Cutting back on going out is working!

I am finally getting to a point where I am going out a lot less and staying home more. At first boredom was an issue but I am finding ways to fill me time. I am also learning more and earning more points as a result!

That is not to say that I never go out. At this point I am trying to limit my going out to around once per week unless there is some special occasion I must attend. I still have to maintain a social life to be sane.

My budget numbers reflect the success and have certainly slowed the financial bleeding that was taking place for a while. I am cooking more at home and learning a lot more about food which is something I truly enjoy. This frugality paired with raises will lead to more travel opportunities and doing what I truly love to do: see the world!

I am also working on side projects to bring in extra money. Instead of being out spending I will be at home earning. That is a double win! I have to stick to my goal of a 1-year emergency fund if I am ever going to get out of the 9 to 5 rat race. I am moving in the right direction and it feels great.

Using Vacation as a Financial Reboot

I did a self-audit of my finances a little while ago and found that over the past year I have made some tracking mistakes. In total I spent more than my tracking systems say I did and I had to correct. This basically wiped out the quarterly bonus I got. Luckily I was not underwater.

The problem stems from my system of tracking expenses that are not directly in my budget. Items like car repairs, extra medical costs, and so on are hard to budget for. I use a spreadsheet to account for these against my remaining monthly budget. This lets me know how well I did overall.

It took me the past year to hammer out the details of how the system should operate. The problem came this past month when it appeared that my checking account balance would not cover all of my credit card balances. It gets complicated with work expenses thrown into the mix that are reimbursed. Turns out I forgot to transfer some money from my irregular bills savings account. Other than that it was simply bad record keeping in the beginning that caused the issue.

Now that I am leaving for Asia in a few days this will allow the dust to settle. I will be almost exclusively using cash while abroad. During this time my credit card balances will clear out and I will have a better picture of where I stand when I get back a month later. At this point I will start my monthly budget versus spending tracking over with good numbers. I am going to be much more attentive to the spreadsheet and tracking this time around!

Fixing Mistakes: I goofed my math on my money tracking.

I am very careful about tracking my money since I maintain a relatively tight budget. I use a combination of mint.com and Excel spreadsheets to keep my stuff straight. I have just discovered that I have some pretty large errors in my numbers and I have less than my spreadsheet says I do.

Luckily I got a bonus from work that more or less covered the errors. It is pretty much as if I did not get a bonus at all mathematically. It could be worse!

It basically boiled down to me forgetting to do some transfers and recording of transactions. It also was partially the result of me working out my spreadsheet tracking system for items that I do not budget for. It developed over the past year and is now fine tuned to be correct. The earlier months are incorrect and thus created bad numbers.

I have a solution!

I am going to Asia for a month and will almost exclusively use cash while there. This will let all of my credit card balances clear off for the most part so I can start clean in December. I will have a better idea of what I "really have" in terms of disposable cash. I am pretty close now but probably still a bit off.

I will start the day I get back with a clean slate spreadsheet and continue to track it very carefully. Having my work expenses reimbursed does complicate things a little but is well worth it to get all of the extra points that allow me to travel more often! I am just glad I have not added on more debt!

Find it for free first!

For the past few months I have been trying my best to spend as little money as possible. It is helping as my savings is increasing over time and I have been able to adjust my budget downward a little.

With that goal in mind I still need/want some things from time to time. Clothes have to eventually be replaced, household goods re-bought, and so on. I have a strategy that has evolved from this and the idea is to see if I can find a free option first.

I have several ways to find it for free. I check out websites such as slickdeals.net for free (or nearly free) after rebate deals on what I am looking for. Recently I have gotten 5 quarts of motor oil, 3 oil filters, and a Digiorno pizza all for free after rebate. Not bad!

I am not starting to look into craigslist and freecycle to see if what I am looking for is available for free. I am still trying to find a way to make money from it too! You can find all sorts of things for free such as furniture, clothes, book, movies, and so on. Why but new when these will work just as well?

Before running out to the store or mall see if you can find it for free first! The more we save today the less we have to work tomorrow. Time is the most valuable asset.

Trial Run: Taking lunch to work next week

In my constant battle with food and restaurant spending I am going to experiment with taking my lunch to work. I have mixed thoughts about it since I have the psychological need to get out of the office at least once per day to keep my sanity. Sitting in one place for 8.5 hours is simply not fun.

