What’s Your Plan For a Financial Independence Day?
May 10, 2023Continue reading “What’s Your Plan For a Financial Independence Day?”
The No-Tracking Budget
April 21, 2023You don’t have to be a financial planner to know that one of the critical ingredients of financial security is having a budget, but knowing you need one and actually sticking to one are two different stories. We’re not here to lecture about why you should budget; let’s instead discuss a way to make it less painful. The purpose of a budget is threefold:
- First, to ensure you are not spending more than you earn.
- To figure out how much you can actually afford to save.
- If you are spending more than you make or you’d like to save more, then it helps to figure out where you might be able to cut back.
Finding a way to stick to your budget
Putting together a budget is one thing. Sticking to it is another. Putting together is relatively simple, and while there are many tools to help, sticking to it is where most people give up. So let’s talk about that part, assuming you already know how much you need to spend each month on needs versus wants.
Stop obsessing over categories when tracking.
Confession: I can’t tell you exactly how much I spent dining out last month. And I can’t tell you how much I plan to spend on it this month. That’s because that number isn’t as important to me as first ensuring I cover all my other financial goals.
I can tell you how much I’m saving toward several small but significant financial priorities so that whatever is left over is what I can spend on things I can go without, such as sushi night, shopping, spa services, or Target. (Yes, Target is a discretionary expense for me, and don’t tell me you also haven’t discovered their magnetic carts that just attract things.)
By prioritizing the things I know I need to make happen financially, I essentially back into what I can spend on wants without any tracking beyond setting up an alert to tell me if my account dips below $100.
Make it automatic
I do this through automatic transfers set to happen each payday. I have a series of savings accounts, one for each financial priority, through an online bank that lets me set up as many different savings accounts as I want. It’s the electronic version of the envelope system.
My checking account for spending money is at a “bricks and mortar” bank, and I have a checking account for bills that’s also housed at the online bank. Here are some other accounts that you might set up:
Accounts to set up for the no-tracking budget
Monthly bills
Separating your known monthly bills into a separate account and setting them on auto-pay might revolutionize your relationship with money. This account is for things with due dates and relatively set amounts like rent/mortgage, cable, cell phone, etc. You may need to estimate for things like electricity and gas. I use the highest amount from the past year, which ensures I’m well-funded.
What isn’t this account for? Things you can pick and choose how much and when to spend each month like groceries, personal care, and even your dog walker. Yes, this is money you need to spend, but it doesn’t have a due date or a set amount, which defeats the purpose. This fixed amount would only fluctuate if you made a drastic change like moving, canceling cable, etc.
Emergency fund
Getting this account funded with three months of expenses was my top priority, so before I even opened another account, I saved as much as I could. Now it’s just there, accruing interest. I can’t over-emphasize the peace of mind this gives me.
What isn’t this account for? Things I forgot to include in my “oh crap” account, like expenses to stand up at a wedding, Christmas gifts for family, or a plane ticket for a funeral. Those are all important things, but they are not an emergency.
Car stuff
This account is for car-related things such as insurance, new tires, repairs, registration, etc. Once it’s paid off, I’ll transfer my monthly payment into this account too, so I can save to buy my next car with cash.
What isn’t this account for? Gas money – that’s discretionary and comes out of my spending account.
Pet Medical
Pet insurance can run from $10-$90 per month, and Consumer Reports found that it’s not worth the money for the average healthy pet. Instead, pay yourself the premium so that if/when an expensive injury or illness pops up, you have some money saved. It’s worth noting that most pets’ major expenses come when they’re older, so if you do this throughout their life, you should have a sizable chunk built up by the time you need blood work and x-rays to figure out what old age ailment they have.
What isn’t this account for? Pet food (spending account), pet-sitting (spending or vacation account), and routine visits unless you’re accounting for that with the amount you’re setting aside into this account.
Kid activities
If you have kids, then you know that their extracurricular activities can add up pretty quickly. Try annualizing the costs and transferring one-twelfth each month to ease the burden of sign-up and gear-up season.
What isn’t this account for? Clothing, toys, everyday family expenses – try to isolate the “extra” stuff in this account, which can be a way for spouses who may disagree about how much to spend on this stuff to keep tabs on it in an agreeable way.
Depending on what’s important to you and what you want to better control your spending on, you may have other accounts. For example, my friend with a side gig has an account where she puts 20% of her income aside to have enough at tax time.
It takes some work to set up these accounts, but it’s worth it.
Real Results
I shared this system with a colleague of mine who is a busy mom of two young children, and her email to me says it all:
“I just wanted to say thank you. I’ve separated all my fixed bills through those accounts and set up a few savings accounts for shorter-term larger dollar items – Christmas, home improvements, and travel. That way, we don’t have to either put off those things or feel guilty about spending money on them.
Plus, I set up accounts for the girls for them to earn money and use on toys or whatever, and the transition of seeing the numbers is easier for them because they are still learning math and identifying the value of the paper/coin money. So, they earn it in cash, then we add it up and deposit it into our bank, and I transfer the money to their accounts.”
If you’re having trouble sticking to your budget, why not try it? What will your accounts be? Customize it to your life, and just make sure you’re also being deliberate with any “extra” money you find by trying this process!
3 Clever Ways to Trick Yourself Into Saving Money
February 24, 2023I actually don’t think we have a financial literacy problem in America as much as we have a financial wellness problem. Everyone I talk to on our financial helpline knows what they’re supposed to do to be more financially stable. But while knowledge is power, putting that knowledge into action is where the real trouble is. It’s the same thing with eating well and exercising. We know what we’re supposed to do, but we don’t always do it. Continue reading “3 Clever Ways to Trick Yourself Into Saving Money”
A Balanced Approach to Cutting Back
February 22, 2023As a financial planner, I enjoy listening to other financial planners. I love when they discuss strategies to help people get out of debt and better manage their money. Although I agree with many of the money management strategies, it strikes me that some approaches are extreme. Additionally, many common strategies have little room for a more balanced approach.
