Sunday, December 30, 2007

Little Money Trick #2

There is a lot of money to be saved in stockpiling coins. This is in the same vein as my earlier post Little Money Trick #1, I recommend doing the same thing with coins. I generally have coins in an antique coffee cup on my desk, next to the dish I keep my house keys in.

While I generally don't stockpile coins and take them to the bank or a coin counting machine, I used to. The first time I ever counted the coins I had in my apartment, I had about $100. It was satisfying, and time-consuming, to count and roll all the coins and then take them to the bank. I remember putting that money in my savings account, and that money later went towards my first international trip.

After the "discovery" of that $100, I started intentionally always getting coins back when I bought anything. Very similar to what Bank of America does now, without the monthly fee (for the record, I don't like BoA, but I do think their change-saving program is a fantastic, fantastic idea).

My one main rule about saving change, is to not save pennies. Pennies grossly inflate your idea of what you have, and they are just a pain in the bottom to deal with. Instead, I keep them in my purse and use them at every chance -- it's a nice thing to search for a couple pennies, and find you don't have any! If I find I have a lot of pennies, I'll count them out and use them for bus fare, which for me is the quickest and easiest way to use them up.

I also like keeping a certain amount of change at home, because if I'm short of cash in my pocket I always have bus fare. I don't tend to keep a lot of change at home, because it's heavy and takes up space, and also because it takes a fair amount of time and effort to accurately roll it all up -- though, this could be a good lesson in saving for kids, making them count and roll coins, so they can more easily see how much can be saved by simply keeping coins. Since most banks no longer have change counting machines, I don't tend to stockpile a lot of coins. Coinstar does have change counting machines, and I think it's worth it if you or your family has a lot of change or wants to use coin saving as a way to boost a savings account.

Several years ago, I had a friend who made a bet of sorts with a family member, to see who could save the most coins in a year. They each found a water cooler plastic container (the big ones you see in offices), and on 1 January started throwing in any and all coins they laid their hands on. I don't know what ever happened with their "bet," but I do know that my friend (who was not-so-good with managing money) finally found a way that she could successfully save money, because it was easy and in such small amounts.

I do think this is an excellent way to get kids in the habit of saving money. I still have the coin bank I had as a kid that my dad bought for me to save change in. He would give me an allowance, and suggest I save some of it, and he would have me put in coins occasionally. Then, whenever there was something I wanted (usually toys, since he started this when I was seven), he would ask me to count what I had and if I had enough I could get it. I think this method certainly is not limited to children, and that an adult could do something like this, and then dip into the piggy bank once or twice a year to splurge on something they want (this is certainly what I occasionally do with the cash I keep in my closet).

I think this is an excellent way for someone who has difficulty saving money to start working on that. Given time, we all generate a lot of change and it all definitely adds up.

Saturday, December 29, 2007

The $125 Lesson

I was visiting a friend this past week, on the other side of the mountains (which have been getting a lot of snow). I was supposed to leave on Thursday, though it was predicted a huge snow storm was due that day. Since I didn't have to visit my client on Friday, I opted to stay until today, because the forecast predicted warmer weather today.

After waking up early so my friend could take me to Greyhound on her way to work, I found out the first (and probably second) Greyhound bus was cancelled due to the snow -- after she dropped me off. At 9am on a Saturday morning, I was stuck. I was in a rather small city, and the clerk suggested my only option to spend my time was to go to the mall (no thank you -- I'm not really a mall person and I didn't want to be forced to spend time in stores where I would possibly find something I wanted but didn't need). Another option was to rent a room in the hotel across the street and sleep (I was tired). My final option was to spend about $100 and fly back (note: the extra $25 was for the taxi to the airport and shuttle transport in my own city).

After finding out the ticket price I saw yesterday was still available at the same price, I ended up flying back. I figured that if I rented the hotel room, the cost would be at least as much, and then I would still have to endure a sold out bus ride back -- on a bus that wouldn't get me home until probably well after midnight.

After I felt dejected for a few minutes and got past my intial frustration and WTFamIgoingtodo-ness, I decided that flying was the best option. Yes, it added significantly to my travel costs for the trip, but when the only other option I seriously considered was getting a hotel room so I could sleep and I considered how much that would be [both money-wise and time-wise] versus the flight, there wasn't a question for me.

