Learning from my father's thrift. (My mother, however, calls him cheap.)
A cash-only budget (envelope system) for flexible expenses.
Regular automatic savings allotments toward several savings goals--wealth, retirement, Christmas shopping, home repairs, college fund, etc.
A steady salary. (I'm so grateful!!)
Shopping thrift stores (go Goodwill!!) for 80 to 90% of my clothing.
Discovering the finance book section in the library.
Discovering savingadvice.com (yay me!)
Archive for July, 2008
I love budgets. I love reading about budgets. I love re-working budgets. I love reading about other people's real-life budgets.
Because of the way I get paid, it took several years, if not decades to manage the income. I made the mistake (often) of thinking I had more momey that I actually had, because of the date my paycheck hit the bank. Sometimes payday fell on the first and third week of the month and sometimes it fell on the second and forth week of the month. Same amount of money, but I just couldn't get a rhythm to pay those first of the month bills plus save plus be prepared for unexpected expenses all at the same time.
I've pulled ideas from many (many!) money books. After years in 'research and development', I currently have the most decent plan I've had. For years, the problem has been this: On paper I can work magic. But the actual greenbacks...not so much.
Now I start with gross pay and account for all deductions and automatic savings allotments from my net pay. This helps me see how much I pay in taxes, health insurance, etc. Then I have 'fixed' categories that I write checks for (giving, mortgage, utilities, insurance and medical expenses). Then I have 'flexible' categories that I use cash for (groceries, household supplies, entertainment, clothes and the kid. Clothes and entertainmenet don't always get fully funded.) I use my debit card for gas and occasional planned expenses.
(The 'freedom account' that I mentioned in a previous entry helps with the unexpected or non-monthly expenses.)
My mind works 'monthly', but I get paid biweekly. I've just begun to do what I guess I'd call a paycheck assignment sheet every payday. I plan and deduct what bills I pay with each current paycheck and project expenses for the next paycheck. We pay the majority of our bills the first half of the month. The second half of the month I can focus on saving. With each paycheck I 'assign each dollar a destination.' (Dave Ramsey) This has helped out quite a bit in avoiding overdrafts and forgotten expenses and my waiting for the magic to happen and the monthly budget to work itself out. Who knew?
Still needs improvement and work. Trying to add 'cushion savings' as one of my fixed expenses right off the top. And also since I'm not currently paying a car payment, I'd love to eek out a monthly car payment equivalent to $300 (!!) payable to my savings for a future car purchase, but I've looked EVERYWHERE for that extra $300 and have yet to find it. And with the kid in college, I keep adjusting the numbers. With life in general, I'll be adjusting the numbers...I guess, forever? But that's fine with me.
I stumbled across a book in the library called True Prosperity, Your Guide to a Cash-Based Lifestyle by K.C. Knouse. This book would have been an excellent book for me to read before purchasing a house. Unfortunately I didn't read the book before purchasing a house.
Not to say I'm not overly grateful to live in my home and to be able to afford it, because I am extremely grateful. But here's the thing: People tell you that buying a house is the American Dream. They say it's a great tax break. They tell you to stop throwing money away on rent. I can't speak for everyone, but if you're a saver like me and thought you were really doing something when you had a large down payment for your first home, you're in for a suprise. Once you sign that paperwork and pay those ridiculous closing costs you are not 'home free'. You're in debt. You're obligated to a bank who technically owns your house until you pay off the mortgage, you're responsible for every repair, every appliance, and every bill, and now you have to cut the grass. Truth be told, this was not the dream I had in mind.
Purchasing a house created bills I never even heard of (Escrow? Or.. A water heater costs HOW much?) Talk about being a grown up! After putting down a large down payment, I didn't have much savings left, but sure wish someone had told me that I would NEED savings after closing on the house. Within the first few weeks of closing, we managed to replace a faulty water heater, purchase yard equipment (an all-day field trip to the local home imporovement store), and buy mattresses and beds for 2 bedrooms with miminal credit card debt. (For the rest of the house, we used our existing furniture from our apartments.) The previously uncharted expenses seemed NEVER-ENDING and I would stare at the ceiling at night wondering why all the people I talked to about home-ownership never told me ANY of the after-story. (Now I find that it's because it's considered "NORMAL" to struggle financially and everyone I talked to back then wanted me to have the same kind of fun they were having.)
