Friday, February 29, 2008

What to do with money leftover at the end of the month

I have a spending plan that I adhere to each month. I organize my spending into several categories, designate an amount to be spent and live within the plan. However, there are months when I have more than a few cents leftover in a category at the end of the month. Typically, I allow the money to carryover to the next month. For some categories, this is necessary (e.g., car insurance where the twice yearly expense is distributed over the year). For others, I just spent less than was allocated.

There are a few categories that I just keep accumulating money and I wonder what to do with it. Some I know that I could go on a shopping spree and then drain the account (e.g., clothing). Others, should I just keep carrying the total over to the next month and add it to the category? Frankly, it really depends. I will mention the various categories in which I keep accumulating money and how I plan to address the excess.

Last year, I calculated my yearly bills for natural gas and electric/water/sewer. These bills are from two separate utilities and so are allocated into two separate categories. Basically, I took the totals for the year, divided it by 12 for a monthly number and then rounded up (e.g., $38 to $40) to account for a modest increase in costs for the utility. During the summertime, the only natural gas I use is to heat water, not a large demand item. However, in winter, the natural gas use increases dramatically. Therefore, I accumulated excess money in the "Natural gas" category to be spent mainly during the winter months. This is a known increase and was budgeted over an entire year. Therefore, I continued to carry the money over until needed. This same behavior applies to the electric/water/sewer utility with a more modest increase in the summer and decrease in the winter.

Gasoline for my car is a necessity for me but the variability of the prices means it is difficult to figure out how much to allocate. In January 2008, I increased my spending by $10 and so far, it has worked well. Since I am not driving to work for a week, I need one less tank fill up for February. Of the leftover money in this category, 66% will go into savings (and added to a secret tally of gasoline money in savings for potential future use) and the rest carried over to the next month. In April, I plan on increasing the amount of money for gas by another $5 and may consider placing any leftover money in excess of $10 into savings without reservation.

I also have a category for car maintenance. Since this is a sporatically used category, I continue to let the money carry over. However, I have designated $200 as the limit so when this number is reached, the excess will be funneled into my auto savings account. This helps me for the future and most of my maintenance costs are approximately $200.

Generally, I spend most of the money in the "Eating out" category. However, this month I have spent only half of the allocation. I have an internal battle over spending the excess on something special (Pizza Hut pan-style pizza is the only restaurant pizza I really like and have not had in a year) or saving my money to forward my financial goals. The latter would be more sensible and frankly, I cannot justify eating a medium-size pizza myself. I have settled on getting the pizza only if I have a friend over and saving the money if I do not purchase it today or tomorrow. March is a new month with a fresh spending allocation!

While I have an allocation for "Entertainment", I rarely use it, even less now that I have gift certificates to Amazon and iTunes to use. Books, DVDs and music all entertain me, hence they fit into this category. When I hit the $75 mark, I plan on moving the excess into savings. While I do not get out much, I do have a big upcoming expense (two summer theater tickets and paying for a third as a birthday gift) and I plan on hosting a couple parties this year.

"Clothing" is another expense I find I have excess money. For this category, I decided to accumulate to $100 and then start saving the rest. Since I have made all my clothing purchases for the last three months in the thrift store, my spending plan was not hit as hard. I do not intend to make a large purchase as my winter coat is in fine condition and should last me several years, but if there is larger purchase that needs to be made, I anticipate $100 should cover it.

When I calculated I saved just over 31% of my gross income, I did not factor in any bonuses or deposits of money accumulated in my spending categories. If I want to reach my goals, saving more money will help me achieve further financial independence and bring my country home closer to reality. A future challenge for me: do not buy anything except necessities (gas, groceries, medication) for one month. I could save over $200 if I met this goal. I look forward to trying this experiment!

Thursday, February 28, 2008

Why unexpected money throws me off kilter

My friend W. does not understand when I get upset at receiving unexpected money. When my boss called me into a meeting a few months ago and informed me I would have a bonus on my next paycheck (to be direct deposited the next day), I was stunned. I thanked my supervisor as she is quite generous with spot bonuses, but then I had to deal with the money.

I believe in planning my finances and knowing how much I will receive and where it will go each and every month. When I get a windfall whether it is $20 or $2,000, my mind freezes and I get flustered. Now, most people would get excited to receive a nice bonus. Oh what they could imagine doing with it! Frugal pursuit starts thinking "S***! Now what do I do?" Unexpected money scrambles my brain because I am not prepared to deal with it.

If I know about the money before I get it, my equanimity remains. For example, I knew I was getting $776 from my federal tax refund and $675 from my state income tax refund. So before the money was direct deposited in my account, I calmly considered how to spend the money and created a plan. No muss, no fuss even if the numbers were higher than I anticipated before filing my tax returns.

It took me some time to realize that my poor reaction was due to a lack of planning for unexpected windfalls. So, Frugal pursuit took a deep breath and then sat down with her spending plan, her various savings accounts and her Roth IRA and considered what to do with the money. A few ideas resulted:

Fund the Roth IRA. This is an easy one to consider. My financial advisor told me to max out my retirement contributions for this and windfalls could help fund this. However, I am on track to max out my 2007 contributions and by this time next year, may max out the 2008 funding limit. While contributing to the Roth is an option, it is not an immediate one.

