Thursday, February 28, 2008

Me and My IRA: A Mini Update

No, I don't yet have a new IRA. I still have last year's money in the Ing IRA, and it is still at a balance less than what I contributed (it has been since the end of last year).

In the mean time, I've been putting all my IRA contribution money into its own savings account, and I will be using that to fund the new IRA. I'm kinda holding out for a Vanguard Roth IRA, but the $3k minimum buy-in is a bit stiff, and it's also limiting when you can only contribute $5k this year -- it means that I wouldn't be able to fully fund the IRA (on the assumption I would make my first contribution when I had $3k, not $5k -- especially with the rollercoaster that is the stock market these days, I want dollar cost averaging, not a lump sum investment). And while I know ETFs are solid investments, I still cringe at putting all my money into one fund per year. Also, some of their funds are closed to new investors, and that's a bit frustrating.

I've also done a bit of research with a couple other firms, but my heart is still with Vanguard.

Though, and I haven't researched this at all, if I could open an SEP with Vanguard, then I will do that, as it would allow me to fund it with more than $5k per year. Not that I'm sure I would financially be able to exceed $5k this year, but you know...just in case. I got me some ambitions.

Really, my research on this has been a bit lazy because I've been waiting until I reach a minimum of $1k in my IRA savings account. If I rollover into a Vanguard Roth, I will need at least $1k to meet the $3k minimum and to cover fees associated with the switch.

So, the whole IRA thing is not forgotten...it's just on hold until I get a little more cash on hand. As always, if you have recommendations about an investment firm that's done right by you and your IRA, please let me know.

Wednesday, February 27, 2008

Financial Lessons I Learned Early

Now, I started to realize that maybe it sounded like I was pretty clueless in my 20s, with regards to personal finance. While there are definitely some things I wish I did differently, I did pretty well…all things considered.

So in contrast to last week’s post about Lessons I Wish I Learned Earlier, here is a list of what I did that worked:

1. Know your income and expenses. I’ve never lived wildly out of my means. As the result of a few Top Ramen Weeks, I learned different ways to make that salty stuff taste better. OK, yes, I have debt, but that’s not from me continually saying “Next round’s on me!” too many times, or spending when I knew I couldn’t afford the purchase or living on my credit card because my checking and savings accounts had negative balances. My debt just gradually crept from low to higher, and much of my current debt is travel-related (“Oh, well I have the money for this plane fare in my savings account, but I’ll just put it on my credit card and then transfer the money in a couple weeks” … and then I wouldn’t transfer the money, for one reason or another). The debt was also accrued by using my credit card as an emergency fund (e.g. dental work in college, when I didn’t have dental insurance).

2. Pay the bills first, and on time. I was a master of this one (and I now have a spectacular credit score). Of course, I occasionally slipped and sent things late, though I never did anything drastic like intentionally “forgetting” to pay a bill for a few months. My electricity or phone service was never disconnected, and I’ve never received collection calls from my credit card or student loan providers. Generally though, I paid more than the minimum every month.

3. Save at least a little bit of money. I’m pretty obsessive about always having some cash savings on hand, and I’ve been like this since I’ve been on my own. I’ve never liked the idea of using my credit card for emergency expenses. Though, I didn’t always “pay myself first” and I often had maybe $15 to put in my savings account. Regardless of the amount I saved, I saved and made it a habit to save at least a little – even if I had to take it out two weeks later. The point was that I saved and prevented at least one little purchase going on the credit card.

4. Build a good credit rating. I did this in spades! I paid more than the minimum (usually) on my debts, and I paid them on time. Occasionally, I would pay a debt off in its entirety. Yes, the credit issuers love me!

5. Save for big expenses. I’ve done this repeatedly, and it’s a wonderful feeling when you achieve a financial savings goal. While a fair chunk of my credit card debt is from travelling expenses, those were generally extra expenditures when I was already somewhere – I always saved for my tickets and the basic day-to-day expenses in advance.

6. Learn. I learned from the mistakes I made early on (taking a cash advance on a credit card to help bail a boyfriend out of his own financial mess=bad idea), and I tried new things when I had more money. Though I didn’t start saving for retirement until I was 29, I knew that it was something I should be doing. I learned how credit cards worked, and I learned how to manage my debt (and build my credit rating).

7. Read about personal finance – even if you don’t actively practice it. I’ve read personal finance articles in magazines for years and years, I’ve read the occasional personal finance book, and I’ve been following personal finance blogs for a while now. Even when I “didn’t have enough money” to invest, I had a pretty good idea of what was out there and what I would do “if/when I have enough money to invest.”

8. Create a budget that works. Early on, I realized I needed some kind of budget for my money and I usually had some kind of loose budget, and I tended to stay within it most of the time. Sometimes, my budget just consisted of me figuring out what my bills were (for a particular paycheck), on the back of the envelope the paycheck came in. My budget worked in keeping me from the poor house, but I didn’t budget so I wouldn’t be in the poor house in the future. Just goes to show that you accomplish what you set your mind to…and you might be poor in the future if you just handle your finances for the immediate present. My budget was always a guideline – sometimes I was under-budget, and times I was over-budget. They generally balanced out, so I wasn’t too concerned about the times I spent more than was allocated for that week or month. I knew what my budget was and where I should be, and that’s where I aimed.

