Save? Who Has Money To Save?

If you are like most people, you probably find it really hard to save money.  There's always a fabulous new pair of shoes, or a new electronic gadget that we absolutely positively cannot live without. Sometimes we mindlessly spend money on a quick trip to the convenience store.  We've all walked into store intent on buying just a few items, and before we know it, we walk out with arms full of stuff we don't even remember putting in the cart.  We’re guilty of downloading from ITunes or Amazon with reckless abandon.  We guzzle $5 Venti Mochas from Starbucks every day.  We spend hundreds of dollars buying things on sale, whether we need them at the moment or not, merely because it was on sale.  We live in a society of “now” and before we know it, our bank balance is a big fat goose egg.   
 
Most of us need a reason to save. It's a little easier to save if you have a clear purpose for the money. That and I don't know a lot people who instinctively squirrel away their money, unless they survived the Great Depression.  With the median household income of most Americans families being about $50,000, most of us can’t afford to save much, and may only be able to save for one thing at a time.   There are three basic things you should be saving for. 

First and foremost, you need to save for an emergency fund.  Life happens, and whether it’s a natural disaster, a sudden illness, a layoff, an automobile accident, or a major repair, you will need to find a way to bridge the gap until you can either return to work or settle up with an insurance company.  How much to save is up to you, but ideally, it’s recommended that you save 3 to 6 month’s income.  In the real world, it’s going to depend on your personal situation.   Even $1000 set aside in the event of an emergency is better than nothing at all. 

Second, unless you don’t expect to live past the age of 67, or you actually plan to work until you die, you probably need to start setting money aside for retirement.  The earlier you start, the better off you will be.  If you start by saving $50 a month every month at age 25 and invest in either indexed funds, or an indexed universal life insurance policy with cash value, investments that usually have higher rates of return (around 8%), after 40 years, you will have approximately  $168,000.  If you invested $100 a month over 40 years, you would have $335, 737.00 when you retire.  If you wait until age 40 to start saving, you would have to save $340 a month – over $4000 a year to achieve $322,000.00 at 8% interest. 

The third reason to save is for short term goals, an engagement ring, a down payment on a house, a new car, a big screen TV, a new laptop or tablet, new furniture, or a new appliance.  When you pay cash, it saves a lot of money by avoiding those nasty interest charges, and it belongs to you.  Sometimes you can wrangle a better deal on something if you tell them you are paying cash.

With the reasons to save out of the way, figuring out how to save is next.  More importantly, making sure you don't spend it once you have saved it. There is an adage that's been around for a while that says pay yourself first.  The experts say you should be saving 10% to 15% of your income.  While most people might not be able to save that much at first, once you build a little nest egg, it becomes important to protect it.  It’s okay to start small, even if it's $10 or $20 a paycheck.  Put your money into an online account like INGDirect or Ally. These online banks require 2 or 3 days to transfer money so you don't have immediate access it makes it easier to save.  You might even consider having it directly deposited into your account out of your paycheck, so you never even see the money. Another idea is to deposit any raises in your pay into a separate account.  If you are able to live off what you currently make, putting a raise in the bank allows you to put away money without ever seeing it.  Another idea is to use cash to pay for everything that doesn’t require payment by debit or check. The interesting thing about paying with cash is that when you have the cash in your hand, you know there is a limit, and it makes you think about impulse purchases, since when it’s gone, you have to wait until you get paid again.  There is a woman in Houston that started using cash for all her expenses that she could.   When she got a $5 bill as change, she set it aside in an envelope and deposited them into savings at the end of the week. She managed to save $1200 in just one year.  Another friend of mine saves all the one dollar bills marked H and J, her initials.  She estimates that she saves about $500 a year in $1 bills.  If nothing else, you can save your change.  It adds up!  Another option you might consider if you don’t think you are disciplined enough to save each month, is setting aside your tax refund if you get one. 

So Frugal Friends, what is you reason to save? and how do you save your money? I'd love to hear from you! Happy Saving!

A Frugal Journey

I've been asked by people, why chose a frugal lifestyle?  I suppose for each person it is different, but for me, it was a chance to stop the endless cycle of debt.  I had student loans, car loans, and credit card debt that circled like a cloud over my head that I could never seem to escape.   I was using credit cards to pay for clothes, gifts, emergencies, car repairs, co payments on health care, and the inevitable yearly Christmas shopping.  I was stuck on a financial merry go round, and I had no idea how to get off.   I knew I was paying out a lot in interest every year, but it wasn't until the credit card companies started listing how much I was paying yearly in interest on my bill did I really sit up and take notice.  I started reading things from the experts, tried to create a budget, and tried to pay off my highest balance credit card first,  all the things that you are supposed to do.  I failed miserably.  At the end of the first year, I was no further ahead then when I started.  All that money I worked so hard to pay off, I charged back up again, when I ended up out of work for 4 months.  It's embarassing to admit that I failed. 

