Have you ever figured out how much you are spending just to go to and from work everyday? There are a lot of things to consider like gas, tolls, parking and even wear and tear on your car. Your commute might be costing you more than you think.

Most of these costs are unavoidable. You have to go to work and it costs you money to get there. But, you may be able to save a considerable amount of money by making some small changes to your commute.

I live in the Washington DC area and I have a friend that commutes into the city every day. It costs her $18 a day to go to and from work. When you take out weekends, holidays and vacation time there are about 235 work days in a year. $18 a day times 235 work days is $4,230 per year, or just over $350 per month. Ouch! Her situation is a little extreme, but I’m it’s a familiar story to many of us.

To save money on your commute to work you should reconsider your entire approach. Convenience and feeling entitled are budget killers. Here are a few ideas on cutting the costs of getting to work every day.

Parking discounts

If you work in the city you probably have to pay for parking. Many garages have early bird specials and monthly discounts. Pay for your parking spot by the month to cut down on parking costs.

Tolls

Tolls add up. In Northern Virginia it’s easy to pay $2-$6 just to go one way to work. Try taking the long way to work one or two days a week or avoid just one of the many toll booths you have to travel through.

Bus

A bus, yuck! Yeah I know, buses aren’t cool but they do save people lot’s of money. Taking the bus means you don’t pay for any of those troubling commuter expenses like gas, tolls, parking, and car repair. Your commute time may even be shortened because the bus get’s to use those special bus or HOV lanes. Plus, you get to avoid the stress of driving and you can spend time reading or working. The biggest downside to taking the bus is that you are stuck conforming to the bus schedule.

High Gas Mileage Vehicle

If you have a short commute then you probably don’t worry much about gas mileage. The difference in getting 10 more miles to the gallon is only going to save you a few dollars a week. For others, like my wife that drives 80 miles every day, gas mileage makes a big difference. Using my wife as an example, driving a car that get’s 30 miles to the gallon instead of 20 means she saves $75 a month.

Change your work hours

Many offices will allow you to start early and leave early. If you go in at 7am and leave at 3:30pm there will be less traffic on the road giving you a faster commute. You’ll use less gas and have more of your time back.

Carpool

I don’t like to carpool. I’d rather ride to work by myself than with someone I don’t know very well. Most people feel the same way but there are so many good reasons to carpool.

1. HOV (High occupancy vehicle) Lanes – Faster means cheaper.

2. Cut everything in half – You don’t just save on gas. You get 50% off on tolls and parking too. Maybe more if you carpool with more than one person.

3. Less frustrating – Traffic is stressful. Let someone else bare the burden every other day.

Use Pre Tax Dollars

Check with your HR department to see if your company has any commuter benefits. Some companies will allow you to pay for parking or metro fee’s with pre tax dollars. Paying with pre tax dollars is the same as being able to write off your expense which could save you $50-$100 a month.

Plan ahead on gas

Gas is always more expensive in the city. Make sure you plan ahead and always fill up at the cheaper gas station. Will it save you a lot of money? No, but why pay $3-$5 more to fill up your tank when you don’t have to.

Relocate

It may not be as expensive as you think to relocate. Consider the reduced costs of getting to work every day when you are looking for a new apartment. A home that is 5 miles from work might cost you $300 more per month in rent (or mortgage) but you might save more than that in your commuting costs. Count up the difference after you don’t have to pay for parking, tolls and gas. You might be able to save money by relocating.

Over the weekend I caught up on some blog reading and found an old post from The Simple Dollar where Trent discussed the differences in today’s budgets from those of our parents. It was an interesting post, and the comments provided more food for thought. I began inventorying our own monthly bills and compared them to the bills I knew about growing up.

These are the types of bills I remember my mom paying:

• Rent
• Car payment
• Power/Gas bill
• Home telephone
• Cable television
• Car Insurance

Admittedly, our situation was somewhat simplified because my mom rented, but it seems everyone’s situation was much simpler back then. Compare her monthly bills to the list I came up with:

• Mortgage (including property taxes and homeowners insurance)
• Power bill
• Home telephone
• Cable television
• Car insurance
• Internet service
• TiVo
• Netflix
• Gym membership
• Cell phone
• Onstar

In addition to those recurring bills, you could expand the list of modern conveniences (that cost additional dollars) even further. Divorced Dad did just that in his post listing what he calls, The New “Necessities” of Modern Life. From his list, I’m reminded that things like bottled water, cell phone texting, gourmet coffee, and $200 iPods were not around when I grew up, and certainly not around when my mom was young.