9. Don’t settle. This is actually quite important. When I had jobs that weren’t enough, I changed. When I had a job that didn’t pay enough, I found a way to make some cash on the side. There was a point, during my first quasi-adult job, when I thought “there has to be more than this, because this is not my future.” That motivated me to pick up my college studies again, and I eventually left to become a full-time student. I make significantly more money, and I have exponentially more job satisfaction today. So yeah, that "hobby degree" in Creative Writing really did pay off!

10. Recognize debt is bad. I knew debt was bad, I just didn’t know exactly how to eradicate it. I didn’t want it to be a regular, “accepted” part of my life, but I didn’t know how to get rid of it on the salary I was making. While now I can make a list of debt reduction strategies that work, it took me a while to learn what those strategies were so that I could begin my journey out of debt.

Tuesday, February 26, 2008

Festival of Frugality

This week, No Credit Needed is hosting the Festival of Frugality, and they've kindly included my article Consumerism vs Frugality.

I haven't yet looked through the other articles, though when I do, I'll post some links for ones that I particularly like.

Otherwise, you can head over to No Credit Needed on your own and peruse the scores of other articles dealing with frugality.

Monday, February 25, 2008

Saving and Debt Reduction: New Snowflake Strategy

So, I recently decided to try snowflaking, and it's been an interesting and "profitable" exercise. I've also decided to shift the way I snowflake.

Most snowflakers I've read about put the money strictly to their debt. I'm starting a combination of debt/savings/IRA/special mad money. Each month, the money I snowflake will randomly be assigned to one of these categories. I think I'm just going to randomize the list of where I want to apply the money, and leave it at that -- I haven't decided yet how exactly I will choose which month for which category, though I recognize that this needs to be decided in advance. When it's a "savings" month, that'll mean the snowflake will go an account such as Vacation, Home, or Emergency funds.

If you read that last paragraph closely, you'll have noticed something unusual...there will be months when I get to spend my snowflake money! Yes, you read that right!

As I've mentioned before, I think that when a super-strict budget is followed, without much (if any) leeway, it gets to be resented and/or abandoned. I also think that when raises or bonuses or other types of windfalls are received, the budget should allow for more "fun" or pocket money. So, I'm applying this principle to my snowflaking plans. This isn't going to happen often, more like once or twice this year -- though it will be a nice surprise when it does happen.

So, I think my genetic need for variety is dictating this. Though, I really like the idea of spreading the snowflake around, especially since my income can vary wildly and low income months generally mean my Vacation and Home funds are ignored. With the strategy above, I'm ensuring everything that is important to me financially is getting a little bit of the snowflake, and I'm very pleased.

Bring on the snow!

If you like the snowflaking idea, check out the recently created Snowflake Revolution website to find other snowflakers.

Friday, February 22, 2008

Consumerism vs Frugality

I'm frugal, and I also regularly thrift shop. However, if I was able to afford $500 jeans, I would buy them. No hesitation. I’m a great fan of fashion and good clothing, and while I wouldn’t stop thrift shopping, I would definitely buy more high-end clothing if I had the disposable income to do so.

Last night, I read Being Frugal's post on What Are You Paying For?, and it riled me up. While I generally like and enjoy and agree with much of what she writes, well...this time, I'm on the other side of the fence and I have to respectfully disagree.

One thing I've noticed is that when people become uber-frugal, is that their scope of interpreting how other people spend money can often become highly critical towards people with more money. "Oh, I could live for a year on the cost of that socialite's dress!" Very true. If someone likes to spend the financial equivalent of the GDP of a small third-world country on clothing or other “status” items, that’s their choice. Whether it’s healthy or not, if someone is obsessed with the current fads and has the money to do so, why is it bad if they are pursuing what is obviously important to them? (Yes, I agree that if someone can’t afford their purchases and are making them to “keep up” with others is a negative thing.) If someone wants to engage in the game of consumerism one-upmanship, and they can afford it, let them. Pursuing fads clearly isn’t as important in the grand scheme of things as finding a cure for AIDS, or fighting global warming, but just because it doesn’t have the same weight as “acceptable uses of money according to frugal spenders” doesn’t make it bad. Sure, excessive consumerism isn’t great on any number of levels (hello…environmental concerns), it still doesn’t mean that that consumer is a bad person. Too, if someone finds happiness in having bought a $10k pair of jeans, why should they feel guilty about that?

I disagree with the assertion that spending an “excessive” amount of money on purchases is always linked to trying to buy status, and I think it’s a dangerous assertion. This behavior does occur, to be sure, but does my desire for the expensive Louis Vuitton skirt I saw a few months ago mean that I wanted that skirt solely for its status as an LV skirt? Emphatically not. I just loved the color, material and design of the skirt. That it was an LV skirt actually meant nothing to me. Honestly, I love reading fashion magazines, and some of the most beautiful clothing I’ve seen is all quite expensive. If I could afford items like the LV skirt, I would buy them – not out of seeking out a status symbol, but as a way to make myself happy by surrounding myself with things I enjoy and find beautiful. If these purchases raise my self-esteem (because I'm proud of my ability to buy something I really enjoy and want), that doesn't automatically equate with my self-esteem naturally being low and only being raised because of the money spent, or that I have a psychological void I'm trying to fill by shopping.

