Reader Stressed About $120K Stash
Manisha Thakor is a personal finance expert for women.Q: Help! I'm about to graduate from college and head to veterinary school, but I'm living paycheck to paycheck—even though I have $120,000 stashed away. It's my house fund and I refuse to touch it. But I really want to figure out my savings and retirement. What should I do?
A: Wow, most students I know would have dipped into that $120,000 cookie jar by now. High five to you! But you're right; you should use part of that nest egg to build some security for yourself, stat.
First, living paycheck to paycheck puts you at risk of going broke, because you don't have a cushion for emergencies.
Add up your basic monthly living expenses and multiply by six. Let's say you're living on $1,200 a month: Take $7,200 and put it aside for emergencies in a money market fund at Vanguard, Fidelity or Charles Schwab (basically a savings account, with withdrawal limits).
Next, assuming you will earn at least $5,000 this year, take $5,000 and open a Roth IRA at the same institution (it makes managing your accounts much easier). To keep your life simple, I recommend investing that money in a target date 2050 fund (a mix of stocks and bonds that will gradually get more conservative, as you approach age 65). You don't have to keep it there, but that's a start.
What happens to the remaining $107,800?
If you're not sure when you'll buy a house, I recommend this keep-it-simple formula for the rest of your assets. Put 50% in a money market fund to give you flexibility on the timing of buying your home—that could be part or all of the down payment.
Then, invest the remainder in low-cost index funds in a regular, taxable investment account (i.e. not a retirement account). For your age I'd recommend investing 75% of the money in a total stock market index fund and 25% in the total bond market index fund.
These two index funds track, or mirror, the U.S. stock and bond markets, and most investment companies offer these funds—although the names and ticker symbols vary from company to company.
I am a big fan of these three investment firms: Vanguard, Fidelity, and Charles Schwab. They will work with investors at virtually any asset level—i.e. you don't have to be rich. And they'll happily walk you through the surprisingly easy process of transferring your assets over—literally, a few forms and a phone call or two. On top of it, all three institutions have in-house staff who will answer questions and talk to you about your investment goals.
Charles Schwab—866-232-9890
Fidelity—800-343-3548
Vanguard—800-319-4254
Take Your Budget on Vacation
Sunscreen, flip flops and... You want to relax on vacation. The trouble is, so does your budget. Here's how to make sure your trip doesn't turn into a fiscal fiasco.
- Plan to spend. Most people have a ballpark figure for what a getaway will cost. Hint: That's not a budget. Use this detailed worksheet to break down your travel expenses.
Putting numbers to your plans helps you to think through aspects of the trip you might have otherwise overlooked (taxis, beverages, water ski rentals), and double check prices, hidden costs, stuff you have to buy before you even get there, etc. - Adjust yourself. Once you have a basic tally, compare that to what you've saved. If your $500 camping trip is going to cost $750 with gas, tolls and park fees—or the family's trip to Europe just went up a few hundred because you all need new passports—adjust your budget.
- Save more—it's only May 17th.
- Look for discounts using Voyij.com, TravelZoo.com and Kayak's buzz feature for the best news on real-time deals.
You spend money on vacation so you can enjoy yourself—not come home to a big Visa hangover. Increase your short-term savings now to make sure you have enough. Share your travel deals and steals here.
Side question for entrepreneurs: How do you save for your quarterly taxes? Email us so we can include your tax tip in an upcoming DailyWorth.
Smash Student Loan Debt
You know Kenia. She's a devoted DailyWorth reader (and commenter) who works as a systems engineer in California. Here, her get-out-of-student-loan-debt report.In January, after three years of repaying my student loans—without much progress—my situation needed a closer look. I'd never added up my debts, but it was time to get serious:
- Loan 1: $684 @ 3.28% interest
- Loan 2: $19,081 @ 6.375% interest
- Loan 3: $29,563 @ 3.19% interest
Building a bigger snowball
OK. Breathe. I'd read up on different debt strategies—and I decided to combine all of them into one massive debt attack. Here they are:
I started with the "snowball" strategy: i.e. once a debt is paid in full, you add its monthly payment (say, $100) to the next debt's payment ($125)—voila! A snowball of $225 per month. Once that loan is paid off, you take both payments and add them to the next debt, etc.
