Quick Online Shopping Tip

If you're shopping online for the holidays (or anytime!) make sure you go through cash back websites like ebates, Mr. Rebates, fatwallet or Upromise. These websites give you a percentage cash back of your total purchase at certain online stores.

Also always google for online coupons. Although some cash back websites won't let you combine coupons with their own cash back programs, so sometimes you have to calculate which is a better deal.

balancing budgets and budgeting styles

I've been keeping careful track of what I spend money on since about 2002. I've got an Excel spreadsheet format all worked out to my liking, and I try to enter receipts weekly (sometimes more often, oftentimes less). I think I miss some small cash expenses, but I generally have a very good idea of how I (now we) spend money.

For most of my relationship with Jon, I have been the money manager. We've been a 'financial unit' since about 2005. We're both responsible with money, but over the years we've learned that we have different strategies for managing it. Jon has little interest in my money management system, but developed a different system for our several months of travel abroad. We took all of our money allocated for our travel, divided it by the number of days we expected to travel, and came up with an average daily budget. Every day we entered our expenses and income and if we overspent, we watched our daily allowance go down. This system was great for knowing exactly how much money we had to work with.

This week we he and I have had some discussions about money. Our money is pretty complicated, and I'm the one keeping track of it closely. Jon is trying to save for a new computer and we're trying to save for our wedding in April. Both of us have to set aside money for taxes because it isn't taken out of our paychecks. We're making ends meet, but we're not able to save much once the bills are paid. We had to find a way for both of us to pay attention to our spending habits.

My approach would be to make an allowance for each major expense category (food in particular) and stick to it. Jon doesn't like this approach as much, so we've just re-implemented Jon's daily average system to be sure that we meet our spending and saving goals from paycheck to paycheck. Setting aside for rent and other known expenses, we've got $15.41 per day until December 2!

What's your system?

How I Saved $3000 as a Recent College Grad in NYC

I moved to New York during the singularly inauspicious year of 2002. The city’s economy was in the dumps, and I was lucky to have a job at all. It was an academic job, and so I made a whopping $28,000 per year.

In a city where the average rent is (today) around $2,553 per month and a renter is usually required to earn 40 times the rent, my salary didn’t go very far.

Here’s how I managed to save $3,000 while getting by.

I used the envelope system ruthlessly.
I budgeted every single penny at the beginning of the month. Because I got paid only once a month, this made it pretty easy to see where all the holes in my budget were.
I paid off my credit card every month in full.
I ate a lot of pasta, bread, tofu, and vegetables – all cheap.
Only once did I call home and ask mom for money.

Last weekend I found one of my old envelopes. I don’t think I want to go back to that system again; it was pretty unforgiving, but it’s a good reminder of how comparatively luxurious my life is now. Here’s a breakdown of my average budget:

$1800 monthly after-tax income
$600 rent (for a 600 square foot apartment split between 4 people)
$300 student loans ($250 minimum payment)
$200 savings
$50 utilities, laundry, etc.
$100 credit card
$150 food
$400 spending money

I had $100 per week to do anything I wanted with. I bought clothes, I went out with friends, and when the money was gone, I stayed home. Sometimes I spent $300 in a week and spent the rest of the month bored. Those months were long, but they taught me to think of my credit card as a lien against future earnings. Whatever I racked up on my credit card I had to pay in full next month. Things happened, of course: sometimes I had to raid the savings account to pay my credit card bill, but I treated my savings account as a bill to be paid over the next couple of months. Any windfalls and interest went into the savings account too.

The only time I called home for money was when I found out that I would have $300 to get me through an entire month before my full paychecks kicked in. Sometimes there's just an impossible situation to budget around.

And the discipline pays off. It keeps a lot of options open because I don’t have to keep chasing the next raise to keep up with bills. So if I have any advice to recent grads, it is this: don't move to an expensive city on a whim, and make a budget you can live with before you get your first paycheck.

Does anyone else remember their post-graduate budget? Or was everyone smarter than me and started out in cheaper cities?