A few years ago, I spent what could’ve been used as a down payment on a condo as money to “retire” for a year and spend 9+ months travelling. Is someone [living a more traditional life] going to criticize me for not buying property and doing [what they may call] the “smart thing with my money”? I made a personal dream happen, and I’m very proud of that – it was one of the smartest and best things I’ve ever done. Yes, I’m now basically starting from scratch to save for property, and yes property is more expensive now. So what? I spent that money (and it was a lot) based on what would make me happy – not my neighbors, not my friends, not someone in Kansas or someone in Mongolia. Different people tried in different ways to talk me out of that decision. I can imagine an aggressively frugal person cringing at my choice. I recognize that my priorities are mine alone and perhaps not shared by a great percentage of the population. I also recognize that given the same choice of mini-retirement or home ownership, many people would not make the same choice I did. I’ve chosen to live my life in a way different from many people I’ve met...it works for me and I’m happy with my choices.

I don't think living a frugal life means being anti-luxury. If the perfect pair of jeans can be found for $50, great. Does that mean, though, that the person who finds the perfect pair of jeans for $250 shouldn't have them because they can find an acceptable [yet less perfect] $50 alternative? I would disagree. Especially with clothes, wearing good clothes and clothes you take pride in is significant on a variety of levels. Just because something of good quality exists at a lower price doesn't mean someone is making a terrible mistake by buying the more expensive item.

My point isn't that everyone should be jumping for joy with another person buying $10k jeans. Odds are that person buying the $10k jeans has the money to make that purchase, so if that's how they want to spend their money, big deal. If someone wants to flaunt their wealth by dressing a certain way, let them. I don't have to like what someone else does, but I respect the [legal] choices someone else makes in how they want to live their life.

Part of my point is that just because someone spends an “excessive” amount of money on something doesn’t mean they are doing so for the “status” that purchase may give them. Was the LV skirt emblazoned with the LV logo? No – someone would have had to recognize the skirt as LV or look at the inside tag to know that. If someone is happy and takes pride in "keeping up with the Joneses" and can afford that, then let them. You don't have to approve of someone else's lifestyle. So often, people I've talked to who criticize such decisions in others have a certain amount of jealousy of the resources the other person has (“Yeesh. If I had that kind of money, I wouldn’t spend it that way!”), though I'm not always sure they recognize that. Yes, I envy the women who bought the LV skirt I coveted, yet I don't resent or think ill those people.

All that said, I think people just need to live their life as they want to, and let others do the same. If someone wants to live a frugal life, regardless of their income, that’s what they should do. We all don’t have to like or advocate the choices of another, but we should accept and respect the different beliefs and desires of others. It’s more important to spend time and energy pursuing what is important to each of us individually, than it is to criticize what is important to others. Those with the discretionary income and desire for extravagance should not be condemned for their extravagances.

Wednesday, February 20, 2008

I'm Famous! Well, for a few minutes anyway...

Imagine my surprise to check my site stats and see a huge surge in traffic in the last hour. Turns out, my Lessons I Wish I Learned Earlier is featured over at MSN's Moneyblog in the article Dear 20-somethings: Save early and often, and have fun.

I'm pretty pleased to get the exposure. Thank you Karen Datko, and welcome to new readers! If you enjoy what you read, please subscribe to my RSS feed on the right side of the page.

Monday, February 18, 2008

When Not To Be Cheap: Luggage

Now, most people generally haven't travelled as much as I have, and some people won't ever travel as much as I have -- I've lived overseas twice, have travelled overseas at least seven times, in over 30 countries. However, one thing that most people need and use, regardless of where they travel, is good luggage.

As I've mentioned, I've spent some time on the road -- from trips of 7-10 days, to nine (yes, nine) months. So, I know a little something about luggage. Namely: cheap luggage is never worth it. Yet, cheap luggage is available in so many places (including a Walgreen's drugstore in my city).

Cheap luggage will:

1. Hurt your wrists and/or elbows, when pulled for more than a few blocks (even if the ground is smooth);
2. Bust seams easily;
3. Have handles that get bent easily;
4. Have zippers that break easily;
5. Have zippers that will eat your clothes at every possible opportunity;
6. Provide less structure to protect your belongings (and breakable souvenirs);
7. Likely last 2-5 trips before "dying."

Good luggage will:

1. Provide some kind of shock support in the handles;
2. Standup to overpacking;
3. Have smooth, reliable zippers;
4. Have handles that stand up to repeated use and abuse (e.g. airline employees or kids);
5. Last for years, if not your entire life.

I've had both types of luggage. I usually end up with a cheap-o suitcase when I've been living abroad for a while or have been travelling a while, and need another bag to carry everything I've bought. One of those bags, a large suitcase on wheels...the handle came out once I was coming up the stairs to the house I lived in. So, that was about $40 for a one-use bag. I have one inexpensive bag that seems like it will last at least a little while, though I haven't put it through any major travelling yet.

