A couple months ago my wife and I started a passive search for a new home.  We are looking to downgrade to save a bit on the mortgage, and have more money each month to put towards meeting our aggressive savings goals.  When starting the house hunting process it is a good idea to check your credit report to make sure things are being reported correctly.  Inaccuracies discovered late in the game could jeopardize the approval of your mortgage, and the ability to close on a new home.

Skeletons In Your Credit Closet?

Often times consumers have legitimate, negative blemishes on their credit history that are being accurately reflected in their credit file.  For these types of items there isn’t much you can do, but wait.  The earliest most accurate, negative information can be removed from your credit file is seven years.  However, if you are like me, and find an inaccuracy in your report is dragging down your FICO score, there is something you can do about it.  I had to contact a certain unnamed bank that may or may not be represented in the picture above to get an issue resolved with an inaccurate item on my credit report.  In addition to dealing with the bank directly, I also disputed the item at all three credit reporting agencies.  Here a few steps to take to resolve inaccurate information being reported on your credit report.

Steps to Resolving Credit Report Errors

Contact creditor and notify them of the inaccuracy.  Creditors reporting data to credit reports have the ability to wipe clean inaccuracies in your file by submitting what’s called a Universal Data Form (or U-Data Form).  Ask for the creditor to correct their records, update your data with all three major credit reporting agencies, and notify you in writing when the process is complete.  Creditors update credit bureau files every month, or every quarter, and if you don’t notify them of the inaccuracy it could wind up right back on your credit file weeks after getting it resolved through the credit bureau.

Write a letter to the credit reporting agency.  In the letter, identify the account that is reporting inaccurately, give a brief explanation why you believe the record is incorrect, and sign and date the letter.  Be sure to include a copy of any relevant documentation you have from the creditor indicating this was a mistake.

Time is on your side.  According to the federal Fair Credit Reporting Act, credit bureaus have 30 days to remove the record from your file, or provide you proof that the account is reporting correctly.  Occasionally, creditors or reporting agencies miss this window and the information has to be removed, but if it is legitimately being reported by the creditor often times it will reappear.  This strategy is commonly used by these “credit repair agencies” that are usually nothing more than a scam disguised as a legitimate service.  If you legitimately owed a debt, and were late paying on that debt, then there is nothing you can do to have it removed from your record, other than wait the required period of time.

Send correspondence via certified mail, return receipt requested.  The 30-day ticker starts when the bureau receives your letter, and the signed receipt is your proof that is was delivered.  Be sure to stash it in a safe location while waiting to hear back from the credit bureaus.

Stay safe with credit report monitoring service that alerts you within 24 hours of changes made to your credit report.

This scary economy has many folks terrified at the thought of spending $40 on a Halloween costume, so frugal ghosts and goblins across the country have decided to go with homemade Halloween costumes.  We typically do this in the Frugal Household, although this year my son had to be The Incredible Hulk, so we caved and bought him an inexpensive Halloween costume.  My daughter is more creative, and each year enjoys coming up with her own homemade Halloween costume ideas.  With her help (and a lot of input from my wife) we offer up the following frugal homemade Halloween costumes, along with the supplies needed for each:

Hobo/Bum

• Old tattered clothes with a few holes (maybe some of Dad’s old work clothes)
• An old, beat-up hat
• An old pair of well-scuffed shoes
• Worn canvas sack on a stick over the shoulder carrying belongings

Spa girl (My daughter dressed as a “spa girl” last year)

• Green face paint to simulate a mask
• Towel for head or curlers
• Sleep mask
• Bedroom slippers
• Bath robe
• Pajamas

Nerd

• An old pair of eye glasses with black electrical tape for reinforcement
• Too-small pants (short ones/high risers)
• Shirt tucked in with pocket protector and a handful of pens
• Hair slicked down with gel
• White socks
• Black shoes

Ghost (a frugal Halloween classic!)

