My grandfather grew up in a rural setting during the Great Depression, and for much of his young life had no running water or electricity. Actually, he jokes that they did have running water–he ran to the well with a bucket and ran back.  During particularly lean summer months, he didn’t even have shoes.

Since my parents divorced when I was a young boy, I spent a lot of time with my grandparents while my mom was busy trying to provide for her and her young son as a single mom with no support. My grandfather shared many stories about his youth; some good ones, and some that made you feel for him and his eight brothers and sisters (and his parents). He often jokes that he doesn’t know why people refer to those times as “the good ol’ days,” because there wasn’t much good about them.

Photo courtesy of DEEJKEOKI

Of course, I cherish these stories and the time spent with my grandparents because they made me the “frugal dad” I am today. When I feel myself pining for a new gadget I think back to stories of my great-grandmother searching the cupboards for a missing dime that meant a can of soup for her kids’ dinner.

We are in tough times these days too, no doubt about it. But those who compare today’s standard of living to the times my grandfather faced, have little appreciation for how hard life was back then.

A visit to an electronics store with my grandfather is always amusing, as he marvels at the advances in technology, particularly the miniaturization of devices. I have to say he’s pretty well connected though, as he owns both a computer and a digital camera (two things he probably couldn’t have even dreamed up as a boy).

We also share a laugh at the things people spend money on to make life seemingly easier. With that in mind, here are a few things our grandparents (or great-grandparents) lived without, but we consider a necessity. As a disclaimer, I’m not advocating that many of these items have not made life easier. In fact, I own or have participated in a few on this list. I’m just making the point that there are many things out there we consider required goods that people got along without for many years, and probably could again in a real crunch.

• GPS Devices. For me, the jury is still out on GPS devices for your car. I hear about more people arriving late because they took the “GPS directions” than I hear success stories. I don’t know what’s wrong with a road atlas – I just bought a new one from Sams Club for a few dollars. Besides, some of the best discoveries are found when you are lost.

• Cell Phones. Yes, people can live without a cell phone. In fact, many still do, as hard as that is to imagine. If you are concerned with safety while traveling, consider a prepaid phone and keep it charged. Heck, even a cell phone without a calling plan, but a charged battery, can call 911 in an emergency.

• Microwaves. I’ve yet to taste anything out of a microwave that tastes as good or better than stove top or grilled. Still, it’s a time saver, and since we all have so little of it these days I suppose it helps.

• Credit Cards/Debit Cards. The concept of borrowing has been around for centuries, but it has only evolved into plastic over the last century. Speaking of plastic, my grandfather didn’t use an ATM card until he was in his 70’s, instead opting to enter the bank, walk up to the teller and do “business eye-to-eye.”

• Electronic Book Readers (Kindle). Why would you spend over $400 to read something on a screen the size of a book when you could simply…read a book. They even let you borrow them for a couple weeks at libraries for free. Yes, I know toys like the Kindle do other stuff, but it’s primary role is an electronic book reader.

• Digital Cable. Even I can remember growing up with seven or eight channels from rabbit ears on top of the television. My grandfather can remember times before television! Imagine getting all of your news and entertainment from a radio, instead of Fox News and MTV.

• Plasma Televisions. Up until 2004 my grandfather owned a decades old, 27-inch floor model console television.  He eventually got rid of it when the picture began to have problems around the edges, and now has a basic 19-inch screen on a shelf. When I asked him about a plasma screen once he said, “There is nothing wrong with the picture on my screen now. Besides, I’ve heard those plasma things cost as much as a small car.” Indeed.

• iPods. Pay for a device to store music you had to buy when same music is readily available via the radio for free (and available for purchase on CD). Most of my grandfather’s favorites are on cassettes, and his Sony cassette Walkman serves him just fine.  Over time he has upgraded to CD, since most classical compilations can be found for a couple dollars in the bargain bin.

• XM Radio. Along the same lines at the iPods, why pay to listen to something that is available for free? I did get an XM satellite receiver for my grandfather’s car he did find one feature worth paying for – no commercials.