For those knee-deep in a financial crisis, I agree that drastic financial cutbacks are needed to climb out of an emergency. There may be a better approach for others not in crisis but need ways to save and pay off debt. I always tell people to gauge what strategy will keep them consistent in paying off debts and saving more. The more extreme you cut back, the quicker you will reach your goals. However, you can still reach your goals and enjoy some of the extras in life with a little modification:
Cable and Streaming Services
I do agree that cable is a want, not a need. However, perhaps watching football or the Real Housewives of “insert city here” is one of the joys in your life. In that case, consider reducing your cable plan to a cheaper streaming service covering your most watched channels. Better yet, look at cable alternatives such as Sling TV or Playstation Vue, where you can watch your favorite cable channel shows in real time. Or rotate your “extra” streaming services so you’re constantly binging the hottest show.
Eating out
Again, if you are in a financial crisis and are seriously behind on your bills, you may have to eliminate eating out. However, if this isn’t the case, and you can’t seem to stop eating out, consider simply cutting back. If you spend an average of $20 eating out and cut it 2x weekly, that’s $40 a week, $160 a month that can go towards saving for emergencies or paying down debt. If you have a typical weekday at work that you work longer or a day where your kids have a lot of after-school activities, you could make those eating-out days (give yourself a budget) and still save towards your financial goals.
Entertainment
Consider some modifications if you are single and going out is your main social activity. For example, you can order an appetizer or a small salad if you eat before going out with friends. Your wallet will thank you. Better yet, skipping drinks with your meal or having only one cocktail with your friends can save even more money.
If you enjoy going to movies, check to see if your employer offers movie ticket discounts. Look for deals using websites like Groupon or Living Social, or search for dollar movies in your area. If you go to a big event, consider either not buying food since it is so expensive or getting the kids’ options, which are cheaper but still give you your food fix.
Cutting back doesn’t have to mean extreme deprivation. As you can see, you can still enjoy your life and save money. The key is looking for certain areas to cut back in and modifying the areas that matter most to you so you can save money with a more balanced approach.
Beware Black Friday ‘Deals’
November 23, 2018As we see the full retail advertising onslaught and stores open ridiculously early for Black Friday (some are even opening on Thanksgiving Day now, which I find appalling), please try to remember a couple of things:
1) This is the time of year when emotions can override logic and overspending can occur. I have spoken with countless people who end up with a sizeable chunk of credit card debt because of holiday spending. Go into the shopping season with a list (wow, I’m becoming my mother!) of who you are buying gifts for and set a budgetary target. Then, stick to those targets. Those Black Friday “deals” may not seem like such a deal if they have 19.9% interest tacked on to the balance next summer.
2) The people in your life, if they are anything like me, will be happier to spend time with you than they are with any gift that you might buy. I’d wager that if you think back over the last several years, you probably can’t remember what you bought for each person on your list or what they bought for you. It’s a season of friends, family and togetherness – not retail profits.
Drink some cocoa, enjoy your friends and family – and have a safe, fun, and financially secure holiday season.
How Lower Gas Prices Could Mean an Additional $27,000 in Savings for You
June 14, 2017A recent article in the New York Times pointed out that according to GasBuddy, gas prices are the lowest they’ve been in over 10 years – have you noticed? But more importantly, what are you doing with that extra money in your budget?
Unless you’re a professional driver, have a ridiculously long commute to work, or live in Southern California where my colleagues laughed when I shared this fact with them (taxes make up the majority of the price of a gallon of gas in that area), chances are that any savings at the pump have been casually absorbed into your everyday spending, offering little effect on your long-term finances.
In fact, lower gas prices may even compel you to spend more money on things like vacations, as the article points out – the people interviewed say that they’re planning to take more road trips due to lower gas prices. That kind of defeats the purpose, don’t you think?
A different way to think of it
You can get really technical in calculating how much you’re actually saving compared to last year – you’ll need to know the size of your tank, how many times you fill up per month and the actual difference in your spending on gas this year versus last year – but that’s not really the point. The point is that many of us have a fixed mindset about our inability to save due to a tight budget, and we miss opportunities that could painlessly help loosen things up.
The little things add up
The article estimates that a driver in the Midwest should be saving about $5 per fill-up. If you fill your tank once per week, that’s $20 per month or $240 per year. It doesn’t sound like much (it’s not), but it adds up. Increasing your 401(k) contributions by just $5 per week could give an estimated $27,000 savings bump to a 35-year old’s 401(k) balance over 30 years.
In other words, every $5 per week you can find in additional savings is a potential extra $27,000 toward retirement. With that in mind, what other ways can you find an additional five bucks per week?
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The 7 Top Saving Hacks for New Grads
June 08, 2017Do you know a new or upcoming grad? Last week, I wrote about why saving is such an important part of “adulting.” Of course, the hard part is actually finding the money to save. This week, I’ll share some key saving tips to pass on to any new grads wanting to start out on the right financial foot.
1. Don’t forget the cost of state income taxes when evaluating job opportunities. Taking a job in a state without a state income tax like Texas, Florida, Washington, or Nevada can save you thousands of dollars in taxes each year. Make sure you factor that in when comparing compensation and cost of living.
2. Keep your housing costs as low as possible. It may be tempting to get the best home you can afford, but this is where you can save the most bucks. Housing is a fixed cost that’s hard to adjust if money gets tight.
The key is to live below your means. Consider starting out living with parents or roommates for a while. In addition to saving on rent, you can also split utilities and share the cost of furniture and appliances. When your income goes up, upgrade to a studio before getting a one bedroom. By improving your living situation gradually, you can get a new “shot of happiness” with each improvement while being able to save more at each step.
