Monthly Archives: March 2009

Household Budgeting On $800 A Year

Posted on by  at  6:00 am
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Photo courtesy of GoldenEel

Yes, you read that correctly. Could you live on $800 a year, excluding utility bills, clothing, gifts, car, and house? Your reaction is probably like mine – what’s left?  Well, a lot, actually.  Consider how much money leaks through your budget on things like food, pet food, entertainment, and other miscellaneous categories.

I stumbled across a blog post at Jane4Girls $800 Annual Budget that proves it is possible to live on an $800 annual household budget (by “household” I mean things like food, cleaning supplies, health and beauty supplies, etc.). Here’s an excerpt from her site which explains the mechanics behind how she pulls it off:

I have basically put $800 cash into an online savings account. This is for 4 people, one adult, 1 teen, two tweens and two dogs.  This averages out to 54¢ per person per day. Any time I have to pay out of pocket for something I will use a credit card that I earn rewards on, either cash back, gift cards back or college savings. Then I will transfer that purchase amount from my online account to my checking account to cover the cost of those items when the bill comes in.”

It is hard to believe a mom and three kids (and two dogs) can really live on $66.67 a month, but when you really dig in to Erin’s system you find that a lot of what she uses has been stockpiled and/or acquired by combining store sales with coupons.  That is a great strategy, and one we tried last year after signing up for the Grocery Game.  The service published a list which matched up store sales with available coupons from the Sunday paper (and a few online sources).

During weeks we stuck to the game we saw some significant savings, usually around 35% off regular, retail grocery store pricing.  However, we also found ourselves buying a bunch of stuff we didn’t really need, just because it was a “rock-bottom price.” As the stockpile of unused stuff began to grow we realized that stockpiling wasn’t working for us because we bought more of the things we didn’t need and that offset the savings of buying the things we did need.

It is an interesting exercise nonetheless, to imagine just how low you could go on annual household spending. Without knowing much more about Erin I assume she is doing this because she has to, and we are fortunate that we don’t have to mind our pennies quite as closely. I would rather spend a little more on things like food to eat healthier meals, more fresh produce, etc. rather than always hunting a coupon bargain.

Still, there are some opportunities for us to cut costs, and use more coupons on the foods we do buy, particularly basic staples.  I get bored too easily to track spending at such a granular level for an entire year, but I might just try something similar for the month April. Stay tuned.

Paying Off Debt From Inheritance

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The other day I was listening to a local radio show about personal finances.  The host took a call from an emotional listener (I’ll call her Kelly) who had recently lost her mother to cancer. Kelly’s mother left behind a $100,000 life insurance policy, along with a number of other assets to be split between Kelly and her sister.

Over the last year or so Kelly and her husband have been getting their financial lives back on track. They had whittled their outstanding debts down to about $30,000 (from $50,000), spread evenly across a couple credit cards, an old student loan, and a car note.  It turns out their portion of the inheritance was just enough to pay off all the family’s debt plus $20,000.  Kelly felt conflicted about paying off debt with her inheritance money.

The show’s host seemed equally conflicted, even though the answer was obvious to me. Yes, the caller should use the money to be debt free by the end of the day.  How did I arrive at this answer so quickly?  A number of factors were at play.

Three Questions To Ask When Deciding To Use Inheritance To Pay Off Debt

1. Will I need to live on this money in the near future? This might be the case for a spouse who wasn’t working prior to their spouses death, or in the case of two retirees living off of the now deceased’s salary.  In Kelly’s case, her husband earns a good income, and they had some emergency savings already in place.  It wasn’t likely they would need to live on any of this inheritance.

2. Has my lifestyle changed? Consider whether or not the lifestyle that led you to debt has changed. If you are still overspending, using credit cards, and financing emergencies, then chances are you will go right back to that behavior after your debts are paid. This is the very reason most lottery winners grow broke – their lifestyles never change, just the amount of money they have to blow.

3. If you had the same amount of inheritance already in savings, would you go into debt to avoid spending it? This is really the same question in reverse.  Not using inheritance money to pay off debt is the equivalent of leaving money in savings while financing something(s) of equal value.  The only time this might make any sense is when financing a home at a very low interest rate, but even then, a free-and-clear home looks pretty attractive, too.

An Emotional Decision

Deciding whether or not to use an inheritance to pay off debt is a very emotional decision.  Any time you mix emotions with money you have the opportunity to make a very big mistake. But after losing a loved one it is hard to remain objective, and the tug of our emotions often leads to irrational decisions.

If you find yourself in this position, and aren’t sure what to do with the money, simply park it in a bank savings account for a couple months while you allow your emotions to heal. After that “cooling off” period you can again evaluate your financial picture and make a smart decision about how to handle the money.