• Xbox, Playstation and Wii. I remember one Christmas while staying with my grandparents I got an Atari 2600 game system. I hooked it up to the television and ran through games like Combat, Frogger and Pole Position. He thought it was interesting enough, but those little game cartridges sure were expensive!

• Tanning Bed Salons. Why pay to cook your skin when the good Lord shines a sun over your head that does the same?  I’m paraphrasing, but I think I’ve heard close to those same words in response to spying a tanning bed salon.

• Health Clubs. Why pay to pick up heavy weights and walk on a 10-foot belt that runs underneath your feet? You can get the same workout walking outside, lifting things in the garden, etc.

I wonder what things we’ll make fun of when we get older? What things have not even been invented yet, and are beyond even the most creative imaginations today?  For me the lesson is to think about the things we spend money on to make sure they are a real necessity, while making room for a few wants, too.

My wife and I used to make a small withdrawal of cash each pay day to fill a few envelopes for our envelope budget system.  Over time, we’ve become less disciplined (or worried) about the day-to-day spending categories, deciding instead to take more of a “big picture” approach to managing our finances.  The downside to this was that we rarely had any cash to carry on us, and we relied heavily on debit cards.

Why Carry Cash?

There are times when you just need to have a little cash on your person.  Here’s a few recent examples when I was glad to have some cash in my wallet:

• Tips
• Kids’ lunch money
• Office contributions for flowers, meals, etc. for coworkers
• Vending machines (I know I shouldn’t get anything from them, but sometimes you’re working late and you must as a last resort)
• Some gas stations give you a discount for paying in cash

How Much Cash to Carry?

Naturally, there is a fearful side to everyone that keeps them from opting to carry cash. But seriously, the chances of getting mugged are pretty slim. And if it does happen to you and you lose a hundred bucks, but get away without injury, consider yourself lucky.  Besides, I’d almost give $100 not to have to contact five credit card companies to report my card lost, dispute credit card charges, and spend countless hours dealing with their customer no-service people.

I think it is prudent to keep between $100-$200 on your person. This would be enough to handle an emergency cab fare out in the middle of nowhere, or similar small-to-medium sized emergency.  If you do have to use your cash for an emergency, replenish your wallet from your emergency fund and build it back up again.

I just looked in my wallet and I have exactly $67, so I guess it’s time to beef up the back pocket a bit.  Actually, any other time I’d be feeling pretty rich to have over $50 in there.  Most of the time the only thing occupying the lining of my wallet is a business card or two, and some receipts (explaining where my cash went).

How much cash do you carry, as a general rule?  Or do you prefer to only use debit or credit cards?

Two dentist visits ago I had a cavity. It wasn’t my first cavity, and it probably won’t be my last. This one didn’t come as a big surprise because it was around the time when I was eating on the run, eating late at night, and not going through my usual brushing/flossing routine. The extra appointment for a filling (and the extra costs) reinforced my commitment to taking better care of myself going forward.

Why all this talk about oral hygiene? Because it sort of reminded me of my own financial turnaround. When we go through a particularly troubling time, and wounds are fresh, it’s easy to remember how things felt before we turned them around. Just like I brushed and flossed like crazy in those weeks immediately following my cavity, most of us can easily make sacrifices when we first go through a financial turnaround.

But over time your dedication to new habits gets tested. You get sick. There is an emergency. You simply lose interest. And slowly your resolve to do better fades. Old, bad habits reemerge. The intensity you had immediately following the negative experience flames out.  So how does one keep up that intensity? Here’s a few ideas.

1. Write down your goals (be specific). It isn’t enough to say, “I will avoid getting a cavity at my next dentist visit.” Be more specific. I will brush and floss my teeth after each meal and before bedtime. Similarly, setting a goal of “Saving some money for vacation” is not sufficient. I will save $1,000 in the next twelve months for vacation is much more tangible.

2. Find an accountability partner. Some people argue against telling others when starting out a new challenge. I’ve never understood why. Share your goal with a trusted friend, or your spouse, so they can help remind you of your goals when you start to slip a little.  If your best friend knows you are trying to pay off $5,000 in credit card debt they are less likely to invite you shopping, but might opt for a dinner and a DVD at their place.