A number of these modern “necessities” do add value to our lives, but they do not come without costs. Because of this larger monthly outflow, most families have to work more, and more members of the family have to work more, to cover these expenses. And that phenomenon has brought about even more “situational” expenses such as the need to for two vehicles, two professional wardrobes, additional childcare expenses, increased commuting costs, etc. Makes you yearn for a simple time, doesn’t it?

So who’s to blame for this lifestyle inflation that led to higher expenses and less time with family? Marketers could certainly share some of the blame, as their artificial hype leads many to products they wouldn’t normally buy. I’m not immune. Those Onstar crash commercials replay in my head every time I consider canceling the service. What if my wife is in a crash and can’t call for help and the kids are with her and…panic sets in. I instantly rationalize the monthly fee.

If marketers are to blame for a portion of the lifestyle inflation we’ve experienced, then we need only to look at ourselves for the remainder of the blame. Let’s face it; we’re a spoiled people in many ways. We strive for the bigger and better, never content with good enough. Over the last few decades, the size of our homes has doubled from 1,400 square feet in 1970 to 2,330 square feet in 2004 (National Association of Home Builders). We build bigger homes just because we can, not because we necessarily need to. Or maybe we do need to. After all, where would we put all our toys in a small home?

These bigger homes come with bigger mortgages, and more expensive furniture, and the need to fill a two-car garage with, well, two cars. You see where this is headed.

In an era where people are beginning to share concerns over inflation (or maybe more accurately, currency deflation), thanks to exorbitant government spending, perhaps we should first consider our own lifestyle inflation. Perhaps we should start voluntarily moving towards simplicity, before we are forced to.

In my own life, I’ve decided to draw a line in the sand. I have nice things, and am perfectly content with them. My desire to have the latest thing will not override the contentment I have with my current thing, and the fact these “things” are paid-for is even better. We plan to stay in this home, keep driving our current vehicles, look at the same television, use the same cell phones, and keep the same basic expenses regardless of what others do, or try to convince us to do.

If you are like me, and have been “unfrugal” at times in your life, you don’t have to sell all your possessions and live the life of a pauper. Simply be happy with what you have now, and let that mantra guide future spending decisions.

Laura writes in with the following plea for help with getting out of credit card debt:

I came across your web site today and I love it!  My husband was out of work for nearly 2 years.  We always had enough money to pay our bills so our credit line was very high.  Well, I used it, all of it.  I paid the phone, the car, taxes, one credit card paid another and so on.  I know I broke every cardinal rule but I did what I had to survive.

My husband is now working.  We are paying the mortgage company every week $500.00 to catch up.  My credit cards are over $80,000.00.

Here is my question…Now that we are getting back on our feet, how do we square up with the credit cards with out ending up in the same position?  I can give them each (all ten of them) 40.00 a month, but that won’t make a dent and I don’t even think they will take that low of an amount.

Laura, thank you for taking the time to share your story. It sounds like you and your husband have had a rough couple years, financially, but there will be brighter days ahead. My first piece of advice has little to do with finances, and more with your relationship with your husband.

I want to encourage you to fully disclose your financial situation to your husband. Perhaps you have already done so, but in your email you indicated “I used it, all of it. I paid the phone, the car, taxes…” I just want to make sure you and your husband understand the situation fully, and understand that while you did what you had to survive, we must now work together to clean it up.

Kudos to you for working to get the mortgage caught up, and for making that a top priority. So many times people in your situation make payments to credit cards before the mortgage payment because some obnoxious credit card collector is breathing down their neck. Prioritize the income you now have coming in putting things like food, shelter, lights, and transportation at the top. You’ll work around to the credit cards when you can, but those things must be paid first.

Consolidate Your Accounts

With ten credit cards you do have an uphill battle, but paying them off is not impossible. You didn’t share exact numbers/balances with me, but I understand your current budget only allows for $400 to go towards repaying the credit cards (hopefully you’ll have even more once the mortgage is caught up).