I learned a couple of things: 1. That there is a definite price I will put on my time if I'm stranded and there is absolutely nothing for me to do (and my only options are to spend money (e.g. hotel or mall)); 2. There are choices you make in frustrating circumstances, and you put a price on those ($125 is a small price to pay to not be stranded and to get home earlier than I initially planned on, and to just have a more pleasant point-to-point trip overall); 3. Sometimes what seems like it would be an expensive option really isn't (being able to buy a plane ticket for $100 on the day of a flight isn't a bad price in the US).

I also learned that flying is far cheaper than I thought it was to that location (I thought it was close to $300 round trip), but some tickets are available for about $50 each way, and it's with an airline that I get frequent flyer miles through. I'd never looked in to the flying option because I thought it was so much more expensive. In the future, if I have a choice between a $65 Greyhound ticket (RT) or a $100 plane ticket, I will choose the plane ticket. Flying saves me a good 4-5 hours, which, if I'm able to use that time to work instead, allows me to have less downtime and make more money.

On the flight back, I thought about how we make choices with our money, when a frustrating situation appears. I know that oftentimes people make rash decisions that cost a lot of money, without fully weighing the options. If I'd been able to call my friend and have her pick me back up (if she had a cell phone and if she hadn't been working), I would simply have stayed longer. I did see a lot of people at the station, that were bemoaning what they were going to do, and some of them had tried to get on the bus last night. None of them seemed to even consider flying as an option -- though most of them appeared to be with friends or family that they could stay with. What cost was it to those people, who maybe had jobs where they lost a shift?

The last thing I learned was that I miss being in airports...which is a dangerous thing. I've always liked airports, because they signal (obviously) going places, but I've never realized exactly how much I really, really like airports. This is a dangerous thing to think about, so I'm trying not to...otherwise I'll blow my emergency fund on a ticket to Iceland...or Panama...or Argentina...or [you get the picture].

In the end, I have the money in my emergency fund (and yes, I truly consider this its own kind of emergency, though obviously not the same severity as say, breaking my arm) and I'm happy to pay this cost. I also learned a few things, and that was worthwhile, too.

I'm interested to know how other people would have reacted, and what kind of "price" you put on your own [non-work] time.

Friday, December 28, 2007

Debt Reduction Redux: What Didn't Work

One commenter asked what worked and what didn't. I've outlined several actions that worked for me.

Something I regret, which is (to me) something that didn't work, is that I didn't get to travel this year. I made a 2-night trip to Portland earlier this year, but that was the only time I "travelled" this year. I didn't even make it to Vancouver B.C....

Now, some may say that not travelling is necessary. Yet for me, I've travelled a great deal and it's one of my top passions. I've realized that this is something I need to plan and save for, separately. One thing I've learned myself, is that you must have certain indulgences periodically. Otherwise, you'll become the dieter who abstains from sweets for two weeks, and then sits down and eats an entire chocolate cake in one day. For someone like me, a total abstinence of travelling could result in me spontaneously buying a ticket to Europe and spending a month visiting friends and finally going to Iceland. However, I know that is a bad idea, as it would either decimate my "emergency/home" savings account, or I would charge most of the trip.

The logical step is to find a balance. I have a few savings accounts through Ing, and I plan on opening up a new one that will be dedicated to saving for travel. I advocate saving up for purchases -- especially when you're on a budget of any kind -- and working your way towards the purchase. I did this when I bought my iPod, and I did this for my last trip to Argentina (instead of paying down my debt I saved money to travel...), and it's a very, very satisfying feeling when you reach a very tangible goal like this.