In my case, I lived with roommates all the way up until last year. I actually preferred having the companionship of living with people that’s harder to find after college, especially if you move to a new area like I did. Even now, I live in a small studio that I was able to purchase in cash from saving money on rent all of those years.
3. Don’t buy a new car. A new car is a lot more expensive but will turn into a used one as soon as you drive it off the lot. If you’re worried about maintenance costs, consider a certified pre-owned car. I made the mistake of leasing a new car right after college but then purchased a used car in cash after law school.
4. Limit your eating out and entertainment budget. Give yourself a fixed amount to spend each month. You don’t have to track where every penny goes but when the money is gone, no more spending until the next month. On the other hand, if you have money left over, you can carry it over to be splurged in the future. This method forces me to prioritize and look for deals when going out.
5. Be smart with your smart phone plan. Consider staying on your family plan or using a prepaid cell phone plan. My prepaid plan with Verizon costs me about half as much as the regular Verizon plan without any noticeable reduction in quality or services. I also like to buy last year’s newest and greatest phone at a discount. It’s still an upgrade for me and I don’t have to worry about any quirks with the latest phones that haven’t been worked out yet.
6. Don’t pay down your student loans early. This one may sound puzzling but the fact is that student loan interest rates tend to be lower than credit cards and less than what you can likely earn by investing your savings instead. See if you can lower your payments with an income-based, graduated, or extended repayment plan. This way, you can put your savings towards paying off higher interest debt or higher earning investments.
7. Automate your savings. Once you’ve figured out how much you can save with the above strategies, have those savings set automatically set aside before you have a chance to spend them on something else. First, make sure you’re contributing at least enough to your employer’s retirement account to max the match. Then set up automatic contributions to an HSA (if you qualify), a Roth IRA, and savings accounts for short term goals like a vacation or home purchase.
Any other ideas? What have you done to save money? Feel free to supplement this with any tips of your own.
The Top 7 Reasons Saving is the Most Important Part of Adulting
June 01, 2017I recently celebrated my 38th birthday, which I guess officially puts me in my late 30’s. As I reflect on the past couple decades, I find myself thinking about how the effect of saving money early on really made an impact on my life and helped me to “adult” better. For all those lucky kids just getting started with adulting, here are my top 7 ways that saving money from day one will help make it easier:
- “Finding yourself.” You may still not know what you want to do when you “grow up” and that’s okay. In fact, I didn’t either — my first job interview after college was to sell newspaper advertising. Your early career years are a time to explore different career options. That means you’ll make a lot of mistakes. Having savings gives you the freedom to say “no” to a job or boss you hate in order to pursue something you’ll love.
- Security. You may land a great job but find that sometimes things don’t work out on the employer’s end. As the last one hired, young people are often among the first to be let go. Think of your savings as the lifeline keeping you from mom and dad’s basement. Having what our CEO calls “FU money” also means the freedom to walk from a job when you need to.
- Travel. One of my closest friends from college took a year off to travel the world shortly after graduation. If you’d like to do something similar, now is the time to do it before you’re tied down with obligations. Having money in the bank will make that a whole lot easier.
- Marriage. Unless you plan to elope, weddings are expensive. And even if you do plan to elope or not marry at all, the cost of attending other people’s weddings can really add up too. Having money set aside allows you to make the most of these happy occasions.
- Buying a home. An Australian billionaire recently stirred up controversy by blaming millennials’ inability to buy a home on their fondness for expensive avocados and coffee. He has a point. An increasing number of young people are putting off buying a home because they don’t have enough money for the down payment and closing costs. That means continuing to pay rent and helping someone else build equity instead of yourself.
- Starting a business. Even the most brilliant business ideas aren’t typically profitable right away. In the meantime, you’ll still have bills to pay. That pressure for a quick buck could lead you to short-term thinking at the expense of the long term growth of your business.
- Financial independence. Don’t think of it as “retirement” but as getting to the point where you work (or don’t work) as you want to. The sooner and the more you start saving, the sooner that day will come. Some people have even taken this to the extreme and retired before 40!
Don’t think of saving as deprivation. Think of the money in your bank as representing freedom. The more you have in there, the more options and freedom you have to live your life the way YOU want to.
How To Plan A Budget Friendly Summer Vacation
May 30, 2017Ah, summer. I often find myself yearning for the summers of my youth, when it was all about sleeping in, no school and nothing but fun. As an adult, it seems more like summer is about how my bank account can survive a vacation with my family. If you can relate, there is hope. I’ve found that taking a realistic look at how much money you can actually budget for vacations along with some good pre-planning, that a fun vacation is possible, no matter how much you can afford to spend.
The basics
If you want to leave town but have a tight budget, consider a road trip vs. flying. Use gas apps to help find inexpensive gas, which can help. I’m partial to GasBuddy, which uses GPS to find the cheapest gas around you.
We’ve also found that home sharing services like Airbnb or VRBO often offer better deals than hotels, especially on stays over 2 days. We have used both services for years so I feel like a bit of an expert here – make sure you read the reviews of places you’re considering and ask questions about anything that raises a red flag. Also, make sure you ask about what will be provided. We stayed at one condo that provided everything – beach towels, beach chairs, umbrellas, surfboards, even toys for the kids and basic food items, which saved us from having to haul all that stuff with us.
Food and souvenirs
To save money on food, pack snacks and lunches in a cooler and when you do eat out, look for restaurants where kids eat for free. If you are going to a high dollar destination like Disney, consider buying a few souvenirs in advance, then hide them to give to your kids when you arrive – trust me, this can save so much money and they won’t know the difference.
Staying put
Back when we were focused on paying off debt, we decided not to travel for vacation and instead implemented “staycations.” First we established ground rules like no checking work emails, minimal cleaning, and no trying to squeeze in errands like doctor’s appointments or cleaning gutters. We wanted to be on vacation in mind and body.