Spread across 10 cards, that $400 budget only leaves $40 per card. You might consider a consolidation loan with Lending Club to reduce the number of accounts (and minimum payments) you are required to pay each month. If you can successfully consolidate your accounts, but sure to close or tear up the cards of those that are paid off. Else you may revert back to old habits and begin using them again.

Sell Stuff to Raise Cash for an Emergency Fund

It would be great if you could build up a small emergency fund of a couple thousand dollars before starting your debt repayment plan. I worry the next emergency will lead you back to credit cards, and zap any progress you’ve made towards paying them off.

Do you have anything you could sell to fund this emergency fund? An extra vehicle? Old jewelry you no longer wear, but may have cash value? Appliances? Electronics? Consider hosting a yard sale or two. I’m not advocating you sell all the contents of your home, but this step will require an extreme measure or two to get an emergency fund in place.

The Debt Snowball

Here’s my advice for handling the remaining credit cards. Start with the traditional debt snowball. List your cards smallest to largest according to their current balance. The standard advice here is to pay the minimums on all accounts to keep them current, and pay anything extra on the smallest debt. In your situation, I’m not sure that’s possible, considering the sum of all minimum payments is likely much higher than $400.

I’d advise you to consider making a substantial payment – at least a couple hundred dollars – on the account with the lowest balance. Use any remaining funds to pay minimums on the next card or two. Hopefully, that card with the lowest balance can be paid off within a couple months, and when it is, walk that money right up the debt snowball to the account with the next lowest debt, and so on. The guys at the end of the list will probably be kicking and screaming for payments, but if you can’t get to them, you just can’t get to them.

Increase Your Income

While working this debt snowball, it would be great if you could find creative ways to increase your income. Perhaps you or your husband could work some overtime or a part-time job, or work from home in off hours. As you acknowledged, you are in a pretty big hole, so increasing the size of your shovel would certainly help get out of credit card debt that much faster!

I wish you and your husband the best on your journey to debt freedom. It will be a long road, but as someone who has just recently experienced debt freedom, I can tell you that every sacrifice is completely worth it!

Ask the Readers: Do you have any additional advice for Laura? Words of encouragement?

The January unemployment report is due out this Friday, and some are predicting negative news, mostly because of an annual adjustment for jobs “miscounted” last year. I heard the figure 824,000 being tossed about today, as in we really lost 824,000 more jobs last year than reported. My favorite term in these reports has become “unexpectedly,” as in, “the numbers increased unexpectedly.” Or, “the numbers were higher than experts expected.”

After a while, you have to wonder who in the heck these so-called experts are, and why are they always surprised by the results? As for the miscounted jobs, well, personally I don’t think this is a real surprise to anyone. I think these numbers were intentionally suppressed to keep unemployment hovering around 10%. I doubt that would be unexpected.

The Frugal Roundup

The Farmers Daughter. Here is a great story about how sometimes being the toughest or most driven may not be the best approach. (@Brip Blap)

Debt Update: January 2010. Adam updated his debt totals for the end of January. (@Money Relationship)

How to Identify a Shopping Addiction. Think you are in control of your spending? Take this quick test to make sure your shopping hobby isn’t hurting you. (@The Digerati Life)

Beware of the Upsell. I’ve been noticing this more and more lately. You can’t even order a basic coffee at Dunkin’ Donuts anymore without being offered something else. Some of these businesses better slow down their up selling or they might start to alienate their most loyal customers. (@Million Dollar Journey)

Fiscal Haiku. This is a neat find. A website where folks across the country are using haiku to express themselves in financial matters such as personal credit card bills, retirement, government debt, and more.

Best of the Rest

• Seven Reasons Why Working From Home May Be Ideal For You
• How My Family and I Paid Off $90,415 In Consumer Debt In Two Years
• Public Storage: Problem Ignored
• 10 Money Tips for Couples Before Marriage
• Do You Have a Worst Case Scenario Plan?
• 4 Ways to Soften the Sting of Unemployment
• The 5 Worst US State Quarters
• How to Smell a Money Scam From Miles Away

There are a few ideas and terms that the masses throw around in an effort to mitigate risk and be more financially secure. The terms that come to mind are emergency fund and diversification. While these are valid concepts, I don’t think they complete the picture of financial security that we should all strive towards.