After being in the house for 10 years, I've almost (almost!) got the budget manageable. (Yes, it's taken 10 years to adjust, cope and get a manageable budget.) I still have a ways to go, but the mortgage is our only debt. And I'm grateful for that. Besides saving for a new roof (and it looks like we might need a new stove and fridge soon, insulation in the attic, landscaping and plumbing work--oh the joy!), I'm considering trying to pay the morgage off early. Still researching that since I'm not sure this is the house we'll live in for the rest of our lives... But I'm thinking, thinking, thinking...
Before discovering this website and the many other websites out there for encouragement in saving, I pretty much had to encourage myself and motivate myself to save money while living with a spouse and teenage child that are bored by all things financial. I read lots of books and I'm a little nerdy, so those two things helped.
Within the last year I started a new thing to stay on track...I held a household finance meeting / conference every 2 weeks, usually when I got paid. But at least once a month. (So far I've been the only one to show up at this regular finance meeting.) At this meeting I would:
1. Review my paycheck stub.
2. Review our budget and budget each paycheck to the dollar (or 'assign each dollar a destination' - Dave Ramsey)
3. Pay all current bills due and project new expenses.
4. Update checkbook balance, transferring any amounts we were under-budget into savings.
5. Gather all loose change from my purse, the washing machine, the car, the couch, pockets, and under my son's bed to fund coin jars.
6. Check balances in budgeted cash envelopes and use some of the remaining cash (if any) for savings.
7. Review bank accounts and balances. (Balance checkbook once a month).
8. Clip coupons and review sales papers.
9. Go to the bank for payday withdrawals to fund cash envelopes.
10. Determine my financial net worth. (I usually do step 10 every other month or so.)
11. Give a rundown to my spouse until he falls asleep.
The kid's college expenses.
(All are paid for but cost in maintenance and insurance. Unfortunately, for both the expense and the environment, it's difficult to get around our city without an automobile.)
(Includes my son's extensive and expensive dental work, his contact lenses, my glasses, medical concerns for 2 chronic illnesses (lupus--me--and cerebral palsy--my spouse).
Note: Feel trapped by many of the above expenses above, but trying to stay hopeful. I've looked and looked and will keep looking to see where I can cut back. I'm able to cut back on small items fairly easily, but these big items...yikes! It's not very pretty once I add it all up.
1. A luxury car.
2. A Rolex.
3. A gas-guzzler anything.
4. Diamond earrings. (I can't keep up with the cheap earrings.)
5. A yacht or boat.
6. A service contract on appliances.
7. A $200 dollar dinner at a fancy restaurant.
8. An exotic snake as a pet. (eeww!)
9. Breast implants.
10. A third husband (the first two have taught me well).
In addition to the last entry about my savings plan, there's more...
(I LOVE savingadvice.com--somewhere to go to be accountable and to share and be encouraged with our goals!)
Anyway, the actual accounts I have for saving and building wealth are my money market account which has almost $6,000 and my two retirement accounts (traditional IRA and 401K.) My money market account I call my wealth account, but I used to call it my emergency fund. Then I called it the account to start my early retirement on. (It ain't looking good. Only $494,000 to go before I reach that half a million I was dreamed about.) Then I used the account to 'borrow' money from myself to put a down payment on the house, put a down payment on one of the cars we own and to purchase the other two cars with cash. (Not all at the same time, of course. What do I look like--Warren Buffet?)
The account high has been $17,500. The low has been $2,500. The idea was to pay the equivalent of a car payment to the account, which I was able to do some years ago ($300 a month), but I've only been able to deposit $100 a month for the past several years without going into the account to get it back out (smile). Of course, I deposit extra money there too, like tax refunds, etc.
Currently I just call it a wealth account because it has kept me/my family out of a lot of debt. I also use this as the 'parking place' for my auto and home insurance deductibles. Even though it's not looking good for early retirement at 50, I will keep building for both the next car purchase and some increased financial independence.
I do wish I'd done more several years ago. There was a time when I made less money, but was able to save a higher percentage of my income--and I didn't do it. Trying to make up for lost time is impossible. But, currently, it is what it is... I use this blog to stay encouraged.
I want to write this to publicly acknowledge my savings plan.