Every little bit counts

Sometimes when you're on a tight budget, it can feel impossible to find any money to save. But even socking away small amounts can add up over time. Having even just a little money set aside can save you from using your credit card for unplanned expenses. I have read elsewhere that anytime you end a pay period with more than $10, you should transfer the left overs to your savings account and patiently watch it grow.

*****

Sometimes I get to the end of the month and think, “who took all my money?!” Occasionally, I run out of cash because I had some big irregular expense. More often, I look at my bank statement and see a bunch of $15 debit card charges. Individually, they are no big deal. Unfortunately, all that little crap adds up fast.

Here are some things to do to avoid those small, insidious expenditures:

• Don’t go shopping unless you truly need something.
• When you’re about to buy something, really think if you would miss it if you didn’t buy it.
• Always pack a lunch. Bring enough to actually get you through the day, including snacks. The days I don’t pack enough or bring an unappealing lunch are the ones I’m most temped to buy junk food from the vending machine or go out. The bonus is that since you take a shorter break for lunch, you can leave earlier at the end of the day!
• Only eat out (including take-out) if it’s with friends. As much as I’ve tried, I’ve learned that it’s unrealistic for me to avoid restaurants all together. I feel better about it if it’s part of a social event.
• If you meet friends out at a bar, eat before you go. A beer or three isn’t so expensive compared to dinner plus beers.

I can’t say that I always do these things. But the months when I keep these tips in mind are the ones where I end up with the most money left over.

What tricks do you use to avoid small unnecessary expenses?

Budgeting for tuition…

…I find, is a perennial pain. I have most other aspects of the family finances down pat, but I am frustrated with our stagnant savings. Apart from retirement accounts, our savings haven't budged upwards in three years, partly because we approached the savings account as fungible: that is, long-term savings, vacation money, and tuition were all in one big pot. The problem was that the pot never got any bigger, because while we were saving, expenses cropped up at an equal rate.

A while ago, I stumbled across Richard Jenkins’s article “The 60% Solution” (see ecogeofemme’s post below) and started taking a more targeted approach to saving. Because my husband and I live in New York City, our “solution” is closer to 70%, with the annual expenses and fun categories mostly eliminated. We don’t own a home, so our annual and irregular expenses are relatively small: gifts, renter’s insurance, and my ZipCar membership fee.

Then there are the two months out of the year when tuition is due, and all hell breaks loose.

The seemingly logical thing to do would be to add up all of the anticipated tuition due for the year, divide by 12 and sock that amount away each month. The problem with this approach is that it would have worked beautifully if I had started doing so before I began my master’s program. I didn’t, so I am perpetually behind the 8-ball. Currently there is $500 in the annual expenses savings account, and a tuition bill of $1,740 due at the end of June.

Because my husband and I already have over $70k in student loan debt, I don’t consider more loans an option. I need the second degree to qualify for the job I already have, but I can’t anticipate a salary bump once I finish, so it doesn’t seem wise to take on additional debt.

As has happened each of the previous two years, I’ll probably have to take part of it out of long-term savings, which is really frustrating because this is a major reason that we have made no progress saving. At least this year I can use my $600 tax rebate check to cover some of it.

Then I can start saving for the next tuition bill, which is inevitably due in January – at exactly the same time as the Christmas bills come due.

Even if I can’t budget enough to cover airfare home for the holidays, presents, and tuition, I can at least try to cover some of the anticipated expenses. $1740 divided by 6 months is an extra $290 that I will have to find in the budget, but at least that January bill will be the final tuition bill ever. I graduate in a year, if all goes well, and I won’t have taken on any additional debt to do it.

That’s going to feel like a huge accomplishment in and of itself.

How do you handle tuition bills? Divide and conquer? Loans?

The 60% Solution

I really like this article by Richard Jenkins at MSN Money. Instead of having a strict itemized budget, Jenkins advocates The 60% Solution, whereby you limit your committed expenses to 60% of your income and save the rest. He contends that if you spend more than you make, it doesn’t really matter what you overspend on, so there’s not much point in agonizing over each purchase. Instead, he recommends getting your fixed expenses – things you spend money on every month whether they are essential or not – to a manageable amount. He suggests the savings be allocated equally among retirement savings, long-term savings/emergency fund, short-term savings for irregular expenses, and fun money. The short-term savings gets used up over the course of a year and the fun money gets used up over the course of a month.

