Sunday, December 14, 2008

Managing finances in difficult times

My net worth analysis for November was down by 2.11% compared to the month before. In fact, this was the third month of negative numbers. Not surprising when the stock market is going down and staying there. The shares of mutual funds I bought when the market was high have lost a lot of value and the shares I am buying now when the market is low are not enough to counteract the losses.

I am happy I have a job, am saving money and have no debt aside from my mortgage, which is still a comfortable payment. I wanted a fixed rate, 30-year mortgage and in these turbulent times, I am glad I was firm in my resolve. While I cannot control much in the face of the US economy, there are a few strategies I employ that do affect my bottom line.

Keep adding to my savings account.
Extra money in the bank or credit union means when something breaks, my cat is sick or my job is cut back or lost, there is a financial cushion to keep me from sinking immediately. Currently, I have enough liquid assets for at least six months of expenses. That is enough to take care of most issues without resorting to credit cards.

While I have money set aside each paycheck, I also use leftover money from my spending plan to add to the savings balance. As a single woman, a large financial cushion makes me feel less stressed and more able to weather blows that may come my way.

Stay within the spending plan.
This strategy can be difficult sometimes, but if I keep within my plan, I know I will not overspend and may even save a bit extra money with the leftover amounts in various categories. By keeping to my spending plan, I cover the basics with room for small indulgences and know my savings goals are funded. The money in my spending plan is total after taxes, 401(k) and Roth IRA contributions as well as saving for charity, emergencies, car and other goals. By allocating my money into categories, I keep my spending at appropriate levels and know when I only have $2.10 left in my grocery allocation.

Shop for great deals.
Hand-in-hand with the saving money and keeping to a spending plan, I keep an eye out for items to buy at great prices. Because I have no consumer debt and a good savings cushion, I can take advantage of great prices. Knowing how much I normally pay for items in the grocery store lets me know when loss leaders at my local grocery are worth making a trip. This month, I had $21 left in my grocery category and took advantage of some loss leader sales on eggs, sugar and flour. By keeping an eye on my local charity thrift shop and craigslist, I can get items I have wanted (e.g., wool blankets) and pay less than new. There are many people that are trying to get rid of items in his or her home to raise extra cash. I have money I can spend so this is a win-win situation.

However, spending comes with a caveat: spend for only what you will use. There are many things I want that I do not need. Sometimes I push my spending plan or savings harder than I should because I could not walk away from the "deal" I saw. It is not deal if you do not need it and will not use it. Instead, it becomes clutter that takes up precious space in your home.

Keep it simple.
Keeping expenses low involves many strategies including cooking meals from scratch, bringing lunch to work, combining errands into a single car trip and staying home to enjoy time with family and friends. Purchasing lower cost, unprocessed ingredients to cook meals saves a lot of money. Bringing leftovers or making a sandwich saves money spent on lunch. Instead of going to the grocery store to pick up a snacky I desperately crave, I keep a list by the refrigerator and visit the grocery store when there is a deal running. Instead of just visiting the grocery store, I also visit the hardware store for the nuts, bolts and washers I need, the drugstore to buy candy for Christmas presents, the library to return my books and the thrift shop to check out the deals. This means several errands are accomplished in a single trip as these places are close together so I waste less time, gas and money.

Instead of dinner out, movie and some drinks at a bar after, try inviting people over for a potluck, rent a movie or play some board games and enjoy beverages. Meeting at one location, staying there for the entire engagement and then leaving once is simpler and less stressful. Try carpooling to the hostess's house. Less gas is used and fewer cars are strewn along the side of the road or in the driveway. Rotate socializing at various homes.

Setting aside time to spend with family is valuable as well. Friday night games and Saturday night movies marathon at home mean a lot to kids. I have fond memories of playing card games and consuming vast quantities of taco dip with my family on special weekends. Allow the kids to choose the movie, snuggle up on the sofa and eat some freshly popped corn.

By saving money, sticking to a spending plan, watching for good deals on items I will use and keeping to simplicity strategy, I am keeping my head above the swirling financial waters. Controlling expenses and saving money will put anyone in a better situation and reduce the stress engendered by our global economic situation.

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