Most people would agree that economically, we’re in better shape now than a year ago. While we can debate to what degree, I think it would be wise for us to assume that we’re not better off. We should assume that we’re still in the middle of a recession (we probably are), and that things could still get worse. Furthermore, we should assume that it is very likely that we lose our job or lose our income in the near future. If not a complete income loss, we could easily see an income reduction as business revenues and sales continue to struggle.

I’m not here to convince you that these things are going to happen, but rather to convince you to prepare for the event in which they do. If things turn for the better, the economy improves, and your income increases, then great! If not, hopefully you’ll be prepared. So, what to do?

Redefining the Emergency Fund

Most people understand the purpose of an emergency fund: to save up a chunk of money that can pay for our expenses in the event of income loss or a major unexpected expense. By establishing an emergency fund, you can pay your bills and buy groceries with this fund versus tapping a credit card. This is a smart strategy, but I believe there should be more to it.

Storing supplies and consumable goods should also be a part of your emergency “fund”. Your emergency fund is used to pay for stuff when you can’t afford it. If you prepare accordingly, you can use your funds to pay the bills, but hit up your supply stash for products like toiletries, food, canned drinks, etc. The combination of emergency funds and emergency supplies means you can last longer on your own in the event of a loss of income. Furthermore, using your stored supplies for things like food will prevent you from going out to dinner when you should be saving your money during this phase. Lastly, your storage supplies can double as emergency supplies in the event of a disaster or supply shortage. By adding supplies to your emergency fund, you are increasing both your financial security and your independence; a winning proposition in my opinion.

Diversification of Income

We love to spout the fancy term diversification over and over when we’re referring to our investments, yet most of us go through life being completely non-diversified with regards to our most important financial asset: our income. The simple fact is that too many people rely entirely on a single income and are unprepared for the possibility of an income decrease or elimination. In addition to preparing a robust emergency fund as described above, a second prudent step (especially over the long-term) is to diversify our income.

While employed and making money, it’s important to spend some of your free time working on the development of a second income stream. While everybody would agree that such an idea is a wise strategy, probably less than 5% of people actually act on it. I guess television is too enticing.

To start the process, take an inventory of the skills or tools that you possess. Maybe you have excellent graphic design skills, or you can do a range of household repairs, or maybe you have quality lawn equipment. Next, analyze your contacts that might help you get going on this income/business venture. Who might be potential customers? Who might help you find additional customers?

Growing an alternative income stream takes hard work, and will be much slower than you think since you’re spending your limited free time working on it, but I believe it is a worthwhile process. Be organized, determined and patient. Over time, you will see results.

The great thing about working on a second income stream is that it has the potential to eventually turn into a thriving business. It is a less risky form of becoming an entrepreneur. Even if it doesn’t grow into a huge business, the additional income will help boost your savings and help you survive if you lose your main income.

Conclusion

Financial security is a topic that we should all take more time to thoroughly discuss. I have severe doubts about the years ahead with regards to the U.S. economy; as such, I’m doing what I can to prepare for whatever situations I’m forced to encounter. If I’m wrong on my economic views, I’ll still be in great shape with a few extra dollars in the bank and maybe some stocked closets full of goods to use. Such a conclusion would hardly be a bad one. I strongly believe we should prepare for the worst and hope for the best. When it comes to your finances, this old cliché is definitely applicable.

What are some of the ways you’re improving your financial security?

My family recently moved and we have settled into our new home. While we love our new house, it did have one glaring problem for a wanna be writer – no office space for Frugal Dad. Not to worry, as you may remember I’ve set up shop in laundry/utility rooms, bedroom corners, and even recently threatened to convert our outside storage building to a home office.

Initially, I dreamed about setting up my own shop remotely. It would be nice to have a place to go to do some writing out of the house without having to share the space with diners, coffee drinkers or teenagers playing online games (this is the setting of most places with wi-fi in my area).

I checked out a few online listings for office space and found a promising lead. A local real estate office was renting out one of their unused offices for only $400 a month, including utilities. I talked with the manager of the firm and rode by to check out the office. It was nice, but something told me not to sign right away.

While I came away with a favorable impression of the space, I added up the annual costs on the way home and realized it would cost me nearly $5,000 a year to fund this extra space. There had to be a more frugal alternative. I returned home to do a little brainstorming.