I combined snowballing with these other strategies:
- Low-balance method: Tackle the loans with the lowest balance first. The reasoning: Rapidly paying off small debts keeps you motivated.
- Avalanche method: Tackle the loans with the highest interest first. The reasoning: You save the most money over the life of the loans.
- Biweekly payment: Make half a payment every two weeks instead of one monthly payment. The reasoning: By making 26 payments you end up with the equivalent of 13 monthly payments instead of 12—and you barely feel the pinch.
It was time to throw the first snowball. I knocked out the $684 loan with my annual bonus from work. This was motivating and it felt great! I bragged to everyone how I got rid of one of my loans. One down, two to go...
Now for the avalanche! I took the payment for the $684 loan, and added it to the monthly payment on my highest-interest loan of $19,000 @ 6.375%.
Success!
According to my calculations, following the biweekly system alone would allow me to pay off the $19,000 loan in eight years, rather than 13—and the $29,500 loan would be paid off in 7.5 years, rather than 8.5.
But it gets even better: If I use the biweekly payment system plus snowballs and avalanches, I could pay off my $19,000 loan in only five years (down from 13), and my $29,500 loan in just six years (down from 8.5)!
And, I’ll be paying approximately $10,600 less in interest!
Thirteen years of debt? I don’t think so! I’m on my way to being student loan debt-free in just six years. You can apply these strategies to any type of debt—from credit cards to car and home loans. Tell me your debt reduction strategies and secrets.
Impulse Shop No More - Try Wishpot
When wishes come true... It's 11:29 PM and you're still clicking around the web, in a fit of late-night (only vaguely satisfying) retail therapy. Look—click—add to cart—repeat.
If only there was some way to corral the gems you find so that a) you could mull over which would make sense to buy; and b) you'd never again have to mourn the lost link to the perfect pair of espadrilles.
Solution: Wishpot. This free service allows you to create multiple wish, gift and shopping lists—including bridal and baby registries—from products all over creation.
Add the Wishpot widget to your browser, and you can toss items onto your wish lists whenever you stumble across 'em.
Wish for the best
In case you're thinking, "Love ya, but this doesn't sound fiscally prudent," hang on.
How many impulse buys have you made, thinking, "Well, what the heck, I can always return it." Instead, it becomes your sister's birthday gift or fodder for a yard sale.
Wishpot allows you to build a wide range of choices without any pressure to spend. Meanwhile, read reviews, ask advice from other Wishpot members, or share (FB, tweet, etc.) your lists with friends—or not.
Bottom line
Think globally, act locally, shop responsibly. Try wishpot.
Your Retirement: On Target
Fairytale gone wrong Once upon a time, about 15 years ago, a fierce dragon was terrorizing a small village...
Wait, sorry! Wrong story.
Back in the 1990s, a terrible retirement problem was looming. Traditional pension plans were disappearing, 401k plans were taking their place. But few people understood how they worked (or wanted to join them). So companies began enrolling employees into retirement plans automatically—which solved one problem and created a bigger one.
Where do you invest all that cash?
A happy-ish ending
Along came band of sorcerers—um, investment companies—who worked their magic and created... insert tingly music here... a self-contained retirement portfolio that, like a TV dinner, would provide all the financial basics in one package.
Target date funds were designed so that average investors could park their money for 10, 20 or even 30 years—depending on the target retirement date—and a team of professional managers would safeguard their money and help it grow.
And it’s not a fairytale. While still imperfect, target date funds are proving to be a long-term investment solution for millions of people who otherwise might be too intimidated to manage their own money.
Bottom line
No one can cast a spell to make your money grow, but there are ways to make managing your nest egg easier. Learn, explore, ask lots of questions. Your net worth starts here.
MP is on hand to answer your basic investing queries today. Bring it on!
Protect Yourself from Overdraft 'Protection'
Account busters Banks make billions by charging people overdraft "protection" fees. The Center for Responsible Lending says that banks took in about $24 billion in 2008; estimates for 2009 are well over $30 billion.
New federal rules take effect on July 1 that will require you to actively accept overdraft protection (ODP) from your institution for ATM and debit-card transactions. Here's what you need to know.