In addition to the "Freedom Account" and its sub-accounts which I mentioned in a previous entry, I have a household bill paying account. This is our joint checking account. (I try to keep a savings cushion within the checking account balance after a memorable run--and re-run--of bounced checks due to unexpected expenses.) I also have separate savings accounts for: household repairs, Christmas shopping, Creative Ventures (for writing supplies, community classes and travel), the kid's education account, the kid's 'getting out on his own' acount (the kid's got to go), and an account for my step-grandchildren to hopefully one day help them with college. (They're 9, 4 and 2 right now and I've been saving pennies and nickels. Not adding up very quickly, but it's something.) I have allotments or automatic payroll deposits to most of these accounts. All of these accounts are planned spending accounts...I try to build them up to a certain level in order to spend it.
My parents tell me this is a ridiculous number of savings accounts. My spouse stopped listening after the second account. (I have a list in case anything happens to me.) I don't even bother telling my friends, because no one gets it. Several years ago, I would have thought it was crazy to do this, but it actually works for me. I hear I can do this easily on-line nowadays, but I got the idea a few years ago from How To Get What You Want With The Money You Already Have by Carol Keeffe. It helps me stay organized. I have separate goal amounts in separate accounts that are easy to see and even though they build up VERY slowly, they do build up. It also helps that some monies are only available by driving to the bank and making a withdrawal. This is where I'm constantly "dividing the dime" -- I'm always trying to divvy up money to go to different saving goals EVEN TO THE LAST DIME. (smile)
Been without a computer for over a week. Blah!
Anyway, have had some interesting happenings with the kid, my 19-year-old--he needs a new crown (teeth issues), has spent most of his job money on fast food, and just got another speeding ticket this weekend. Heavy sigh...
The kid is keeping me from my millionaire status. Or at least keeping me from getting closer to my millionaire status. Depsite my years of thrift and saving and household cash management, my son has turned out to be materialistic, name- brand conscious, a fast food junkie, "forgets" to turn off TVS and lights, and he lacks a serious or consistent work ethic.
This is a problem.
I think the materialism began in middle school where although they wore uniforms he was obsessed by the expensive athletic shoes that the 'other kids' were wearing. So it began...
He's my only child, the kid, so I have trouble holding my ground. He's doing well in school with good grades and except for the money thing, is reasonably well-behaved. Somehow in spite of my efforts with him, I've gone horribly wrong in the finance department. While I avoided buying him a car in high school (and constantly argued with 'but all my other friends have one'), I did buy a small used car for college use ($3500) AFTER he graduated high school. He now has some independence and uses it to drive back and forth to school and to his summer job, but he has no greater sense of responsiblity. I neglected to have him sign on the dotted line for 'being more responsible.'
My goal is to save. The kid's goal is to spend. He has a huge sense of entitlement, which is partly my fault--a round of applause for the Bank of Mom!--and partly the 'fault' of our neighborhood and environment and society. In high school many of his friends had new cars, Ipods, laptops, expensive cell phones, name-brand every thing and NO JOBS! I didn't know any of these parent very well but would love to ask what the blazes they were thinking--obviously now I'm the one not thinking!
Things I regret or might regret, but am making a choice to live with: I bought him a car and required little extra responsibility from him. I still buy most of his gas and pay for his maintenance AND I added him to our car insurance. (The car is where we'll begin the second round of 'weaning.' This has been a financial mistake for me.) I recently bought him a re-furbished laptop for college. I pay $65 a month for his prepaid cell phone (namely so I'm able to call him, but his conversations with me are not really worth $65 a month!). I give him $100 a month allowance during college and will likely continue that or increase it due to the increase of gas prices. (He plays basketball for the school under partial scholarship--makes it difficult for him to work during school).
I have to forgive the kid for being 19. I have to forgive him for not taking my advice. And for not doing what I do. And I have to forgive myself for the mistakes I've made. (Boy! the mistakes I've made.) But as the Bank of Mom...the doors will be gradually closing. (Gradual because I have to wean myself as well as the kid. And somehow I have to get my spouse on board! My spouse is worse than I am...)
Still working with ideas and a better plan than what I have. Will keep you posted.
1. Your Money Or Your Life - Joe Dominguez and Vicki Robin
2. How to Get What You Want With the Money You Already Have - Carol Keeffe
3. True Prosperity, Your Guide to a Cash-Based Lifestyle - K.C. Knouse
4. The Complete Cheapskate - Mary Hart
5. The Everything Budget Book - Tere Drenth
6. Yes You Can... Achieve Financial Independence - James E Stowers
7. Financial Peace - Dave Ramsey
8. Crashproof Your Life - Thomas A. Schweich
9. The 10% Solution - Marc Allen
10. The Average Family's Guide to Financial Freedom - Bill and Mary Toohey
(and numbers 11 and 12 are: Debt Free Living by Larry Burkett and How to Make A Hell Of A Profit and Still Get To Heaven by Dr John De Martini. Yeah, I went over 10 items. I'll take the penalty...)