Part of what bothered Kelly about using her mother’s inheritance money to pay off debt was a feeling that her mom would somehow disapprove, or be upset to know Kelly owed that much money. As a parent, I would want my kids to do what’s best for their family, and if being debt free was a goal for them, and it freed them from the bondage of being indebted to banks, then I would be happy to know that’s how they used the money.  I suspect most parents would feel exactly the same way.

Simplify Your Life

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Here lately I’ve noticed a lot of “noise” in my financial life.  When I started earning some money from my online ventures I piled business accounts (checking and savings) on top of what was already a chaotic mix of bank accounts.  Apparently, those last two accounts were the final straw, because it was at that moment that what used to be a minor annoyance became a downright irritant – we had too many accounts floating around.  It was time to simplify our life, and consolidate into just one or two of the best online banks.

While I did not officially declare it a 2009 resolution, we have made it a goal to consolidate accounts to simply our financial picture.  Here are a few tasks we are working on now.


Photo courtesy of wrestlingentropy

Close unused bank accounts.  There is the bank account I opened in college, and the one I opened for employee checking benefits at my last employer.  Then there is the account at ING Direct, the local credit union, and the place that financed our family vehicle (which is just a month or two from being paid off!).

Few things drive me more crazy than getting statements for the $4.17 in accumulated interest from a bank I haven’t done business with in years. Time to make a few phone calls, write a few letters, and close out those old banks. Besides being a nuisance, there is added risk of identity theft in having my personal information scattered around several financial institution’s databases.

Reduce budget categories.   In the last few months we have made progress towards this goal, but looking back at my budgets in previous months it looks like I was tracking everything under the sun.  While there is some value in tracking expenses at a granular level, eventually it gets to be a real chore and we sort of lost sight of the big picture.

For example, we used to track budget categories like “paper products,” and “cleaning supplies.”  It might be good to know if you spend $40 a month on paper plates, napkins and paper towels, but tracking to that level of detail required meticulous reviews of all receipts or using separate shopping carts.  That was a pain.  We decided to just consolidate these categories into a “household” category where we track combined budget amounts from most of the old, smaller categories.

Consolidate debt to as few accounts as possible.  When we first began our debt snowball plan we had several debt accounts – credit cards, student loans, a car loan, and an old consolidation loan.  The first step to simplify our finances was to consolidate a few of the smaller debts (mostly credit cards) to one or two credit cards with a low interest rate.  We then cut up all but one card and worked to pay off other debts in order of their balances, smallest to largest.  Every time we work one down to $0.00 it feels great knowing that’s one less statement we’ll get in the mail each month.

Automate utilities and other fixed-rate payments.  One of the best things we did related to monthly utilities was sign up for levelized (or budget) billing from our energy company.  The service averages your last twelve months of usage and charges the average amount each month.  The extreme heat of summer isn’t quite as painful when offset by cooler months where we use less electricity, and it’s nice to know within a few dollars what your utility bill will be each month.

We also have a number of our “fixed” payments automatically drafted from our checking account.  I distinguished between “fixed” payments and “variable” ones, because variable payments can catch you by surprise if something goes wrong.  For instance, a friend of mine once had $1,600 debited from his checking account to auto-pay his cell phone bill because his phone was stolen and used to make unauthorized long distance and 900-number phone calls.  It was eventually straightened out, but it took a few days to get that $1,600 payment reversed from his checking account.  Probably safer to stick with things like cable service, utilities, insurance premiums, etc.

This is just a sampling of things we have implemented recently to simplify our financial life.  Some may work for you; some won’t.  That’s the great thing about personal finance-it’s personal.  You may enjoy tracking spending to 27 budget categories (I used to). Or you may find creating master categories and tracking at a higher level frees up time to spend doing things you enjoy more.  It’s your call.

Weekly Roundup: No Negative News Allowed

Posted on by  at  10:41 pm
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40 Inspirational Speeches in 2 Minutes

I have a confession. I am tired of the negative news lately. I won’t even rehash the stuff I’ve heard on the news over the last week, but suffice it to say – it’s depressing. From the economy to crime stories to accidents, the drumbeat of negative news never seems to stop. That’s why I have declared this edition of the weekly roundup a “positive news” edition.

I kicked things off with an upbeat movie clip above.  Movie buffs will appreciate the cinematic references (saw many of my inspirational favorites in there – Rudy, Rocky, Braveheart, 300, Hoosiers, etc.).  I enjoyed remembering how inspired I felt after watching some of those classics.  I wish there was a way to condense all those feelings into a portable format so I could quickly get fired up any time I want.  That YouTube clip was the closest thing I’ve seen so far!

