Monthly Archives: July 2011

Our First of the Month Financial Routine

Posted on by  at  4:12 pm
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Another month has come and gone. Where does the time go? I actually look forward to the first of the month because, financially, we treat it as a blank slate – a chance to save more than we spend, or pay off any debt accumulated throughout the past month, and increase our savings and investments.

Since I was already planning to spend some time today updating things for August, I thought I would document the process here.

1. Update My Networth Spreadsheet. Each month, I take a quick look at a simple spreadsheet I created using Microsoft Excel. It first lists all of our assets, beginning with the most liquid (our emergency savings) to our least liquid, our home and vehicles.

After tallying up our assets I then list any debts we have outstanding like car loans and the mortgage.

Not many years ago, my liabilities section of the worksheet was far greater than the assets section, but I’m proud to say we’ve flipped that around. We are still in the beginning stages of building assets, as I alluded to in last week’s post, The Secret to Building Wealth Most People Ignore, so this process doesn’t take long.

While I am a fan of Mint.com, and use it to track our budget throughout the month, I still like to update my old spreadsheet at the end of the month because I have a number of different methods of tracking networth (including and excluding the house, vehicles, etc.). At least with Mint, I don’t have to bounce around to multiple websites to get the current value of our accounts.

2. Sweep the Financial House. If we’ve budgeted properly the last month, we should have a little extra in our checking account. If that’s the case, we simply sweep it out in the form of cash and splurge on something we’ve been wanting, but have not budgeted for.

The “reward” might range from a new book for every member of the family to a nice meal out, or some new electronic gadget, or maybe even a small piece of furniture for the house. It’s our way of rewarding ourselves for a job well done without harming the next month’s budget, and without going into debt.

3. Pay Off the Credit Card. We do this at the end of each month for expenses incurred that month and charged to the credit card. I know I could “float” these transactions another month or so interest free, but I like to start the month with a zero balance, and because we plan for it, the money is there in the budget to do so. If we go over our allotted budget, and add more to our credit card than we planned for, we move a little from savings to pay it off and move forward.

We don’t have to dwell on the credit card overspending – moving money from savings serves as our “slap on the wrist” for overspending on the card, and it motivates us to do better the next month to replenish the savings balance. I’d rather do that than pay interest.

4. Establish Big Goals for the Month. Each month, my wife and I sit down and set a big goal or two. “Let’s try to save half our income,” or, “Let’s make a $1,000 extra payment on the mortgage.”

Naturally, some months the budget just won’t allow for it, and this is the point where my wife usually reminds me. “Honey, it’s August. We have back to school shopping, the car tag renewals (which we only recently started faithfully saving for in a sinking fund), etc.” So, we’ll cut those big goals in half, but we do still set them so we have something to shoot for.

5. Establish Mini Goals for the Month. With the big stuff out of the way, now it’s time to focus on the small stuff (that usually adds up to big stuff). Each month, I look over our utilities, subscriptions, and other recurring expenses. Is there any fat to trim here?

  • When’s the last time I tried to save money on the car insurance policy?
  • Those Netflix movies have been sitting far too long on top of the DVD player, unwatched. Let’s scale back to a “one-disc-at-a-time” plan.
  • We ate out quite a bit last month. Let’s make a goal to only eat out once a week as a family this month.
  • The electric bill goes through the roof in the summer months. Could we try bumping up the thermostat a degree or two to shave a little off the electric bill?
  • Thanks to higher gas prices, we blew the fuel budget again. Let’s car pool once a week to offset the additional costs.

These little cuts to our monthly budget categories help keep that bottom line from expanding. We make sort of a game of it – trying to live on less and less each month.

6. Create a Monthly Budget. We used to sit down once every few months and work on “The Budget.” However, we found more times than not we exceeded the budget established months ago because it didn’t account for a large, necessary expense in a particular category.

These days, we only plan one month in advance, and simply use last month (and the same month last year) as a guide. For instance, we know August is back to school time, so we increase the clothing budget from what we set for June and July. In September, the budget for clothes will again drop, and probably stay low until we start looking for winter weather gear later in the fall.

For us, there are just too many unknowns to set a number and try to stick to it every single month of the year. However, we can usually predict the next 30 days or so and create a realistic spending plan covering only that period.