Save the money. With the Fed rate cuts, online savings and CD rates are not fantastic, but the yield is greater than standard savings accounts (0.75% versus 3.4% in two of my accounts). It is easy enough to deposit the money into savings and add to the emergency fund. However, there is also my auto fund and found money account to consider. Which do I distribute it to? In practice, I place the majority of a bonus in regular savings and smaller amounts in auto or found money accounts. The found money account still leaves me feeling ambivalent since I have no purpose for the account other than to see how the various bits of money add up over time, but it can be considered an extra savings cushion.

Spend the money. In many ways, this is the easiest to do. As a homeowner, there is always something I can buy to improve my home. I am as subject to consumerism as the next person especially as I have not cut television out of my life. A nice new iPod nano or new DVD or piece of clothing still has its attractions. Generally, I limit the amount of money I spend from windfalls. If it is a small amount like $20, I might splurge on eating out, but most money is saved because I always think "what if". I am single and support myself without a partner to ease the pain if money is tight or I lose my job.

My current plan for windfalls: save the money. I may debate on which account receives the money, but leaving the money in an interest-bearing account does not hurt and if I have an unexpected expense or can contribute more to retirement savings, I have the means to do so without finding room in my spending plan. With a method to handle bonuses and other unexpected bits of money, my blood pressure should stay low and my friend W. is less likely to make fun of me for panicking in the face of a surprise bonus.

Wednesday, February 27, 2008

Why I quit my job

On August 31, 2001, I quit my job. I did not realize how major a life-changing event this was until I was on the bus headed back to my apartment and realized this was the first time in my life I did not have either work or school to go to the next week day. In high school and college, I had a part-time job to bring in some money and help pay for school and incidentals. Once I attended graduate school, my research was full time and I lived on the stipend offered with the graduate position. The job I had left was the first full-time position I worked. It was heady stuff to realize that I had left a job without one lined up.

Why did I choose to leave this job? I was unfulfilled. I had asked for more responsibility and to branch out into other aspects of the lab, but not much came of my requests. I was bored at work because I could not learn additional skills and explore other interests. The final straw was not the belated annual review because our lab was losing funding. No, it was when I requested vacation time and was refused because a project I had been working on needed to be finished. Requesting I finished this project before I took time off is not unreasonable. However, I had been working at this same project for nearly a month without making headway, and I felt like I was flailing around with little guidance on how to get the project on track.

As it turns out, I finally managed to get the project done and could have gone on my vacation, but at that point I thought enough was enough. I was not encouraged to try new skills, I was refused vacation time that I had and I was plain unhappy (and my emotions were getting toxic in the workplace). I decided leaving was the better part of sanity for me.

I did not go off and just quit. I assessed my financial state and knew I had enough savings for three months of expenses. I had marketable skills and I was smart and well-educated. I did not think it would be hard to find another job. The key was I did weigh the pluses and minuses of quitting versus staying at my job and quitting won hands down. With a savings cushion and no debt, I was in a good position to move on and find something better. Plus, when I left my job, I cashed out my remaining vacation time, giving me a bit more money.

Less than two weeks after I left my position, I had a job through a temporary employment agency for a data entry position in a health clinic. The pay was not quite enough for my expenses, but it did make my savings last longer than if I had no job. While the job was not intellectually taxing, it gave me time off from my stressful lab position, and I had some time to write and that was a lovely bonus.

In fact, it was seven months after I quit my job before becoming employed at the company I am now. Since the temporary job was not enough pay, I left that position and worked for three months at another lab at the local university (pay much improved) and then left for my current company. Seven months until I found a job I was really interested in and for the time between the insane job and the exciting one, I had two jobs that paid the bills and did not drive me to too much distraction. Data entry is boring, but I was able to write fiction. My lab position was nothing exciting but was a job I could do and in a small lab that had no relation to my previous lab position.

Desire to change my circumstances coupled with a good financial state made the leap of quitting my job a lot easier than I imagined. Other than the momentary "I have no job!" thought on the bus ride home, I was confident that I made the right choice. Despite some of the dissatisfaction I have in my current position, it is nothing in the face of the anger, frustration and unhappiness I felt before I quit my lab position. I know what true unhappiness is and I know that regardless of my aimless desires, I am in a good place now and need to figure out how to improve my drive where I am.

Tuesday, February 26, 2008

Contemplating life changes (or the five-year plan)

Various thoughts and ideas have been floating around my head and involve reconsidering my career path, reviewing my financial goals, deciding where I see myself in five years and how I might get there. These are heady changes and need plenty of time to contemplate how to accomplish them. Here is how they have been breaking down.

I have been considering where I want to live. My forties are not too far away and I would like to return to my roots in the country. I do not intend to be a farmer like my father, but there is something about living my own life that appeals to the independent part of me I put away after deciding a Ph.D. and my own research lab were not part of my career path. However, to get to the point of truly changing my life situation, I would need to save more money and plan for this change. I have a few years and sitting down to make a plan would help me determine if this is feasible in five years or not.

I know what I do not like. My two years in a small city of 12,000 people have pointed out that the friendliness and small-town feel are just talk. No one has gone out of their way to introduce themselves and rather than helping neighbors, some would rather complain about the state of the sidewalk after a winter with record snowfall. There are some very lovely people as my neighbors but my experience has been neutral to negative in my suburban neighborhood and I would rather live somewhere else.