Another point on which my strayed was in not budgeting for shopping for new clothes. I've spent nearly half of the last three years travelling, and my wardrobe reflects that. Instead of regularly buying a few pieces of clothing, I was instead wearing the same clothes over and over and wearing them out. This year, I've been slowly rebuilding my wardrobe -- from basics to nicer clothes, and periodically I blew my alloted weekly budget by buying clothes. I tend to work from the 'I can buy what I want as long as it keep me within my weekly pocket money budget' school of finance. I'm still searching for a better pair of winter shoes that I can wear with skirts, and I need to get some more shirts that are better for winter. When I was travelling, I was often in warm climates, and I have plenty of warm weather clothes. In addition, I've also been losing weight this year (intentionally), and that is affecting my wardrobe. I'm at a point now that I've lost about 1-1.5 sizes, and I've gotten rid of some clothes which no longer fit well (e.g. the jeans I could take off without unbuttoning). Part of my solution to this is to buy most of my clothes in stores like Goodwill and Value Village, and it generally works quite well. I still have some clothes from when I wore a smaller size, but they don't yet fit. I'm also working on buying nicer clothes that will last longer, and I'm avoiding buying "disposable" clothes.

I'm once again budgeting for is dance classes. I love to dance, and after a few years of not regularly taking classes, I'm dancing again. This means I will put that much money less towards my debt and savings -- though it's really not very much. The classes keep me happy, and also keep me active in the colder months.

So, while this is a longer post than I planned on, the lesson is this: allow yourself to keep some things in your budget that may be seen as frivolous by others. For me, it's travelling, dance classes and (temporarily) re-building my wardrobe. For you, it might be eating in nice restaurants, music, electronics, or your personal hobby. The point is to not completely excise everything enjoyable [that costs money] from your budget or your life. Maintaining this kind of balance while you have debt is a valuable skill, as it will be something that specifically translates once the debt is gone. Instead of going from a no-frills life to a life without debt (and perhaps far too many frills), the newly debt-free person will already be budgeting for the things they want and will be less likely to overspend on those things [because they were not available during the debt reduction cycle].

The better the balance you can strike for budgeting and debt reduction, the less you will resent the sacrifices you're making, and the happier you'll be.

Sunday, December 23, 2007

On Basic Money Management

I know people have unique perspectives on how people should budget. Some people say track every penny, some say live a cash-only life, others have personals tricks. JD at always says "Do what works for you" and I agree with this. I also believe that people should do what they need, in relation to different times of their life.

As an example, I have never successfully tracked every penny of my budget for longer than 12 hours. However, I learned some time ago that I had to follow my budget, or account for why I didn't. Personally, I do not need to track every single purchase in order to stay within my budget. Yet I understand that someone with debt or spending problems, and no clue with how they are spending their money -- this type of person certainly benefits from tracking each expense.

When I hear about people who are penny-tracking nazis (people who believe everyone should do this, without exception, and with malice for those who don't), I wonder if they just need that level of control over accountability (e.g. so they don't spend too much), or if they are simply obsessive about knowing exactly how much was spent on, say, shampoo or bus tickets, at the end of the year. Though if it works for them, then that's the important thing. If someone has debt and can't find a balance, they will never be debt-free.

I also recognize that as time changes, budgeting and money management skills often change. If someone starts by tracking every expense, they eventually learn where their weaknesses are, and as they work to strengthen those their habits may change significantly enough that they can maintain their budget without the detailed tracking. Or perhaps they have finally learned and been able to implement living with their means.

As another example, when someone's income changes dramatically, their budgeting generally changes, too. When I started working for myself, my income increased greatly. Being self-employed, I also had to worry about saving for my tax bill, and keeping track of business expenses. I also didn't increase my pocket money when my income increased, and this has allowed me to live at the level I was previously accustomed to, and now pay down my debt even quicker. However, when my debt is completely paid down, I've already planned how much I need to invest to meet my retirement goal, and I will also increase my weekly pocket money allowance (which has been the same for probably five years, if not longer).

When income increases or decreases dramatically (let's define dramatically as a 10% or more change), budgeting needs to be re-visited. For me, I have my budget spreadsheet set up in a way that after my basic expenses are covered (e.g. insurance, cell phone, minimum debt payments, pocket money), the balance of what I earned that week is allocated to my savings, IRA and as extra debt payments on a percentage basis. Throughout the year, I do change the allocations, depending on what balances are and what my work situation is like. If my emergency fund is at the level I strive for, I lower the allocation for my cash savings and raise the allocations to my debt and IRA. Alternately, if I know that I will be finishing a project soon and I'm not sure another one is starting immediately afterwards, I will re-allocate my money so that more goes to my savings to ensure I'm fully prepared for not working.

