money contentedly knowing that you can afford what you are paying for. It's not easy and I wish everyone who is in debt or whose spending is out of control the best of luck in taking the first step to taking care of it.

Don't Dig Yourself Deeper Into Debt - Part 2

Tip #167 - Don’t Dig Yourself Deeper Into Debt – Part 2. In Part 1 of this series we discussed how to start getting out of consumer debt. In this part of the series we will discuss how to completely get out of debt.

After you have come up with an amount you need to pay off each month (in our example we came up with $333 per month), you must figure out where this $333 is going to come from. This is the harder part. Again, if this debt you are paying back is from a time when you were spending more than you earned (but you aren’t spending more than you earn any more) or from a one-time event in your life then you are in a better position than someone who is currently living above their means. If the debt is from one of the first scenarios, you have two choices – cut down your current expenses or earn more money. If you can get a second job paying $333 per month, then great. Your work towards paying back your debt is pretty much done. (Although there is still more work to do to stay out of debt.)

If you can’t bring in any more income, then you need to cut down on your expenses. Cutting down your expenses means writing up a realistic budget (or a list of your current expenses/spending habits) to see where your money is going. And then you must evaluate what you can cut to make up the $333 per month to pay back. Hopefully, you can find easy ways to cut back to save up that money. Cutting back on cable and trips to the beach for a few years might be enough to cover your debt. Or maybe you need to do something more drastic like finding an apartment with lower rent.

Many people at this point might say that they cannot cut their expenses any more than they already have. I don’t believe this. There is room in almost anyone’s budget to cut expenses. Cut it down to basic needs only if you have to. Getting out of debt should be your top priority. Drink only water; don’t buy new clothes; cut your own hair: or carpool to work. All of these types of things cut expenses out of your budget. And if you truly have no other expenses to cut then go back to the first option, which is to bring in more income. Those are your only choices or you will never be able to pay back your debt.

Now, if your debt was not a one-time occurrence or the result of frivolous spending when you were younger, then you are on your way to being debt free and building up financial security. But if the debt you are paying back is still accumulating because your expenses (or outgo) are greater than your income, then you are still accumulating debt even as you are paying back your old debt. And if that is your case, then you will never pull yourself out of the hole you are digging.

This is why a making a monthly budget is vitally important. You must list out all of your expenses in all of your categories of spending. If the total amount of monthly expenses is greater than your monthly income, then you need to cut down your expense until they are equal or less than your income. And that means including a category for your monthly debt repayment. Again, you figured out back in the goals section of this exercise the amount of debt you needed to pay back on a monthly basis (in our example $333). Figure it out so that it is a reasonable amount that you can afford to pay. And try to do it in the shortest timeline possible so that the goal is attainable (about 5 years or less). Any longer, and the goal starts to seem out of reach, and you will lose interest. Once the full debt is paid back, that money can become your savings. In the last part of this series we will discuss staying out of debt.

In Real Life (IRL) – I mentioned in my first post that I was recently thinking about debt repayment because some people I know who I believe are in debt seem to continue on their wild spending spree. Impromptu vacations, costly clothes, and dinners out seem to be the norm in their everyday expenses. I cringe when I hear them talk about all of the things they are doing, because I am fairly certain they don’t have the money for it, let alone that they already owe money to credit card companies. I think it’s so easy to spin out of control in this regard. Once people already owe a few thousand dollars, what’s a few more dollars for Chinese takeout or a couple hundred dollars for a hotel?

The problem is besides that they are adding to their debt, they are not facing their problem, which is a continual cycle of spending more than they are bringing in. Over time the debts get larger until there is no end in sight to pay it back. Facing reality and suddenly living on less isn’t appealing. But at some point they either need to address the problem or they may need to declare bankruptcy, which should really be the last resort. They really need to figure out a debt repayment plan and then cut back on their expenses or they will never dig their way out of the debt they have created.

Update on Plan, Plan, Plan

After I posted yesterday about planning and shared my lack of planning for my parents' 50th anniversary gift, I decided I really didn't think I got such a good deal on the digital photo frame that I bought at Target for them, and that it really wasn't exactly what I wanted (too small, wrong color, etc). So I went online again and checked the local stores' websites a second time. I saw a frame at Wal-Mart's website that looked promising and got good reviews, and I saw a couple of nice ones at Microcenter. So I had my husband return the original one to a Target near his office, and then he stopped at Wal-Mart to check out what they had. He said there was nothing good in the store. So, on the way to dropping my daughter off at camp, I stopped at Microcenter and saw one of the ones that I liked online. And, to sweeten the deal, it was on clearance because the box was beat up. I ended up spending only $10 more for a frame that was much bigger than the one I originally bought at Target. I am much happier with my purchase, and will take my own advice next time and plan ahead for my gifts and other big expenses. Now I'm off to find a dress.

Plan, Plan, Plan

Tip #160 - Plan, Plan, Plan. The more I think about personal finance and the best way to build up savings and investments, the more I realize the importance of planning. The simple act of writing out a budget, even a general one, gives you a good idea of how much you can spend in different categories. Sure, we know that budgets aren’t perfect, but they go a long way in giving you an idea on how much you really have available to spend, and ultimately saves you money.

Besides using budgets as an overall planning tool, everyday planning is important, too. Planning your big purchases in advance by doing research will ensure a good price for a product you really want. Buying something at whim will usually result in overpaying and not necessarily getting the best product for you. Think about needing a television set. If your t.v. broke today and you went to the nearest store, you would pick out a new television from the store’s selection, pay the asking price and leave. Even if the store is known for its good prices, do you know if you go the right television for you? On the other hand, if you can put up with no t.v. for a few days, it will give you time to research televisions online, read customer reviews, and then find a good price (if not the best) for the one you choose. The second behavior will result in a television more in line with your needs and at a better price, all because of a little planning.