In addition, I have been reconsidering my current career but it is difficult. I am at a good company with a great supervisor but my motivation is lacking. Since I have no idea what I can replace my job with, it behooves me to find the best ways to use my current skills and learn new skills in my position. After ten years in my company, I do get rewarded with $1,000 gift certificate and I am thinking to stay with the company for ten years, reach this goal and leave shortly after. This timeframe would coincide with intention to leave for the country. My job and a new living situation are not mutually exclusive, but I think I will be ready for a big life change at this point.

How do I get to this point? I have to consider my income, my savings and what I want do with a new life in the country. I have ideas, everything from a pick-your-own-strawberry patch to a restful country retreat, a native tree nursery or even being self-sufficient. These ideas are still more vague and I need to figure out what I want to do before I execute my plan. These ideas also will take time to build to a business and therefore, I need to have money to carry me through until I am established.

Many financial bloggers impress me with their fantastic savings rate. I live on about 70% of my income, thereby saving 30%. Simplicity in Kansas regularly saves over 50% and others have noted saving nearly 70%. My fixed expenses as a percent of my income are higher than many recommend, nearly 60%. Being able to live on 50% of my income or less would be better if I found myself in a tight financial situation. A roommate would free up some money but I like my personal space so this option is not ideal. I need to explore alternative income streams but am still trying to figure out what they could be.

Regardless of the plan I pursue, I cannot skimp on saving for retirement. If I do get a raise this year, the money will go to my Roth IRA. While I am on track to max out my 2007 contributions, 2008 looks more challenging. I will likely need any 2008 tax refunds to help max out my 2008 contributions, but that is all a year away. I am still debating whether I will follow my financial advisor's suggestion and decrease my 401k contribution and increase my Roth IRA funding. I will need to evaluate this idea after I receive any boost in income. My found money may help fund the Roth IRA or go to another use (e.g., vacation or new computer).

This all means I really need a plan and ideas on how to save more. There is room in my spending plan. I do not spend much on clothing or entertainment and have let the money carry in the category. I am considering how to treat the excess: get to a total (e.g., $75) and then save the balance or start saving the money every other month when not spent. I plan on tracking the unexpected money put into my savings like my extra paychecks (I live on 24 paychecks even though I receive 26 in a year), bonuses and excess money in a spending category. This will let me know how much I really am saving in addition to my automatic transfers. It may also help me readjust my spending plan. With a goal in mind for the future (getting a farmette in the country), my incentive to save will only increase.

Monday, February 18, 2008

The long view of home maintenance

During my first year of homeownership, I was covered by a home warranty. As a first-time home buyer, this was a nice security blanket. If there was an issue with any of the mechanicals (e.g., furnace or hot water heater), I would contact the home warranty company and they would call the appropriate approved company to come out and deal with the issue. There was a $100 deductible I had to pay but if the item would need to be replaced, that would be all I needed to pay. While the furnace in my home was new, most of the other large items were not.

One of the first items I had an issue with was my water softener. The nice gentleman came out, diagnosed the issue and replaced the mechanism that sets up the softener to run. Being the thorough person I am, I contacted the warranty company and asked who they usually send out for plumbing and heating and cooling issues. With these names in hand, I set up appointments to have my major mechanicals inspected.

My water heater was pushing ten years, but unlike most energy conservation recommendations, the plumber did not advocate putting a blanket on the gas water heater. However, he advised me it was getting to the end of its lifetime and when prompted, said it would cost $800 (including installation) to replace the heater. Not really what I wanted to hear, but I did know what a replacement was going to be.

I also had my air conditioning unit checked out. The home inspector said it was around 12 years old and the service technician agreed. He looked it over, made sure it worked correctly and that coolant was present. When asked about the cost of a new central air unit, he said installation plus the unit would run $2,500. I was hoping that it would break during the warranty coverage, but the unit is a trooper and it ran just fine.

Other than the inspection visits and the water softener repair, the only home maintenance I performed during the first year I lived in my home was painting the sun-damaged south side of the house. The paint was peeling and I worked a three-day weekend to scrape the loose paint from the house, prime it and paint two coats of color-matched paint on the house. This way, I protected the wood and extended the paint job until I could get the exterior professionally done. Since I own a half of a duplex, I need to have agreement with my neighbor before such a job can occur.

Lots of people seem to have grand plans as soon as they purchase a new home. I found something sound that worked well for me and worked up to the major improvements. During my second year of homeownership, I replaced the front window, the largest one in the house, as well as the exterior door on the garage. Since light was visible through the wood of the latter, this was a great improvement. I also patched up some peeling parts of the house's exterior with plans to finish off the rest of my portion of the building this year. The window, the door and the paint were all paid for using money from savings. I also had an exterior outlet put on my home since it would make it easier for me to mow using my electric mower.

Plans this year include replacing two more windows and some electrical work in the basement. I am replacing all my single-pane windows with double-paned ones on a three-year plan so 2009 will see the last of the window replacements with the possible painting of the exterior in 2009 or 2010, pending my neighbor's agreement. Otherwise, I am planning on refurbishing the bathroom, hopefully on a small budget (<$3,000) and considering what I would like a kitchen remodel to look like. Again, all these projects I intend to pay for using cash rather than a home improvement loan. If financial circumstances change, it is easy enough to keep the cash and live with outdated but functional cabinets and vanity.