• Sheet with holes cut out for the eyes
• White, long sleeve shirt to wear underneath
• White gloves
• white pants, socks and shoes

Hunter/Soldier

• Camouflage clothing
• Dark green (olive) paint for face
• Black face paint for under the eyes
• An old Army belt with canteen
• A green backpack

Scarecrow

• Flannel Shirt
• Overalls/Jeans
• Rope belt
• Wheat straw to stuff under the cuffs of the jeans and shirt
• A straw hat
• Paint a few freckles on face

Present

• Big box wrapped in festive wrapping paper
• Large bow to place on your head
• Cut holes on sides of box for arms, and in the top of the box for your head

Bunch of Grapes (This one reminds me of the old Fruit of the Loom commercials)

• Purple sweatsuit
• Purple balloons pinned to sweatsuit

Chef/Cook

• Tall chef’s hat or hair net
• Apron
• White button down shirt
• Black pants and shoes
• A big pot to collect candy in (with a big wooden spoon)

Kitty cat

• Black clothes
• Black shoes/socks
• White cardboard for the belly
• Tail (can use an old sock or buy one)
• Ears (headband with felt)
• Facepaint for whiskers and nose
• White gloves (optional)

Most of these homemade Halloween costumes can be put together with items from around the house, or for less than $10 by visiting a consignment shop or Dollar Store. However, if you must resort to buying a Halloween costume, check out the deals at BuyCostumes.com!

I do my best to avoid complicated mathematical formulas (like the one featured above).  In my experience, mathematicians do a great job of taking a relatively simple process and making it overly complex by applying a series of inexplicable formulas.  I guess that’s why I was happy to run across an interesting concept the other day called “the multiply-by-25 rule.”

The idea is that you can estimate how much is needed in savings to generate enough income to pay for an item.  The only factors you need to know are how much something costs you now, and at what interest rate your money will grow.  Of course, determining both in this period of a inflation and fluctuating interest rates is tough, but you can get a general idea of how the math works by looking at a real-life example.

Photo courtesy of Behdad Esfanbod

A Working Example

We are fans of Netflix because it offers a relatively frugal entertainment option for family movie nights.  It’s cheaper than going to the theater, and cheaper than an expanded cable package.  At roughly $9 a month, our Netflix membership sets us back $108 per year.  To continue paying for Netflix out of passive income earning 4% per year, I would need a $2,700 ($108×25) savings balance.  Since most of my savings are now earning closer to 3% I would need to multiply my costs by a factor of 33.33% (100/interest rate).  This increases the amount needed to pay for Netflix after reaching financial independence by $900 to $3,600.  Maybe I should just cancel Netflix!

A Bigger Example

I have heard stories of people paying off their homes, cars and all other debts and living quite comfortable on a couple thousand dollars a month, or less.  Assuming our goal is the high end of that estimate, how much of a savings balance would be required to spin off $24,000 a year in income?

If earning:
3% interest, you would need $800,000
4% interest, you would need $600,000
5% interest, you would need $480,000

And you thought you needed to be a millionaire to retire early! This exercise does fail to account for inflation, both in terms of cheapening dollars and the costs of goods and services over time.  I doubt Netflix, or a similar company, will continue to offer one-at-a-time unlimited rentals in the year 2030 for $9.  However, running these numbers does emphasize the importance of minimizing the number of expenses you commit to early on.

Our Netflix membership alone puts us $3,600 further away from financial independence.  Our cable bill, although relatively small at $12/month, puts us $4,800 away from retiring early.  When you start to convert monthly expenditures to the amount of money required to cover their upkeep it really helps you prioritize what is important in your budget.

Homework:  Apply this formula to some recurring expense in your current budget and report the results in the comments below.  Does this required savings amount change the way you feel about continuing to pay for the item?

 
Photo courtesy of freeparking

I chose the image above because according to the owner it was taken around the Depression Era.  Notice the expressions on the kids’ faces.  It’s as if their faces tell the story of the struggles felt at home.

Kids are intuitive creatures.  They often pick up on subtleties lost on many adults.   Over the last few weeks my oldest child has overheard conversations about money, the stock market, and the broader economy.  She’s also heard news reports about the upcoming election, and how the struggling economy is playing a major role in the ongoing political debate.  My daughter is eight years-old; old enough to pick up on these conversations, but not quite old enough to grasp all of the concepts.  She asks questions about the political candidates, about foreclosures and taxes and job layoffs.  Other parents might be fielding similar questions in response to conversations their kids have overheard. Here are the age-appropriate approaches I recommend for addressing their questions.

Small Kids and Money

My son is only four years-old, and he is oblivious to most problems with our economy.  As long as his basic needs are met he couldn’t care less what the market is doing!  What he would be able to detect is financial stress between me and my wife, which is why we try to limit any discussions about money around him.  Like I mentioned in the opening paragraph, kids are very intuitive.  He very easily picks up on stress in the home, even if he can’t yet identify its cause.  For this reason, try to avoid money discussions around young ears.