I believe re-allocating on a budget is a smart and wise thing to do. Having a spreadsheet that allows for easy adjustments to allocations is also a factor that makes doing this far, far easier. Being able to easily do this can help in getting through a rough patch (e.g. for me, not working), it can allow you to give yourself some extra money when you take a vacation, it can allow you to save more when your income changes.

The over-arching goal, though, is to find a balance that is appropriate for you and for your current lifestyle. Successful money management is like a marriage: you come together for a greater goal, and yet you realize that you both will change over time and you commit to adapting to the other's needs. Sometimes a partner needs a little reining in, sometimes the partner needs a little more freedom.

Monday, December 17, 2007

Frugal vs Cheap

I know, I know. This topic has been written about to death. Though, I think that it doesn't have to be a long discussion.

For me, frugality is searching out true bargains, and true quality. Cheapness is simply spending the least amount of money possible, regardless of quality. Period.

In an earlier post, I talked about this topic in regards to clothing. (I can't help it, I'm a woman and I shop...) If you shop anywhere, odds are high that the cheapest pieces are cheap materials -- I've only found this not to be true very, very rarely. If you buy shoes in a cut-rate store (e.g. Payless), you're going to be buying shoes much more often. Without exception, every time I've spent money to buy good quality shoes (e.g. leather, non-plastic soles, good fit), they invariably last longer than bargain shoes I've found.

While I often like the clothing selection at Target, the fabrics for most of their sweaters suck. Nearly every single time, there is acrylic in the sweater, or a blend of non-natural fabrics. Nearly every single time, the sweater starts to pill within 2-3 wearings. So yes, maybe that sweater was $18, but if you can only wear it three times, the cost is $6 per wearing.

On the other hand, spending $60 on a fine-gauge wool sweater that you can wear 50 times...this is obviously a far smarter buy. However, many people (including me, sometimes), think "well, I only have $30 to spend today, so I can't afford the $60 sweater." The problem is obvious -- you budget too low for something you want/need, and then you buy the cheaper item, which then doesn't last long and needs to be replaced sooner.

One very important thing to remember, though, is that price does not equal quality. My presumption is that readers have at least a general knowledge of what is quality and what is cheap fabrics. If you're not savvy on fabrics, for example, know that natural fibers are generally much better quality than blends (they are definitely better than acrylic or polyester). If you're shopping for furniture, find out the track record of the store and the products. Ikea has some great deals, but some of their lower-end furniture isn't terribly durable.

While the examples I used centered on clothing, the principle applies to most anything. With anything, it pays to know the product and the quality of the materials.

Finally, the last thing to remember is it behooves you to know what needs to be bought as quality, and what is ok to be a little "cheap" on. Do you need workout clothes? Those t-shirts probably aren't going to last terribly long before they get stretched or sweat-stained, so buying expensive or trendy t-shirts isn't the best idea. It's generally always a good idea to buy quality shoes, and this is one thing I try not to scrimp on. Cheap shoes often have a terrible fit and terrible materials. I went shoe shopping a couple weeks ago (out of necessity), and while I couldn't find anything in the couple mid-high end department stores I started at, I did find a fairly nice pair of shoes for $11 in a discount department store, and they'll last me for at least several months.

The deal is not in the price, but in the quality and the price. Know how to shop and what good quality products are, and you'll save yourself money in the long-run.

Sunday, December 16, 2007

Back to work! (aka time to invest)

Last week, my primary client contacted me and requested that I come in to document a small project. While I was there, I was given the go-ahead to start the next big documentation project (which will take a few months to accomplish, minimum), and the man who is my client wants me to build a website and write some content for one of his personal businesses.

In other words, it was a banner week for earning money and being given projects! In November, much of my time was dominated by writing a novel for NaNoWriMo (National Novel Writing Month), and without a major distraction for December, I was getting quite restless. During the 6-7 weeks I wasn't working, I spent far less pocket money than I normally do, and I kept other expenses to a minimum. Note that this doesn't mean I completely deprived myself -- very much to the contrary! I still went out to movies and meals with friends. I just stopped going out for the sake of going out on my own (which generally results in me spending of $30+ -- bus or taxi/magazine/something to eat/something to drink, etc). So naturally, while I was restless, I didn't want to go out much, unless I was going out with someone and/or doing something specific.