The Before Picture

Yes, that’s our master bedroom closet. Well, half of it. And yes, this is the place where we just threw everything we didn’t have room for elsewhere. The fun part about moving is that you get to discover just how much crap you’ve accumulated over the years. I told my wife I was going to use my half of the closet to create a writing area. Once I convinced her that her side would be unaffected, she went along with the idea.

My first order of business was going through some old clothes I had accumulated over the years and no longer wore. I wound up bagging three bags full of old shirts, sweatshirts and miscellaneous t-shirts simply taking up space. I donated them to a local men’s shelter in our area, and they seemed grateful.

With the clothing racks cleared on one side, I moved that file cabinet into one corner of the office, and relocated an old table sewing machine my grandmother used (bottom right of that picture) to another room. I cleared out the remaining stuff (including the giant Christmas gift bag, which I embarrassed to confess still held most of the contents of our family’s Christmas stockings!).

The After Picture

After sliding the file cabinet into the corner, I had plenty of room for a four-foot folding table. This was the ideal size, and since I already had one on hand, I made it work. The only other supplies needed, in addition to my writing laptop, was a simple scratch pad and pen, and a small basket with basic office supplies (stapler, dry erase markers, etc.).

As you can see, not much decorating going there. I did hang a dry erase/bulletin board and my kids were nice enough to supply a few early Valentine’s Day decorations. That sticker on the side of my filing cabinet has been there for several years and reads, “Live Like No One Else.” You might recognize that quote from Dave Ramsey. For years I looked at that sticker while toiling away on my side hustles with the goal of debt freedom in mind.

The books on top of the file cabinet represent just a small section from my budding personal finance library. You might recognize a few covers as Your Money or Your Life, Work Less, Live More, The Tightwad Gazette, America’s Cheapest Family, and the recent release from Gary Vaynerchuck, Crush It. The supply rotates as I discover new reads, but these four or five books stay because I always go back to them for ideas and inspiration.

In case you are worried about me becoming claustrophobic, I should tell you that since taking the picture I used a bungee cord to band those clothes on the right side and pull them closer to the wall. They were mostly warm-weather shirts, so I won’t be needing them for a while anyway. This freed up a lot of shoulder room, but honestly it felt pretty cozy without the extra space.

I couldn’t be happier working away in my frugal home office. I’m fairly isolated from other noises in the house, even with the door open (I can always close off the bedroom door and leave this one open if the kids get too noisy). I don’t expect everyone to be able to set up shop in their closet, but if you are looking for a place to start a home business, I encourage you to get creative before rushing out and leasing office space.

Chances are there is some tiny bit of unused space in your home to set up a folding table and computer. If nothing else, it was a good excuse to clean out our closet!

This is the fourth post in a series called Saving With Purpose: Living a More Intentional Financial Life. In this series, I plan to highlight a number of specific savings goals my family has identified we would like to achieve over the next few decades.

In the last series post we discussed ways to reach early retirement through a combination of taxable investments and retirement contributions that may be withdrawn before traditional retirement age. This post picks up where the other left off; we’ve now reached that golden age of 59 1/2 and may begin withdrawing from our traditional retirement plans.

Should we invest in both a Roth IRA and a 401(k)? Should I count on social security income, and if so, should we elect to receive early payments? What alternative investments can we make to fund retirement?

Forget Everything You Thought You Knew About Retirement

Our strategy for retirement is different from the more traditional idea of working somewhere 40 years, retiring, and drawing social security for the next two or three decades (hopefully). Our plans for retirement have been influenced by a shift in some of the long-held financial beliefs.

Things like a guaranteed 8% return in the markets may be soon be a distant memory. Sure, some years will be good and some bad, just as it always has. However, I suspect there will be more volatility and negative financial news than anyone my age remembers. So our plans have been molded by life experiences, the political climate, and even larger economic trends that have developed in our lifetimes. Our investments will be more conservative, and we will always lean to being “cash heavy,” because we value preparedness over the chance of hitting it big.

Maximize Roth IRA Contributions

Each year, my wife and I will contribute the maximum amount to a Roth IRA. I’m a big fan of the Roth IRA, for several reasons. First, the earnings in a Roth IRA grow tax free, and since you are using after-tax dollars, contributions can be withdrawn at any time, for any reason (making the Roth sort of a 2nd pseudo-emergency fund).