7. Make Regular Savings a Priority. Before we do anything with income each month, we divert a portion of it to savings. Some months, we only make the “minimum” savings contribution.

By minimum, I mean the usual contribution to our Roth IRA accounts to max out each year, and the usual amount we have deducted for the kids’ college savings, and the established amounts we have automatically funneled to our sinking funds to cover annual expenses like car tags, vacations, Christmas shopping, etc.

We also make regular contributions to our emergency fund to save for emergencies, or as Chris from MyMoneyMakeover.com calls them, a “life blitz” (I’m a sucker for a great football analogy). Life does tend to blitz when you least expect it, and if you want to avoid getting sacked, you better have some great protection in front of you in the form of a solid offensive line, I mean emergency fund.

That’s it, in a nutshell. We normally spend about an hour or so performing these updates in preparation for the new month, and maybe another hour (cumulative) throughout the month updating transactions in Mint to reflect the correct category. It’s a fairly simple plan, but it works well for us.

What types of financial activities do you perform around this time each month?

The Secret to Building Wealth Most People Ignore

Posted on by  at  5:00 am
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One of the reasons I believe most people never succeed at reaching financial independence is because they make things too complicated. They invest in elaborate investments they don’t understand, but heard some guy on television screaming to “buy, buy, buy!” They make fancy moves with their money, like taking out a second mortgage on their home to put down on a vacation home for the additional “tax benefits.”

All the highly technical, overly complicated wealth-building advice in the world can be boiled down to four words, that if followed will practically guarantee financial independence to those who follow:

“Buy Assets, Avoid Liabilities”

That’s it. Simply buy assets. Buy things that increase in value. Buy things that produce income. Avoid spending money earned in exchange for work on anything other than assets.

The problem is, most of us take the exact opposite approach. We buy liabilities. We buy things that depreciate in value – sometimes quite rapidly. We buy “experiences” like magical vacations. We spend an inordinate amount of money on entertainment, eating out, and expensive hobbies.

How do I know this? Because I spent the first 15 years of my adult life doing the exact same thing. I bought things on credit cards, racking up debts I couldn’t pay. I borrowed money to go to school. I spent every dime I earned, and then some, on the latest video game systems and cell phones and crap I didn’t really need.

Sure, a few of those things added some value to my life in the form of entertainment, or making things easier, etc. However, the large majority was a waste, because I can never reclaim those earnings. I can never reclaim the earnings that income could have amassed after being exposed to the magic of compound interest.

Now, I certainly don’t begrudge anyone who aspires to have nice things. In fact, I’ve enjoyed saving cash and buying a few things I put off for a few years while working towards debt freedom.

But one should recognize that for ever frivolous purchase, every spendthrift trip to the mall, we push financial freedom out a little further. If financial independence doesn’t happen to be a goal of yours, and you are quite happy working the rest of your life to pay monthly bills to banks, well, then you won’t have much of a problem continuing this trend.

For the rest of us, financial independence is a strong motivation on our day-to-day spending decisions, and certainly the larger life-altering decisions such as buying a house, a car, selecting a career field, etc.

From Liabilities to Assets

To start on a path towards building wealth you have to have sort of a mindset shift – away from acquiring more liabilities (things that suck money from your wallet in the form of monthly payments or depreciation) – and towards things that increase your bottom line (though appreciation and income).

Consider these two acquisitions, as a small-scale example:

  • $200 for a new smartphone. If you decide to buy one, chances are you are taking on another $70-$100 monthly expense in calling and data plans. That’s roughly $1,200 in the first year (including your $200 upfront cost of buying the phone).
  • $200 of Verizon stock. Verizon (VZ) currently yields roughly 5.4% in an annual dividend. Your $200 worth of stock would generate about $11 per year in dividend payments. Less than a dollar a month doesn’t sound like much, but it’s certainly cheaper than $1,200 in that first year. (Full disclosure, at the time of this writing I don’t own any stock in Verizon (VZ).

To carry this example further, assuming you decide to reinvest dividends, that $200 investment in Verizon would be worth $260.13 in five years, and that’s assuming no growth in the stock price itself and no increases to the dividend.

How much do you think that $200 smartphone will be worth in five years? Probably not much – an expensive paper weight, perhaps?