So, knowing that I have definite income coming in for the next 3+ months, I am going to start investing (instead of merely just saving) part of my paychecks, aside from what I set aside for my IRA contributions. Since I know that my emergency fund will not need to be tapped [for my periodic unemployment stretches], I will divert most of that money. Yes, I know that some people would say I should put that money towards paying off my debt, but I'm not planning on that. I'm 37, and while I have an IRA, an old 401k, and a tiny bit of stock from my hi-tech days, I am not close to what I should have for my retirement. I only started the IRA in Spring (and it hasn't performed well at all), and the 401k was from the hi-tech days. In short, before starting this IRA, I hadn't contributed to any kind of retirement fund for about three years. I also never had a retirement fund before my hi-tech 401k. So while my 401k has performed like a stadium rockstar (averaging 20+% earnings over the past 12 months), it would take years of that return to make up for the years I didn't invest. And I know that return won't last forever (in fact, I'm constantly shocked it keeps going at that rate).

I also want to have the invested money somewhere I can access, because if it does really well (pleasepleaseplease!), then I will use part of it when I'm ready to buy a condo.

I know that there is speculation about whether or not a recession is on the horizon. However, I know that guessing what the market will or will not do is a fool's game. I also know that I won't be dumping a huge sum in the market, so if it does recess, then it won't be a big loss. Instead, I will be gradually putting money into the account (aka dollar cost averaging), and building it slowly and based on how much I actually work.

So, I'm now off to research which service to use for investing, as I will start with buying a handful of specific stocks and also an index fund. If you use a service you recommend (or hate), please leave a comment and share your thoughts.

Saturday, December 15, 2007

More About Debt Reduction, and Balance Transfers

I realized, after the last post, that I neglected one thing that I think is pretty significant: I transferred a significant amount of my credit card debt to a 1% card. The amount I was paying in interest went from over $150/ about $10. There was a small balance on the card I transferred to, and it gathers a bit of interest. However, for reasons I'll explain below, I'm fine with that cost.

As background, I have two credit cards: I've actively used cc1 since maybe 1992 or 1993, and cc2, which I used for a balance transfer (9.9% for the life of the balance), several years ago. For a few years in the early 90s, I had a couple department store credit cards, but those had low limits and fairly low balances, and I got rid of those years ago. Even though I wasn't savvy enough in my 20s about eliminating my debt, I was savvy enough to recognize those department store interest rates were too high, and I paid those off first.

When I created my budget spreadsheet (aka The Crack Spreadsheet), I really started paying attention to how much I was paying in interest each month. My minimum payment on cc1 was over $200/month, and I really realized how slowly that debt was going to take to be paid off -- even though I was paying about 30-40% more than the minimum each month. So, having heard many stories about people simply calling their credit card, requesting a lower rate and getting one, I called Chase. They offered to lower my rate .5%. A half a point!! I was astounded. I'd expected at least 5%. I persisted and asked if they could do better, and I created a 'well, my other card offered me a 0% balance transfer' offer.

That little manipulation on my part was very enlightening. Chase told me about the 3% offer they had at the time, and also had they always had such an offer (always 5% or less) each month of the year. I spent some time on the phone with the lady, who let me pick her brain. While I couldn't transfer my existing balance to the special rate, I said "well, then I could transfer that balance to my other credit card, and then immediately back to Chase, and I could have that rate?" "Yes." Twenty minutes later and after more questions about how the balance transfer works (e.g. payments always go to the lower APR balance, so that's why it's imperative to have as small a balance as possible when making a transfer), I thanked her and then called cc2. I asked what their balance transfer rate was, and was surprised that it was 1%, for nine months. I made an extra payment to cc2, so that that balance was under $1k, and then I transferred the cc1 balance over.

Now, over $150 more of what I pay each month actually goes to paying down my principal. In January, I will call Chase and see what their current offer is, and transfer the balance back there.