One of my favorite money books is The Complete Cheapskate by Mary Hart, especially the chapter about the Freedom Account. (I recently read another article or blog about the Freedom Account on savingadvice.com. LOVE it!!) Anyway that thing has saved my finances!
I manage one of my savings accounts (the one connected to our household checking account) as our Freedom Account by having 7 subaccounts: (1) minimum balance (emergency fund) $1500 to avoid the service fee; (2) cushion account of $500 to avoid withdrawing below the minimum that avoids the service fee; (3) car insurance account, (4) car repair account (5) home escrow account; (6) medical/dental account (in addition to this I have a Flexible Spending Account for health care through my job), and (7) a travel account.
I didn't open a separate checking account as the author advised. I should have. Maybe I will eventually, I just went with what I had. Keeping up with transfers has been...interesting. I do keep a notebook just like the author describes for each sub-account. I balance the total amount against my monthly bank statement. I don't yet have it fully funded because 'the kid' has had thousands of dollars worth of dental work done in the past 2 years (impacted wisdom teeth, 3 root canals, 3 crowns, several fillings) so I've been borrowing from other accounts to pay these expenses to avoid debt. A root canal on my dental insurance has been $700 or more. A crown, $600. (Or $595 as the dental assistant was so cheerful to point out.) I'll give you a minute to do the math to add up how much the kid's mouth is worth.
I've also struggled with our auto insurance which has doubled to $1360 for 6 months after adding the kid and the third automobile. (I hear the advice of many...I need to make the kid more responsible...what to do, what to do, what to do...)
Anyway, we have never had a lot of debt, our only debt is our mortgage (under $70,000). Whenever I listen to Dave Ramsey and all those people (who I'm really excited for) who yell 'we're debt free'--people who are sometimes making the same money I'm making--I can't figure out what I'm doing wrong. If they can get debt free from a MOUNTAIN of debt, why can't I save more? Same concept, right?
Turns out that unexpected and irregular bills were beating me down to the ground! My son's dental work, car repairs, IRS payments (the year I under-estimated my withholding was a PAINFUL year), escrow, leaky plumbing, airfare for a funeral. It seemed like no matter how many steps I took forward, I'd take twice that many backwards.
I started out the Freedom Account with a payday deposit that was too high for me to maintain ($200 per paycheck). I almost gave up, but decided to lower the payday deposit to $50 each paycheck. I was discouraged, but found that any amount is better than adding $0 to $0. (Who knew?)
I also deposited other income like part of my tax refunds and overtime and gift money. It's still taking a lot of patience (my son needs another crown), but my patience is improving. I increased the allotment from $50 to $70 to $90 over the past 18 months or so. It's helping a great deal and I feel more organized and in control. I've made quite a bit of progress in 18 months, but looks like I'll need another year to get a good footing, and then each of the sub-accounts will be more easily funded and ready to work...to do what I'm paying them for!
I love the nerd-iness that comes out of me in managing this account. Nerds rule!!
As mentioned, neither my husband nor my son share in my excitement about saving. They do not have the VISION!
My husband is on disability and does not work (he has mild cerebral palsy). He may baby-sit on occasion (his daughter's 3 boys, his niece's children--lot of family!) for dinner out or a gift card. His income is approximately $9,000 a year. He deposits (by allotment) $500 in our joint account each month for bills, leaving him approximately $250 each month. Out of that $250, he pays for basic cable. (I watch cable, but can and would rather live without it. He would just as soon dive in front of a moving bus before giving up cable.) He also pays for his prepaid cell phone and gas for his car and has a $15 monthly allotment to his personal savings account.
I work full time. I have approxiamtely $455 per paycheck or $900 per month going to various savings and retirement accounts by automatic withdrawals or allotments. I deposit the rest of my net income into our joint account for household bills (about $2500). I withdraw 'allowance' for me and cash for budget items such as groceries, entertainment, household supplies, clothes, and 'the kid'. (about $400 per month, but I split it between paychecks) I write checks or have automatic debits for the rest of our regular household bills which run between $2500 and $2700 a month. We have no debt except our mortgage. I don't have a cell phone, I use dial-up internet at home, I take my lunch to work, I'm trying to carpool to save gas, and I'd love to get rid of cable.