We shall see how this goes. On one hand it will certainly save me money over the long term which I can use for travel and other goals. On the other hand I am not sure how it will affect my stress level at work. I believe it is a step in the right direction so I can hopefully find a balance of money and sanity in this area. Eating out lunch everyday is simply too much spending for my budget.

I will see how this goes. I am also considering limiting the eating out to 2 times per week as a compromise. We shall see!

Turn loose change into Amazon.com credit

My local grocery store has coin star machines. These are great for counting your change but normally charge a staggering 9% for the privilege. I recently discovered that you can exchange your coins for gift cards from a list of merchants. Amazon.com is one of them and the most useful to me. Best of all you get 100% of your deposit on the gift card.

I have some change that has built up over the past year and I will cash it in. I currently plan to get a book on Easter Island for my upcoming trip as well as a copy of Marco Polo's Travels to read while I am in Thailand sitting on the sunny beach. It will end up costing me little out of pocket since I don't track the change in my net worth.

It is a win-win since I get a couple books I want and get rid of my loose change at the same time. I turn a hassle into something nice as well. All of the little tips and tricks like this add up over time!

The Budget Balancing Act Begins...

The clock is ticking on my extra income from my roommate. She is moving out so now I am re-evaluating my budget so I can allocate my lowered income efficiently. I must admit it is not a fun process to have to account for a reduced income. Pair that with no raise at work for over 2 years and my frustration is building.

The drop in income essentially means I have less money to allocate to my life goals. I can still pay all of my basic expenses without issue. It is unfortunate since I am making some nice headway on a few fronts. This exercise is making me decide between some equally important goals for me. How do I choose between a bigger (and necessary emergency fund) and saving some money for my yearly travel?

I love to travel and that is what "keeps me going" during the rest of the year slog through work. I also need the emergency fund in case I become unemployed. I am leaning towards reducing the emergency fund contributions for now so I can have the money I need to cover my already booked travel and then evaluate again in a few months. Until now I was focusing on ramping up the emergency fund to fast track it. Luckily I have it at a good level now where I can slow down if I need too (I am at 2 out of 3 months of expenses).

I have to make my decision and my adjustments soon. Time is ticking until the income stops. I will be lucky to get 1 more rent payment before she is gone. At least I was given warning!

Ramping up savings: A change in direction!

I am finally to the point now where at the end of the month I have decide which goal to add my leftover money too. I call this a good "problem". This will soon increase a little since my company is moving to an office where I can use mass transit and get it reimbursed. Not only will I get a free metro pass but I will also be down to driving 1 mile (total) per work day.

With gas prices approaching $4 per gallon in the Atlanta area (I filled up today for $38.00 for 10 gallons!) I really like this idea. That doesn't even factor in the wear and tear, tires, brakes, oil changes, etc. that will all be delayed due to less driving. I also like being able to get things done on the train in.

My office will be moving next month. That means a lot of work in the meantime but well worth it in the long run. We will be in a large building with a mall in the basement with lots of great lunch options and in downtown Atlanta with plenty of nice places around us too. I will have a view of the city from my office. All pluses!

For my budget this should free up around $100 per month. That means I will have that much to add to savings month-to-month barring any extra spending or minor expenses that can pop up. I am considering getting more aggressive with my emergency fund to hit the magic $10,000 mark then switch to Roth IRA funding and a couple of other smaller goals. If all goes well I should have a raise in July too!

I finally feel as if I am starting to gain ground on getting to the life I want. I am able to travel a little bit more thanks to airline miles, great deals online, and more free cash flow. I am coming out of the rut of debt and stress and moving towards a little more freedom. It is very refreshing and I want more!

Striking a balance: Saving for future wants while maintaining current wants

There is no clear cut solution to this problem. Being highly frugal and watching every dollar I spend sometimes creates an imbalance for me. I catch myself penny pinching a little too much every now and then and later realize that my happiness is declining as a result. I am still trying to figure out the "magic formula" where I can be happy now and later.

My main solution is to be sure I travel overseas at least once per year and also do a long weekend on a fun domestic trip. Last year was Cambodia for a month and Myrtle Beach, SC for a long weekend. This year I have the 2 day Bahamas cruise at the end of this month and a month in Thailand with a few days in Malaysia and Singapore thrownin.