Here are a few more notes on good strategies for transferring balances:

1. Know exactly when the intro rate expires. Banks plan on customers not transferring their balances when the intro rate expire. I will not be one of those people. I will be transferring the balance until it is completely gone.

2. Understand how the transfer works. Some people get so excited about the low rate, they don't know to ask about an existing balance on a credit card. Payments always go to the lower rate...until that balance is paid off in full. So, that's a recipe for disaster if you have even a $4k balance at a higher, double digit rate, and then you transfer a larger amount, and you don't re-transfer all the balance when the intro rate ends.

3. When possible, use your existing credit cards for this. Each time you apply for a credit card, your credit report gets dinged. Since I have two bank credit cards, I can just volley my balance between the two, and I won't get dinged each time (this is important to me, because I hope to be buying property in the next 1-2 years, and while my credit score is well over 750, I'm self-employed and I need everything I can have on my side).

4. Don't freak out about a potential balance transfer fee. I paid $90 for my transfer -- and since I was paying over $60 a month more in interest, that was a good cost for nine months of $10 interest. Make sure that your balance transfer fee has a cap -- mine was 3% (I think) or $90, whichever was less. If you have to pay a flat percentage, without a cap, then find another card, because you will get gouged if you're transferring a large balance to the card.

Used wisely, balance-transfering your debt can be a powerful tool. The 45 minutes or so I spent talking to cc1 and cc2 were very profitable for me, and I strongly recommend anyone with a high balance and any APR greater than 5% to research this. Start first with credit cards you already have, and if none of them offer an under 5% rate or you don't have another one, only then go for a new credit card. Call your credit card, ask what specials they have, and then ask them to fully explain them to you ("is there anything else I should know? I know I'm probably not asking all the questions I should, because I don't know what they are."), and a good rep will explain them all to you.

At this point, I figure I've saved over $1200 in interest fees so far this year. That's over $1200 more that my principal balance has been lowered!

Sunday, December 9, 2007

Debt Reduction Strategies That Work

If you're in debt, you know that something has to change. However, it can be difficult deciding where to start. It's generally obvious that going out (movies, dinners, drinks with friends, etc) is the one of the first places you can start.

I've paid off 40% of my debt in the last six months, and these are some of the things I've done to make that happen:

1. Live with roommates. I pay a fraction of what anyone else I know pays for their mortgage, and I'm able to use part of that money to help save for buying my own property in the future. Because I have roommates, all the house utilities are split, which saves even more money. The money I save on rent is a significant factor in me being able to pay more than the minimums on my bills.

2. Create a budget. This is the most important step to take. A friend helped me create a budget spreadsheet, and then I customized it greatly. As a freelancer, my clients pay me weekly. Each week, I know exactly how much money goes where, and it easily keeps me on track. I forecast what I expect to make throughout the year, and that information goes to a unique workbook, and can easily be compared to what actually happens. It's wonderful when I work more than planned in a week, and I can see larger-than-expected payments going to my bills and savings. I will write more about my budget spreadsheet in another post.

For anyone interested, email me and I can send you the basic spreadsheet that I use.

3. Follow the budget. This may seem like a no-brainer, but it's not. Keep yourself accountable. Be dedicated in going to the spreadsheet each payday and making your payments. For me, it got addictive to do this. It can be difficult at first, but there are specific and very tangible rewards in watching your debt go down on a regular basis.

4. Don't get more debt! Stop carrying your credit card. Know exactly how much you have left in your checking account for your week's pocket money (better yet, have it as cash in your wallet). If you don't have the cash in your pocket, you can't have it. Period. Use the credit card only for true emergencies that you can't cover from your emergency fund (e.g. unexpected dental work, car breaks down, basement floods). Emergencies do not include buying a new winter coat "because the one I have is sooo last season!" or replacing a cell phone just because a new version is available.

5. Don't create unnecessary debt. This goes along with #4. Use what you have. If you're like most people, you have far more clothing than you actually wear. I always used to think I had such a small wardrobe, and then when I returned from my first trip to Europe (two months), I was amazed at what I had. I'd been living out of a backpack for two months, and wore the same three or four outfit combinations the entire time.