The same is true for other aspects of your everyday life, too – not just big purchases. Having an idea in your head (or written down) about what you are going to make for dinner will lead to a less expensive, more complete dinner than deciding at the last minute what you can whip up quickly or having to do take-out and spending more money because you weren’t prepared. When you go out for the day, bringing little snacks or drinks will save you from buying overpriced snacks at fast food or convenience stores. Again, just with a little planning.

With most things, the more you plan, the more you will save. Anytime you are in a rush to get something, you will most likely overpay because the cost of convenience is high. Of course, it is not possible to plan for everything! When the air conditioning breaks in July, you may not be able to wait a few days to call around and compare prices. Fortunately, in this Internet age, we can still sometimes do a “quick and dirty” research to at least help lower our convenience costs.

So, if you have events coming up, start planning what you will wear, what present you will buy, and what you will need to get there. If you have a major purchase in mind, start doing your research. If you don’t do meal planning, attempt to at least come up with dinner ideas for the next few days. And if you are going out for the day or away for a week, think about what needs your family will have during that time so you don’t have to buy last-minute, convenience items because you didn’t bring them with you. A little planning in your life will go a long way in keeping your expenses low, so you can spend money on things you really want to buy or do or at least put some away in the bank.

In Real Life (IRL) – A lot of things that are good in theory are good in practice, too. As long as you actually do them.. Planning is one of those things. I am generally a planner. I am good about bringing drinks for my kids when we go out for the day so I don’t waste money on drinks from fast food restaurants. And I often bring snacks with us, too for the same reason. and I usually research our big purchases or even our small ones. I truly believe planning saves people a lot of money.

But we really do need to practice what we preach. I realized this yesterday when it occurred to me that I haven’t bought my parents a 50th anniversary present. We are having a party for them this weekend, and while I had been busy making party favors, writing out the invitations, and coming up with a trivia game to play, I plumb forgot about buying them a present. Actually, I had a couple ideas in my head from a long time ago, but never acted on them, and now it's too late to do so. Then my sister gave me a good idea of buying them a digital picture frame and pre-loading it with pictures of our family through the years. I loved the idea and went right to the Internet to look at different brand frames, their reviews, and prices. Of course there were dozens. Unfortunately, the majority of them had to be bought online and I didn’t have time for that. So I started looking at local stores’ websites, but many of them are only available online, too.

At this point, I figured I just needed to buy one at a store in person. With Circuit City closed, that left me with Best Buy, Microcenter, Target, Wal-Mart, and K-Mart to look at. And if I had all kinds of time on my hand, I probably would have looked at at least a few of those stores. But because I failed to plan out this gift and didn't have much time, I decided to choose just one store to go to. After all, I have a 2-year old home with me all day. I’m happy if he’ll last through shopping at one store, let alone several.

So I chose to go to Target yesterday in a 3-hour window while my both of my other kids were at camp. I walked into the store, looked around at what they had and chose one out of about 10 based on looks and price. Was I the best purchase I ever made? No. Could I have gotten it for a better price? Yes. When I got home, I looked at reviews of the frame – which were fair, but not great. And I saw lower online prices than what I paid. Because I didn’t do proper planning, I didn’t get the best product or the best price. I could probably check out another store today, and return this one if I find something better, but guess what else I didn’t think about? A dress! I need to find something to wear before Saturday, too. Ugh!

And now you know why I have been thinking about planning in terms of personal finance lately. Mostly because I haven’t been doing it, and I realize how much it’s going to cost me. So take my advice and try to plan out your purchases, as well as your activities, it will save you money (and lots of running around) in the end.

Do A Mid-Year Financial Check-Up

Saving Money Tip #158 - Do a Mid-Year Financial Check-Up. Just after the clock strikes midnight on January 1, millions of people around the world start working on their New Year’s resolutions. And if you are like many of those millions of people, one of those resolutions is to get out of debt, start saving more, or get a better handle on your finances. But we all know how resolutions often go. After the first few weeks, we often lose interest in them, change them, or plain forget about them. That’s why a mid-year check-up on your finances is imperative. It can help us get back on track, aid us in redefining our goals, or simply give us an update at where we are at financially.

At the end of last year, I urged everyone to set some financial goals and write-out a budget. If you are new to budgeting, it does not have to be an overly detailed form showing you where each dollar will go, but it at least should have the basic categories of your living expenses covered as well as an estimated dollar amount you expect to spend for each category. The budget is the means to reach your financial goals - where you want to spend/save your money and how much money you have to do so.

If you have made a financial plan and written a budget at the beginning of the year but haven’t done anything since then, then now is the time to do a review of them. Are your goals still the same? Do you still generally have the same spending ideas that you had 6 months ago? If your goals have changed or if your situation has changed, take a few minutes to update your goals and your budget. Perhaps you got a mid-year raise or you moved your child to a more expensive preschool that you hadn’t budgeted for. Make your necessary changes and then take a look at your overall financial picture. Are your current finances showing that you are meeting your goals? Or are you falling short? If you set out to put away $5,000 toward retirement, are you halfway there? Are you consistently putting $100 per month toward a mutual fund like you said you wanted to do at the beginning of the year? If you have money invested, are your investments performing the way you had hoped?

You generally shouldn’t need to make major changes to your budget or goals unless things have changed drastically in your life. If you have money in a mutual fund and it’s not performing well, it could be a result of market fluctuations rather than a poor mutual fund choice. Six months is too short of a horizon to make major changes. But it’s still a good idea to take a look at your investment choices at least once during the year. Tweak any budget changes, reevaluate your goals and get yourself back on track to where you want to be financially.

In Real Life (IRL) – I like to check on my finances 4 times per year – once per quarter. But not everyone needs to do that. Minimally, I think everyone should evaluate his or her finances at year-end and sometime in the middle of the year. It doesn’t have to be exactly on June 30, but that date often triggers financial statements from investment firms, making it a good time to check on your progress. At mid-year, I like to reevaluate the financial goals that I set for myself at the beginning of the year as well as our budget.