That is great but what about the day-to-day stuff? Being an ethnic food buff is a really fun hobby but restaurants get expensive. I limit myself to 1 nice dinner out a week and try to have dinner at home the rest of the time, if possible.  I also do my homework to find the best restaurant for a particular type of food and it usually is very reasonable. I tend to stay away from $30+ (per person) meals as it is simply not worth it to me no matter how good it is.

I thought I had a pretty good balance but I do seem to go back and forth a bit. Sometimes I will eat out more than my budget allows. I will see the busted budget the next month and pull back and "suffer" a little as a result. Part of it comes down to willpower and also comes down to if I have achieved the right balance or not. It's an ongoing process but I have noticed that it does seem to even out some over the long haul. I must say that my budget has come a long way since I started it and I will just have to keep tweaking until I get it right.

Turn your checking account into a cash management system

As a former financial planner I implement and use a tool called the Cash Management System. This idea is more of a cash flow diagram that utilizes your primary checking account as the main source of your income and expenses. It incorporates your budget and gives you the "big picture" of your monthly cash flow.

The purpose of the Cash Management system is to have a plan for your income and a guide you can refer back to and adjust as needed. The basic formula for the system looks like this:

Income = Monthly Expenses + Savings Transfers + Debt Payments (if any)

It also assumes that by month end the account balance will be $0. This means that every dollar that comes in will have some purpose. It guides you so that if you have lower expenses one month you can transfer it to savings such as an emergency fund, retirement, vacation savings, and so on. By keeping your "extra" money out of your checking account you won't be able to spend it as easily.

This system only works if you carefully track and budget your money. You have to look at your income versus expenses each month and make transfers accordingly. You should also set up automatic transfers to savings each month so you are sure to save something. At the very least you need a percentage budget (such as 50% needs, 30% wants, 20% savings) so you can calculate the amounts and set up transfers.

Secondly you have to maintain some sort of self control. If you get a windfall, gift, bonus, etc. you need to be able to not spend it or immediately move it out of the cash management account. Personally I take extra income and immediately add it to my savings account(s). In December I examine my tax situation and transfer money to retirement accounts that give me the best overall tax advantage (Usually a Roth in my case). The point is to get it out of your spending account ASAP.

Once you get the hang of things the cash management system is a simple, helpful tool that keeps you on track and also keeps you aware of how you spend or save every dollar. It takes some getting used too but the time investment is worth the return of peace of mind and not worrying about paying rent or buying gas next month. Invest in your future!

Tracking every dime you spend: Mint.com

I have been using Mint.com for nearly a year now and have found it to be a very good tool for keeping track of my budget and in part my goals. I admit it is not a perfect fit but neither was quicken (classic) or quicken online. I currently use a mix of Excel and Mint.com to do my budgeting and tracking and that works for me.

Manually entering transactions into quicken was too mundane for me. I had a grasp on where my money went but would lose receipts, forget to ask for them, etc. It was too sporadic. Downloading transactions via newer versions of quicken classic worked but was still sketchy for my accounts. Once I tried quicken online (defunct) and now mint.com (owned by the makers of quicken) I was finally using a tool that fit my style for the most part.

I now log into Mint everyday Monday to Friday. Most institutions don't update over the weekend so I take time off from staring at my accounts on Saturday and Sunday. I have mint.com pretty well "trained" on how to categorize my transactions. It is usually 80% right on "guessing" the category a transaction belongs too. I still have to watch it as some get misplaced but looking daily not only keeps it's budget categories straight but also keeps me in tune with my spending. I can see where I need to pare back and where I have more room.

The issue with tools like mint.com is that it is difficult to budget for every dime you spend (and earn). They do a pretty decent job with the "Everything Else" category and tells you if you are living within your means or not. I have a budget for my salary but not my side income. I have to mark all of my business travel expenses as "reimbursable" so it doesn't throw my budget out of sorts. No big deal as I like to be sure my reimbursements are correct anyway!

Other than that my "real" budget is in excel. It accounts for my salary income versus my budget limits for all of my expenses. I can easily play with the numbers and see my bottom line and then make adjustments to mint.com if need be. Any time I have an item that is not in my budget I track it against my "leftover" unallocated money each month. As a safety net I have a $100 misc. category to cover some incidentals but I still have leftover income each month (on purpose). I track this portion in excel and whatever money is left by the 1st of the next month is then added to savings/investments how I see fit.