Then I planned out a week’s worth of activities that ended up costing us nothing. By combing local websites for free kids activities like movies in the park, puppet shows at the library and stores that offer free classes for kids, I was amazed at how many free or low cost events my city offered. We used an app to find the cheapest gas and tried to stick to activities close to home. You can also use sites like Groupon, Living Social or Yipit (which combines several online deal websites), for discounts on activities like amusement parks, movies and local events or check with your HR to see if they have any discount coupons.
For food, I went to the grocery store and picked up stuff for inexpensive lunches to take with us like pasta salads, sandwiches or ground turkey patties and hot dogs to grill. We learned to make everything special – a trip to the pool turned in to a cook-out with a family water game. One of my favorite parts was that I got the kids really cool water bottles that they liked so much they stopped asking to buy soda.
The bottom line is that we ended up spending less than $100 on our weeklong staycation and my kids say that is was one of their favorite vacations so far. Remember, the most important thing is to spend time with your family. Most kids do not care about the location. Taking the extra time to research freebies and discounts can save hundreds of dollars and help you plan a vacation no matter what your budget.
What Does Self Storage Really Cost You?
May 01, 2017My husband and nine year old son have a new favorite television show: Storage Wars. They love watching the quirky, somewhat foul-mouthed cast of characters bid at auction for the contents of abandoned storage lockers. My guys focus on the contents of the lockers and discuss whether or not they are worth purchasing but not me. When I watch with them, I can’t help but think of the original owners of all those unused possessions and what prompted them to keep so many belongings in storage.
Most of the lockers featured on the show are full of everyday household items and furniture. The storage facility has taken possession of the unit when the original owner did not pay their monthly bill. Why did the owner rent the storage unit in the first place?
Common reasons for renting a storage unit include relocation, divorce, dislocation, military deployment and death – and increasingly, just having too much stuff. According to a Self Storage Association fact sheet, nearly one in ten (9.5%) American households rent a storage space, with about 1 in 3 renters saying they will rent for two years or longer. Even more surprising, 65% of renters have a garage, 47% have an attic and 33% have a basement at home. What is the true cost of renting that space to store all that extra stuff?
Let’s take a simple example: Taylor, age 35, recently redecorated her home, but isn’t sure she wants to get rid of her old furnishings. Her belongings have sentimental value, but they aren’t worth that much – about $2,000 – and aren’t expected to increase in value. She rents a 5’ x 10” unit for $85 per month and moves her furniture and some old toys and books, artwork and party ware into it. Assuming the rental cost of the unit goes up with inflation (estimated at 3% annually) and Taylor keeps the storage unit for 10 years, she’ll pay over $11,000 over the total period to hold on to her $2,000 worth of stuff for ten years.
What if Taylor had sold her old furniture online or at a garage sale but she only netted $1,000? Instead of paying storage costs, she used the proceeds to set up a Roth IRA and invested in a diversified, low fee mutual fund. Every month, Taylor had $85 transferred from her checking account into the Roth IRA and bought more shares of the mutual fund. Over a ten year period, the mutual fund’s average annual return was 6%. Her Roth IRA would be worth $15,235. If she kept doing what she was doing, by the time Taylor was 65 it the Roth would be worth $86,383.
Think about it. Which sounds better to you – paying over $1,000 a year to store your excess stuff or having an extra $86,000 in tax free money in retirement? Now that’s a storage war.
Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can also follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.
How To Save Money on Your Homeowners Insurance
March 08, 2017When my husband and I shopped for homeowners insurance back when we bought our condo a couple of years ago, I knew from my CFP® training that all homeowners policies are required to cover the basics. I also knew that if we wanted coverage of things like flooding from a backed up toilet or frozen pipes, we’d need to ask for those. But beyond that, we wanted to make sure we were adequately covered without over-paying.
Now as our premiums go up about 6% per year, purportedly to account for the increase in what it would cost for the insurance to cover a loss (if only wages kept up with this supposed increase in costs!), we are shopping around to make sure we’re still getting the best value for our money. If it’s been several years since you’ve shopped your homeowners insurance policy around, it could be a great place to find some extra money in your budget. Here are some tips from my colleague Teig Stanley on how to go about doing that:
First, you’ll need your “DEC page,” which is short for “declarations” page. Then, take the following 5 steps:
1. Use a broker to shop for coverage. There is no need for you to go through all the time/effort yourself. Ask the broker to provide three quotes compared side by side so you can compare apples-to-apples.
2. Make sure the quotes have the same criteria:
Deductible – This should include the separate deductible for wind/hail/water or other events that are geographically specific.
Home Value – If it’s been several years, this probably needs to be adjusted since your home has probably increased in value. Most insurance companies’ software will assign a value automatically based on actuarial data specific to the address.
Cost – Is the payment quoted monthly, annual, quarterly, etc?
Replacement Cost Coverage – Some policies replace up to 100% of the benefit for which they’re written. Others replace 125% – 150% if the home is a “total” loss.
3. See if you can apply any special discounts – military, occupation, no recent claims, alarm systems, etc.
4. Contact insurance companies that don’t broker out (like USAA) if you qualify so you can obtain a quote to compare.
5. Give the broker a copy of your current DEC page and cost (don’t worry, they can’t do anything manipulative with the premium) as well as permission to pull your credit so they can get accurate quotes. It’s a “soft” credit hit, so it won’t have a negative effect on your credit score.
Finally, you can find some additional insight and tips in this post from another colleague, Greg Ward. He shopped around himself and found a much better deal. Of course, I would be remiss if I didn’t point out that any cost savings you realize from this process should be used to either increase high-interest debt payments or bump up your savings rate toward your emergency fund, retirement or other goals.
Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.