If you simply want what is new, ask yourself "Why?" Do you really need a new computer with 200 gig? If you really need the extra space, consider getting an external hard drive instead. Look for frugal solutions before spending money.

6. Be frugal. I frequently shop in stores like Ross, Goodwill and Value Village. At Ross, I generally only look at what is in the New section, and I've seen several high-end brands, in addition to high-quality fabrics. Unless I need something specific and I can't find it in a second-hand store, I generally won't buy it new. The main exception to this is generally shoes -- though, I have found new Kenneth Cole heels at my local Value Village. I've repeatedly found un-worn, new clothing, in addition to great finds such as Seven jeans for $19, and a 2-ply cashmere cardigan for $15.

If your city has a craigslist forum, use it. I've bought and sold items in my city, and I'm repeatedly shocked at the quality (high) of items that some people give away in the Free category.

This is another thing I'll write more about in a separate post, but learn the difference between cheap and frugal. Buying three acrylic sweaters for $5/each is not a better deal than buying the cashmere cardigan for $15. The cashmere (or wool or cotton) will last significantly longer than acrylic. Frugality involves finding quality at a low or reduced price. Cheap is just paying as little as you can get away with -- which generally means you spend more in the long-run.

7. Don't become a miser. Yes, debt reduction is about saving money in other things, to pay for what you've bought previously. Don't let yourself get sucked in to depriving yourself, though, or you will begin to resent what you're doing and probably stop doing it. Go to dinner with friends (a few times a month, not a few times a week), go to the movies, [once a month] spend $25 on something unnecessary.

Like with dieting, actively paying off debt requires finding the right balance for the individual. Some people I know would never consider living with roommates, and for me, this is the one greatest save I made in my monthly budget (I pay less than 50% of what it would be for me to live alone). If you can't do this (or if you have a family), find other ways. Get rid of the second car. Carpool. Plan your grocery trips around menus. Start a children's clothing exchange. Tell your friends and family what you're doing (but don't tell them how much you're in debt, because that is not their business), and ask that they ask how you're doing (this helps keep you accountable). Find a resource that helps you stay on track (e.g. a personal finance book, a blog). Also find someone you feel comfortable to talking with about finance topics.

Debt reduction can be a Big Scary Thing, but if you approach it with a sane plan and recognize that little changes make big dents, it becomes a lot easier.

Thursday, December 6, 2007

Balancing Saving and Debt Reduction, as a freelancer

I'm a freelance technical writer, and I have been for close to two years now. As any freelancer can tell you, sometimes there's plenty of work, sometimes there's a little, and sometimes: you don't work for two months.

I've recently not been working (since the beginning of November, I've worked about eight hours). However, since I plan for this, it doesn't really hit me hard financially. A few of my friends gasp and have asked me "How can you afford this?" The answer is simple: because I planned for it.

As I've mentioned, I'm in the midst of paying down my credit card and student loan debt. Every source I've been able to access generally recommends keeping between $500-1000 in a cash emergency fund. However, the assumption is that the saver has a regular 40-hr week job. It's only when people are debt-free that they are encouraged to save 3-6 months in a cash emergency fund.

As a freelancer, only having $1000 in an emergency fund just doesn't cut it. Personally, that wouldn't get me through a month of "unemployment." Currently, that would mean I would be living on my credit cards, which we all know is undesirable.

Knowing that my work flow comes and goes, I generally have about 3-4 months basic living expenses in a cash account. When I'm not working, I don't make the higher/extra payments. I also (very consciously) do less, so that I'm not out spending money in my newfound free time, and I also cook at home a lot more. So, while I've not been working recently, I've been able to fund my basic life without a problem and without worrying financially. One of my clients recently contacted me about a new project, so I know I'll be working again probably within the next week or so - yay! If the two-month mark hit, and no work was on the horizon, I would definitely start to aggressively find new work (whether freelance or through an agency).

So, the lesson is this: if your work is guaranteed, then it's probably fine for you to have a smaller emergency fund [until your debt is paid down]. Just look back over the past few years and think of all the "emergency" money you needed -- for some people they may only need $500/year, others may need $2000/yr. My recommendatin is to double what you've needed in the past, and then stick it in a high-yield savings account.