The fine print
Some banks are changing their policies before the new laws take effect. Has yours? It can be tricky to figure out, because there are three types of overdraft protection, according to Ky Tran-Trong, a lawyer for the Federal Reserve Board in Washington, D.C.
- One is an overdraft line of credit, which is like a credit card linked to your checking account for ODP purposes. The interest rate is usually sky high.
- Another is an automatic transfer from your savings. Your bank may or may not charge a fee for this service.
- The last is a cushion of, say, $200 that the bank provides, if your ATM or debit-card transactions exceed your account balance.
Don't swipe and pray
Call your bank to learn what sort of overdraft coverage you have—and read all the notices your bank sends. It's up to you to choose whether you want any overdraft protection at all. It's smarter and cheaper to be your own source of protection—by knowing what's in your account, setting up an automatic transfer from savings or simply keeping a cash cushion in your account.
Tell us what your bank is doing with overdraft "protection," and how you plan to protect yourself and your money.
Tax Refund Allocation Dilemma
Meet TRAD
What is TRAD? TRAD is the Tax Refund Allocation Dilemma, and it's a hazard this time of year. Here's one reader's puzzle:
Q: I'm getting about $1,200 back for my tax refund. There are three things that I would like to do. What is the best use of that money?
- If I use the money to pay off a personal loan, I'd be debt free, except for my car and student loans.
- But maybe I should save the money, because I don't have a "rainy day" fund.
- Or, I was in a hit-and-run a few months ago, and I'd like to get my truck fixed, but my deductible is $1,000.
- Put $200 toward your personal loan. That's a nice chunk toward being debt free—and it's all you can afford right now, given your lack of savings protection.
- Next, deposit $500 into a rainy day fund, and $500 into a truck fund.
First, does it make sense to repair your truck, given the high deductible? Would it be wiser to start saving for your next vehicle, as this one wears down? Either way, you need a fund for repairs, maintenance and replacement.
And you must have a rainy day fund, because, at some point, it rains. As you save more, either by joining SaveUP! or by embracing the Save-to-Spend budget, transfer funds into a dedicated curveball account, to cover minor expenses that come out of left field.
How are you resolving your own TRAD? Tell us here.
Fill Your Pot of Gold
In honor of St. Patrick's Day, we'd like to shift away from "the wearin' of the green" to the earning, saving and investing of it.
Pick one action from the list below to fill your pot of gold today.
Then, sure, have a green beer!
- Put off a purchase. (Then bank the money you didn't spend.)
- Set some earnings targets: How much would you like to be earning in 2011? In 2015? In 2020?
- Haggle for a lower price or demand a better rate.
- Cash in on these fun St. Paddy's Day freebies
- Cancel that subscription or membership you never use.
- Ask a friend what her best money habit is. Try it on.
- Negotiate a higher fee, raise your prices or do research on what it would take to get a raise.
- Call your bank, credit card, utility company or landlord. Ask them to refund a late fee. All they can say is no.
- Get used to asking.
- Define financial peace: What does it look like, feel like, smell like?
Go mbeire muid beo aran am seo aris
May we all be alive and well, this time next year!
So, what is your best money habit?
Personal Account: Danielli, Part III
She has a good income, heinous debt, she's planning her wedding and—oops!—her fiancé just quit his job. DW reader Danielli wants off the financial rollercoaster, but how? Here the third installment in her series for DW. Read Part I and Part II here. It has been almost three months since I first pledged to improve my financial health. While I still have a long way to go before I’m where I want to be, I can confidently say that I’m making progress. I’m starting to feel less like Old Mother Hubbard and more like the Little Engine That Could.
Some milestones:
- My savings account is no longer for show. There’s money in it—in the triple digits... $276.19 to be exact!
- I’m becoming a financial nerd. By doing my homework and taking some action, I’ve been able to cut costs on some expenses. For instance, I talked to my doctor about medication alternatives and now pay $30 less each month... breathing room is nice!
- I’m starting to feel in control. No more delinquent bills and the shame that goes with them!
My current focus: Understanding needs versus wants. To some degree, these are pretty black-and-white.
Needs (Go for it!): Rent, bills, groceries, medication, dog food, parking tickets...
Wants (Whoa, horsey!): Videogames, jewelry, Starbucks, Hawaiian vacations, a French bulldog...