Knowing my mechanicals are sound if aging with cost of replacement in mind, I feel better about my home, extend the life of the mechanicals I have with regular maintenance and slowly but surely improve the home by updating windows and planning for future projects.

Sunday, February 17, 2008

Maintaining my car for the long haul

My goal for my car: to make it to the average lifetime of 150,000 miles. Not an insignificant goal, but one I have not achieved quite yet. This is only the second car I have owned. In college, my parents loaned me their car so I could drive to work and home on the occasional weekends (they got tired of picking me up, driving me home and then driving me back to my dorm). My parents actually purchased my first car outright, a 1988 white Chevy Beretta for $2,200. (After seeing my dad in action, I will not go car shopping without him!) However, my parents did require me to pay them back and charged me interest. It took me some time as I was in graduate school, had only had a small stipend and therefore, my car payment was small. The advantage of getting a loan from First National Mom and Dad: if I skipped a payment, my car would not be repossessed.

My memory is hazy, but I do not think I skipped a payment but I may have paid less sometimes depending on how tight the money was. I owned that car for 6.5 years and sold the 14-year-old car to my sister who totaled it in less than six months. It was a good little car, but I did want something newer for my new industry job--and a few more creature comforts.

For this second car purchase, I intended on taking out a car loan. I knew what I could afford as a monthly payment and my goal was to find something under 100,000 miles. My first car I purchased with 112,000 miles and sold it to my sister at 135,000 miles. My dad suggested I look at minivans, but I adamantly refused. Instead, we ended up eying a 1997 Dodge Stratus, Candy Apple Red. Can you say pretty? Can you say "it's not white!" The drawback--it was not immediately available. I bought the car from a man who purchases salvage cars, fixes them up and resells them. He had been in business for nearly 20 years when I bought my car and my dad was willing to bargain with him so I felt like this was a good situation. I certainly purchased my car for cheaper than a similar mileage car on a lot and it had 74,000 miles on it, meeting my goal. My engine was also upgraded to a V6 so I did not mind the horsepower increase.

Nearly six years later, it is running well, just over 115,000 miles and still going strong. The car loan was paid off six months sooner than the term of the loan so I have owned it free and clear for nearly four years. I have been conscientious about maintenance and hope to make it last until I have the cash saved to buy a vehicle outright. Here is how I do it:

I take the car into an trusted auto shop twice a year, once in spring and once in autumn. By taking my car in for its twice yearly checkup, I can head off problems before they create dangerous situations. I trust my mechanics to tell my the car is in good condition or inform me if something that needs to be repaired. Of course, usually something does need to be fixed or replaced, but they have caught issues that could have become serious. For example, part of the rotor on my rear brakes was wearing unevenly, costing me braking power and could potentially give out at the wrong time. This is not something that squeaky brakes would inform you that it needs to be replaced. This is why I like my shop: the mechanic showed me the part and it was obviously not working correctly, answered all my questions and went ahead with the repair immediately. This is why I also set aside money each month for car repairs. Sometimes it is a quick fix and sometimes an expensive fix, but I usually can cover most of it from my car maintenance fund and savings for the rest.

I change the oil regularly. Until now, I have changed the oil every 3,000 miles or 3 months as the adage goes. However, I finally looked at my manual and it recommends changing this often only if I stress the engine with lots of stop-and-start traffic or towing heavy items. Otherwise, it suggests changing the oil every 7,500 miles. I am compromising and changing around every 5,000-6,000 miles or every time I visit my mechanic. Most of my driving is on the highway (50-55 mph) with only occasional city or stop-and-go traffic. I also have an engine with higher miles on it so I do not think I want to wait to hit the 7,500 mile mark. Again, this cost is covered by my car maintenance fund.

I keep at least a half a tank of gas in my car. I understand that this is not practical for everyone. However, I live in the Midwest where it gets cold, below zero cold, in the winter. More liquid in the tank means lower chance of freezing. It also means less air in the tank and decreased chance of water vapor condensing onto the gasoline, causing engine problems. I use some of the fuel additive two or three times a year to help with the water issue. I do not know how many miles my car can go when the needle is on "E" unlike my dad and my brothers. I do not intend to find out and will continue to keep my tank at half full or more regardless of the season.

I check the air in my tires every three to four weeks. Keeping the tires properly inflated not only maximizes fuel efficiency but keeps the best traction on the road. In winter, traction may not account for much, but I want to make sure my tires make the best contact with the road they can. I always take a gas mileage hit in the winter. If my tires are inflated properly, I can get the most out of the gasoline I use.

I have been very pleased with my car. It has been quite reliable but, as with many items that depreciate, costs me money. However, it has not been expensive to maintain and the gas mileage averages 26 mpg (lower in winter, higher in summer). I believe it will get me to 150,000 miles and beyond before I need to purchase a newer used car.

Friday, February 15, 2008

Wasted money hurts

One of my first posts was on a poor money choice I made. This was a small thing in the scheme of things, but it was emblematic to me that I did not weigh my choices and decide on frugality. It was not simply paying a few cents more per gallon of gas or that fact that I ate out. It is the realization that the convenience of takeout pizza does not trump taste and laziness dictating not turning left and already having the gas in my car.