Our goals this year were to put away the maximum allowed by law into my husband’s 401(k). It is a little bit of a stretch for us, but since the money is taken out pre-tax, it makes it a bit easier. In addition, we set a goal of putting $2000 into each of our three children’s education accounts and $5000 each into my husband and my Roth IRA. With all of the rest of our income, we hope to just keep up with our expenses. To that end, we planned a budget that we thought was reasonable, detailing our expected expenses and the amount we wish to save. To date, we have kept up with our 401(k) contributions and have put away $6,000 of the $16,000 that we hope to do by the end of the year. Since it is mid-year, we are a bit behind, as we should be at the $8,000 mark. However, because my husband’s company got bought out, there are a few screwy things with his 401(k) contributions, so we expect his last few paychecks to be bigger than the ones at the beginning. Therefore, we still hope to make up the rest of our retirement contributions by year-end.

In addition to reviewing our budget and financial goals, I also complete a net worth spreadsheet at the end of each quarter. In it, I list all of our assets as well as our liabilities to show our net worth at four points during the year. Because of wildly fluctuating housing prices and stock prices, this net worth spreadsheet is only accurate for a given point in time. But in general, I like to see an increase in net worth from one quarter to the next, especially taking into account our investment contributions and payments towards our liabilities each month even if all of our investments are going down. I don’t have specific goals such as “I want to have a new worth of a million dollars by the time I am 50, but I do like to see how our net worth has climbed over the years. I will detail how to write up a net worth spreadsheet in my next post. Until then, take some time tonight or over the next few days to review your financial goals, tweak your budget if necessary and get back on track towards saving for a financially secure future.

How To Live Cheaply In An Expensive City - Part 2

Tip #156 - How To Live Cheaply In An Expensive City – Part 2. In part 1 of this series, we discussed how to keep housing costs (the biggest part of most people’s budget) low when living in an expensive city. Today we will talk about lowering costs of transportation and food while living in an expensive city.

Next to housing costs, a car is often the next biggest expense in someone’s budget. This is the one area of expenses that people living in a large city have got beat over people in the suburbs or rural areas. Many New Yorkers and residents of other large cities can get away with not owning cars. Besides the ridiculously high costs of parking one in a city garage, there really is no need to own a car to get around the city. If you cannot walk to work and other places, the subway will take you anywhere you need to go. For travel to areas surrounding the city, there are many commuter rail lines that will get you there. And when you want to travel somewhere else, the cost of a taxi, renting a car, or a flight will do the trick. Even the high costs of using these latter alternatives are cheaper than owning a car throughout the year, when you factor in gasoline costs, upkeep, and insurance. Not owning a car while living in a big city is one of the best ways to keep your transportation expenses low.

The next most expensive part of most people’s budget is food. Food can be tricky when you live in a large city. Depending on where you live, many times there are only small grocery stores available, rather than large supermarket chains. There may be very little competition, and the grocer can often get away with charging high prices. In this case you have to be creative in lowering your food costs.

--For fresh produce look for a farmer’s market. They are often plentiful in cities, offering higher- quality produce than you can get in a supermarket.

--Travel to some ethnic neighborhoods such as Chinatown which often have lower-priced grocery stores.

--Talk to people in your building or your neighborhood. Find out where people shop for groceries. People are often your best source for gathering new information.

--Travel outside the city (even to a suburban supermarket on the subway line) to stock up on items from a warehouse store or lower-priced supermarket. Or anytime you are outside the city, bring home food from lower priced grocery stores.

--If you have close relatives visit you often (such as Mom and Dad or a sibling), ask them to bring you supplies. Keep a running list of necessities so it’s easy for them to shop for you.

--Look online. While I generally find groceries to be more expensive on places like Amazon, it may not be more expensive to someone who lives near high-priced grocery stores. Utilizing search engines such as Swagbucks can earn you gift cards to Amazon, which could translate into low-priced or free groceries.

--Grow a container garden. There are many small plants you can grow that can yield food for you to eat. Look online for resources for container gardening. Alternatively, many cities have community gardens that you can participate in. Living in the city does not mean you cannot grow fresh food.

--Take advice on lowering your grocery bill that is common sense no matter where you live. Don’t buy convenience foods and cook from scratch as much as you can. These options are almost always cheaper, not to mention healthier.

In Real Life (IRL) – While I have always had a car, I could have gotten along without one if I were to have just needed it for work. While I lived outside the city, I took the Metro (subway) everyday for 9 years to my job downtown. I always lived near public transportation that got me to my job. In fact, I can count on one hand the number of times I drove into the city to work – two. And I can’t remember why I needed to on those two days. I loved not being dependent on my car. Weeks would often go by where I didn’t use my car at all. But being that I did not live directly in the city and I drove back pretty frequently to see my family in Philadelphia, I still owned one. For me the expense of a car still made sense. But it usually doesn’t if you live directly downtown.

As far as groceries, when I first moved to the DC area, Giant foods seemed to have a monopoly over the grocery store scene. While there were a few other chains around, they weren’t as big or in as many neighborhoods. So I was often stuck shopping in a high-priced grocery store where I lived. Whenever I went home to visit my folks, though, I would go food shopping. The prices on the food there were often much lower than my store. So I stocked up on non-perishables and brought them home with me. And when I was running errands in farther out DC neighborhoods, I would often stop on the way home at cheaper grocery stores.

Now that I live out in the suburbs and more grocery stores have come into the DC area (Yay, Trader Joe’s! Yay Whole foods!), I can see how the competition has lowered the prices at Giant. And my access to more grocery stores is greater, resulting in lower costs. It is something city folks in DC can take advantage of. Taking the Metro out to Arlington can bring them to bigger supermarkets with lower prices than the corner grocery store in DC. While prices are often higher in the city, it just takes a bit of creativity and effort to lower your costs.

In the last segment of this series we will discuss lowering the cost of entertainment in big cities.