3. Keep your goals close. When you feel yourself starting to slip, whether it is on a new nutrition plan, or an improved financial plan, make it easy to refer back to your original goals. Consider typing them in a small font, cutting out the list and laminating it for your wallet or purse. I did something similar by putting a wallet-size picture of my kids in front of my debit card. It was a visual reminder of why I was making this turnaround, and I saw it every time I wanted to spend money.

4. Remember progress, not perfection.  Many people miss their goal for a variety of reasons.  Perhaps the goal was unrealistic, or something unforeseen came up and caused you miss your target. Instead of being discouraged and giving up, celebrate the progress you did make!  If your goal was to pay off $5,000 of credit card debt, and you only paid off $4,000, that still leaves you with $4,000 less debt.  Don’t feel sorry for yourself and run out to charge your cards right back up to $5,000 again.

5. Surround yourself with people with a similar goal.  This is the reason I started Frugal Dad. It was my hope that it would attract people like me with shared dreams of financial freedom. I draw a lot of inspiration from readers who share their stories in the comments, and in private via email. It’s nice to have those daily reminders to keep us on track.

My wife and I have been struggling to adhere to our budget over the last few months.  A number of personal crises have conspired to make sticking to each budget line item a tall order.  I’ve been on the lookout for a less cumbersome budget process, while improving automation and reducing the opportunity to overrun our spending limits.

Fortunately, the June 2009 edition of Money magazine generated some ideas in the article, “Discover Your Budget Style,” written by Ismat Sarah Mangla.  The article describes one method of budgeting that appeals to me.  It is referred to as the “bucket budget.”  The bucket budget is for those who prefer to track spending with less granularity.  So rather than tracking every morning latte, the dry cleaning bill, the occasional meal out with friends, and baseball cap you bought for your son, you would simply track these categories as part of a larger “variable expenses” budget.

The Money article goes on to explain how to implement the bucket budget.  I’ll consolidate their detailed steps into a few quick bullets below.

• Two checking accounts and one savings account are required
• Calculate saving contribution desired from each paycheck and have employer’s payroll office direct deposit that amount into an online savings account
• The remaining amount of paycheck should be deposited in Checking Account #1 for payment of major, fixed expenses such as the mortgage payment, power bill, etc.
• With what’s left in Checking Account #1, divide the amount by four and schedule equal, weekly deposits into Checking Account #2.  This second checking account will be used to purchase all variable budget items, such as food, clothing, and entertainment expenses.

From the Money article:

The system creates “artificial scarcity,” forcing you to live on less and within hard boundaries.

I like the idea of creating this “artificial scarcity.”  If you are like me, I tend to let cash burn a hole in my pocket, so if I withdrawal all of my spending money at the beginning of the month, or the beginning of the pay period, it tends to run out well before my next paycheck.  In the past, when this happened I turned to credit cards to float expenditures to my next paycheck, or I dipped into savings.  Using the bucket budget system, we would never be more than a week from refreshing of our supply of cash.

One word of caution:  to avoid costly overdraft fees it is probably a good idea to save up a little cushion for both checking accounts, since the timing of automatic deductions, subscription payments and your weekly allotments could draw down your balance at the worst possible time.  To keep things comfortable, I’ll try to keep $500 in each account and treat that number as the floor amount, rather than $0.

To further enhance this system we plan to incorporate our envelope budget system.  When the weekly transfers are made to Checking Account #2, we will withdraw a portion of the money in cash and use it to fill our envelopes.  This allows for some specific budget category tracking for things like food and entertainment, and keeps us from overspending in those particular categories.  For remaining categories like gas purchases or subscriptions (Netflix, the gym, etc.) we’ll stick to a debit card for convenience.

I recognize this budget system won’t work for everyone.  After all, some people enjoy tracking spending across dozens of categories.  I used to.  However, I found myself spending too much time in front of an Excel worksheet, and too much time beating myself up for overrunning the “Magazine” category because I renewed my Money subscription last month.  Just imagine–if I had continued to be that strict on my budget categories I would have missed out on reading about this very idea.

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.