Preteens Have Lots of Questions

If your kids are anything like mine their favorite question is, “Why?”   I hear this all the time–why is the sky blue?  Why do you have to go to work?  Why are some people rich and others aren’t?  Some of these questions are easier to answer than others.  Preteens are old enough to understand some basic financial concepts, such as compound interest and primer discussions on debt.  However, any worries expressed in the household over finances and overheard by preteens often lead to insecurity as kids start to think something bad will happen to their family if they go broke.  For this reason, try to keep things general when discussing money rather than fully disclosing your financial problems to your preteen. Statements like, “We have some debt and are working extra hard to pay it off” acknowledge the problem, but focus on the steps taken towards a solution.  That’s what kids this age need to hear most.

Teenagers Have All the Answers

If preteens have all the questions, teenagers have all the answers. Don’t believe it?  Just ask one.  If you are struggling financially it makes sense to include your teenager in discussions affecting your household, such as a parent taking on a second job, or selling the family car to lower your monthly payments.  If kids know about the difficulties you are facing as a family they will be less likely to question the sacrifices made during tough times.  Not that there is a problem with simply telling kids no, but sometimes it helps to explain why you can’t afford to do something or buy something in the context of a larger plan to turnaround your financial situation.

Although you are freely telling teens about your financial difficulties, it is also important to reassure them that things will be okay–that you will pull through as a family, and you are busy making sacrifices to support them.  Older teens may even feel inspired to pitch in by picking up a part time job, and this provides a great opportunity to do a little character building that will last a lifetime.  As a parent, you know your kids better than anyone, so tell as much or as little as you feel comfortable sharing, but always do it with their best interest at heart.

 
Photo courtesy of Paul Keleher

When things are running along pretty well it becomes easier and easier to settle into a routine of saving money, making frugal choices and avoiding new debts. However, if your life is like mine, just about the time you get settled something comes out of nowhere to completely derail your plan.  Earlier this year Murphy came to visit (you know Murphy, if it can happen it will).  We went through a few demoralizing weeks with problem after problem–things breaking around the house, people getting hurt, etc.

Then we were cruising along ready for a new school year for the kids when my Mom was diagnosed with a giant cerebral aneurysm (she has been hospitalized in ICU for the past 37 days following treatment).  Daily trips back and forth to the hospital have doubled our gas budget (the hospital is about 30 minutes from our home).  Our eating-out budget has gone up as we were often forced to grab something fast in between visiting hours.  The good news is we have made the budget adjustments and avoided taking on new debts, or withdrawing from our emergency fund.  Here’s how we are making it work:

• Loosen up, but stick to core frugal principles. In a qualified crisis it seems a bit petty to be concerned with pinching pennies, so we have relaxed things a bit by lowering our debt snowball budget.  This allowed us to bump up a few categories that will undoubtedly increase while caring for my Mom.

• Keep priorities in order.  Loosening up a bit does not mean you have a license to go on a shopping spree.  Many times this is the first reaction to crisis, particularly for reformed emotional shoppers such as myself.  No, buying things may make you feel better by creating a diversion in the short term, but when the bills settle and the “newness” of your purchase wears off, you will feel even more guilty over spending the money which adds to the depression you might already be experiencing.

• Make budget adjustments as needed. My wife and I are normally reluctant to modify our monthly spending categories.  However, in an emergency a budget committee meeting may be in order.  Try to keep your overall budget amount the same by reducing non-essential categories to make room for essentials.  For instance, in our case food and gas increased almost immediately, so we reduced “Entertainment” and “Gifts” budget categories.  It won’t get us invited to many birthday parties, but you have to do what you have to do.

• Be less aggressive with debt reduction and savings plans.  Like I mentioned above, we’ve scaled back a bit on our aggressive plans to pay off debt.  As much as I’d like to finish off our remaining balances, it just doesn’t make sense to stretch too far and have to turn right around and dip into our emergency fund, or even worse, borrow money from the credit card we are working so hard to pay off.

• Get back on track as soon as possible.  In the early stages of an emergency you find yourself sort of going through the motions.  However, as things stabilize you will find yourself slowly returning to your normal routine.  When you recognize this is happening you can rebalance your budget categories and get back on track with your original goals.  Remember through all this that your family is your first priority–not Discover Card.  If it comes down to feeding your family and keeping the lights on, or paying your credit card payments, those other guys will just have to wait!