How To Live Cheaply In An Expensive City - Part 1

Tip #155 - How To Live Cheaply In An Expensive City – Part 1. It is easier to live cheaply in a place like Wichita, Kansas than it is in New York City. Even though wages are higher in a place like New York City, it usually does not make up for the cost of housing, which is generally the largest chunk of anyone’s budget, as well as many other expenses that are higher in the big city. By looking at a cost of living calculator, a home in Wichita, Kansas that costs about $250,000 would cost $1.1 million in New York City. Going by that alone, one would need to make more than 4 times the salary in New York City than in Wichita. So how does one make it in a large expensive city like New York without going into debt? Like everyone else – by saving money on expenses. It just may be a bit harder to do in the big city than in other places.

Since housing is the largest chunk of most people’s budgets, when living in the city you need to find a way to keep your housing costs low. There are several ways to keep your housing costs down.

--One popular way – especially if you are young – is to find a roommate to split housing costs. A two-bedroom apartment is less than twice the price of a one-bedroom place. You also don’t use twice as much utilities, saving you money there as well.

--Find a place near public transportation, if you are working in the city. Prices of homes near subway and bus lines are usually more expensive than those that are not. However, if you factor in the cost to park at a bus stop or the cost of the extra transportation to get to the subway, then it may be more economical to live within walking distance.

--Find an older home. Older apartment buildings and older houses generally cost less than a new home. You might have to give up on some amenities, but be honest with yourself whether you would really use the exercise room in the swank new condo or if you need granite countertops in the new home. By forgoing some of these extras, you can save a bundle.

--Look for a private rental. Apartment buildings may not be flexible with their prices if they are in demand. But individual owners may be willing to rent their basement apartment or whole house for less than corporate buildings. Presenting a clean rental history with solid references and a professional appearance will go a long way with potential landlords. Landlords are often willing to sacrifice a bit of rental income to get a good tenant.

--If you are new to the city, wait to purchase a home. In large metropolitan areas, there are usually dozens, if not hundreds, of neighborhoods and towns to choose from to live in. Get to know the city before you commit yourself to buying in an area you may not like when you get to know the city better. Realtor fees and moving fees will drive up your expenses quickly if you want to move to a section of the city that you like more.

--Try to stay in your apartment as long as possible. Moving around often costs a lot of money. In addition to the cost of movers, there are start-up costs for turning on your utilities each time you move – this may include separate fees for water, gas, electricity, cable, and telephone. There also may be move-in/move-out fees associated with your apartment. And you may have to pay for temporary quarters as well as storage if your move in and move out dates don’t line up.

While housing is the largest expense in most people’s budget, especially for those who live in big, expensive cities, in the next part of this series, we will discuss ways to cut down on other living expenses while living in a large city.

In Real Life (IRL) – While I have never lived in New York City, my family hails from there, so growing up we visited my grandmother and other relatives quite often, and I got a first-hand taste of the high costs of apartment living in New York. I grew up in the Philadelphia area, but lived in the surrounding suburbs, rather than the big city so have no real world experience of living in that city. After college, I moved to the Washington, DC area where I got a pretty good taste of the expenses of big city living. While I didn’t live directly in the District of Columbia, I lived just outside the city limits in various types of housing, garden-style apartments, high-rise apartments, and townhouses and commuted into DC for my job.

I was able to save money on housing in the DC area by using several methods I highlighted above. I started out having roommates – at some point as many as four roommates! There really is no better way to cut down on housing expenses than by sharing expenses. And when you are young and single, it’s often more fun to live with friends, anyway. The lowest rent I paid (this was the early 1990s) was about $250 when I was splitting an apartment with two friends. As I got older and was making more money, and had frankly gotten tired of sharing living space, I decided to move out on my own. Costs had more than tripled to live on my own! My rent was $800 per month! That was a huge difference in my monthly expenses.

Monthly rent for a one-bedroom apartment for $800 might sound like a lot to someone in Kansas, but it was a bargain – even for the 1990s. Going rates at the time in comparable commercial apartment buildings were about $1,000, but I was able to rent a condo from a private owner who lived overseas. He may not have been aware of how much housing was, so when I found the deal, I grabbed it. (Today the same place would probably rent for $1500.)

Most of the time I lived near the subway (Metro) line. Because I was commuting into the city, the higher rent still made it worth it to me. Saving a few dollars each day in parking, gas, and insurance fees made up for the higher rental cost (and saved a lot of hassle of driving in traffic as well).

I lived in older buildings. The high-rise condo I lived in wasn’t as fancy as some of the newer ones. And there were no washer/dryers in the units. But living in an older building saved me about $300 per month (factoring in the going rental rate, rather than my discounted rate I was paying to my overseas landlord) over comparably-located newer buildings.

I waited to buy a home once I got to know the city better. I was tempted to buy a condo a couple of years after I moved to the DC area. But in addition to not wanting to be tied down, I was unsure for several years about which part of the city I liked best to live in. And when I finally did figure it out (Bethesda for those familiar with the DC area), I met my husband and needed to relocate to a different part of the city as his job is in the outskirts.

The only advice from above that I did not follow was to not move around often. In fact, since moving to DC 20 years ago, I have lived in 7 different places – the first 5 were in the first 10 years. There were many reasons – the first place was temporary housing. The second place was in a neighborhood that I didn’t really like. The third place got crowded with too many roommates. And after the fourth place I wanted to branch out on my own. So I suffered the consequences and put up with moving costs as well as all of those utility deposits and turn-on fees. But overall, I have done okay with housing in this big, expensive city I live in by following most of the advice I gave in the first part of this post.

Decrease Your Wants

Tip #152 - Decrease Your Wants. In an effort to save money or get out of debt, you need to either increase your income or decrease your outgo. While increasing your income is a viable way to build wealth, many people just end up getting accustomed to their new income and spend the extra money they earn, without actually saving more or pulling themselves out of debt. We can talk about that in another post. Instead let's focus on decreasing your spending. As part of lowering what you spend, I recommend creating a budget, buying used, and calculating your cost per unit, among other things. But sometimes just cutting down on our usual expenses isn't enough. Sometimes we need to change our mindset as well.