I evaluated my own budget to see if I could use The 60% Solution. I currently save about 25% of my take home pay. I could probably get it higher, since rent is about 30% of my budget and everything else* is another 30%. That everything else, however, doesn’t include things I spend money on like clothes, haircuts, entertainment, real car maintenance, local travel, etc. While I don’t spend money in every one of these categories every month, I do buy something in at least one of them each month (i.e., I don’t get my hair cut every month, but if I don’t do that I might go to the movies or buy jeans). It took writing this post for me to realize that those items could fall into the fun money category, which by Jenkins’ rules is 10% of my income. In that case, I’m not doing so badly.

The thing that sucks, though, is seeing the short-term savings money -- that 10% that you expect to spend during the year -- get spent. For example, I know I have some major car expenses coming up and I’m secretly putting it off because it will be so sad to see the balance in my savings account plummet**.

A year ago, I didn’t have much money saved and I had a bunch of debt. These car expenses would have made me a nervous wreck. I probably would have scraped together part of it and charged the rest on my credit card. While it’s sad to see my savings go to something I don’t really want to buy (clean transmission fluid and new struts), at least I have the money to cover it.


*Insurance (car, renters), car stuff (gas, minimal maintenance), food (groceries, restaurants), utilities (gas, electric, phone, internet, netflix).
**That’s a bad attitude because the suspension problems my little car has after a winter of devastating potholes will probably just get worse if I don’t get them fixed -- alignments aren’t cheap!

Goals

Some financial advice is perennial. One recurring nugget is to set goals for saving so that you feel like you're working for something rather than just depriving yourself.

I have a whole bunch of savings goals. On my current income, they are unattainable taken as a whole. But I figure that I might be able to meet some of them at some point. My priorities shift over time, so the item that tops the list changes too. I’d like to save for

• Three month’s expenses.
• Trip to Florida with BFF (I will have to pay for little more than airfare).
• Trip to Europe for family wedding.
• Our wedding. We’re not engaged, but I think it’s in the cards and I know our parents won’t be able to pay for it. Our wedding will probably involve helping some people travel to the U.S. from Far Off Land (where my boyfriend is from) or us going there to celebrate with the folks who can’t make it to America.
• Potential gap in employment and moving expenses after we graduate, plus deferred student loans that will kick in soon enough.
• Travel after graduation. We’d love to spend some time in Far Off Land, maybe 2-3 months. This is something of a fantasy.
• Down payment on distant future house.
• Retirement.

So my goals range widely in amount and time frame. It helps to have these things in mind when I put money in the bank instead of spending it on something I want now.

What are your goals? Do you find that having goals helps your discipline or does it make you feel discouraged?

A Penny Saved is a Penny Earned

Graduate school for the most part is an exercise in counting pennies. We live paycheck to paycheck; there has to be a way around some of the insanity. One thing that I was encouraged to do in graduate school was to use a high-interest savings account. Typically, bank savings accounts have an interest rate of 0.01% because of the amount of overhead they charge. High interest accounts tend to be based online and have a variable interest rate. Most high interest accounts are around 3% right now but do be careful, a lot of them have a required minimum balance to achieve the best rate. Read the fine print.

So how can you manage your savings? A target goal in your savings is 1 month's salary in a very flexible account and 3-6 month's salary in a higher interest, but less accessible account like a money market or a mutual fund. These goals can be reached by a "Pay yourself first" strategy. Most financial advisors recommend saving 10% of your monthly income, but even a small fixed amount like $25 or $50 can help build this habit. The reason I brought up the high interest route is that your money works a little harder for you and you do not sacrifice your access to the money.

If your standard bank checking account requires a savings with a minimum balance, keep this savings account at its minimum balance and leave it alone. Consider it like your security deposit on your apartment. When you close the account, you have that money there. However, keeping it at its minimum helps you avoid the bank fees.