I found I have several leaks in my spending plan. The main one--well-intentioned but seriously underestimated--is Frugal pursuit. Yes, I am the big leak in my spending. It is not that I spend too much outside a category although there are some I abuse more than others. I buy something with the best of intentions and realize it does not fit or it really does not work in my house or something similar later. While 15 cents here, 35 cents there is not a huge problem (I have wasted greater quantities of money), it still bothers me because I could have added that money to savings.

My recent trip to the thrift store yielded a plastic container to add to my collection and two undergarments. The stupid part: I looked at the tag on one garment thought "hey, that's a deal", found another garment, did not look at the price tag and bought two undergarments. Turns out the second one was 2.5 times the price of the first and neither fit me. That was a waste of $6.40.

An earlier thrift store trip, I found a shower curtain I had been looking at for years thinking it was cute. I bought it even though I have a perfectly good shower curtain at home that works well in my bathroom and I really like. I have no idea what I will do with this second shower curtain. It is not large enough to cover the window in my spare room. To compound my silliness, I found the matching wallpaper border and bought that. It likely will be enough for my bathroom but I have no plans to change the walls or curtain in there. My foolishness cost me $6.85. The only way to redeem this purchase: find a second matching shower curtain before I finally sew curtains for the spare room. Having to spend money to justify a purchase--ridiculous!

I have talked myself out of things. Currently, I am talking myself out of free food I never passed up before. However, the consequences of foolishness is immediate (my health) so it makes it easier (never easy) to restrain myself. With spending, I know I have enough money but these small purchases add up. That is money that could be put toward other things, and maybe that is my error.

My spending plan is rock solid, but other than making sure money goes into savings, I have no short-term goals. I talk about what steps I want to take in my life next like purchase another rain barrel for my house, but I have not taken action. Having a specific item like the rain barrel or task like remodeling my bathroom would help me weigh my choices. Do I want a second shower curtain or part of the cost of a new bath light fixture? Do I need two more undergarments or would I rather water my garden?

To be fair, I did restrain myself from buying additional wallpaper border for my bedroom. It was a wonderful pattern but there was no guarantee it would cover my walls nor match my paint. Obviously, I am not perfect and I want to do better. The less money I spend now, the better my long-term prospects are. These small missteps bother me because I do not want to be either penny foolish or pound foolish. On the whole, I make more good decisions than bad, but there is room for improvement.

Thursday, February 14, 2008

How spending can get away from you

I used to regularly carpool with someone from my workplace. It was only twice a week but driving one less day a week was a nice treat especially during the winter (even thought I seemed to drive during the worst winter days). We would talk about many things during our trips to and from work and finances came up more than once. I happily expounded on my spending plan, talking about how the budgeting class I took helped me get firm control of my money. His situation was different than mine for many reasons including that he is married with three children.

He told me he used to work for our company but left for greener pastures many years earlier. Unfortunately, the company he worked for nearly ten years was bought out by an industry giant. Noting the writing on the wall, my carpool buddy left the company on his own terms when he interviewed for and received an offer at his old company.

Here's where the situation gets tricky: when he took a job with our company, he took a pay cut. Four months later, his wife left her part-time job to stay home full-time and evaluate what she wanted to do. How did this change in income affect the family? Not much actually. My carpool buddy confessed that they had not adjusted their spending. He budgeted using credit cards. That is, he charged most expenses and then rectified it when the statement arrived.

Using the credit card as he did is not a great way to manage money. Items and services have been paid for before you know how much you have spent. Then you have to do what he did: dip into savings to make up the balance. And if you don't have savings, you are in debt. Unfortunately, my carpool buddy is telling me this story about four months after his wife left her job and eight months after he switched jobs. He wondered how was he to pay for groceries and other things when he is only left with $200 after all the expenses were taken out. He was considering things like canceling whole life insurance (might be a smart move but not a large effect I imagine) and switching to a 50-year mortgage (a really bad move).

What lessons can be learned from my carpool buddy?

1. Manage the money before overspending becomes an issue. If, like my carpool buddy, you happen to switch jobs for whatever reasons, make sure that the change in pay is taken into account. Immediately adjust spending to the new lower level before it gets you into trouble. Ideally, a spending plan would help guide you in how to spend the new income with small changes in discretionary spending.

2. Communicate with family members. If you are married with or without children, living with someone or in some similar mutually beneficial relationship, make sure your household members understand what the change in income means. For example, no more delivery pizza and rented movie Fridays. Instead, consider making your own pizzas and renting movies from the library--for free. This is a small change in spending with little effect on family time. Children should be informed at age-appropriate levels so they understand the changes and possible "no"s when they ask for a shiny new toy or gadget. Adult household members can help look for frugal alternatives to usual activities and even be supportive in the new endeavor.

3. Preserve savings. Savings should be for unavoidable and unexpected expenses (e.g., furnace breaking in winter) rather than spending shortfalls. By putting a spending plan in place, you minimize the reliance on savings to supplement spending and keep the maximum amount available for those emergencies. You may even be able to add to savings as well depending on the changes you make in your spending.

These suggestions apply to more voluntary situations with a modest decrease in income. If you have a partner and children, this job change affects more than just you and is better discussed and understood before being committed to the change. Hopefully, you will find yourself happy, with a nice savings cushion and living well rather than asking "where did all the money go" after changing jobs.