Unfortunately, life is also fraught with grey areas that can throw you into a tizzy. I call these the “in-betweens,” a hybrid of what you want but may also need.
These are things I could probably live without... but the question is, should I?
In-Betweens: Haircuts, clothing, shoes, girls nights out, pedicures, art supplies...
It's true that I may not need any of these things. But they do help me feel good, confident and... balanced. For instance, I know that I can save money by staying home on Friday nights, especially since my fiancé and I can always have a good time together, even if we’re doing something as mundane as laundry. But I enjoy spending time with my girls, venting and gossiping over appetizers and wine.
And, since I spend the majority of my day being a corporate drone, I like to keep my sanity and creativity alive by drawing and painting.
And while no one but me can probably tell I haven’t had a haircut in over six months, there’s something about starting a new season with a fresh look. It’s invigorating.
The more I think about it, the more I realize that I can’t live without these things. I need some shades of grey. But with in-betweens, it’s really easy to go overboard. So I guess that’s my next step: figure out how to fit these things in while still being able to move forward financially.
How do you balance your needs, wants and in-betweens? Share your ideas below.
This post was also featured on BlogHer.
Money News You Can Use
And now, your news-you-can-use roundup. The I.R.S. Takes Visa, But...
If you decide to put your tax bill on a credit card, the National Foundation for Credit Counseling has some advice: First, find out what Uncle Sam's fee would be to charge your taxes; ask your card company whether a tax bill counts toward your reward points (it may not); remember that a tax bill is subject to the same interest rate and other terms as any other charge.
Practice Safe... Mobile Banking
As more financial transactions are conducted over mobile devices, consumers need to protect themselves. Tips from the Independent Community Bankers of America:
- Don't save passwords, PIN or account numbers on your phone or PDA. Don't set up automatic log-ins to your accounts.
- Beware of text messages requesting financial data; contact your bank directly to verify that the request is valid.
- Read your statements to check for unwanted charges.
- If you use an iPhone money app, password protect your device so that no one else can access your data.
If you've ever wondered what other women spend on clothes—or what other families spend eating out (and who isn't curious about the Joneses?)—check out Bundle.com, a fun new website that collects real-life spending data across the country, based on actual credit card transactions.
Got news? Share it here.
The Sexy Side of Investing
Investing has a sexy side? Well, it's not Lady Gaga sexy, but pretty close as far as the stock market goes. Meet Mr. Strong, Silent and Profitable—a.k.a. the index fund.
What's so seductive about index funds? Pour yourself a cool beverage and we'll explain.
Most of the 8,000 or so mutual funds out there are "actively managed." That means, a team of Wall Streeters are at the helm of each fund, deciding what investments to buy, etc.
An index fund, by contrast, quietly mirrors a broad swath of the market, or a certain market sector. (Several index funds track or follow the ups and downs of the S&P 500, for example.)
Index funds offer several advantages to ordinary investors, as contributor Galia Gichon wrote here.
- They're a cheap date. Meaning: All mutual funds charge management fees, called the expense ratio. Index fund fees are far lower than managed funds. That means a lot more money in your pocket over the long haul. How much?
A 45-year-old with $20,000 in her retirement account would end up with about $70,500 at 65, assuming 7% in annual returns and 0.5% in fees. But if she paid 1.5% in fees during that time, she'd end up with only $58,400—17% less. Ouchy. - They deliver the goods. Assuming you own an index fund for many years, you're likely to see swings in its performance, but on average you'll reap a steady profit, lower taxes (with no sweat on your part) and—after taking fees into account—most studies show that index funds deliver bigger returns, compared to managed funds.
Diving Into Mutual Funds
You may have heard the phrase, "A mutual fund is a like a basket of stocks." (Here, we compared a mutual fund to a box of wines.)
Now it's time to explore what that really means, as part of our new Investing 101 series.
When you buy shares of a particular mutual fund, you're pooling your money with thousands of other investors (that's the mutual part).
All that money—typically millions or billions of dollars in a single fund—is then used to buy stock in different companies, bonds, real estate or other investments.
Most mutual funds are "actively managed," which means that a team of investment experts decides what goes into the fund. Index funds are "passively managed", and simply mirror what a segment of the market does.