If you are only trying to sail through a debt reduction plan or a build your wealth plan by living life as you have always lived it with slight modifications, you may not succeed. If you are eating rice and beans counting the days until you can eat steak again, you may not meet all of your financial goals. Depending on how far in debt you are or how much you need to build up your savings, you may need to dramatically change your expenses. While some fixed expenses may be more difficult to change - such as your housing and transportation expenses - discretionary spending, also known as your "wants" should be easier to change. These are things such as your eating out, entertainment, hobby, and other "fun" expenses. If you think you can cut down on buying two pair of shoes per month just until you have your debts paid off or if you think you can forgo one of your bi-monthly manicure appointments until you have money put away for your son's college, you may fail in your desire to save money or get out of debt.

Part of drastically reducing your debt or radically increasing your savings is changing your lifestyle by decreasing your wants so that you aren't putting a temporary fix (for example, eating rice and beans for six months until you get back on your feet), on a long-term problem (having champagne tastes on beer budget, as the saying goes). In order to increase your wealth, a big change in your wants for the long-term is necessary. You need to embrace major changes in your spending habits in order to succeed in your financial goals.

In Real Life (IRL) - One of my purposes of doing my weekly financial wrap-up is to be accountable to myself and my family. I'm sure most people don't care how much I spend at the supermarket or whether I paid $8 for a t-shirt for my daughter's school. But by doing a weekly diary of our expenses, it gives me a good sense of where our extra money is going. If other people do a similar exercise, I think they will come to the same conclusion. When other people look at our spending, I am sure that many think we don't spend very much. And I would have to agree. In the 2 1/2 months that I've been writing out our expenses, I have confirmed to myself that I am just not a big spender. I guess I don't have many wants, which is probably how I've been able to build up a large amount of savings.

Other people I know who are not saving much money or are in debt seem to have many wants - they buy clothes that are designers. They want fancy cars or cleaning help (okay, I'll admit I want that too!). But the main reason they are not saving money is because they have too many wants for their income. Creating a budget, cutting coupons, and comparing costs will help them reduce their spending. But until they change their mindset on what things they really want to spend their money on, I think many people will fail to reach their financial goals -whether it be to get out of debt or increase their wealth.

There Will Be Setbacks

Saving Money Tip #151- There Will Be Setbacks. As you begin the process of getting out of debt or building up your savings, there will surely be setbacks. Unexpected expenses will come up. Things will happen that will make you want to throw in the towel. My advice is to keep up with your plan. An unexpected expense or unforeseen circumstance will set you back. But that doesn’t mean you should go down a different road – one that doesn’t lead to getting out of debt or to greater savings. Even falling behind is better than not going down the road to financial freedom at all.

For example, suppose you are paying $500 per month toward getting out of debt. Then the unexpected happens and you break your leg. You can’t go to work and you lose income for a month. It would be so easy to fall back into your old ways and forget about the debt repayment plan. After all, you just wasted a month’s income. It is frustrating to have come so far in paying off debt only to start to fall behind. It would be so easy to give up at that point and say getting out of debt isn’t worth it.

But don’t fall into that trap. Before you even start on your financial goals, know that there will be setbacks. And then take them in stride. Instead of being debt free in 2 years, it may take 2 ½ years, but that doesn’t mean you should forget the good habits that you’ve worked hard at building up to this point. All roads to any goals have stumbling blocks. Handling them is just part of the journey.

In Real Life (IRL) – As I mentioned on Friday, my husband was in a fender bender. He called me soon after it happened and told me that a woman pulled out in front of him from a parked space so it wasn’t his fault. Unfortunately, the woman saw the situation differently and denies that she was pulled over and had just stopped to make a left turn while driving. Because of the conflicting stories and the fact that my husband was the car in the back, our insurance company has agreed to pay out the claims. In other words, they are not faulting this woman or are not finding it worth it to challenge her insurance company, which would end up costing them more in the long run if they lost rather than just paying it out to begin with.

It was a frustrating day on Friday. First because of the accident and realizing we need to rent a car while ours goes in the shop. Second because our insurance is going to pay the claim meaning we have to pay out our deductible. Third, my husband has a court date because the police (who my husband called!) could not determine the cause of the accident, so they are leaving it up to the judge. This will involve court costs and a possible fine. And then there is the likelihood possibility that our insurance costs will go up. As the dollar signs started adding up in my head, I was feeling some anger. Here I work hard at saving a dollar or two here or there only to be set back several hundreds of dollars in one instant.

And it made me want to just say, “the heck with it!” Why bother trying to get strawberries at a bottom-dollar price? Why try so hard to look for cheap activities for my kids? Who cares if dinner out costs $50 instead of $20? Why even bother with all of the hard work I do in keeping expenses down when we have setbacks like this. But then as my anger and frustration melted away later in the day, I step back and look at my overall plan – to keep saving, to have money put away for big future expenses, and to prepare for retirement. And I realize that there will always be roadblocks. And while it is easy to get frustrated and give up, it doesn’t make sense to do so. So we’re back on track mentally and I realize that I buy my meat on sale because it means I can handle unexpected expenses (even if I don’t like them).

Have A Financial Plan - Part 2

Tip #147 - Have A Financial Plan – Part 2. In the first part of this series we talked about needing a financial plan. Most adults should have a plan mapping out their financial goals. The plan might start out vague when you are younger and then get more detailed as you become older and know more about your income, expenses, and goals. So what should be part of a financial plan? First, you should record your income and your estimated income in the coming years. This will give you a basis for what expenses you can take on. (Alternatively, if you start from goals you have, you will have to come up with the income you will need to maintain the expenses associated with those goals.). After you have your income down, write down your goals, starting with short-term goals – any large expenses you expect to buy or take on in the next five years. Examples could be starting grad-school in a year, buying a car in two to three years, or moving to a more upscale rental unit in 5 years. Then write down your expenses in the short-term. There is no need to be specific here, just overall costs of your fixed expenses – taxes, healthcare, student loans, housing and all that goes with it, shelter, transportation to job, clothing, etc. Then add in your discretionary costs such as vacations, gifts, entertainment, etc.