It doesn't take a massive investment in designer luggage to purchase quality luggage for yourself. The luggage I've loved the most, is by Eagle Creek. Several other experienced travellers I know and have met also swear by it. When I took a year off (and travelled for 9+ of those months), I bought an Eagle Creek backpack on wheels. Like the first Eagle Creek backpack I ever owned, it stood up to overpacking, abusive handling by airport employees, and never did either bag show any signs of wear (except for dirt) or damage. Both kept my clothes dry when I was using the bag in the rain. More enticingly, Eagle Creek provides a lifetime warranty on its bags. So, for the $150 or so I paid for the backpack on wheels (I don't remember exactly how much it was, though I do remember it was on sale), I have a bag that is friendly to my wrists and elbows, can stand up against the over-packing that invariably occurs at the end of a long trip, and is guaranteed for life.

So, if the Eagle Creek bag lasts me for even the next ten trips, that is the equivalent of spending $400 (or more -- I figured one trip per year) on single-use suitcases (based on my example of the suitcase that fell apart as soon as I got home). This is for one suitcase. If you have a family, imagine how that adds up!

Even if someone only takes short trips (I worked with a guy once who spent all his vacation time within 300 miles of where he lived), it's just as worth it to get a good small backpack, or to invest in a quality duffel bag. I know from experience that having to drag, or otherwise try to carry, a duffel bag with a broken strap connector is a major pain in the neck. Ditto if a seam suddenly bursts in the bag.

If you're in the market for luggage, go to a couple luggage stores and talk to the sales people. Of course, I love my Eagle Creek bags, and I highly recommend that brand. Though I know that different people have different needs, which is why it's best to do some research, first. Ask what type of bag the sales person uses and what kind of travelling they do. If you do decide to buy online, read lots of reviews, first (I like Amazon.com for reviews). Some other questions that are good to ask are:

1. What kind of cushioning is in the handle?
2. How much weight can this bag handle?
3. How much weight can this bag handle if I overpack it?
4. What kind of warranty is available? (Beware of anything under 1-2 years. Really.)
5. How are the zippers? (They should be wide, big teeth, and zip very smoothly -- they should not be thin, tiny teeth, or otherwise "cheap" looking...even on a small bag.)

Once you've done some research, use an online site(Luggage Links, and Eagle Creek bags, on Amazon.com) to find great deals on the brand of luggage you choose.

Luggage is one of those things that should never be scrimped on. I'm not saying go out and buy a match set of Louis Vuitton trunks (oh, to dream!), but to go out and find the best bag(s) that works for your needs. More than simply saving money over the long-haul, quality luggage will also save you headaches and possible injuries to your wrists and elbows.

Carnival of Personal Finance

This week, Mike over at The Financial Blogger is hosting the Carnival of Personal Finance, and he's included my article Lessons I Wish I Learned Earlier. There are some 80 articles included in this week's carnival, so head on over and take a look.

Yay carnivals!

Friday, February 15, 2008

Lessons I Wish I Learned Earlier

We’ve all heard it: “If I knew at your age what I know now” from our parents and other adults. I think it’s difficult for someone to say this without sounding arrogant and patronizing, which completely defeats the purpose of trying to share the information. However, much of the information generally turns out to have at least an iota of worthiness to it (at least, most of what I heard did), so I think it's worth sharing such a list.

As I re-read this list I’ve been working on, I realize that while it would have helped me dramatically when I was in my 20s, it’s still good advice for me today in my 30s. While I knew most of these principals in my 20s, I don't feel like I really learned them, because I wasn't actually practicing these things.

1. Save early and often. We all know this. I didn’t start contributing to a 401k until I was 29, and because I wasn’t make much money, I only contributed about 4%. Yikes. Well, I did have a 401k for about 15 minutes when I was 23, but I’d only contributed about $20 by the time I paid the fees for cashing it out [when I left the job], it was only about $3. Even if I’d only set aside a small amount of money, for retirement/finishing my college degree/buying property, I’d be in a better position than I am today (e.g. I’d probably have at least low 6 figures in my retirement accounts, instead of low 5 figures). I always treated saving as something to do with money that was left over, instead of making it a priority. My only priority was to not be absolutely broke, and I accomplished that. If I’d made my goal to be financially secure in the future, things would be much different for me today.

2. Budget, and make it work for you. It’s one thing to make sure the minimums are paid on your bills, and it’s another thing to make the things you want to happen occur after the bills are paid. Know how money is being spent, and learn where cuts can be made to make other things happen (e.g. buying a new electronic gadget, going on vacation, buying new furniture). If you have a budgeting spreadsheet, you can also put information on your savings accounts and investments on it and then compare what you project will happen in a year with what actually happens. Creating a budgeting spreadsheet last year really opened my eyes to my finances, and was the impetus in paying down 40% of my debt. Really.