I've learned a few things about how money works in the meantime, and I am once again working toward my goals of being debt free.  Instead of paying down my credit card debt down right away, I put money aside for emergencies in a savings account I can't access easily.  That way I won't end up right back where I started.  After that I started paying down my debts.  I cut out all the incidental spending.  I stopped going to the gas station for coffee on my way into work,  I stopped eating fast food for lunch and getting a Route 44 drink everyday from Sonic.  I no longer run to the convenience store at the corner and spend 3 times more for the item than I should, just for the convenience. I stopped drinking soda, and now make my coffee at home and take it to work in a reuseable cup.  I bought a tap water filter so I can fill my reuseable water bottle right from the tap.

Not only do I set a budget each month, I plan out my shopping. The sales ads I used to toss in the trash are now checked weekly for items that are on sale.   My pantry and freezer are stockpiled full, as are the toiletries cupboards in the bathroom.  What might really surprise you is that most of it is name brand items.   I've learned to buy several of one item at a cheaper price, when things are on sale, and matched up with coupons.  The key really is planning. It takes an extra hour or so of my week, but is worth every second of that time.  When I want or need something, instead of going shopping, now I search out used items on Craigslist and Listia. Sometimes I go to garage sales with a list of things I am looking for.  I made almost all of the gifts I gave for Christmas.  Instead of buying books, or renting movies, I go to the library where I get them for free.

I finally feel in control of my life and my spending has stopped spiraling out of control.  I am learning to live within my means, with a little help and encouragement from friends.  I still struggle, and I am still tempted, I desperately want to buy a new car, but I have promised myself I will not take on anymore debt until I can afford to do it comfortably.  It was a good thing too, because recently I had to leave my job, and I am in the process of starting a new journey.  I started this blog to share my journey, and pass along the little tips that are helping me along the way. 

So frugal friends, what are you trying to accomplish on your journey? 

Financial Goals 2013

It's the last day of 2012! Maybe 2012 didn't become all that you hoped, and since they Mayans prediction of apocalyptic doom didn't happen, perhaps you have a bit of a financial hangover, or at the least, you didn't accomplish any of the goals you set for yourself.  The time to think about this next year is now.

Think about the goals you would like to accomplish in 2013. Do you want to get out of debt?  Is there a family vacation you have been dreaming about?  Do you need to pay off your student loans?  Do you need to start a college fund for your kids?  Have you started a retirement fund yet?  Perhaps you want to be a stay at home parent, or start your own business in 2013.  Maybe you just want to buy a new car or that big flat screen TV you have been salivating over.  What are your life goals this year?  What are your financial goals this year?  Now is the time to ask yourself those important questions!

Here's the plan, and yes, you actually have to have a plan:

Step 1. Write down your goal.  If you don't write it down, its just a wish. You can't build a foundation for a castle in the sky.  The purpose of writing down your goal is to make yourself accountable.  You need to look at your goal weekly to remind yourself of what you are doing and why you're doing.  Sometimes goals require uncomfortable sacrifices and if you have that reminder in front of you, it allows you to stay focused on what is important to you. 

Step 2.  Write down what it will take to accomplish that goal. 

• Does it mean picking up an extra shift or working a second job? 
• Does it require giving up your daily trip to Starbucks for a Venti Mocha?  
• Does it require you to start living a more frugal lifestyle? 
• How much do you need to save to accomplish your goal? 
• How long will it take to achieve your goal? 
• Where are you going to save your money? 
• How much time or money are you willing to sacrifice each week to achieve your goal?

Step 3.  Implement the goal.  This is the moment when you must do the hard work.  Unless you want to be like Sisyphus, rolling a rock up a hill, only to have it crash back down on top of you, you have to be ready to put your plan into action.  While I reccommend creating a budget, I understand that not every situation allows for that.  At the least, you need to know how much you earn and prioritize your spending from there.  It will help to look at your past spending to see how you have spent your money.  This will take about 2 hours of your time, but it is worth every second.  It never hurts to do a financial check up, even if you do budget your expenses. 

• Pull your bank and credit card statements from September or October of 2012 and categorize how you spent your money for an average month. (November and December tend to be bad for averages because of the holidays).   
• Divide your spending into categories: housing, utilities, transportation, insurance, medical, entertainment, food, clothing, savings, and miscellaneous.   
• What do you absolutely have to pay every month?
• How much can you reasonably set aside to achieve your goal?
• What are you spending money on each month that can be eliminated?
• Is there a way to reduce or consolidate what you have to spend?

Once you are aware of where your money is spent, you can take it a step further.  Become conscious of your spending. 

• Think about what you are purchasing and why?  
• Is there a more affordable way to achieve what you need? 
• Can you borrow the item or barter for it?
• Do you have a coupon or discount?
• Can you survive without it? 
• Will it help you achieve your goals?

I hope this will help you begin the year on the right foot. Well that is a wrap for today Frugal Friends, I would love to hear all about your goals for the new year!   

Tax Tip:  Today is the last day to make contributions to your IRA, make charitable donations, prepay  tution for next year, or pay your property taxes, in order to deduct these itemized expenses on your 2012 taxes.