Mint.com is the best tool I have found for my financial situation. I have realized that in my financial life there are too many variables and it is impossible to account for every dime spent ahead of time. I cannot predict house repairs, car repairs, funeral travel, etc. 100% of the time. The emergency fund exists to offset those but I cannot say for sure what it will cost me this year (or ever!). For some this may seem like too much work but it is the only way I can stay on track to reach my dream of not working as much and traveling a lot more!

Pre-Plan Salary Increases to Prevent Lifestlye Inflation

Most of us, if we are lucky, get some sort of raise every year. It may be fixed or it may be decided by someone above us in the company. It is very tempting to simply add your raise to your "fun money" and move on with the status quo. Don't do it! Plan ahead and make sure you get ahead!

I got a salary increase last month. In fact it was a reinstatement of my old salary when my company had to cut pay to make it thru an economically challenging time. Once I got work that I was getting full pay back I went to work on my budget to be sure I utilized the extra money effectively. Once I figured out what the take home increase was I update my excel budget. Here is what I did with the "new" money:

• Increased my 401(k) contribution
• Restarted my emergency fund deposits (monthly)

By planning ahead and foregoing the opportunity to spend the money unwisely I am now well on my way to meeting my big goals. Most of us get some sort of warning before a raise kicks in. You must act immediately to be sure you stay on track. This is a good problem to have!

Cutting your bills: What I did to get my monthly costs down!

In light of a very financially good 3rd quarter for me personally I am posting this small success story about myself. Even though I cut a lot of bills over the years I found that there is still room to move. I am willing to bet that you can find some places to cut back even more! Here are some examples of what I have done recently to reduce costs:

• Cable Internet -- I don't have cable TV just internet access. I called equipped with a price from AT&T for DSL and got my rate dropped $15/month for 1 year with Comcast ($180 saved!).
• iPhone Plan -- AT&T has a handy, somewhat hard to find chart on your data plan usage on their website. I had a look and based on where I spend the majority of my time (work and home) I have wifi and do not need a big data plan. I am downgrading to the lowest plan to save $15/month (another $180 saved!)
• Mortgage Refinance -- I just refinanced my house to roll in my line of credit used for repairs and my old 6% first mortgage. I now have it all locked in at 4.5% for 30 years. I freed up $200 per month that I can use for retirement, other debt payments, health insurance, and more!
• Homeowners Insurance -- I shopped around after I closed on my refinance. I saved another $250 per year by switching. This was easy to do and took a couple hours.
• Oil Changes -- I normally do these myself but I found some coupons on halfoffdepot.com where I can get it done, along with some other extras, for less than the cost of the oil alone! I have used 2 of the coupons and have 1 left.

As you can see all of the above are small changes that add up to a lot over time. I now have a much better monthly cash flow and I can add the extra money to my debt snowball. All of this began with comparison shopping for services and asking myself: "Do I really need _________?". I now have a habit of searching for deals, coupons, and alternatives if I need a product or service.

Quicken Online: Soon to go away!

I got an email saying that Quicken.com, a free service, is going away. I saw this coming every since Intuit bought Mint.com which is a competing service. As a result I have signed up for Mint, got the free iPhone app, and am transitioning over to using it. I must say that so far I like Mint better!

I love the fact that it automatically updates and categorizes my transactions daily. I have alerts set up so I get notified via email on my iPhone if something "big" happens. It is also useful for tracking my net worth and seeing easily where I am over or under budget.

I am a big fan of the online tracking/budgeting tools and Mint is one of the best I have seen and used. I hope they continue to improve it and add all the institutions I need so I can accurately track everything in one place.

For those of you still using Quicken Online now is the time to get started. It takes a while to get Mint set up but trust me it is well worth the effort!

Got a raise? Avoid lifestyle inflation!

Every year most of us will get a raise (hopefully) of some sort. A lot of us have the impulse to just spend it on stuff we want. I am here to say we need to combat that urge! There is nothing wrong with getting things you want but only in moderation.