Tuesday, February 12, 2008

How well does my nest egg measure up?

I read various blogs each day and Consumerism Commentary is one I visit frequently. This article had a link to a nest egg calculator so I thought I would follow it and find out how my nest egg measured up. There were fourteen questions like "Do you own your own home?" and "What is your net worth?", all questions I could answer easily.

The average U.S. score is 651; my score was 732 for a "Good" score, meaning I "had a respectable job of saving up to this point in my life". Above average is great but the number was followed by suggestions based my score.

1. Continue to manage debt.
The first suggestion was to minimize credit card debt. There were no questions about how much debt other than "How much equity do you have in your home?" and "How much of your monthly take-home pay do you spend?" The second part of the discussion was about mortgages. "If you have a mortgage and your mortgage rate is 1 1/2% to 2% more than the current rate, consider refinancing." and went on to advise to refinance to fixed rate if you had an adjustable rate.

None of this advice applied to me. I have no credit card debt and my 30-year fixed mortgage rate is not even 1% above the current rate. I wonder if this advice varies much among the score rankings.

2. Maximize your retirement contributions.
The advice was to contribute 10% of income in an employer-sponsored retirement plan. If not, saving an additional 1% each year to ease to it. If already at 10%, contribute to an IRA.

In contrast to my financial advisor, who told me to get my employer's match then maximize my Roth IRA contributions then make additional contributions to my 401k, this advice seems too "one-size fits all" with no reference as to why 10%. Why not 15% or 18%, other numbers I have heard would help ensure a more comfortable retirement. The advice to continually monitor progress toward retirement is a sound one.

3. Consider your other financial goals.
This covered saving for a child's education as well as for other short- and long-term goals.

Again, half the advice is wasted on me and the other goals are only touched on. Not much I can use.

4. Review your investment mix.
"Sit down with your financial consultant every year to review your asset allocation strategy and investment mix to confirm that your investments are diversified enough to help you meet your goals. When appropriate, adjust your asset allocation and/or rebalance your investments."

Sound advice regardless if you are starting out or are saving well for the future.

5. Create or review your estate plan.
Make sure your will and beneficiary designations are up-to-date, especially on your home, vehicle, real estate, investment accounts and life insurance policies. Review your coverage and make sure it accurately represents your needs. Consider how useful trusts are for estate planning.

This is important to consider but not sure how this helps me save money. This more directed at making sure whatever my estate is, it distributed how I wanted.

While I was glad to know how my nest egg savings measured up, I was disappointed in the advice given. Much of it was irrelevant and not really aimed at helping me save money. I only have mortgage debt, I am saving for retirement as well as I can on my income (right now 16% of gross income) and I monitor my mix of investments. I learned I was saving better than average, but the advice was too general for me to implement in any meaningful manner.

Monday, February 11, 2008

Tax refunds and what I will do with them

Yesterday, I did my federal tax return using the web-based TaxAct, submitting my taxes for free, and today I filed my state return also for free. I was taken aback by the amount of the refunds I was owed by the federal and state government. When I increased my withholding last year after filing my 2006 tax returns, I figured that I would just about break even with the feds and receive a similar state refund. Well, I was wrong. Although my income increased from 2006, I had additional deductions I could take including an energy credit and I ended up with the same federal refund amount for 2006 and 2007. In addition, my state refund had increased compared to 2006! So what are my plans for the money?

2007 Federal tax refund
As I did last year, I calculated out how much I would have received each pay period if the money had stayed in my pocket. I divided my pending refund by 26 and then decided how I would have used the money if I could distribute it over my many spending categories. Here is the breakdown:
40% will be a 2007 contribution to my Roth IRA
20% will be additional principle paid on my 30-year mortgage
20% will be saved
20% will be spent

2007 state tax refund
My intention was to put this refund toward my Roth IRA. However, this was when the number was a bit lower. Here is the revised breakdown:
11% will be spent
89% will be a 2007 contribution to my Roth IRA

Between the federal and state refunds on top of my monthly deposits to my T. Rowe Price account, the total contribution to my 2007 Roth IRA are 69% of the maximum $4,000. With the cash value of the term life insurance (assuming it arrives soon enough), I will be able to max out my Roth IRA for 2007 and add a bit more to the 2008 monthly contributions.

I am in the third year of my 30-year mortgage so the payment will not make much of a dent in the principle. However, I do like to contribute a bit extra to my mortgage payment and a small decrease in principle will save some on taxes in the long run. Tying up my money in my home is not the best idea so boosting my savings is only to my benefit.

Spending some of the windfall is fine as long as other financial necessities have been taken care of. Since I have purchased a bicycle, I need a helmet. The extra money would encourage me to finally do it. I also have made much of the Pet Poo Converter to help cut down on my plastic bag usage. I will definitely be buying this item!

Both tax returns I requested be deposited electronically. This early in the tax season, I can expect to see my state refund in a few days and the federal refund in a week to ten days. I have not filled the latter electronically before so it may even be quicker than that. Regardless, I should have the refunds in hand for me to make my contributions, savings and buying decisions within the next month.