Next write down your mid-range goals. The goals will get more general the further out they are. Examples might include buying a house in 5-8 years, getting married, or starting a family within 10 years. Last, write down your long-term goals. Examples may include planning on having 2-3 children, buying a vacation home, retiring by age 60.

If you are 22 and single and writing a financial plan, it may be hard to really know when you will get married, how many children you will have, or where you will be living 15-20 years down the road. If you are 30 and married and starting a family, it will be somewhat easier to plan where you are going. Again, there is no need to get specific with mid- or long-term goals, but it’s nice to get an idea of what you want in general. Only time will tell what will really happen.

After you have your income and overall expenses written down on paper, it’s time to put some dollar signs next to your goals. If you income is $50,000 and your fixed and discretionary expenses total $40,000, then you have $10,000 to use to start saving for your goals. Figure out what amount you need to put away per year, towards your short-term goal such as paying for graduate school for the next two years and toward your car in three years. Then look at your mid-range and long-term goals. Which ones of those should you start saving for now? Since a house as part of your mid-range goals and retirement in the long-term are two very expensive goals, you should probably start putting money away for those now, too.

If you don’t have enough money for these four goals, look into your discretionary spending and see what you can cut down or cut out. This is where your budgeting comes in. And this perhaps may be where you may try to live more frugally so you can meet your goals with your current income. Alternatively, you might want to try to bring in more income to meet your goals’ expenses. The act of writing down a financial plan will help you understand what types of goals you should be saving for and give you a clear picture of how to allocate funds generally. Creating a budget will give you yearly specifics.

As time goes by, your goals will be revised and updated to reflect realities. Perhaps you will meet your spouse-to-be in the next year and get married sooner than expected. Or maybe you will get a promotion at work and your income will change and you decide to hold off on grad school. Or maybe things will work out generally according to plan. Either way, having a financial plan will help you make wiser choices with saving your money and will help you meet your goals in life.

In Real Life (IRL) – As I mentioned in part 1 of this series, I didn’t always have a financial plan. It wasn’t until I was married that my brother helped me create one. I knew, in general, that I was saving for a house and that I hoped to have children and stay home with them when they were young. I had general ideas in my head to make that a reality. My brother helped me to write my goals out based on our incomes. And being older and with a family, he gave me realistic expectations of expenses I’d have with children. I remember him specifically asking, “Are you going to buy braces for them? Hmm, I hadn’t even considered that. College? Yes. Braces? Well, I guess. And for at least $5000 per child, that is certainly a big enough expense to plan for.

About eight years after we made that first financial plan, I can honestly say many things happened that I didn’t plan for. In our first plan, I said I wanted at least two children two to three years apart and that I would take off work for five years. As it stands now, we have three children, one is adopted, and I haven’t worked full-time in seven years. So we have had expenses that we didn’t plan for, such as the adoption. My kids are spaced farther apart than I had hoped, and I’ve taken off more time from work than I had planned. Fortunately, my husband’s salary has increased faster than we estimated. And at each step of the way we have made adjustments to our financial plan. (But we still haven’t started saving for those braces!) If you are interested in making a financial plan, you can contact a fee-based financial planner in your area or you can draw one up yourself, using it as a guide for your financial life and your budget. If you are living on a budget, look for some great frugal ideas at Life As Mom.

Pay Down Your Credit Cards

Money Saving Tip #138 - Pay Down Your Credit Cards. If you do not pay off your credit cards each month you should be. And if you can’t, you should at least pay more than the minimum to get rid of your credit card debt as fast as possible. Getting caught up in credit card debt is a very dangerous road to go down. If you have credit card debt, you likely know that the rates you are borrowing money at are incredibly high – in many cases near or above 20 percent. If a credit card has a 20 percent rate then that means for every $1,000 borrowed, you are paying $1,200 back to the credit card company. In other words, you are paying $200 to them for the privilege of borrowing $1,000 for a year.

If you see a television you like that costs $1,000 and you borrow that money on your credit card for one year, then you are actually paying about $1,200 for that television. That’s not too good, considering some people will spend lots of time looking around for a deal that will save them 10 percent off that television, only to turn around and pay more than that back on their credit card if they are not paying it back full within a month.

But even worse than that is only paying the minimum that the credit card asks of you each month. It would take approximately $100 per month to pay the amount you owe within a year, but suppose the minimum on your credit card bill is only $20, and that’s all you pay? Now you have stretched that payment out over 5 years, and guess what? You are paying 20 percent interest on your balance for each of those 5 years. In essence you are paying at least twice the original cost of the television.

The bottom line is, interest rates on credit cards are extremely high. Borrowing money at high rates means you are paying a lot more for your item than if you paid for it outright at the beginning. If you can’t pay your credit cards back in a timely matter, then don’t use them to begin with. And if you already have credit card debt, then try to pay it off as quickly as possible by putting as much toward it each month that you can. The sooner you get your credit cards paid off, the quicker you can start putting savings away for things that are more important than televisions.

In Real Life (IRL) – I am not against credit cards like some people are. But I do understand why some people are anti-credit card since they may be trying to dig their way out of credit card debt. I was taught at a young age that if I cannot afford something that I shouldn’t buy it. So I never got caught up in the credit card mess that other people did. Having said that, I can see that it would be easy to get caught up in it. After all, it doesn’t feel like you are actually spending money. It’s much easier to pay later than pull out the money now.

And while I don’t deny that I may spend more in a supermarket or retail store because I use a credit card, I still think they serve a valuable purpose to use other places. There are many things I put on my credit card that I would not pay cash for – like renting a car, hotel accommodations, traveling abroad, or simply paying a doctor’s bill. Each of these gives me 30 days in which to keep the money and earn interest in my bank before I have to pay the credit card company. Not a bad deal if you pay them off each month. And while I don’t collect airline miles (since I hate to fly!), I do earn 1 percent back on all of my purchases, which is just a bonus. And I really do feel comfortable having a credit card on hand. If I ever see a must-have purchase for a good price or a get into a bind with my car I feel better knowing I have it. Yes, a debit card does a lot of what a credit card does, but it may not cover an $800 emergency repair bill if there is only $500 in my account and I don’t get paid until next week. And did you know platinum credit cards bring have some type of insurance if you use it to pay for a commercial flight and it crashes? (Me neither, but my husband claims id does.)