Photo courtesy of Denis Defreyne

The Frugal household came to a screeching halt Wednesday night when we discovered mice have decided to take up residency in our garage.  My wife is threatening to move out until they are eradicated, and my daughter is terrified.  My son, on the other hand, has decided mice are “cool” and Daddy’s exasperated attempts at catching them is even cooler!  I thought about getting a cat, but I could envision the cat taking off after a mouse, and our dog taking off after the cat, and me chasing all of them.  Besides, knowing my luck the cat would be about as concerned with mice as the one featured in the photograph above.

The mice have taught me a valuable lesson in perservernace.  They found a loose brick outside our garage, squeezed through the crack, chewed completely through the baseboard and are hiding in our garage.  Let’s just hope they leave before deciding to start a new colony behind our freezer.

The Life Skills Network

• The Guerilla Tactics Your Need to Fight for the Right to Simplicity
• Back to Basics:  Stop Whining and Frugal Up Your Finances
• 21 Keys to Magnetic Likability
• 15 Must Do Fall Finance Tips
• 30 Simple Ways to Get Your Child Ready to Read
• 10 Debt Collection DON’TS

The Money Writers

• Money Saving Tips and Frugal Memoir By the Frugal Duchess
• Obama’s Economic Rescue Plan Would Allow Penalty-Free Withdrawals up to $10,000 This Year and Next From Retirement Accounts
  
• Six Reasons to Love This Economy (Really. I’m Serious!)
• How Can YOU Save the US Economy – The Secret to Success of the American Dream
• How Safe Are My Banks?
• How to Enjoy Life, or Not
• Frugal Tip:  Give Yourself An Allowance

The Fab Five

• Fans of the social bookmarking site Digg will like this one–it’s called Tip’d.com, and it is “a community for financial news, ideas, and tips.”  Check out the growing number of articles.
• Money Podcasts: How to Listen to Personal Finance Commentary and Advice at Your Convenience
• Favorite Frugal Christmas Ideas?  Lots of great ideas in the comments here.
• Stop Complaining for Seven Days
• Do Your Kids Know What Money Looks Like?

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Ever heard that old saying, “pay yourself first?” Who hasn’t?  It is another one of those financial axioms that is much easier said than done.  When we first get paid the last thing most of us think of is saving money.  After all, there are so many other pressing needs.  Car payments, mortgages, credit card bills, and the biweekly celebration at Outback Steakhouse are all vying for our dollars.  But what if we could get just as fired up about saving money as we do spending it?  Even better, what if you could make savings a priority both at the beginning of the month, and the end?

Pay Yourself First

Under the “Pay Yourself First” plan you create some easy ways to divert money from your primary spending account to various forms of savings.  When savings are taken right off the top of your paycheck you’ll be less likely to miss the money, and less likely to spend it if it hits your checking account.  Not everything can be automated these days, but fortunately most banks and brokerages allow automated transfers with a customizable schedule that meets your needs.  Here are a few examples of ways we are paying ourselves first:

• 401(k) plan contributions are deducted right off the top of your paycheck.  Currently, these contributions are pre-tax, which means in addition to the benefit of saving money for retirement you get the added benefit of reducing your taxable income for the current tax year.

• Automatic transfers to your high-yield online savings account.  We have a variety of subaccounts at ING Direct where we funnel amounts ranging from $25 to $100 per pay period.  The transfers are scheduled to occur every two weeks, and coincide with my paycheck being direct deposited in my primary checking account (be sure to leave a little cushion to cover these transfers should your paycheck be held up for some reason). Here are a few other of the best online banks to choose from.

• Biweekly contributions to a Roth IRA.  We take dollar-cost averaging to the extreme, and instead of contributing only once a month, we divide our yearly contributions by 26 biweekly periods and contribute every two weeks.  Once we hit debt freedom we would like to max out our contributions, but for now we are content with making minimal investments just to kick-start retirement savings (and take advantage of the bargains in today’s market).

• Biweekly contributions to college savings plans for our kids.  Similar to how we’ve scheduled contributions to our Roth IRA, we make biweekly deposits in our kids 529 college savings plans.  It is all automated, so once things are up and running it requires very little maintenance.

Pay Yourself Last

During the month we make a game out of trying to best our budgets for the various spending categories we have setup.  Things like food and entertainment are areas where we are typically able to come in under budget, and when we do we sweep that money into our emergency fund to continue building it towards our goal of 6-12 months of expenses.  In the past, we have also used this extra money to boost our debt snowball payment.  The idea is to reset that checking account before the next month starts, and to account for any remaining money by putting it to work for us, rather than frittering it away in miscellaneous spending.

In what ways are you paying yourself first?