Sunday, February 10, 2008

Reevaluating my fiscal policies

My mind has been preoccupied with fiscal matters. My recent health diagnosis has been a shock to my system and is motivation for getting my finances in order. In addition, I need to consider the next steps. That is, not only have a list of my savings, checking and retirement accounts, but ensure my beneficiaries are named and everything is organized in one location. Right now, a divided accordian file is my collection tool.

However, I am also thinking of more than the immediate future and this affects some of the fiscal choices I have made. What exactly has my mind been churning over?

My Roth IRA
While I indicated for my financial goals for 2008 that I would add $3,000 to the account this year, I may be able to add more. I plan to do my taxes today and therefore, will learn exactly how much I may have to pay to the feds and what I will get back from the state. Generally I do get a state refund and that was intended for my Roth IRA plus my monthly contributions. In addition, most of my tax rebate, slated to arrive May 2008, will also fund my Roth IRA.

However, as a single person, I do not need life insurance other than the policy through my workplace. My parents took out a term life insurance policy when I was young and I have been contributing to it for the last few years. I have decided to cash it out and will receive $1,800 from it. Depending on when I am mailed the check, I intend on adding this money as a 2007 Roth IRA contribution. I can do this as long as the money is added to my Roth IRA before taxes are due in 2008. This means more money in my account and I will consider either a more aggressive mutual fund or moving my money to Vanguard since it will meet the $3,000 threshold. I need to explore the returns and the fees between Vanguard and T. Rowe Price, my current Roth IRA custodian.

My found money account
I noted in my goals post that I wanted to keep adding money to this fund to open a nonretirement Vanguard account. Since my financial advisor encouraged me to max out my Roth IRA before considering such an account, I will continue to add to this account but not earmark it for risky stock investments. I have no specific goal for the Vanguard investment other than I wanted to create an account where I could potentially have greater returns than my online savings accounts. However, I am considering that this money might go toward the purchase of my next computer. My technology is more than adequate right now, but I might feel differently in a year or two. Since it is an irregular savings account, I will also have to consider when would be the right time for me to buy and if it is important enough to use standard savings for the purchase

My mortgage
An earlier post about the Fed rate cuts had me musing that I would consider refinancing if the rate dropped to 5% for a 30-year mortgage. I have been reconsidering that position as I am not sure how long I would stay in my home. If I would be staying another four to five years, a refinance would likely make sense. I could not only recoup the cost of refinancing but also make a bit of headway into my mortgage. However, if I consider selling my house in two or three years, this would not be fiscally prudent. I am reconsidering for a number of reasons including this record-snowfall winter, wanting to be in the country, owning only half of a duplex and where my thoughts on what I want to do in my career take me. This will require additional thought on my part and I may end up refinancing regardless.

Early retirement
This is a thought I have considered and dismissed many times. I do not have the savings or investment portfolio for this. However, there is a part of me that is drawn to this idea, to being able to explore as I want without a 8-5 job pulling at me. The feasability study still has to be done and I would need to really bulk up my savings, but I am attracted to the idea and am more willing to explore what I might need to do to get to this point. This goal may be incompatible with my previous items but I will have to examine this more closely.

Alternative income streams
Right now, this income stream is only a few droplets. I have sold a few items I no longer need, but then I purchased a bike and that took away the gain. I have posted a few items to craigslist and if they do not sell there, they may only be charitable writeoffs. I have other items that I intend to sell on eBay, but am uncertain how much money I will make on those transactions. I have not sold anything on eBay for years so this will be interesting. I have another idea in the back of my mind, but this is the wrong time of year to consider offering my services. Other than selling my clutter, I am not sure how to generate additional income so this may be a difficult goal.

This is where my mind has been for the last week. A busy little place and I still need to explore and make some decisions.

Saturday, February 9, 2008

Food (you are always on my mind)

It is just after noon on a Saturday and my stomach wants something to fill it. However, my ongoing health issue means my usual (typically high fat) diet is out. I love cheese, drink milk by the gallon, slather butter on my toast and pancakes, and enjoy using sour cream and cream cheese in my recipes. Raised on a dairy farm, I enjoy all the various products that can come from milk.

I have mentioned in earlier posts about my monthly grocery shopping I have a monthly menu planned to help me shop for the items I need. I try to balance between items that need preparation time (e.g., a casserole or pizza from scratch) and items that can be prepared immediately. How do I do this?

As I have mentioned, I like cheese. Therefore, an easy meal would be toasted cheese sandwiches. All that is needed is two slices of bread, butter (or margarine or even vegetable oil) and two-four slices of American cheese. Other cheese can be used but I like how smoothly American cheese melts. Butter one side of each slice of bread, place one slice on a warmed pan, add the slices of cheese (as much or as little as you prefer), place the second slice of bread, butter side up, on top, and flip carefully when the bottom side is toasted. I find that a quick and satisfying meal especially with a glass of milk.

I have mentioned pizza before. It is both a great meal to prepare during the weekend when I have more time as well as during the week when I do not feel like doing much after work. Since I generally eat alone, I do not need a full-size pizza. Once my bread maker is done kneading and allowing the pizza dough to rise, I divide the dough into three pieces. Two go into the refrigerator and one is used immediately. Before the end of the dough cycle, I cut up the onions, grate the cheese and prepare any other toppings. I do not think it is time-consuming, but additional grated cheese can be prepared for later and refrigerated.