You probably chose certain mutual funds for your 401k account or IRA. While the amount you contribute each month may be small, say $200, you are actually buying a tiny fraction of all the investments (stocks, bonds, etc.) within those mutual funds.
How do you know what's in your mutual funds? (For those of you into the Invest-Along-With-Ashley, she's working on this, too.)
According to Morningstar, Inc., a top investment research company, there are about 8,000 different mutual funds. Each one, you might say, is a different flavor, because each contains different ingredients. Think Ben & Jerry's, but on a very large scale.
There are mutual funds that are invested primarily in stocks, bonds, overseas companies—or some combination of the above, plus a few things we haven't mentioned yet. Everything except pistachio.
To learn where your money goes in each fund, get your funds' ticker symbols (the code used to look up all investments), and plug it into the search box on Morningstar.com.
Tell us what you find! We're all about swapping investing adventures.
SAHM Money Matters
Erica Sandberg is a credit expert and columnist for Creditcards.com. She is also the author of "Expecting Money: The Essential Financial Plan for New and Growing Families."
All moms are working moms. Though you may not be bringing home a paycheck, it’s still up to YOU to protect your financial security.
Remember: About half of all marriages end in divorce—and divorce is the number one cause of women ending up in poverty. Protect yourself by avoiding these common mistakes:
Bad move: Shorting your retirement funds. By suspending contributions to a company-sponsored retirement plan, even for a few years, your funds could dip—perilously. Worse, your social security benefits may also decrease, since your payout is contingent on your working years.
Smart move: Open an IRA. Whether a spousal, traditional or Roth IRA is right for you depends on many factors, but socking away cash for when you've stepped out of the workforce is essential. You probably aren't covered by your spouse's plan. Choose a retirement account, then resume contributions.
Bad move: You're still in dual-income mode. Though your household wages may be halved, your housing and other costs are probably the same—and you may be spending as if you still had two paychecks.
Smart move: Create an updated budget. Tally your current expenses (include savings) and subtract from your total income. Pare down spending until you come out even. Don’t do this alone, by the way—this is a couples task.
Bad move: Forgoing financial control. When some women stop bringing in the cash, they forfeit their rights as economic equals in the household. Worse, they imagine their husbands are taking care of things.
Smart move: Keep abreast of money matters. Gain access to all banking and investment accounts, including passwords and usernames. Discuss your budget and goals with your spouse. At least annually, review both your credit report and his. If something terrible was to happen to your spouse—today—you should feel confident that you could manage on your own.
If you're a stay-at-home mom, let us know how you stay in control of your financial life.
Erica Sandberg is a credit expert and columnist for Creditcards.com. She is also the author of "Expecting Money: The Essential Financial Plan for New and Growing Families."
5 Must-Know Tax Tips for 2010
Gotta love that tax code; You win some, you lose some. But it always pays to know recent changes, like these:
Lost your job?
Although you may owe taxes on your unemployment income, you can also deduct a slew of expenses relating to your job search and more, according to this info-packed piece on SavvySugar.
New tax bracket
If your job loss puts you in a lower tax bracket for '09, you may now qualify for certain tax breaks (e.g. the child tax credit, student loan interest deduction, savers credit, etc.). Grab 'em!
Tax credit for smaller incomes
If your earnings last year were low—whether working for yourself or someone else—you may now qualify for the newly expanded Earned Income Tax Credit, especially if you have kids. Qualified taxpayers with dependent children can get as much as $5,657 taken off their tax bill. Use this online worksheet to see if you qualify.
Making Work Pay credit
File Schedule M with your 1040 to get up to $800 taken off your tax bill ($400 for single folks) with the Making Work Pay credit—and it's available even if you're self-employed.
Deduct Donations to Haiti
Even though your donations to disaster relief in Haiti were made in 2010, you can claim them on your 2009 return, as long as they were made between Jan. 12 and Feb. 28.
For more tax breaks, we liked this article on SmartMoney.com.
Share your tax tips, hints and tricks with your fellow DW readers here.
Do the Saving Sweep
Here it is, that sweet spot before one month ends and the new bills begin. It's time to breathe a quick sigh of relief... and do the saving sweep!
Check your accounts...
Peer into your purse or wallet...
Jog over to an ATM machine...