How to Stay Sane During School Breaks
December 20, 2016I love the holidays. The world seems to slow down a little and I get the time to catch up with friends and family. The chocolate is even better. But with every holiday, comes a winter break and the inevitable question of what to do with the kids comes up. With the babysitters called “TVs” and “iPads” quickly exhausted, the following are cost effective ways to entertain kids during school breaks.
1. Organize babysitting swaps. If you have neighbors with kids close to your kids’ ages, consider doing a swap where parents take turns managing the children, giving the other parents a break. As odd as it may sound, it is sometimes easier to have a lot of kids that can entertain themselves than one or two kids who expect you to be their entertainment.
2. Look for winter break camps in your area. Some are surprisingly affordable, but the affordable ones go quickly so start early. Consider looking into the programs at your local YMCA or community center.
3. Eat out on the cheap. Eating out in a restaurant is a fun activity for the kids. For many of us, the problem is the expense. MyKidsEatFree.com is a national database of places where your kids can either eat at a reduced cost or for free. You can also Google your local area for places where kids can eat for free.
4. Look for free activities. Stores like the Pottery Barn and Home Depot have fun kids’ activities. Local malls as well as your local public library also host kids’ events.
5. Plan an agenda. I got this one from my colleague, Cynthia, and it worked like a charm. I planned a series of events for the kids to include a talent show. This kept them occupied until the evening. I also had them watch a few movies and created a trivia game of questions to answer about the movie for a prize.
Holidays with the family is wonderful and tough at the same time. With these strategies, they don’t have to blow your budget. Then they can truly be happy holidays.
What to Do When Your Kids Ask for Expensive Toys
December 19, 2016Do your children ask you – or Santa — for expensive toys? If they’re a kid in America today, chances are that they’ve asked you for an item whose price made you gasp. It could be an American Girl® Doll and accessories, a Thomas and Friends™ train set, a Microsoft® Xbox, or the latest Apple® iPhone.
Say “yes” and you’ll spend hundreds of dollars. It may not be affordable for you to gift something that expensive. Many parents are tempted to put the purchase on a credit card and deal with the payment later. Even if you can afford it, there are reasons to reflect and plan how you will handle the request before agreeing.
Start the conversation about money
A child asking for anything that costs money is an opportunity for financial education. Use your child’s gift request to initiate a conversation about spending, saving and prioritizing. Consider asking your child these questions:
- How much does it cost?
- Where will the money come from to pay for it?
- How do grown-ups earn money?
- Can you think of ways to save up for this?
For more ideas on how to talk to your kids about money, the Consumer Financial Protection Board (CFPB) has an excellent resource, Money as You Grow. It includes a book club with age-appropriate suggestions to spark money conversations. I also recommend picking up a copy of Ron Leiber’s perspective-changing book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous and Smart About Money.
Santa has a budget, too
I’ve always told my kids that Santa represents the giving spirit of Christmas but is imaginary. However, if your kids believe in Santa and have asked for an expensive item on their wish list, talk to them about how Santa has a limited amount of resources to get gifts for all the world’s children. Check out this great interview with personal finance columnist Michelle Singletary for tips on how to explain Santa’s budget.
Have your child research buying options
When my kids ask for a pricey gift or want to purchase a large item with their own savings, they have to do their research first. Ask your child to:
- Shop around for three price quotes. Show them how to evaluate costs, including shipping.
- If there are alternatives to their desired version, have them make a grid to compare features and ratings. Ask them to explain how they made their choice of the best buy.
Consider buying a gently used version
If your child is discovering a new line of toy that’s been around for a while, consider buying a gently used version on eBay or your local second hand network. Take Pokémon® cards, for example. For the price of one new “mega” set with 60 cards, you could buy an entire set of thousands from a teenager who has outgrown them.
Sell or give away your kids’ outgrown toys
One family’s cluttered playroom can be another family’s holiday treasure. We’ve been the recipients of many wonderful hand me down toys, including a fabulous kitchen set, dress up costumes, train equipment and Lego® pieces. When your child has outgrown a toy, encourage them to either give it away to a younger child or charity or sell the item and apply the proceeds towards the expensive gift they’ve requested.
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The Secret Financial Power of Home Cooking
December 12, 2016If you could save an extra $500 per month or more by doing just one thing differently, would you do it? Think about what you could do with that $500: pay off your student loans or credit cards, save for a home purchase or home renovation, power up your retirement account or even take a fabulous vacation. If you’re like many Americans who are feeling squeezed for cash to apply to your big goals, there is one simple thing you can do to save a lot more money – cook and eat at home.
I’m as guilty as the rest of us. While I love to cook, I am the first one to order a pizza when the time crunch of work, kids and activities gets crazy. Plus, as an extrovert who works from home most of the time, I enjoy taking my computer to a café so I can see some actual humans.
The keys are 1) moderation – set an “eating out” maximum for the month and 2) preparation – plan to eat at home and shop in advance for ingredients. Need motivation? Here’s how much you could save:
Save money on breakfast
Let’s take a typical breakfast on the go: a ham, egg and cheese sandwich on an English muffin with a cup of gourmet coffee for $5. Eat that every day and you’ll spend $35 per week. How to cut this down?
Cook your eggs. Making your egg sandwich at home could cost you as little as $1.00 if you kept all the ingredients on hand and cooked from scratch (not to mention that it might taste a lot better). Your savings per week? $28 or $1,456 per year.
Brew your own coffee. You don’t have to sacrifice coffee quality. My serious Nespresso habit costs me about a dollar per day and I save the pricier coffee shop brew for when I’m out meeting friends.
Buy prepared in bulk. Even reheating a breakfast sandwich in the microwave and brewing a coffee pod would only cost about $2.50 or less per meal. Your savings per week: $17.50 or $910 per year.