The initial investment amount is relatively low in this example, so the argument for buying assets doesn’t seem that compelling. However, multiply that example by five or ten times, to represent what you might spend on “less than necessary” items each month, and we are talking some serious money.

A $2,000 investment in Verizon stock at current yield levels would be worth about $2,601.55 in five years, assuming you reinvested dividends and the stock experiences zero growth and no increase in dividend payouts (not likely for a mature, healthy growth stock).

Another benefit of choosing assets over liabilities is that most of the time, assets don’t continue to drag on your cash flow in the way many liabilities do. In the above example, the monthly service charge for the phone quickly exceeds the cost of the phone itself, and continues to cost money as long as you keep it.

Not true of the Verizon stock, which after your initial purchase (and broker commission) won’t cost you a dime outside of taxes on dividend payments and taxes on any capital gains when you sell.

Flipping the Switch

The next time you are planning a major purchase, remember the above example and then ask yourself a few questions regarding your new potential purchase.

  • If I had to prepare a personal balance sheet, would this item be considered an asset or a liability?
  • Will this item add to my quality of life?
  • Will this item produce income for me, or will I have to spend additional earnings each month to service its ownership (to insure it, maintain it, operate it, etc) ?
  • Is the value of this item likely to increase over the next 5, 10, 20 years?

With the answers to these questions, chances are the decision to buy or not buy will become much easier. Always lean towards accumulating assets – in various well-diversified forms (real estate, precious metals, income-producing savings vehicles like CDs or bonds, etc.).

Minimize the acquisition of liabilities. Protect your cash flow earned from paid employment by diverting as much of it as possible into assets.

Be vigilant about protecting your earnings – you worked hard for them!

Be intentional. Give every dollar in your budget a name and stick to your plan.

Do this over time and you will begin to rely less and less on paid employment, and inch ever closer to financial independence.

10 Ways to Skip the Expensive Gym Membership and Make Your Own Home Gym on the Cheap

Posted on by  at  5:00 am
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The following guest post is from  Andrew Kardon. Andrew is the president and co-founder of JoeShopping.com, a social shopping site dedicated to saving money through coupons, hot deals, price comparisons, product reviews, shopping blogs and more.

You know that exercise is good for your health, but a gym membership can be bad for your wallet. With a gym membership you’ll spend hundreds of dollars a month and sign a million-year contract. But if your fitness goal is to lose weight, get in shape or just burn off some steam, you can do it at home. And even better… you can do it on the cheap. Here are 10 tips to help you get in shape without making your wallet skinny, too.

Put Your Weight to Work

For some workouts, you don’t need to spend a dime. Just do exercises that use your own body weight. Sit-ups, push-ups, squats, planks and crunches are all great for targeting major muscle groups. You can get a full-body workout with absolutely no money down.

Fill ’Er Up

Is your spare change jar overflowing? Put some of that money-weight to work by filling empty water bottles, milk jugs, tennis balls or tennis ball cans with coins for homemade weights. If you’ve already spent your pocket money on snazzy workout clothes, you can also fill bottles and jugs with water or sand. Or, raid your pantry and use soup cans as hand weights. (You can always make meals out of them later!)

Get Thee to Craigslist

Plenty of folks sell their expensive (and barely used) exercise equipment on Craigslist when their New Year’s resolutions derail. Make sure you do plenty of research before you buy–look closely at the posted pics and find out how old the equipment is by looking up the model number. If you’re in the market for weights, the going rate on Craigslist is about 50 cents per pound.

There’s an App for Your Abs

There are quite a few free workout apps for your iPhone, iPad and iPod. You can train for a 5K run or even a marathon with Personal Running Trainer (with an initial free trial; full versions for $5.99 or less), use your GPS to track your outdoor workouts with iMapMyFitness, or build custom workout routines and count your calories with Daily Burn.

“It’s a-me, Mario, your personal trainer!”

You can sit on your couch all day playing video games, or you can turn your Wii, Playstation 3 or Xbox Kinect into a personal gym! Variations of The Biggest Loser are available on the Kinect and Wii. The second edition of EA Sports Active works on Wii, Kinect and PS3. You can even recruit your kids and get a family workout playing Guitar Hero, Dance Dance Revolution or Nickelodeon Fit for Wii.

Have a Ball!