I am old-fashioned so I roll out the dough, slide it onto my pizza pan, wet the edges and roll up the dough to form the pizza crust boundary. Since I use so much flour to roll out the dough, the water removes the excess flour and allows the dough to stick. Next comes the sauce--I tend to be heavy on the sauce then I generously sprinkle on the cheese, add the toppings (I like onions and pepperoni) then brush olive oil on the crush. It bakes up nicely in about 15 minutes and I have a thin-crust pizza fit for one.

The leftover dough can be used for meal preparation during the work week. I have kept it for a week without issue. If you like thick-crust pizza, consider making a larger batch of dough and dividing it in half. With premade dough, I can cut down my preparation time to just ten minutes from rolling out the dough to baking in the oven. That is easy enough, right?

Pasta dishes like Country Supper (smoked sausage, Velveeta, onion, macaroni) usually make several servings so enough is made for dinner and then lunches and dinners to follow. One day of cooking if it takes an hour or two and the result is four to six meals is a good investment of time. I do put the more time-intensive recipes on the weekend, but there are some that I need only an hour for that I like to prepare during the week. I have not advanced to batch cooking where meals for weeks or even a month are prepared during a day. I am limited by freezer space so this is not practical for me. If I am adventurous (and have enough containers), I might have two different leftover meals to choose from during the week.

So my menu is typically a balance between more time-consuming food preparation and simpler, quicker meals that I can prepare anytime. The items above are just a few examples. Salad is a nice change of pace and takes less than fifteen minutes to prepare. Think of a few recipes you enjoy, figure out where they fall in the preparation time scale and learn to balance when time is premium versus wanting something more than a sandwich.

Tuesday, February 5, 2008

Recession fears and the frugal person

I visit several financial web sites and blogs a day and most of the chatter seems to reflect economic fears including that of recession. The number of jobs are down, the number of new homes sold are down again, money is tight, people are spending less and the stock market is plunging--these all lead to increasing anxiety about job security, money and being able to afford what an individual or family needs. I am not a financial professional but here are my suggestions to help cope with fears about resession:

Take a deep breath and let it out slowly. Take a few moments to relax. Fear can get the better of anyone and make things seem even worse than it may or may not be. A few deep breaths can give you time to mentally step back from the thoughts that led you to your anxiety and give you a fresh perspective.

Put a few extra dollars away. If your spending plan has room in it, put unspent dollars into a savings account rather than spending it on that burger or shirt or toy. A few extra dollars will not be missed now and may be beneficial to the future.

Spend wisely. I plan on spending as I need and want, not just on gas and food, but on clothing, housewares and other things. However, I will be asking myself if I truly need that sweater, end table or bread maker (oops, bought the latter). Leaving a few extra dollars in a category or two gives me more breathing room if a more pressing need arises.

Get your taxes done before March. I like to do my taxes as soon as possible. If I am owed money (and I usually have a refund from my state taxes), it gets to my pocket quickly especially if direct deposited and I can use the money as I like. The sooner this task is out of the way, the sooner I can focus on the rest of the year and my financial goals.

Get together with friends. Connecting with people is beneficial on many levels including emotional. Have a potluck dinner or casual get-together that is both frugal and fun. Fostering closer ties with family, friends and neighbors also means there is a network of help when you need it. Have a party and enjoy time with people whose company you value.

Bolstering savings, getting some stresses out of the way and enjoying company only boosts quality of life. These strategies along with taking time to relax may help you deal with the economic stresses the many say indicate recession.

Saturday, February 2, 2008

Making reusable gift bags

About eleven years ago, I took a community class on quilting, decided I enjoyed it, signed up for a second class and went crazy buying cotton fabric to use for quilting. The quilting bug bit me hard for about two years before my interest waned. However, this still leaves me with lots of fabric (and planned quilting projects), but little completion in sight.

In fact, when I put together my unsuccessful garage sale, I put some fabric out for people to buy. No one bought it then. I posted pictures and noted the lengths of the fabric on craigslist--no nibbles there. So I had resigned myself to sending this fabric to a charity thrift store.

However, when I was figuring out what to wrap my niece's birthday gift of clothing and a notebook in, I realized I had no box, bag or wrapping paper to use. Plus, I really did not want to buy additional paper just to wrap her gift. Then a small light bulb went off in my brain.

When I had purchased my reusable grocery bags from, I noticed one of the items that could be purchased was reusable gift bags. Since it was Christmas time, I was thinking, "yeah, having gift bags that can be reused would be great!" All the gift paper in my family gets thrown out and that is a lot of paper! Paper gift bags do get reused, but there may not be one of the right size when needed.

I found directions for sewing reusable gift bags and recalled the fabric I was giving away. One fabric design was with colorful cats, perfect for a six-year-old child (or any children at heart). Therefore, I sewed up one bag, realized it was too small and created a larger one that was bigger than needed but worked for my purposes.

I was proud of not giving my niece paper to throw away, the bag was cute and it cost me nothing but my time to make! I have enough fabric remaining to make two to four additional gift bags and knowing that sewing these items are so simple, I will be hardpressed not to make more. However, I still have Christmas and other gift wrap in my house to use so my reusable cloth gift bags will only be used occasionally until I run out of my current gift wrap and ribbons.