3. Save more than you think you can, but still allows you to live reasonably, because you probably can swing it. If you think you can only save $20/paycheck, try $25. I know that for someone starting out at an entry level job, saving any money can seem like a major challenge. For me, though, instead of starting to save for property at 37, I’d actually own property. (Note: I did have the money for a down payment when I was 34, but I used nearly all of it to travel the world for almost a year – an experience I would never give up. Though, the bulk of that money came from a small inheritance and stock options from my former hi-tech job.)

4. There are moments in time when it’s ok to live outside your means. Specifically, if you lived with roommates in college and go on to live in your own place, spend a reasonable amount of money to furnish it. In the same vein, when you leave college and start working full-time, you’ll likely need to invest in some better/different clothing – and yes, the clothing is an investment, because it’s doubtful an insurance company is pleased if their new recruit shows up in worn jeans and a t-shirt from Sammy Hagar’s bar in Cabo.

5. Invest. Start small, and slowly build a varied portfolio. If I’d invested in the companies I followed in 1999, I would have a significantly different portfolio today. If I’d bought the stocks I almost did when I was 22, I would have had a very, very strong return on them. You don’t have to have a lot to invest – especially now that there are so many easy-to-use online brokerages. Just buy a little on a regular basis, and spend time learning the basics of how the market works, and pay attention to your stock’s performance on a quarterly basis. If you don’t think you have enough to invest, do something simple like save all your coins, and then once a month convert them and invest that money. Odds are you’re not really going to miss your pocket change.

6. Network. When I was in high school, I thought networking was a silly, pretentious, yuppie affectation. A couple decades later, I can count many opportunities I’ve had because of the people I know. I’ve received jobs and job offers, shared-living opportunities, free stuff, and more. Once someone knows that you do something well, they’re highly likely to mention it to someone else when the topic comes up. For several years, I’ve been an occasional petsitter. At some point, I said this while in the office of one of my clients, and recently the president of the company came over and said “I heard you housesit. Do you like dogs?” Since I was also planning to be out of town, I couldn’t do the project. More importantly, it was someone else who told him about me doing that, and he never would have asked me if he hadn’t heard about me from someone else. The woman I was recently petsitting for (and will be again in about a week) was referred by a mutual friend.

7. Listen to people older than you. You don’t have to follow every piece of advice, nor do you have to agree with it – just listen. Just decide what sounds good to you, and go with it. If you hear the same thing from three or more people who don’t know each other, it’s probably a sound idea.

8. Talk to your friends about money. You don’t have to talk about specific numbers, but talk about stocks, IRAs, banks. Since you likely trust your friends, you’re more likely to trust and follow their advice. Maybe you start an investing group together, or maybe you swap personal finance books, or maybe you just get a referral for a CPA. Talking to your friends about money also helps keep all of you accountable and inspiring the others. After hearing me rave about The Crack (Budgeting) Spreadsheet that I have, I’ve sent [blank] copies to a couple friends so they can look at it and possibly use it.

9. Set financial goals. If I had done this in my 20s, I would certainly be in a better financial position today. Instead, I looked at money as something I generally didn’t have enough of, and as something to spend when I had some left over. I rarely even thought about saving for retirement. I coasted along on the paycheck-to-paycheck mentality, and while I built good credit by accruing and paying down debt, having a good credit score has not provided me with a strong, diversified investment portfolio or my own piece of property. I’ve decided I’d like to have $3 million at retirement. I’ve also realized that to do that, I need to save at least $1k each month. While I’m not (yet) able to do that, I know what that number is for me.

10. Have fun. Know that you aren’t expected to be financial whizzes in your 20s, and that it’s ok to make mistakes and rack up some debt – I once read “in your 20s you learn, in your 30s you earn” and I tend to agree with it. It’s natural, and it’s a learning experience. Just don’t have too much fun, or you’ll be paying for it far longer than you imagine. I know that sometimes you have to splurge and have some fun (within reasonable limits), or else the whole budgeting/financial planning thing becomes tiresome and something resented (and then abandoned altogether).

Wednesday, February 13, 2008

Update on My Cash-Only Life (so far)

I've written before how one of my goals for this year is to live cash-only. So far, it's going fairly well. I'm much more aware of when I use my debit card, and I'm generally staying within my pocket money allotment, too. There have also been weeks where I've had cash leftover from my pocket money -- and I should mention this has happened more often than it used to. I'm not an obsessive tracker of how I spend my money, so I can't say exactly how much extra money I've had.

It's interesting, because I definitely think more about certain purchases than I did when I just used my debit card. I've also been trying to funnel more of my cash savings money to my Ing account, and leave my bank savings account at about the minimum balance -- so I don't have that savings account as my "Oops! I spent too much money this week and I need a cash infusion" backup account.

I know I should be snowflaking these leftover bits of my weekly pocket money, but I'm not quite able to. Yet. My emergency fund took big hits in November, and partially in December, and I'm still working on bringing it back to 3+ months expenses. Also, I grew up without a lot of money, and I'm actually pretty obsessive about having a certain amount of "emergency/mad" money immediately on hand (aka the closet stash).