I hope you find the links below as refreshing to read as they were for me to collect.  Sometimes we just need a break from the negative reality around us.  Enjoy!

The (Positive) Roundup

  • The Happy Minimum.  I don’t share Trent’s enthusiasm for reducing my requisite squares of toilet paper, but I do share his zeal for finding contentment with less. (@The Simple Dollar)
  • Simplicity 101: Slow Down.  When I need to “slow down” I like to just head out the front door and walk the neighborhood.  I don’t do it often enough, admittedly, but when I do I always feel restored. I especially enjoy doing this early in the morning, just before the sun comes up, and the birds are just beginning to chirp.  Such a peaceful time of day. (@Remodeling This Life)

Quick Hits

  • Thanks to The Daily Texan for working in a mention to Frugal Dad.  I agree with the author that the frugal college student is an under-served market when it comes to blogging, and I plan to write a couple college-themed articles in the coming weeks.  After all, it hasn’t been THAT long since I was a college student!
  • Yesterday’s guest post from Carlos of WeSeed.com was a popular one. Unfortunately, WeSeed was in the process of adding a groups feature around the time I released the post, and their site was experiencing some downtime.  To make it up to me WeSeed created a “Frugal Dad” group where we can invest as a team and compare our results against other groups.  In case the direct link doesn’t take you there, here’s how to find our group.  Click on the WeSocial tab.  Then select “Groups” from the left sidebar menu.  Frugal Dad is currently listed on page two of the group listing.

WeSeed: Investing For The Rest Of Us

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The following guest post is from Carlos Portocarrero, WeSeed Writer.

Quick question: how many of you out there want to learn more about the stock market but can’t make it through a single issue of The Economist before your eyes start to cross and you start nodding off?

Welcome to the club-but just because you don’t want to become a professional stock trader, it doesn’t mean you can’t learn the basics of investing in a fun, interesting way.

What is WeSeed?

WeSeed.com is a safe place where you can learn about investing without getting bored to death. Investing isn’t about formulas and ratios that keep everyday people like you and I from participating in the stock market. It’s about the things we buy and the companies behind them.

As we like to say, WeSeed is the stock market for the rest of us. Think of WeSeed as the stock market with massive training wheels attached.

There are all kinds of things you can do at WeSeed, like:

  • Find stocks that relate to what you know and love
  • Explore real companies and real stocks
  • Buy and sell stocks in a totally safe environment
  • Interact with other users and follow their portfolios
  • Comment on stories or companies you like

Some Background

When I was in college, all my friends subscribed to The Wall Street Journal. They all wanted to make tons of money and the stock market was the place to do it. The problem was, they didn’t even know how to create a budget, start a high-yield savings account, or control their spending. They didn’t care about that stuff-they wanted to make millions in the stock market, and the Journal was the way to do it.

If you took a short walk around campus, you’d see Journals piled up on almost every door. They came every day and my friends (and lots of others) could never keep up-they didn’t have the time or the discipline to sit down and read them. So they piled up-these kids wanted to get rich but all they were doing was throwing their money away day after day.

It Starts with Personal Finance

Investing starts with personal finance-that’s why I’m at Frugal Dad, one of the best personal-finance sites out there. You start off by learning the basics: controlling your spending, creating a budget, eliminating your debt, etc. Those are the essentials of personal finance. Once you master them you move on to the next step: investing.

How WeSeed can Help

At WeSeed, our goal is to get people interested in the stock market. Why? Because it’s important stuff-it’ll make you smarter, more aware, and it’ll help you understand what the heck is going on the next time your job has a 401(k) meeting.

But not on Wall Street’s terms-on your terms.

It’s not only about learning, either. It’s about learning in a community of other people that want to teach and be taught. Because when we all band together, we have an advantage that Wall Street doesn’t have: The things we buy and products we use are what wind up driving stock prices-so if we share what we know about these products, we’ll know about the trends before Wall Street figures out what’s going on.

Learning Doesn’t Have to be Boring

WeSeed isn’t about getting rich or making tons of money. We’re about getting smart and opening up the world of stocks to everyone. Because if we’re the ones driving stock prices by setting trends and buying products, shouldn’t we come along for the ride?

WeSeed.com also has tons of other cool stuff like fun videos (for those that can’t stand reading) that highlight current events and how the stock market ties into almost everything you can think of.

The best part? We’re still making tons of changes, so if you have a great idea that makes it easier for you and everyone else to learn about stocks, then shoot it our way and odds are we’ll try to add it to the site.

Check us out at WeSeed.com and let us know what you think!

Note from Frugal Dad:  The WeSeed website has been up and down most of Friday morning. Talk about bad timing! I hope you’ll bookmark it, or check back here, and visit the site later when it is up and running.  It is worth the wait.