Example: You get a $200 per month salary raise. Possible steps to take:

• Pay down debt! (if any): If you have debt outside of a mortgage pay it down with the extra $200 per month. Add it to your monthly payment amount.
• Increase retirement contributions: This is easy and comes directly out of your paycheck so your never miss it. Maybe add $100 of your new raise to your contributions or set up automatic deposits to your IRA account(s).
  
• Send directly to savings: If you are still working on an emergency fund or other savings goal adjust your direct deposit to have it go directly to the savings account.
• After the above are satisfied it is OK to use some of your raise for wants.

If you make a conscious effort to direct your increased earnings to the proper channels you will always come out ahead. The key is to make the adjustments immediately so you don't procrastinate or forget. Laziness and indifference are the enemies of the rich!

How to identify good spending

A lot of my posts here focus on spending. It is the one thing that most of us need to get under control in order to stay ahead and reach our goals. I have gotten into the habit of thinking about the money aspect of everything I do. I have learned the concept of good spending!

It is impossible to avoid spending money. Everything we do has some sort of cost, direct or indirect, attached to it. Good spending is the idea that you spend money in a way that helps you move forward on reaching your goals. Examples of good spending:

• A new desk chair - If you are comfortable you will have less back pain and be more productive. Money is well spent on a good chair!
• Synthetic engine oil - It has been proven that synthetic oil is better for most engines. Extending the life of your car by spending a little more on synthetic oil is good spending.
• Fresh foods - buying fresh is always better for you (and also better tasting) than frozen or processed foods. It has added health benefits which could lower your healthcare costs over time

In order to fully grasp the idea of good spending you also have to define bad spending. I consider it bad spending when I am paying more simply for convenience or on impulse. If it is something I will never use or need it is also bad. Here are some examples:

• Buying because it is "on sale". - If you don't really need the item or items and you are buying simply because the price is low it is still wasteful. Remember it is only a good deal if you will actually need it!
• Buying milk at a gas station - It usually costs a lot more than the supermarket and the product is exactly the same. Spend the extra 5 minutes to go to the supermarket instead and save the money.
• Unplanned purchasing - This is impulse buying. I am a firm believer that 98% of purchases should be premeditated. This means you have thought it over before buying.

I have found recently that I have become afraid of spending. This is bad and counter-productive. I have had to remind myself that their is such a thing as good spending and I have to remember that it cannot be avoided. Look at your buying habits and find the good spending and try to eliminate the bad. This is a good approach to budgeting.

Needs versus Wants versus Saving

Budgeting is a daunting task for some and other love it. One major roadblock for getting people to start using a budget is that they think they will be restricted and unhappy. This most certainly does not have to be the case!

I came across a good rule to use when deciding how you should use your money. It strikes a good balance and can cover all the bases for most people. This of course is not set in stone and is a general guideline that can be adjusted.

The formula says everyone's budget should be close to this:

50% for needs, 30% for wants, 20% for saving

The difficult part is to sit down and differentiate a need from a want. Some are obvious. You need food, shelter, and transportation. Wants are going out to dinner, concerts, gym memberships, vacations, etc. Saving can be either retirement/investments or debt repayment if you still have debt other than a mortgage.

The idea here is to make sure you budget for everything that comes up. Allocating 30% to your wants will make sure you include things that you enjoy and make you happy. 20% is a good rule for saving and can always be higher. The more you save now the less you need later. I like 50% as needs as it makes you really evaluate what truly is a need and leave room for the fun stuff.

Most of our budgets don't fit this formula. That is OK as long as you are happy with it. This general guideline gives us a target to aim for during the budgeting process. Most of the time people discover they are well over the wants category and little to nothing for savings. This is a great indicator that it may be time for some adjustments!

I hope you all have a great holiday. Enjoy the season!

Understanding opportunity costs of time and money

Opportunity cost is an economic term in it's common form. You can also apply it to daily life, spending, and many other areas. It is good to think in terms of opportunity costs if you have trouble with buying too much stuff. It is also good to use it for managing your time.

Example:

You want to spend $100 on some new electronic gadget you have been eying for a while. You see it at a store and you are tempted to buy it. Now is the time to consider opportunity costs. Think to yourself: What else could I do with this $100? You could put it into savings for other goals such as a vacation, a replacement car, down payment for a new home. Would you rather have this gadget now or attain these other goals sooner? If you spend the $100 now you give up the opportunity to use that money on other things that may be more important.