Empty your pockets...
And whatever cash is lying around, whatever you don't absolutely need, sweep that bit of money (even a leetle bit) into your:
- Emergency fund
- Curveball account
- Down payment stash
- Private coffee can of bucks
- "This summer it's France or nothing" fund
MP just swept up an extra $200 into her emergency fund, another $200 into her curveball fund and $250 toward her business Visa.
Amanda did the sweep this morning and added $300 to her curveball account, $100 to retirement, and organized $2.54 of loose change in her kitchen into a new cup.
Ready, set—SWEEEEEP! And then tell us about it.
The Save-to-Spend Budget
If you'd like to become an avid saver, and/or if you scored in the lower range on our budget quiz, try this Save-to-Spend plan. While most budgets are designed to control spending, this one is designed to expand your saving.
And strangely—wonderfully—the focus on saving helps you to spend less.
Here's the plan, based on a monthly income of $4,000. You can work from your pre-tax or after-tax income; pre-tax helps you save more. Either way, aim for these percentages:
- Set aside 10% per month for retirement. ($4,000 x .10 = $400)
- Save 10% for long-term needs, i.e. a new car, a down payment.
- Save 10% for short-term and unexpected expenses, i.e. a friend's wedding this spring, replacing a lost cell phone.
- Stash a final 10% for fun, frivolous, pleasure.
If living on the remaining 60% (in this case, $2,400) sounds impossible, don't flip out. This is the save to spend plan, remember? You don't really live on beans and 60% of your income. You end up spending two of those four savings buckets every month, and the third one as needed.
The beauty of this system is three-fold:
- By creating stashes of cash, you will be able to cover all your expenses—especially the curveballs—and avoid relying on little Ms. MasterCard.
- As you ramp up your savings, you'll pare down your spending…because you'll want to save.
- You never feel like you're on a budget. You feel rich, because you have cash growing in your accounts.
Love Your Mate & Your Money
Why do so many couples fight about money?
Because many of us lack the skills to have basic, house-cleaning conversations about financial topics.
Like all aspects of a relationship, financial intimacy must be nurtured, (slowly, patiently, lovingly) in order to grow.
Here, a three-part method to build financial rapport with your mate, simply by asking questions, inspired by this post on SavvySugar.com.
| Theme | Tone | Exercise |
| Step 1: Getting to Know You |
Playful | Swap ice breakers: What's your #1 money worry? What are you saving for? |
| Step 2: Getting to Know Us |
Inquiring | Explore values: How would you spend a raise? What's your ideal lifestyle? |
| Step 3: Becoming a Team |
Give & Take | Seek agreement: We need X and we have to pay off Y—what do you suggest? How much do we need total? |
Do One Dumb Money Chore
Have you ever noticed that your financial life can end up looking like the hall closet—full of junk, loose ends and sweaters you meant to take to the cleaners?
That's why we invented Do-One-Dumb-Money-Chore Day.
Because:
- You keep meaning to question that charge on your cell phone bill…but you don't.
- You need to check the interest rate on your card…but you haven't had time.
- You need to set up your SaveUP! Savings account, but you've been ambivalent—er, distracted.
Also, it's Friday. Take 10 minutes to tackle one bothersome task—and sail into the weekend with that "I'm so money" feeling.
MP finally rolled over an old Roth IRA to her new Roth.
Amanda contacted Mint.com about a configuration issue that was distorting her reports.
Jen finally opened her savings account for her SaveUP! pledge. Better late than never.
Hilary called her ex-employer about the $129 they owed her. Check is in the mail. YAY!
Personal Account: Danielli Does the Math
As you may have guessed from my debut post, I'm not the best at setting goals. In fact, it has been hard to live up to my goal of... setting some goals.
To me, setting any kind of goal was always a double-edged sword. On the one hand, they're motivating. Nothing gets me more excited than dreaming about my future house, with bay windows and a treehouse out back for my 2.5 kids. On the other hand, goals are intimidating, serving as a reminder of how far behind I am and how much farther I need to go.
At that point, my optimism gets swallowed by how overwhelmed I feel. So I bail.