The Roth IRA also has no mandatory distribution age, meaning if you hit 59 1/2 and don’t want to tap your Roth IRA balance, you don’t have to. Traditional IRAs require distributions at age 70 1/2, meaning you could be forced to reduce the amount you leave to heirs thanks to mandatory distributions.

With about 27 years until we reach that 59 1/2 years-old threshold, my wife and I could save a large amount in our Roth IRAs, assuming we don’t tap contributions early to fund early retirement (something I mentioned as possibility in the last series post). Assuming a 6% average return on our $10,000 yearly investment, we would have nearly $700,000 in Roth IRA savings in 27 years.

Maximize 401(k) Contributions

In Adam’s recent post asking whether or not he should save for retirement or pay off debt, it seemed the consensus in the comments was Adam should contribute through his employer’s match, but use any remaining funds to reduce his debts. I agree; there is nothing like “free” money in the form of matching contributions.

However, there is a larger question here. After becoming debt free, should one continue to increase 401(k) contributions to the maximum yearly amount (currently $16,500), or should they invest that money elsewhere in a more diversified mix of asset classes (paid-for real estate, business ventures, etc.)? I don’t believe there is a right or wrong answer here. but it seems to me that if all you can afford to do is stretch to max out your 401(k), you may do better to spread that money around a bit. On the flip side, if you can afford to save above and beyond the yearly maximum, then you should first fund all tax-advantaged accounts, such as a 401(k).

What did we decide? After much deliberation, we decided to slash a few budget items and go after the max 401(k) contributions, recognizing we may not be able to do this every year going forward. Fortunately, we are now debt free, and through my blogging pursuits, we have what amounts to a second income. I recognize this does not work for everyone, and it certainly didn’t work for us until just recently. In fact, I haven’t even contributed to a 401(k) in the last few years while we whittled away debts and built emergency savings.

If we could find a way to continue maxing out 401(k) contributions until retirement age, we would have $1.1 million, assuming a 6% return. Add in Roth IRA contributions and growth, and we’re approaching $2 million. Of course, as I mentioned in my last post, this is not likely to happen because I want to move away from full-time employment in the next 12-15 years. If we kept up our goal of maxing 401(k) for just 15 years, we could still build a 401(k) nest egg of just over $400,000, and another $250,000 in Roth IRAs. Not bad at all.

Will We Receive a Return On Our Investment In Social Security?

In a word, no. I don’t believe we will. Put another way; don’t count on it. I personally believe social security as we know it today will not exist in another 15-20 years. It can’t, mathematically, as soon there will be many more people receiving benefits than paying in. That sort of upside down pyramid doesn’t work – just ask anyone associated with a failed Ponzi scheme.

Now, I am not as radically anti-social security as some. I just like the idea of controlling my own investment dollar, because I’m confident I can earn more than the U.S. government can. Enough of that, I’m not out to make a political statement. I am simply trying to reinforce the idea that people in their 20’s and 30’s should not expect to be able to live on social security in retirement.

If we do receive some form of payment from social security, just consider it a bonus, but certainly don’t count on it for financial survival. If the program is still solvent when I reach the age eligible to receive early payments, I’ll likely sign up. After all, nothing is guaranteed – neither my health or the continued viability of the program. Unfortunately, several people close to me paid in their whole lives and never received any benefits, or received very limited benefits through disability before dying young.

Alternative Investments for Retirement

In addition to the traditional types of investments I’ve listed here (and in earlier series posts), we are also interested in things like paid-for real estate. Specifically, we’d like to pay off our own home well before contemplating an early retirement. I have always thought living mortgage-debt free must be the ultimate in financial freedom.

Just imagine no credit card debt, no car payments, and no mortgage payments. Imagine the options available to someone in that position. Imagine the freedom they must feel with the only income requirement to earn enough to cover basic living expenses, and save for future ones. That’s it.

In addition to real estate, I will always have a side hustle or two going, and in the future may elect to invest more money to grow a current hustle, or develop a new one, without introducing too much risk into our lives. I started Frugal Dad over two years ago on less than $50, so it might be tough start something even more frugal!

In the final post in this series, we’ll look at one last topic: giving. Yes, part of our saving strategy is to give a lot away. I’ll share a few ideas I have on the subject, and as usual, try to put some specific numbers to our giving goals going forward.