I use the above example myself all the time. I work in the IT Industry and I like computers and all the toys that I can get to go with them. I used to buy new stuff all the time but have cut way back by going through this thought process. I have a strong passion for travel and tell myself I can either have this now or save the money and cover 3 days expenses in Thailand, etc.

You can also use this to help manage your time. Here is an example:

You have free time this weekend and a friend offers to sell you his extra ticket to a ball game. You are considering it as you would like to go to the game. You also have to weigh other things in your life to decide if it is worth your time. Maybe you have a household project you need to get to. Or you would like to spend more time with your family. You may want to finish that book that has been collecting dust for a month. You have to decide what is the best way to use this free time. There is no right or wrong answer here only you can decide how to best spend your time.

It is important to remember that your time is just as (if not more) important than money. How we spend our time affects our happiness and what we get out of life. Money helps us to do the things that we enjoy in our lives. For me this is travel and living without a job (eventually). Always remember that we work to live. We do not live to work.

Setting up "Escrow" savings for irregular bills

One of the challenges of budgeting your monthly income is bills that are not due monthly. Examples include taxes, insurance, homeowners dues, and many more. My solution is to break the amount of the bill up as if it were due each month and have automatic transfer so a dedicated "bills escrow" savings account. I will use my own example:

I have two "irregular bills" that I must pay:

1. Homeowners Association dues: $150 due every 6 months
2. Water/Sewage: $60 average, billed every 2 months

If you do the math #1 is $300 a year. That works out to be $25 per month. For #2 it works out to be $30 per month on average. I have set up an automatic transfer of $55 per month to go to my "bills escrow" savings account. When they come due I will have the money waiting for it (and earning some interest!).

When the time comes I will transfer the appropriate amount back to my checking and pay it on the due due. At the end of the year I will re-evaluate the escrow system and make any adjustments up or down as needed. Using this system prevents you from having to dip into savings or have hardship when the "irregular bill" comes. It makes balancing your finances much easier!

7 Things you can do today to cut expenses

I find that I am constantly evaluating my expenses to see where I can cut back. Cutting expenses is a lot easier than trying to increase your income. I am a firm believer in the saying "It is not how much you make but what you keep." Someone earning $30,000 per year and saves $3,000 is a lot better off than someone earning $100,000 and saving $0. Living under your means will allow you to save money.

I have compiled a list of things people can do to cut expenses now. This is handy for those starting to budget or having to reduce a budget due to a job loss or income reduction. Examine your expenses and see if you can do any of the following:

• Take your lunch to work: I am guilty here. I go to lunch very often but can justify based on sanity terms. I work in IT and am on the phone all day. I need to get out for a bit to remain sane! I do plan to start bringing lunch and still leave for a break, though.
  
• Cancel the land line phone: If you have a cell phone you can do this. I have heard the argument that you may have a home security system. Most of these now work with a cell phone antenna that can be added onto your system. This can save you, on average, $40 per month which is $480 per year! If you really need the land line switch to Magic Jack.
  
• Make your own coffee! Even though we are currently in bad economic times I still see some fairly long lines at Starbucks each morning on my way to work. $3 for coffee 5 days a week saves $780 per year!
• Maintain your car: This can (potentially) be a big one. I asked my dad, a mechanic, what could be done to save money. He recommends keeping your tires inflated properly, changing the oil on the correct schedule, and put the minimum gas octane that your manual states. This will ensure smooth running and better gas mileage!
• Shop around for insurance: I wrote an entire post on saving money on insurance here. Premiums vary from company to company so it definitely pays to shop around! Even if you save $10 per month it is worth your time.
• Use Coupons! I highly recommend reading Coupon Cravings daily as they have some really good deals and save on food and health items in particular. It takes almost not time and they have done the coupon searching for you!
• Check your bank and credit card fees: Be sure to close and change your accounts so that you don't pay needless annual fees or monthly service charges. Change banks or to a credit card (with the same company) that does not carry an annual fee to save today!

All of the above items will cut any budget fast! You have to focus on the expenses that you can control easily and get them as low as possible without sacrificing quality of life or health. I am sure we all can do at least one of these today and begin reducing expenses. Including me!