Anyway, there is a way to use credit cards wisely. They are not a ticket to free-for-all spending, but buying pre-thought out purchases, using it for travel, for sudden car expenses (until you can get your money out of the emergency fund), and earning interest for a month are valid reasons to use them. Just pay them off each month and you should be fine.

Some Things Are Worth It At Any Price

Tip #133 - Some Things Are Worth It At Any Price. When trying to save money, many people, myself included, are guilty of holding back on purchases that are not necessities or do not benefit us monetarily. I hear people say that children are too expensive so they aren’t going to have any, and I know people who never take a vacation because it’s not worth spending the money on something that is short-lived. And while I am not suggesting that someone who is thousands of dollars in debt go on a Caribbean vacation, a small getaway even to a friend’s house or at a local state park is good for the soul. You may come back well-rested, rejuvenated, and ready to tackle problems that seemed to heavy to bear before you took a break. If you want kids, then you will figure out a way to raise them inexpensively. Yes, there will be costs and sacrifices on your part to have them, but as most people who have children will tell you, it’s the best decision they made. (I’m not saying people who do not want kids should have them; that’s a whole other can of worms.)

My point is, some things are worth it at any price. Living close to family may cost more than living somewhere else but the benefits you and your family receive cannot be replicated. So when you are evaluating your budgets, don’t just look at the bottom line, think about what will make you happiest overall, and even if it is not the most cost-efficient move, it will benefit you in ways greater than monetarily.

In Real Life (IRL) - In my financial wrap-up this week, I mentioned a $95 pet bill that we had. It will be the last pet bill we pay for awhile. You see that $95 bill was to euthanize our family dog, Bonnie and to cremate her. Bonnie was 16 ½ years old and for a large dog, had lived a full life. But for her last few days on earth, she wasn’t eating and was pretty much sleeping all day. I won’t lie and say this pet meant more to me than anything. She didn’t. She was actually a package deal who came with my husband when I met him. Some days I liked her very much and other days I merely tolerated her.

Bonnie was a collie/golden mix who looked primarily like a collie. So she had very long dog hair that shed everywhere, and I am not a big fan of shedding dog hair. And while she had a gentle disposition with people, she hated (with a capital “H”) other animals. In fact, she attacked a dog once who came over to say hi to her. My husband got her at the pound and they believed she may have been abused as a puppy, so we had to be extra careful not to have her around other animals. Since my husband is at work all day, some of her care fell on me. I added water to her bowl, cleaned up her dog poop in the yard, and checked on her every now and then. When we went on vacation, we paid hundreds of dollars to have someone watch her for us. And when she had teeth problems, incontinence problems, and arthritis problems, we paid for her vet bills and medications. Week after week we paid money to keep her fed. In fact, we have a line item in our budget just for dog.

Dogs are expensive, no doubt about it. And if our lives were just about money and how much we can accumulate, there is no denying that having a dog would not be worth it. But some things are worth it at any price. Who can put a price on the responsibility a child learns from having a dog or the unconditional love a dog gives his owner? Or the companionship a dog brings to a person living alone? You can't. Having that kind of companion is priceless. We will miss our dog greatly in our lives. But she lived a good full life and I hope that we brought as much happiness to her as she brought to our family. Rest in Peace, Bonnie.

Be Behind The Times

Saving Money Tip #121 - Be Behind The Times. One sure way to keep your expenses down is to not jump on the latest and greatest thing – the latest electronics, the latest books, the latest movies, the latest decorating scheme, etc. When things first come out, they are generally the most expensive. The marketing folks try to make us think that we cannot live without this latest item. Everyone around the proverbial water cooler is discussing it, and frankly, you can feel left out if you don’t have one. But don’t jump on that bandwagon; it will only lead you to spending more money than necessary. Instead, wait until the item has been out for a while. Competitors often jump on scene with similar items bringing the cost down and kinks are often worked out after the item has been out for a little bit. By waiting sometimes as little as a few months, you can save yourself lots of dough. Let’s discuss some examples.

Electronics are one area where there is constant updating of technology or features. Take for example DVD players. When they first came out they were a couple hundred dollars. Those who were anxious to jump on this latest technology paid a lot of money for their players and their DVDs. Meanwhile, many people happily stayed with their VCRs, holding on to their money, while still enjoying watching movies. Now that we are several years into the DVD player technology, a person can pick one up for much less money - the cost of the players is well under $100 and DVDs have come down in price to nearly half of what they were when they first came out. And of course some people looking for the next in movie technology have already moved on to the next great thing. By waiting just a few years you can enjoy what others were enjoying, but for a fraction of the cost.

Let’s talk about movies and books. When movies first come out, they are in first-run theaters with regular prices. The first day or first week of the movie, the theaters often won’t accept discount coupons. Is it really necessary to see a movie the first day or two it comes out? Wait a week and use a discount ticket. Wait a couple of months and see it at the discount movie theater. Wait a few months and rent it for a couple of dollars for several of you to see it. You still get to experience the same movie – just at a later date. Books are the same way. When they first come out, you are forced to buy the hardback edition from a retail bookstore. Wait a few months and you can get the paperback. Wait a year and you can buy it used for a fraction of the initial cost. (Of course, getting it from the library is always an option, too).

Lastly, let’s discuss decorating - things like stainless steel appliances, front-load washing machine, wood vanities, and granite countertops. As soon as we see these things on decorating shows, it is appealing to want to run out and buy them. But remember, the first company to come out with a technology like a front-load washing machine often have a monopoly until a competitor comes out with a similar model. After a year or two, you start to hear about problems that people had with the first models. The company perfects the item and more companies come out with similar models. All of these things bring the cost down and improve the product. Wait a few years for that technology and you will get a better deal and a better product. Even items that don’t have technology involved with it, like stainless steel decorating, come down in price as competitors offer a similar style.