How much does a set of six-pack abs run for these days? Around twenty bucks. At least, that’s the average price of an exercise ball, which will help you tone your core muscles. Exercise balls are great for non-impact workouts, and they’re also really fun to bounce around on. You might even consider switching out your desk chair and use your exercise ball at work. It’s cheaper than an ergonomic chair! Just be aware that the balls come in different sizes, so be sure to purchase the one that’s right for your height.

“Like” Your Workout

Use the power of social networking to get exercise advice and emotional support by joining an online workout group. Sites like fitlink.com offer free online tools to help you track your fitness progress and forums where you can link up with an exercise buddy or just get that motivational kick in the pants you need on days when you’d rather skip the workout.

Get It Together

You know you can save money by buying used exercise equipment at yard sales or off of Craigslist. But you might also consider getting together with a few friends and creating a “home gym co-op”. Split the costs of the equipment, and store all the equipment at one person’s home. Then get together for regular workout sessions! It’s like getting the motivation of a personal trainer and the camaraderie of a gym without the high price tag.

Raise the Bar

Save money and space by installing or hanging a workout bar in your doorway. You can use the bar for pull-ups, push-ups, chin-ups, sit-ups (pretty much all the ups) and tricep dips. All that for around $20! And if anyone asks about that metal thing in the kitchen doorway, just tell them you bought your place for its interesting architectural details.

That’s How I Roll

Sure, sports massage is proven to be highly effective at helping you recover after all that working out, but not everyone can afford a professional, licensed massage therapist to ease those aching muscles. Invest instead in a foam roller. The massage won’t just feel good; an added bonus is that relaxed muscles help prevent injuries!

Preparing for a Summer Road Trip

Posted on by  at  9:00 am
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The following post is sponsored by Allstate Insurance Co.  As a reminder, this site and its author may be compensated for expressing personal opinions regarding featured products and services.

The thought of flying anywhere these days is most unappealing to me. The long lines, the invasive security, the crowded cabins in coach all combine to make for a pretty miserable experience. I’m much more comfortable in my own vehicle, and assuming I can reach a destination in a day or two’s drive, well, I’d rather just settle in for a drive.

Of course, driving long distances can be fraught with risks as well. Add in the oppressive heat wave gripping much of the country, and the strain on your car may be too much, leading to an inopportune breakdown in the worst possible spot.

I’ve always had a roadside assistance plan, since the days when my wife traveled several hundred miles to visit relatives after our first child was born, and unfortunately, I couldn’t go along. The plan provided some piece of mind that if she were to encounter trouble, help was just a cell phone call away.

One of the things I didn’t like about that plan, and still don’t, is that I have to pay a fee every month whether I take advantage of the plan or not. It’s kind of like having a gym membership and never using the gym!

That’s why I’ve been interested in the Good Hands Roadside Assistance plan offered by Allstate. Here are a few benefits of the plan:

  • You do not need to have Allstate insurance to use this service
  • You only pay when you use it; there are no monthly fees
  • Pre-registering for Good Hands Roadside Assistance provides faster service at time of need on the road. Those that pre-register will also receive a welcome kit in the mail containing a wallet card, key fob and window cling with the phone number for roadside help
  • You can register for up to 5 drivers on your account (perfect for families with teen drivers)

If interested, you can sign up directly below (after signing up, continue reading below for some additional tips for making a summer road trip safe):

In addition to a solid roadside assistance plan, it’s a good idea to stock your car with a few basic survival supplies specifically for the summer. Here’s a short list of things I always carry along:

  • Water. I like to toss a 24-pack of water bottles in the trunk just before leaving. Sure, it adds a little weight to our vehicle, but if stranded in a hot climate, having some water on hand is vitally important.
  • High-calorie snack bars. Again, if you are stranded, or have to wait a long time for help to arrive, it’s a good idea to have some snacks on hand. Avoid things like chocolate bars, which will become a melted mess in the summer heat. Stick to granola and peanut butter flavors.
  • Ramen noodles. I occasionally survived on these in college, so I could do it again if I had to.
  • Mirror. Great for signaling someone from long distances, especially a pilot looking for you from above.
  • Paracord. Every good bug out bag should have some rope.
  • First aid kit. Store everything from pain relievers, gloves, first aid tape, gauze, bandages, insect bite relief, etc.
  • Survival knife/multi-tool. Great for cutting rope, opening cans, etc.
  • Mess kit. Folding pans and pot can help make water safe, heat food, etc.
  • Mylar blanket. Good for hot or cold climates. If you have to hunker down in your vehicle overnight and have no heat source, these blankets will come in handy for trapping body heat and keeping you warm.
  • Flashlight. Don’t forget to toss in a spare set of batteries.
  • Waterproof matches. For starting a small fire  for a heat source to cook food, make water safe, etc.
  • Whistle. Again, great for getting rescuers’ attention if you found yourself in the ditch and not easily visible from the road. If injured, you may not have the energy to scream for help, but a blow on the whistle will travel a long way.
  • Poncho. Nice for changing tires in a downpour – been there, done that.