I've been playing the trick on myself of only taking about 70% of my weekly pocket money allotment from the ATM each week. I usually do end up using my debit card somewhere or getting more cash...but not always.

So in all, I'm pleased with how the (mostly) cash-only goal has been going. I'm a little more present when I'm spending money (e.g. "Wow, I only have $27 in my wallet") and that's helping keep my spending in check.

Monday, February 11, 2008

Carnival of Personal Finance: Valentines Link Love

This week's Carnival of Personal Finance is being hosted by My Dollar Plan, and my article Budgeting: When Do You Change Yours is included.

Head on over to see the Valentine-themed carnival, and you'll find scores of articles (with some on Valentine frugality).

Sunday, February 10, 2008

On Perseverance

So, I'm pretty sure I've mentioned I've been working on a website for a new client. It's a pretty straightforward website, and I thought it would've been done ages ago. But the holidays came around. Then, my client said he wanted a basic contact form added to the site.

I should mention that when I started this project, I hadn't done any HTML work since the hi-tech days. I had never before done something like a form. On top of all this, the software I've used was brand new to me, so I was also on a learning curve for that.

The form dogged me. It would almost seem to work. The book I bought to help me with the software did not help. I asked some friends, but they didn't have the knowledge to help me. I looked on the web for tutorials. I posted on web forums, asking help from other people. I tried any number of possible solutions, and still nothing worked.

To say I was frustrated was an understatement. I spent hours on the form. The project is fee-based, and this form has destroyed my hourly earnings to smithereens. At times, I was ready to cry. I swore at the software, and I swore at people who put form generators, code samples or video tutorials online with incomplete instructions.

Eventually, by the grace of an internet forum and a guy in the UK, I figured out the form yesterday. I was so accustomed to seeing the form fail that I had to look twice when it succeeded. It turned out that a simple letter made the difference. I simply changed the filename extension, and the form magically worked.

Now, it will take me maybe five minutes to add a form to a website.

I was ready to give up. I'd given myself to the end of this weekend to figure it out, or I was going to shamefully go to the client (who knew I'd been having difficulties) and say I couldn't finish the form. That would have been anathema to me, but I really thought I'd never figure it out. Yet, as the guy who helped me wrote: "it proves that if you keep plugging away, you finally get there."

What the guy in the UK said has stayed with me, and I've re-realized the depth of its truth. There were times when I thought that my freelancing days were numbered. Yet I persevered, doing the best job I could, and that impressed my initial client so much that he often gives me high praise and recently agreed to a notable rate increase for me. My talk of my work with my first client impressed my second client enough for him to hire me without seeing any of my portfolio pieces. In the face of the web form, I kept my faith in myself and persevered against the challenge, and I triumphed.

Just like I used to accept what seemed to be the default of how my life would be lived, I often used to think I would never be out of debt. Sure, I was very optimistic when I started my finance (aka crack) spreadsheet and my aggressive debt eradication plan. There were other times when I wasn't so optimistic, and thought about just going back to the minimum payment repayment plan, or "well, I have enough to go back to Argentina and live there for a few months. Why not?" Yet, I continued with my plan and persevered, and I've eradicated 40+% of my debt so far. If I'd given up, I wouldn't be where I am today (and my client for this website would probably not give me any further projects).

Because I persevered with the web form challenge, I can proudly approach this client tomorrow, and say "I figured it out. I did it!" Then, I will collect the rest of the project fee.

It makes me look forward to Monday.

Tuesday, February 5, 2008

Budgeting: When Do You Change Yours?

What got me thinking about this was the skirt I wore today. Yes, this is my second post in a week which was inspired by something completely unrelated to personal finance... The story goes something like this: since last August-ish, I've been paying more attention to what I eat, and working on increasing my activity level..and I've lost about 20lbs (YAY!), and the weight is continuing to come off. Because I'm working on changing my habits, the weight loss is slower than if I went on a strict diet and began an aggressive gym program. However, [aside from 4lbs in December] I'm not gaining any of the weight back.

This is preamble to the skirt I wore today. I bought the skirt when it was snug. I like this skirt: perfect length, nice cut, pockets you don't notice. Today, I was in the bathroom at work, drying my hands, when I caught sight of my profile. I had a severe case of droopy butt (in a skirt?!!). While I knew the skirt was getting too big for me, it still looked fine from the front and I thought all was well. I was horrified when I saw my side view!

I'm including this skirt in my next Goodwill donation. Obviously, there comes a point when you're losing weight that you have to buy new clothes, and stop wearing clothes which are a little loose. I generally go thrift shopping a couple times a month and usually walk away with at least a couple things (aside from books), so I have not regularly been wearing clothes I had a year ago.

So, this got me thinking: when do you make changes? I clearly need to start paying more attention to the clothes I've had for longer than six months, to make sure they still fit me reasonably. This then prompted me to start thinking about personal finance.

When do you change how you budget?

I still have about 58% of my original debt amount left to pay off. I recently received a raise, though I haven't changed my budget because of it (note: my weekly pocket money is a static amount, not an amount based on the gross of each check).