Save money on dinner
Unplanned take-out food is the easiest place to fall off the wagon when it comes to your meal budget. For a single person, take-out Chinese food or a pizza dinner would cost about $15-$20 depending on where you live, and you’ll get two meals out of it. For a family of four, a take-out meal costs about $40.
Stock your pantry and fridge for easy meals. Having a well-stocked pantry and fridge is like having money in the bank because you’ll always have ingredients on hand to pull together a quick and easy meal. See the Food Network’s list of essentials to keep on hand and these suggestions from Real Simple magazine for easy meals you can make in a hurry.
Making dinner at home can save you about $7 to $15 per person. Replace just one person’s meal out per week with a home-cooked version and you’ll save $364 to $780 annually. That’s $1,456 to $3,120 for a family of four.
Use your slow cooker. My slow cooker is my favorite piece of equipment in my kitchen. I load it up with ingredients in the morning, turn it on, and presto! There’s dinner at 5 pm. See this list of easy recipes from Cooking Light.
Save money on lunch
A typical lunch on the go costs $10-$15. Sure, you’ll want to eat out occasionally with co-workers in order to connect and have a change of scenery, but you don’t have to do it every day. How much can you save from bringing your lunch?
Bring leftovers. What better thing to bring for lunch than last night’s yummy leftovers? Bring a hot lunch of leftovers just once a week and save $520 to $780 per year.
Stock sandwich ingredients at home. You can make 5 tuna subs at home for the cost of buying a single one at the sub shop. Your savings? About $28 per week or $1,456 per year.
Save money on snacks
That mid-afternoon latte and muffin or trip to the smoothie shop can cost you $3 to $7 per day easily. Buy snacks you like in bulk and keep them in the office to save $520 to $1,300 per year. If you’ve got kids, you’ll save even more by keeping a cooler in your car stocked with healthy snacks to keep the hungry hoard at bay.
It doesn’t have to be all or nothing
I’m not suggesting that you should never eat out again. Rather, be mindful of how much you are spending on food out and set some limits. If you’re saving for a big goal or trying to pay down debts, this is an easy and almost painless place to cut back on your spending. Your return on your investment for preparation and cooking – or even just reheating — is high. That’s the secret financial power of home cooking.
Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.
Do You Really Need to Spend That Much on Entertainment?
September 30, 2016As the baseball season winds down, and my beloved Baltimore Orioles are in a downward spiral and may fall out of playoff contention, the big story on local sports radio is about the lack of attendance at Orioles games in the midst of a playoff race. When Oriole Park at Camden Yards (the best ballpark in the country in my opinion) opened 20+ years ago, it was sold out every night. 14 years of losing baseball, as well as some questionable business practices, drove attendance down over the years.
Several seasons ago, the O’s made it to the playoffs for the first time since the late 90’s, and the town went nuts. It was tough to get a ticket at the end of the year, and playoff tickets were being sold on the secondary market for outrageous sums of money. This year, I’m almost embarrassed to say that I haven’t made it to a game yet, and tickets are available on the secondary market for next to nothing. My kids haven’t expressed interest this season. Friends that I normally go with haven’t been all that enthusiastic.
It’s weird. If I don’t go in the next week or two, I will go a whole season without going to a game. That may not have happened since I was 2 or 3 years old, and I’m questioning why I haven’t. It hasn’t bugged me until today. That’s an answer that I’ll wrestle with on my own, and as I write this, I’m checking the O’s home schedule and sending a message to friends to make sure we at least get to one game.
While I wrestle with this question, it also raises the larger issue of how I spend my entertainment dollars. Along with the cost of housing, cars and food, entertainment is one of the big line items in most family budgets. Vacations, cable TV, movies, sports tickets, concerts, shopping, going out for dinner – there are a lot of dollars being spent on entertaining ourselves. When we are having a tough time making ends meet, the entertainment budget is usually the first to go. When it doesn’t, credit card bills can mount.
Most of the people I’ve talked to who are in deep credit card debt will tell me that they spent the money on “stupid stuff” (their words, not mine). A lot of times, it was because times were tough, and they felt that all they did was work, so they wanted to “reward themselves” with a little bit of fun. That fun usually ended up on a credit card, and a $100 expense turned into a $300 payoff amount after many months of minimum payments and high interest rates.
Here’s my challenge to you: Take a look at how much money you’ve spent on entertainment over the last 3-6 months. Are there ways you could have just as much fun while spending less? Hikes, bike rides on local trails, and a kayak rental at a local lake are all very low cost ways I’ve replaced my fairly expensive baseball habit. Rather than eating stadium nachos (now I’m hungry!) and drinking expensive yet lousy beer, I’ve been sweating and spending way less money while drinking water and eating protein bars.
If I can do it, you can too. Find one habit/entertainment source where you think you might spend more than you’d like. Pick a fun and free (or close to free) activity to replace the more expensive one. Spend the next 30, 60 or 90 days re-configuring your entertainment habits. I have a hunch you’ll find the change of pace enjoyable, and you might even be able to REALLY reward yourself in the long run.
4 Financial Moves I Wish I’d Made in My 20’s
August 24, 2016Whenever I have the opportunity to work with an employee who is just starting their career by calling the Financial Helpline to make sure they’re making all the right financial moves, I can’t help but gush a little bit. This simple phone call often sets into motion actions and habits that will legitimately change the course of this person’s life. I often wonder how my life would have been different if I’d had the Financial Helpline to call for unbiased financial guidance from someone who would have given me a straight answer, no strings attached. If I could turn back time, here’s what I’d have done differently:
Joined an HSA plan as soon as it was offered. I still remember the hoopla in the financial services community when health savings accounts were first rolled out, but I didn’t get it. I wasn’t yet a financial planner, so I didn’t fully understand why anyone would sign up for a health insurance plan that could cause them to pay full price for the first couple thousand dollars in healthcare expenses each year, and didn’t even consider signing up. Similar to many people’s logic, I avoided the HSA due to the high-deductible without taking into consideration the fact that my employer was willing to fund some (or all) of that deductible and based on my lack of health issues, I was unlikely to spend even that. By the time I realized the beauty of the HSA, I only had a couple years before it was time to switch to more comprehensive coverage since I knew my costs were going to increase.