These car “bug out bags” aren’t designed to live off for weeks, but should provide enough tools to help you stay safe until help arrives. Toss these contents in a spare backpack or small storage crate and safely store in your trunk, along with the usual auto emergency gear – jumper cables, an empty gas can, jack and lug wrench for changing the spare, and an auto fire extinguisher.

The Secret to Frugal Living: Small Course Corrections

Posted on by  at  10:46 am
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A family member recently forwarded me an interesting article, knowing my interest in all things frugal. The article appeared in Yahoo! Finance and was entitled, What My Little Indulgences Really Cost.

My response to most of these types of “ways to save” articles is to immediately find myself disagreeing with the author’s chosen categories to cut. No, not the gym membership! Or, is a latte a day really going to kill your budget?

However, in this case, I thought the author made a few important points in line with my way of thinking, and living, frugally. For instance, the excerpt below is a hot topic in the Frugal household: dining out.

Whether we are debating eating dinner out or staying in, or my daily challenge to brown bag a lunch rather than hit the drive-thru, food expense is a budget buster in our family. I suspect that is true in most families these days thanks to our compressed schedules and ever-rising food inflation.

Here’s what Shauna had to say on the subject of eating out:

With a family of five, I don’t always feel like cooking. On those nights, Taco Bell or McDonald’s comes in handy. Even when I indulged a few times a week, I wasn’t spending boatloads of money. I’d buy the multipack of tacos or chicken nuggets, designed to feed five on a budget. However, shelling out $20 twice a week meant I was spending $2,080 a year. How did I fix it? When I cooked, I would make and freeze a couple of extra meals for those nights when I didn’t feel like cooking.

A perfect example of someone making a relatively small shift in their way of doing things to produce a frugal outcome.

Not all shifts produce giant returns like choosing to stay home rather than eat out. Hanging a load of towels and jeans on a drying rack, or even better, on a clothesline outside, might only save you a couple bucks in energy costs over running the dryer. But it’s the cumulative savings that add up.

Staying in for dinner, line-drying heavy clothes, drinking water instead of soda, and yes, even skipping the daily latte (I prefer to make things like this a once-a-week treat rather than eliminating them altogether), all add up to big savings over time. But do these cost-saving measures come at a cost as well.

The Costs of Being Ultra-Frugal

Declining lunch invitations all the time might cause you to miss opportunities to network with coworkers (read the book Never Eat Alone for more thoughts on the subject).

Habitually skipping a few indulgences may cause you to binge on them at some point and blow more than you’ve saved by being ultra-disciplined. For instance, consider the over-used diet analogy. Those trying to lose weight are often encouraged to have a small piece of cake occasionally, because depriving yourself for too long breeds internal resentment, and at some point you’re defenses will weaken and you’ll down half a cake in one sitting.

Living frugal is about making small course corrections over time that eventually add up.

  • Check out books at the library and only buy those you know you’ll want to refer back to in the future.
  • Skip the weekly trip to the movie theater and instead make it a once-a-month treat for your family.
  • Bring your lunch to work four days a week, then splurge a little and eat out with your team on Fridays.
  • Schedule a “date night” out every couple weeks to give yourselves a break from the cooking/cleaning routine, but consider splitting a meal to reduce costs.
  • Avoid debt, and associated interest, by saving cash for large purchases. You’ll appreciate them more after waiting a few months and debt-free ownership usually leads to more happiness with the product over time.

Those are just a few things our family has been trying to do to move towards a more frugal existence.

What are some small course corrections you’ve been making to live more frugally?