I know that for people who have long had debt, getting to the point of eliminating it can leave them at a quandry. How do you manage having money and no debt? When you're on the road to eliminating debt, when do you adjust your budget for when you won't have debt? If you don't know how to live a cash-only life (with no debt), how will you successfully do that?

It seems that if someone spends a lot of time aggressively paying down their debt, and cutting luxuries from their life, that they can easily end up either back in debt or just plain confused, once the debt is gone. It follows, for me anyway, that as debt is getting paid down, budgeting needs to change along the way (at, say, each 25% mark). That way, the debt reducer will get accustomed to managing their money differently, and be better equipped to handle the new responsibilities of being debt-free, when that day comes along.

I'm not proposing people only adjust their spending money, but that they also adjust how they save and invest. In light of my recent raise, I've been thinking of skimming that amount and putting it into the IRA fund, and I've also considered a 30%/30%/30%/10% split between IRA, debt, savings, pocket money. I don't subscribe to the "put all raise money straight to debt/savings, because you won't miss it" school of thought, because I disagree with it. Inflation happens, lifestyle changes happen, life just happens. I also feel it's a type of punishment to not let yourself revel financially in getting paid more for your work.

Part of my goal is to get in the habit of saving more, in addition to putting extra money towards debt, instead of just summarily putting all the extra money on my debt. I figure for the minimal amount more I'll pay in interest (remember, I'm in the low-interest balance transfer cycle) will more than be made up for in compounded interest in the long-term. Yes, this will result in me having my debt for a slightly longer period of time, but right now, I'm thinking this is a price I'm willing to pay. I also reason that this will help me adjust to having more money, which will be quite useful once I finish eradicating my debt. I'm looking at the long-term goal of financial security in retirement, and allowing the shorter-term goal of achieving a debt-free life a little extra time.

This "plan" would also help me as I'm trying to save a downpayment for a condo, and instead of starting from zero when my debt is gone, I'll have some amount to use as seed money.

I know people have written about dealing with money once debt is gone, but is there anyone out there who's written or thought about how you adjust your budget before the debt is gone, after certain milestones are reached? Or are people mostly just sticking to the same budget until the debt is completely gone?

Since we've obviously had issues with budgeting our money in the past, doesn't it make sense to adjust as you go, so that you adapt to your changing debt and income levels?

Monday, February 4, 2008

Carnival of Personal Finance Carnival

My article A Clogged Drain and Living By Default is included as a Defensive MVP (aka Editor's Pick) in this week's carnival of personal finance. You can read the article below, and you can also find many other articles over at I've Paid For This Twice Already, who is hosting this week.

Go carnivals!

Sunday, February 3, 2008

Prospering By Being Clever

So, I am looking to start investing in Prosper, once I get a couple more paychecks behind me.

In reviewing some of the listings tonight, I found one I thought was particularly clever: there is a guy with a good credit rating, who is requesting money so he can invest in Prosper.

His loan is for 8%, but if he turns that around and starts investing in the 10-24% listings, he makes money. He's using other people's money to make him money.

It's a clever, smart idea.

Saturday, February 2, 2008

2008 Goals: February Update Edition

Can you believe January has come and gone? Me neither.

Here’s a brief update on the goals I committed myself to in January.

1. Pay off additional 40% of my debt. My debt is pretty stable. Not working much in December and early January extracted a toll on my debt reduction in January. I've made more than the minimum payments, but haven't been able to make much of a dent.
2. Diversify my income. This is in-progress. I’m slowly racking up a couple dollars from this blog, I’m in the midst of doing some pet-sitting, and I’m gathering materials to start making some jewelry.
3. Make more money. Also in-progress. I successfully negotiated a rate increase that raised my rate by just over 11%.
4. Work more. This has definitely started happening in the last couple weeks. Though early in the January, I didn’t use my spare time as wisely as I could have, so I missed some opportunities there (e.g. with the jewelry project).
5. Invest. This hasn’t started yet. I’m still re-stabilizing after the lull in work, and still re-funding my emergency fund.
6. Open and fully fund a Roth IRA. Sorta in-progress. If you've been reading lately, you'll have read about my current IRA woes here and the advice I received here. I’ve started doing a bit of Roth IRA research, and I already have several hundred dollars in my IRA savings account. I’d really like to open a Vanguard Roth, but the minimum initial deposit is $3k, and I don’t have that quite yet.
7. Use cash only. I’ve done pretty well with this. I definitely use cash more, though my debit card comes in to play occasionally. When I was briefly in Canada last week, I didn’t get any Canadian cash. I used my debit card for the few things I bought, my credit card for the hotel, and the friendly loan system from my best friend. I also “paid” for things in cash, by giving my best friend US dollars, while he paid with Canadian dollars. It was strange to be in a foreign country and not carry any national currency.
8. Travel. Well, I did go to Vancouver for about a day last week, so that was nice. But that’s not the type of travel I meant. I’m thinking of a trip in late March, and I’ll write more about that as it gets planned.
9. Build this blog’s readership. This is slowly happening. There are a handful of you reading via RSS (yay!), and a variety of readers that come other days. Readership spikes on days when I post, so I’m amending this goal to also include posting more often, and write more posts when I have work lulls, so there are fewer sparse weeks. I’ve haven’t looked at the official numbers, though I estimate there is an average of 30 readers per day.
10. Help my mother sort her finances. I haven’t yet made more progress with this, than the progress I made at the end of last year when I first looked at them. I definitely want to get this done sooner than later.