When it comes to managing our personal finances with software, I am a real dinosaur.  I still use an Excel spreadsheet to create our budget each month, and record transactions there and categorize them on a daily basis.  Over the last few years I have tried different versions of Microsoft Money and Quicken personal financial software with some success, but I eventually gave up on it because I couldn’t customize things the way I wanted like I can with my Excel workbook.

Having recognized my limitations with Excel, and craving more reports and statistics, I have started a search for new personal financial software.  Rather than relying on ad copy from each product’s website, I decided to poll Twitter followers to get their take.  The majority of followers who responded suggested Mint.com, with Quicken a close second.  I also heard responses pointing me to places like PennyMinder.com, You Need A Budget, and the Dollar Store to pick up a notebook, pencil and a cheap calculator (that suggestion appealed to my frugal side!).

Going into this search for updated financial software I was only consider desktop products because that was what I was used to, but I recognize the benefits of using a site like Mint.com to aggregate all of my accounts in one view, and one package.  From the Mint website:

Mint immediately pulls in your balances, purchases, stock trades, etc. to give you a complete picture of your finances.  Mint connects securely with more than 7,000 US financial institutions, saving you hours of tedious data entry.

Saving time recording transactions definitely appeals to me, and I like the idea of being able to access my portfolio from anywhere with access to the web.  Of course, the paranoid side of me worries about things like password security from my online banking profile stored at Mint, etc.  At some point, I’ll need to get over that because this probably the direction all financial software is headed.

Quicken’s products also appeal to me because I can integrate my home blogging business finances.  For a limited time, Quicken is also offering deals on Quicken products (up to $50.00 off + free shipping).  So now I have a dilemma; should I go with Quicken’s product, should I give Mint, or another web-based utility a try, or should I simply stick with my Excel spreadsheet.  I’m hoping some of you can share with me how you manage the finances, and make some product recommendations in the comments.

Which personal financial software product do you use to manage household finances?

While I have no statistical data to back this, anecdotal evidence tells me that the recession has many young workers moving back in with parents.  Many students recently graduated college with the promise of a hot job market, only to find things frigid in employment land.

Others may be freshly laid off and in need of a place to land until they get back on their feet.  Either way, it can be a tough time for both parents and their grown kids.  Here are a few ideas for smoothing the transition.

Have an end game in mind.  When kids move back home with parents it is a good idea to establish a time line up front – if not for moving out, at least a time to reevaluate things.  This way parents do not get the idea this is a permanent arrangement, and kids are not worried about getting kicked out next week.

Sit down with her and help develop a budget. Make room in the budget for saving money towards a down payment for another home, or the first month’s rent for an apartment. Unless kids have absolutely zero income, let them participate in at least some of the household expenses.  Ask them to pick up groceries a couple times a month, or pay the telephone bill, etc.  This will actually help them budget their earnings by reminding them that these are expenses they will again encounter when living on their own.  Simply blowing entire paychecks is not an option.

If their budget has room, charge rent.  Charging rent to adult children is a controversial topic.  There is no right or wrong answer here, and much of it is situational.  If my kids wanted to return home just to save money, I would probably ask for some help with the mortgage.  If they just went through a divorce, or were let go from a job, or some similar financially devastating experience, I would probably allow more time to get established before asking for rent money.

Some people will argue now is the time for tough love.  They will advise against taking kids back in, and forcing them to fend for themselves.  I guess something could be said for that, but I am a big softy.  If my kids came to me with a big financial mess, and needed a place to temporarily land while they straightened things out, there is no way I could refuse.  Of course, my feeling are somewhat contingent upon their work effort.  If I know they are busting their butt to make things right I could support them fully.  If they wanted to lay around in their room and play Xbox 360, well, that would be a different story!

When and if I did start collecting the rent money, and if I could afford it, I would put the money, or a portion of the money, in a separate account.  I would then return the rent money collected to my child in the form of down payment assistance, or towards a furniture fund when they were ready to move out again.

Agree to a transition period.  It might be difficult to jump from mom and dad’s house back into the real world without some assistance, at least initially.  If you offer financial assistance to get kids back out of the house, again it is a good idea to have an end game in mind.  Let them know up front that you can help them the first three months they are in their apartment, but at the end of that time they need to be earning enough to support themselves.  After all, you have your own retirement to save for, and can only help for so long.