"The kid", my son, makes little to no money, but spends and costs quite a bit. Because he plays basketball for school and they traveled, he didn't work during the school year. He's currently working this summer and I'm helping him with gas (!) and his car repairs for the used Nissan that I bought him for college after he graduated high school. I'm requiring that he budgets for school clothes and shoes, that he keep a cushion of $200 for next year's college spending money and that he begin a Christmas fund (ESPECIALLY if he plans to keep his current girlfriend). In addition, he's to manage his spending money this summer. I even offered to match his savings by 50% by Jul 30. So far...it ain't looking good.
We bank at a credit union. I've managed to build up various savings accounts and retirement accounts over the past several years and I get SO excited when things are going well and SO discouraged when I can't seem to make headway. My husband has $23.52 in his personal savings account. This is the account that he has allotted $15 to every month for the past 4 years. (I'll let you do the math.) For 'the kid', I've alloted or transferred $50 out of every paycheck to his account (the one that came with the debit card for college) for the past 10 months plus extra transfers for books, gas and other college expenses. The kid has .02 (yes, that 2 cents) in his checking account. In his savings he has the minimum balance he can have - $5. He's been working for 4 weeks now, though I'm concerned that he's missed a few days...
Obviously, it's too much to ask for my family to be excited or interested or aligned with any particular money goals, it's too much to ask for some cooperation, some common goal, some teamwork or team spirit within my household. It took me a long time to let this go (and as you may surmise, I'm still a little bitter--oops! maybe I haven't let it go!). But yes, I handle all the paperwork, yes, I handle all the bills, yes, I manage the household finances and yes, I have a lot of one-sided conversations about savings goals and money management. So let me add that I'm SO SO glad I found you folks out there. I need you guys. I need to stay focused and motivated and not let all my hard work be in vain.
New goal: I'm having trouble helping my son deal with the consequences of NOT saving and NOT managing his money, so I want my focus for a little while to be on his 'life-training'. Several of his consequences cost ME money and affect my savings goals. (For instance, he got a speeding ticket he couldn't pay for...yikes! I paid and now we have insurance concerns...)
One thing I've officially decided: I will not purchase any more school clothes or shoes for him and will let him be responsible for those items for the rest of his life. (He has plenty of clothes already, or he can use his own money, or he can go naked or barefoot--his choice.)
Anyone have any other ideas? How do you get your kids to cooperate or help out and be responsible with money? Especially when they're 19 years old and know everything? Am I asking too much or too little? Am I doing too much? Too little? Am I being too selfish about my saving goals?
I discovered savingadvice.com a few weeks ago and LOVE it. Love reading everyone's blogs. I have been on the road to financial freedom for several years but have encountered several roadblocks. Heavy sigh...
Current financial standing: Income from civil service job, $55,000 a year and spouse's disability $9,000 a year. Wealth account, $5,900; IRA, $44K / 401K, $77K. Emergency fund: $1,500. Current checking and spend-able savings accounts total to around $5,500. Education funds for my son (a combination of savings bonds and savings accumulated over the past 15 years): $25,000 with bond maturities. (We've spent about $9,100 of that for his freshman year.)
The reason I wanted to start a blog is that NO ONE at my house is excited about saving money. NO ONE cares about my early retirment. NO ONE wants to hear about simplifying our lives except me. I live with my second husband and my son, who at 19 just finished his freshman year at college and is home for the summer. (Actually, he was about an hour away. He was home almost every weekend.) Both my husband and my son are spenders. My husband is thrifty and cheap and a spender all at the same time PLUS he's a rescuer (big family)--he rarely has money left at the end of the month. My son, on the other hand, has a champagne taste on a Koolaid budget, despite my efforts in financial training and despite my no-frills lifestyle. Both of them get a glazed look in their eyes when I talk about money and money goals. Me, I get excited over tuna being 50 cents a can.
My first dream was to be a millionaire. Now I mostly want financial freedom -- freedom to work when and where I want to work, freedom to pay for living expenses (and repairs to the house) without worry, freedom to spend my days the way I want to spend my days, freedom to give more generously to the causes that are on my mind and heart. How much will that take?