And for something not included previously:

11. Snowflake. I kept pretty good track of when I was saving money on regular purchases in January, and I snowflaked $45 towards my student loan. I have some receipts that I haven't transferred the savings from to my snowflake account, so that number would be higher if I was a little more on the ball...

So overall, I think I’m making headway with the goals, though there is obviously room for me to be a bit more aggressive about reaching these goals.

Friday, February 1, 2008

A Clogged Drain and Living By Default

So, this is a story of how a seemingly clogged drain in a hotel clogged drain becomes a modern personal finance story.

Yesterday, I went to Vancouver with a couple of friends, for a night at the opera. This morning, I was bemoaning that one thing universal to hotels in all price ranges (I was sharing a room that was upwards of $200/night): the clogged bath drain. A couple minutes into my shower, and the water was inching towards my ankles.

Turns out, the default setting for the drain cover was closed. When I realized this and moved the lever, the water started to drain quickly, and then the lever fell back to the closed position. After a little of back and forth, the standing water was cleared and the drain stayed open on its own.

What does this have to do with personal finance? I started thinking about defaults and how people often just accept them. I nearly accepted that I had a bad drain, and didn't try to do anything about it. For years, I accepted the rates my credit cards offered, without ever trying to negotiate for a lower rate, or for really taking control and making the cards work for me by using low-interest balance transfers. I’ve known countless people that just pay the minimum balance on debt, by default, when they can afford to pay more. I also used to just accept that what I was paid was what I was paid, and that unless I got some big promotion or a magical fairy godmother, I would never make significantly more money.

I think that when you do things by default, it’s easy to fall into trouble or a rut – and this applies to more than just personal finance. Most people will never get rich by simply working for another person, unless there are commissions or top flight MBAs involved. I know I have an obvious disposition for people to try entrepreneurship. Yet, the amount of time I would have had to work at the hi-tech company (doing the same job I had), in order to earn what I currently do, would probably be the rest of my natural life – if ever.

When you’re growing up, and even in college, it’s so easy to miss the opportunities and variety of what’s available in the work world. I always had an idea that I didn’t want a regular 9-5 job, but I could never put my finger on what that might entail. I should also mention that even three years ago, I hadn’t imagined that I would be pursuing my current profession or that I would be working for myself. Though, I’m pretty certain that the current prevalence of the internet gives students far easier access to the variety of pursuits to consider. So, while now I have an idea of the scope of possible jobs that exist, I really wish I had this knowledge years ago.

My first job was doing telephone sales. It was a thankless, crappy job. After a brief tour of awful jobs, I eventually ended up doing peripheral food service work (cashiering, bookkeeping), and a few years later I landed square in the realm of Office Jobs. Once there, I thought that that was my future, and it was depressing to think that I would be looking forward to hitting the 5-year mark, so I could get an extra week of vacation time each year, and maybe at that point I would have a proper office (I didn’t), instead of working in a cube farm. My mother has done admin work for forever, and while she gets satisfaction from doing what she does well, I know there are other things she wishes she could do, or that she could’ve done years ago. It used to seem (to me) that small-scale entrepreneurs were amazing people who had exceptional gumption and drive. Now, I know that that isn’t entirely true. Yes, entrepreneurs definitely have drive, but not necessarily more than someone working for a company or another person – it’s just a matter of where their energies are focused. I’ve also learned that some people simply stumble into entrepreneurship (which is what happened when I sold hand-painted holiday cards years ago).

That’s a little tangential, but not really. In just accepting what I saw my mother and other people I knew doing, I was defaulting. I wasn’t reaching for more. I wasn't asking for more. I'm not sure I even thought receiving more was even possible. I was underpaid. I had multiple employers take advantage of my work ethic and skills. When I worked at the hi-tech job, I spent a couple years lobbying strongly to get my job classification changed. The change would’ve resulted in a (hoped) significant pay change. I never received it, yet I continued to stay there (though not much longer than the second refusal, but I’d already been planning on taking a year off to travel). It was a lot like being in an unsatisfactory relationship: I loved what I was doing, but I hated how little I was paid, and the love of the job kept me there even when I knew I was underpaid and (to a certain extent) taken for granted.

I don’t think that everyone has to be an entrepreneur to have job satisfaction. However, I do think that people can be much, much happier when they ask for more and pursue anything. This also applies to money, too. If you think you can’t do something, you won’t. If you think there are no options to make life better, you'll probably never find them. If you just accept that (non-mortgage) debt is a part of life, you will never be financially free.

How does someone avoid living by default? Think about what they like and what they want, and pursue that. Ask for more. Be willing to try new things (changing a job or career can be a difficult decision and process, yet it can result in infinitely more job satisfaction and happiness). Don’t accept what appears to be the status quo. Take responsibility for your finances and actively work to get them to a level that you’re comfortable with.