However, if you're self-employed, you have to plan for the downtimes, otherwise your debt is going to rise.

Little Money Trick #1

Every week, I have a specific amount set aside for what I deem "pocket money." Now, this pocket money includes bus fares, groceries, shampoo, and whatever else I want to buy. Some weeks, I go over a little, some weeks I'm under a little.

When I'm underbudget, I put any leftover cash from my pocket into a hiding spot in my closet. If the extra cash is in my checking account, I transfer it to my Ing account designated for funding my IRA.

With the cash in the closet, I generally forget about it. Yet, if I'm running late to get somewhere, and need a couple dollars for bus fare (believe me, this has happened more than a couple times!), I can just dip in to the closet. Also, if I'm short of cash (e.g. a week when I don't work for either of my clients), I can dip into the closet cash for groceries or anything else I need.

It's really amazing how a little every so often can add up. I try not to use the money, unless as a last resort, but it's nice to know it's there and immediately accessible.

Wednesday, December 5, 2007

On Magazines

Have you bought your favorite magazine, at a store, more than four times this year? If yes, then you've paid too much.

We all know it's most expensive to buy magazines in a grocery or drugstore. We also know that subscribing directly with the magazine is a better deal. Yet, what some people don't know is that magazine subscriptions can often be found for even less on an Ebay auction. (Note: with Ebay auctions, be sure to read all the text, as some charge a "shipping" fee, when all they're doing is sending your information to the publisher, and the end cost may be higher than the direct publisher subscription.)

The magazine example is smart, and it's easy. Even if you don't want to wait for an auction to end, because honestly, I've won some subscription auctions and lost others, you are still smart to buy the subscription. In general, a magazine subscription costs about the same as three or four full-price issues. Even if you only read a magazine a few times a year (consistently), then a subscription is better. The extra issues can be given to friends, given to the hospital, or you could even put them up on a site like Ebay.

This example is the premise of Smart Easy Money: a smart and easy way to save money. You don't have to be a financial genius, you don't have to drive all over town, and perhaps most importantly -- it doesn't take a lot of time.

Tuesday, December 4, 2007

Welcome to Smart Easy Money

For most of my adult life, I've had debt. For a long time, my credit card debt hovered between $1500-2000. Then, I went back to college when I was 25, and it took about a year to adjust to living at a lower mean. In the mean time, I used my credit card for meals, CDs, clothing, groceries, vacations, and more. Once I finished college, I have a higher credit card balance, in addition to a student loan. Having never been particularly financially savvy (except for paying my bills on time and paying extra when I could), I just coasted along. During the years between college graduation and early 2007, I travelled abroad several times (almost always charging the tickets), furnished various places I lived, and just used the card during times when I just didn't have the cash on hand. At one point, I had a bunch of money in the bank (a small inheritance, some money I saved on my own, and cash from exercised stock options). But did I pay off my debt? Nope. I retired for a year and travelled abroad for about nine months. I emphatically do not regret for a single moment taking that trip. However, I did incur some additional debt. About 1.5 years later, having saved up several thousand dollars in cash, I left the country again and lived abroad for four months.

Which brings the timeline to early 2007. After returning from living abroad, I knew I wanted to start saving so I could buy my own place. However, with my debt in the low five figures, I knew I needed to get my finances in much better order.

With the help of a friend, we created a very uber-basic spreadsheet detailing my finances. That spreadsheet came to be a sort of "crack" spreadsheet to me. I spent countless hours making projections, adding workbooks, and creating budgets of all sorts.

Now, about nine months later, I've paid down just over 40% of my debt, in addition to starting an IRA, and building a 3+ month emergency/future home fund.

Over the past year, I've learned a great deal about personal finance -- some from other sources, some from my own ingenuity -- and I wanted to create a forum to share that information. I also wanted to create a forum for personal finance information for self-employed people. I am currently self-employed (this may change in the beginning of 2008) and I've found next to no personal finance advice for certain questions of mine.

I don't claim to be an expert on personal finance, yet all I can do is tell you what has and is working for me, and give you my views on personal finance topics.

So, welcome, and I hope you find Smart Easy Money posts useful and informative!