These are just a few examples of things that go down in price after a few years. We can apply this thinking to cars (e.g. hybrid cars), cleaning and storage products (e.g. vacuum bags, Swiffer mops, Magic Eraser), sneakers (e.g. having the latest cushy features), food (e.g. in special containers, with improved ingredients). My thinking is that we survived just fine up until this point without these products. I can wait a little longer to try them out when they don’t cost as much.

In Real Life (IRL) – I usually take a lot of thought with my purchases, so it is not my personality to be the first person to try out a product. This trait has served me well financially. I guess I go by the motto, “If it ain’t broke, don’t fix it.” Our 27-inch t.v., which a mere 15 years ago seemed pretty hip is definitely outdated. But, it works for me and I see no reason to run out to buy one that is bigger, clearer or flatter. When this one breaks, I probably will do so. And by that time, not only will the costs have improved dramatically on it, the technology will have too.

I am still using the same white refrigerator that came with the house when we bought it 8 years ago. And while we replaced our dryer when our old one broke, we stuck with a simple model. Meanwhile, some moms in my Moms’ Club have been discussing many problems they have had with their new high-efficiency front loader machines. I am glad I did not pay to be a guinea pig for that product.

While I do admit to running out and paying full-price for a brand-new movie last summer that I really wanted to see, I generally wait until it comes on DVD or I go to the theater after it has been out for some time – often using a discount coupon after the movie has been out for just a week or going to a discount theater after a couple of months. Waiting helps not only the pocketbook, but also acts as a screener by allowing me to hear reviews of the movie from others if it is even worth seeing. I almost always put a book on reserve at the library. The newest releases sometimes take a couple of months to make it to me, which is fine with me. And if it’s a book I want to add to my personal library, I wait until I find a good used copy of it to buy.

These are just some examples of things I do. By waiting to buy things I save money and usually get an improved product. To me it is worth it. I don’t have to be the first one to try something. It doesn’t make me feel more important. Personally, I’d rather be smart and save the money.

Prioritize Your Wants

Saving Money Tip #120 - Prioritize Your Wants. If you are getting frustrated because you don’t have the money to afford the things you want to do then make a list of your priorities and their costs. Very few people have an endless supply of money to spend on everything. So unless you want to go into debt, people with a limited income (nearly everyone) must sacrifice things that they do not enjoy as much to spend money on things they enjoy more.

Let’s compare Person A, Person B, and Person C who each make $50,000 per year. For simplicity’s sake, we will say that each person has $24,000 left over after paying taxes, groceries, car expenses, and utilities. Person A lives in a fancy rental apartment with 24-front desk service and a washer/dryer in her unit. She pays $2000 per month for this unit. She loves living there. However, her high rent precludes her from doing other things such as going out and taking vacations. But she does not care. She enjoys staying at home and does not really like to travel. Person B, on the other hand, thinks her life would not be worth living without experiencing other people and cultures. She also loves socializing and eating out. She spends $500 per month for travel and entertainment. To allow her to do these things, she rents a very basic apartment for $1500 per month with no front desk and no washer/dryer in her unit. Person C, however, wants it all. He wants the fancy apartment and wants to go out on the town and take vacations. He rents the same $2000 per month apartment as Person A and takes the does the same types of vacation and entertainment as person B. So Person C goes into debt for $6000 per year.

For all three of these people, there are competing wants – a fancy apartment, entertainment, and travel. However, Person A and Person B each prioritized their wants and made adjustments based on their salaries. Person A spending more on her apartment, and person B spending more on vacations and entertainment. Both people are content with their choices. By prioritizing their wants, they can enjoy what is important to them, while staying within their income. Person C, on the other hand, did not prioritize. He may like travel more than his fancy apartment or vice versa. We don’t know. He wanted everytying and he paid for everything he wants without taking into account his income. Therefore, he is in debt. Person C should have prioritized (or, as an alternative, he could go out and earn more income).

Of course things are not as simplistic as this example, but each of us could figure out how much extra income we have to spend on fun things. Then make a list of your wants and then put that list in order with accompanying dollar amounts. Cut off the list when you are out of money. It would look something like this:

Discretionary Money = $200 per month
1.Vacation - $100 per month
2. Haircut - $25 per month
3. Eating Out - $50 per month
4. Manicure - $25 per month
5. Movies - $25 per month
6. Gym - $25 per month
7. Pedicure $25 per month
8. Cable - $50 per month
9. Cell Phone - $25 per month

Wants may change at any time. You may realize that you really do need a cell phone and can do without getting a professional manicure, so you reorder your wants. Whatever the order, prioritize your extras and cut off those that don’t fit in with your income. None of these things are worth going into debt for.

In Real Life – I cannot say that I ever truly sat down and prioritized my wants on paper. But I do know what is important to me (and for the record it looks very different than my sample list above). Vacation is probably my #1 priority after our needs have been met. I would cut off cable and eating out just to take a vacation once per year. For others, they would rather enjoy cable all year long than a one-week getaway. And that’s okay. Everyone is different. And even though I don’t write down my priorities I do know them in my head. And only the ones that are important to me are in my budget. There is no line item in my budget for manicures or pedicures or even the gym. However, if going to the gym suddenly became important to me again (and it probably should) then I know I would need to tweak something else in the budget – get rid of eating out once per week or perhaps cut down eating out to twice per month and get rid of my cell phone or some other combination of line items in my budget.

The point is – I don’t do it all. In fact I don’t do a lot of things. I don’t belong to a swim club. I don’t buy myself very many clothes. I don’t go to an expensive hair salon. I don’t have unlimited funds, so I use what I have and do the things that I really like with that – going on vacation, eating out, and activities for my children. Down the road, my priorities will probably change and I will have different line items on my budget according to my new priorities. I will always leave things out that are less important to me. What are your priorities? How do spend your fun money? For other frugal tips, check out Life As Mom.