Opened and funded a Roth IRA. I’ll never forget the day I stepped into my co-worker Tom’s office and asked him to open a brokerage account for me to begin investing in an index fund with the extra money I had been paying toward my low-interest student loan. Tom looked at me and said, “Are you sure you don’t want to use that money to fund a Roth IRA instead of a taxable account?” I nodded, thinking that I didn’t want to kiss that money goodbye for the next 35 years, so I opted for a regular brokerage account.
I was wrong. Had I instead used that money to fund a Roth IRA, I still would have had access to my deposits without tax or penalty, and I would never have to pay taxes on the growth of my investments after age 59 1/2. When asked by young people about priorities in savings, I never waiver in my answer:
- First get the match in your 401k. It’s free money, enough said.
- Then max out your HSA. If you don’t need the money tax-free for healthcare expenses, you can access it like a normal retirement account after age 65. It’s also often free money.
- Then fund a Roth IRA. While you are still under the income limits and the money has years to grow, take advantage of it.
Created a pet care fund. I adopted my first cat, Hattie May, my senior year of college and over the course of her short 13 year life, I estimate that I spent at least $5,000 on her care. The worst part about this is that I should’ve spent more to take care of her issues, but because I didn’t have money set aside, I skimped. This is something I’ll forever regret and I often wonder if she’d still be alive today if I’d prioritized saving for her costs. Here’s what I should’ve done: find out the cost of pet insurance for annual visits plus emergency care and then instead of buying the insurance, set that amount aside each month into a separate savings account. That way when things did come up, I would’ve had money available and if nothing came up, I wouldn’t be out the money.
Spent less money on cheap clothes. Confession: I engage in retail therapy with the best of them. I just wish I could go back to those early years and made a few less trips to stores like Old Navy and Target, where I succumbed to merchandising brilliance and bought clothes I maybe wore twice. I could’ve re-routed that money toward Hattie’s fund or a Roth IRA. The worst part is that when I went through periods of closet-cleaning during those years, I didn’t receive any tax benefit from donating those clothes as my itemized deductions weren’t high enough to qualify.
What I wish I’d done is put a limit on myself for impulse shopping. I don’t believe in going cold turkey. I do think we can all handle moderation though.
I can’t turn back time, but I can share the wisdom of my mistakes so here’s hoping you can learn from mine. What financial moves do you wish you could do over? Let me know on Facebook or send me a tweet.
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What to Consider Before Doing a Vacation Rental by Owner
August 23, 2016Every year, we do a summer family vacation. This normally involves planning for the “whine factor.” What would my husband and I like to do that we think the kids would like with the least amount of whining?
We settled for a vacation in the mountains around the Tennessee area, visiting underground caverns and waterfalls. As always, I shopped around for the best deal for hotels for a family of four and found vacation rentals by owners to almost always be much cheaper and at the same time giving us more space. We have been using vacation rentals for a few years, and as I talk to friends about our experience, below are some of the things I tell them to consider before choosing a rental property:
What equipment is available for use? We rented a condo for a beach vacation, and I brought everything for the perfect vacation: beach chairs, toys, and towels. Had I asked in advance, I would have found out that the condo owner supplied everything.
In fact, her chairs were better than ours. The owner of the condo even had body boards and large water guns – a huge hit with my kids. Before lugging a bunch of stuff that will just take up space, contact the property point of contact and verify what equipment they have that’s available for use. Also, confirm what kitchen items will be provided, if any, such as utensils, napkins, plates and mugs.
What is the cancellation policy? What if someone gets sick or there is a weather-related issue? Do you get your deposit back? Can you re-book? Ask for clear details on how long you have to cancel and the policies for emergency cancellations before you book.
Who do you call if you have an emergency? We accidently got locked out of one of our rentals. Luckily, we were able to quickly get back in, but I realized later, I would not have known who to call if there was an emergency. (The owner of our condo was out of the country). Find out in advance who to call if something breaks down.
What do former renters have to say about their stay? Read the reviews. People are NOT shy about telling others what they think of their experience. They will tell you about whether the pictures do not match what the rental actually looks like, the cleanliness of the property, noisy neighbors, slow response time, and basically everything else you need to know to make the most informed decision. I particularly look for comments from parents such as concerns about the property not being child-friendly or having nearby parks.
Vacation rental properties by owner can be a fun way to save money. Do your homework though. Taking the time to thoroughly review them will go a long way into making your vacation as peaceful as possible.
Should You Buy or Rent?
August 11, 2016This is a question I recently got on our financial helpline and one that I’m struggling with myself right now. The conventional wisdom is that renting is “throwing money away,” but owning a home also involves throwing away a lot more money than it may seem. One way to see this is by using a “Buy vs Rent” calculator like this one from the NY Times. Not only are you paying interest on the mortgage, there’s also maintenance costs, taxes, the opportunity cost of not being able to invest any extra money you put towards buying, and the transaction costs of buying and selling. Here are some things to consider before making one of the biggest financial decisions of your life:
How long do you plan to stay? For most people, this is probably the single biggest deciding factor. The longer you stay, the more buying usually makes sense because it takes time for the financial benefits to outweigh closing costs and real estate agent commissions, not to mention the risk that the home could actually be worth less when you try to sell it. It’s generally better to rent if you plan to stay less than 3-5 years.
What mortgage rate can you qualify for? To get the best mortgage terms, you typically have to have a credit score of at least 750 and put down 20%. If your credit isn’t so great or if you can’t make much of a down payment, you may want to delay buying until your credit or savings is in better condition.
Where would you invest any extra savings? If you can save more by renting and earn a good return on those savings, renting may be better. For example, if you’re not contributing enough to max your employer’s match, or have high-interest debt to pay down, or are just an aggressive investor, the return on your savings can be quite high.
What’s your tax bracket? The higher your tax bracket is, the more you can save by deducting mortgage interest and property taxes. Just be aware that you only benefit to the extent that these itemized deductions exceed your standard deduction.
How handy are you? As a homeowner, you won’t be able to call the landlord anymore when something needs to be fixed. If you can keep maintenance costs down by doing a lot of your own work or even by being a savvy shopper, buying might be more beneficial.
I’ve been renting, but I’m now considering buying a home. I should be able to qualify for a good mortgage rate and I’m in a moderately high tax bracket. On the other hand, I think I can also earn a decent return on my savings if I rent, and I’m not the most handy person.
The tie-breaker might be how long I would plan to live in my next home, which is a tough call that involves a lot of big life decisions. In the end, the decision to buy or rent often comes down to an emotional one. There’s nothing wrong with that as long as you’re aware and okay with the financial consequences as well.
Why Health Savings Accounts Are Such a Great Deal
August 10, 2016Health savings accounts have been around for several years now, but we still find that there are plenty of people out there who don’t understand how they work or why they can be such a great deal. We are lucky enough to have access to them at Financial Finesse and my colleagues with great health and relatively little expenses simply love the plan. Here’s why: it’s a high-deductible plan connected to a health savings account (HSA), a plan type that is becoming more and more common as traditional insurance premiums continue increasing.
In our case, our company pays lower premiums because we have to spend $3,500 each year before the insurance even begins to cover us. That doesn’t sound like a great deal for us employees though, huh? That’s what a lot of people originally think too. But the other side is that our employer uses the savings to put $2,500 each year into a health savings account for each of us that we can then use to pay that $3,500 deductible. As a result, we would only have to pay an additional $1,000 to reach the deductible, and that’s only after our healthcare costs exceed $2,500.
The best part is that we pay no taxes on this money and unlike FSAs, we get to keep whatever we don’t spend in our account. That doesn’t mean you can take the money and splurge it on a nice vacation (at least not without paying taxes plus a 20% penalty on it). But it does mean you can invest that money in your HSA tax-deferred until age 65, when you can then spend it on retirement without penalty, use it tax-free for medical expenses (which Fidelity estimates will be about $245,000 over the remaining lifetime of a 65-yr old couple without retiree health insurance), or just let it continue to grow tax-deferred.
The interesting thing is that it changes your whole view on health spending. Normally, you probably just go to the doctor when you feel sick and don’t think much about costs since someone else (the insurance company directly and your employer indirectly through higher premiums) is paying. Think about how you’d spend if other areas of your life worked that way (as someone who loves to eat out, I wish my company provided us food insurance). Instead, when the dentist asks when the last time you had your x-rays done, you’re more likely make sure you know the answer before paying for x-rays you don’t need.
Annual wellness visits are free of charge by law. If you rarely get sick, you may not have to spend any money at all while still keeping up on your vital visits (and banking those employer contributions). You can also use your HSA for medical expenses as well as on your spouse and dependents even if they’re not covered on your health insurance plan.
Another thing I love about HSAs is that an individual at my company can also add another $850 to it each year since the limit is $3,350 per year for a single person. If you have the deposits deducted from your paycheck, you also don’t have to pay the 7.5% payroll tax on it. Not even 401(k) contributions let you do that. When you consider that HSAs offer you both pre-tax contributions AND the potential for tax-free withdrawals, there’s an argument for funding it even ahead of your 401(k) (after you’ve maxed the match, obviously) or IRA.
So what’s not to love? Apparently not much. With two caveats: make sure you have at least enough cash on hand to pay each year’s out-of-pocket maximum and if you have latent health conditions like I do, consider switching to a lower-deductible plan when your healthcare needs are projected to grow.
How to Spend Less On Eating Out
June 28, 2016We all know eating out less can save us money. It sounds easy but at times, it can be hard to execute, especially with late work days, kids’ activities and frankly, days where I would rather have a root canal than step foot in my kitchen to cook. If this sounds like you, here are ways you can have your budgeting cake and eat it too:
1. Set an “eating out” budget. I find eating out is such a big budget buster because like with a diet, most people have good intentions but cheat. Just accept the fact that you will eat out occasionally and budget an amount of money you will spend on it. It may be $10 for breakfast, $10 for lunch and $10-20 for dinner as a starting point. Consider committing to brown bagging it four days out of the week and eat out with friends on Friday and/or on the weekend.
2. Come up with strategies to reduce your eating out costs. If you are the group organizer, you have the home court advantage. Choose a place that costs less. Even better, consider using websites like Groupon or Living Social to scope out coupons.
If you have a spouse or significant other, consider splitting a plate. You wallet and your waist line will thank you. Save money on drinks by drinking water. At $2 each, that is an $8 saving for a family of four and $416 over a year.
If you have kids, take advantage of kids eat free programs. If you have a family with hungry little ones, consider using websites like MyKidsEatFree.com or FrugalLivingTV to find programs. Plan out your day and look for places where kids can eat for free near you. Alternatively, this may be hard, but if you can get your kids to agree on the same meal, you can also have them split an adult meal.
3. Use grocery store prepared meals as a compromise. You are technically eating at home with a prepared meal. Stores like Whole Foods and Publix have fully prepared meals that you can heat up for a few minutes and have a meal with minimum kitchen time.
Yes, you can have your cake and eat it too. Just remember that your cake has limits. Budget the amounts, plan your eating out days and enjoy!