But not this time. I'm going to be more realistic. Sure, I can still think big. But I have to think small too—and I've been trying. To avoid setting myself up for failure, I've realized that I must aim for goals within my means. I want to pay off my debts ASAP, but the reality is that while my fiance is still looking for work, I am paying all our bills—and can just cover the minimums on my cards and student loans (he doesn't have debt, thankfully).
The first step last month was to take a critical look at my financial situation, and write down all my expenses. Then I had to assess the whole picture, to see what goals are realistic for me right now.
To see Danielli's budget breakdown, read below.
Monthly Take-Home Pay: $3,600
Regular Monthly Expenses (for me and my fiance):
- Rent: $1100
- Phones: $90
- Car Payment (mine): $336
- Insurance: $90
- Utilities: $150
- Credit Cards: $306
- Student Loans: $280
- Cable/Internet: $99
- Gym membership: $33
Variable Expenses:
- Groceries: $350
- Dog food and supplies: $125
- Gas: $40
- Prescriptions: $75
Upcoming Expenses: $200 (budgeted monthly and put into savings)
Total Spent per Month: $3,274
Remaining: $326!
The $326 was the good news I wasn't expecting. I'm not as broke as I thought!
Two months ago, I would have considered that $326 "free for all" money, and I would have spent it all on happy hour drinks, dinners out, weekend trips, clothes for my English Bulldog.
Those days are gone now. I'm a gal with goals (ahem).
I really want to get out of debt and save some money, so I'm going to put $100 extra toward my credit cards and $100 into savings each month. My goals seem pretty small and insignificant, but I have to start somewhere. And this, I think I can handle. I just have to keep reminding myself that these small moves add up. Even though I'm not making huge leaps, at least I'm still moving forward.
Thank you to my fellow DW readers for the comments and support you all offered on my last post. It was great hearing your personal stories, tips and advice. Let's continue to help and learn from each other. What are some of your goals? How do you plan on achieving them?
This post was also featured on BlogHer.
Maximize Your Earning
Earning more is challenging, in part because your income gets calcified in your brain. Whether you work for yourself or someone else, it's easy to wander down the path of least resistance—I earn X, therefore I can afford Y—and get stuck.
Instead, put the horse back in front of the cart: I want to afford A, B and C. Therefore I need to earn D. In other words, make an accurate assessment of what your current lifestyle, future goals—and security—will cost. Maximize your earning power to achieve those aims.
This method is sometimes called a reverse budget, but it's really a way to hone your priorities and rev up your earning power.
Here's how it would work for Karen, who earns $60,000 a year working as a legal secretary. If you are self-employed, this system still applies.
Karen's Current Budget
Gross Income = $60,000
Monthly take-home = $3,750
Basic expenses (mortgage, car, utilities, insurance, etc.) = $2,400
Saving = $250
401k = $300
Debt = $300
Misc. (eating out, clothes, ATM, random expenses) = $500
Total Spent: $3750
- But Karen knows she should be saving 10% toward retirement (+$200 = $500).
- She wants to double her personal savings so that she can buy a new car and take a vacation (+$250 = $500)
- She wants to get out of debt (+200 = $500).
- Also, she knits beautiful babywear, and she would like to launch her business online (+ $300 per month for supplies, other costs).
Basic expenses (mortgage, car, utilities, insurance, etc.) = $2,400
Babywear biz = $300
Saving = $500
401k = $500
Debt = $500
Misc. (eating out, clothes, ATM, random expenses) = $500
Total Expenditures = $4,700
Added Income = $950 X 12 = $11,400
Required Income = $60,000 + $11,400 = $71,400 plus taxes = approximately $75,000
It's daunting to put a pricetag on your dreams. But money helps to make things real. Karen may need to read last week's post, "6 Ways to Earn More" and either negotiate a raise or look for better paying work.
Have a Sexy, Cheap Valentine's Day
Valentine's Day weekend is just a week away—the perfect amount of time to put a little thought, rather than lots of money, into creating some sexy fun for your guy or gal. Here, an inspiring collection of our frugal favorites, from around the web:
Get wet. Some florists have flower petals for the taking. Gather enough to float on top of your bath water. Slip into the tub just as your sweetie comes home…(If the carpet of flowers isn't an option, have tea for two.)
Make mystery. Plan to meet your Valentine at, say, a bar. At the last minute, send a text changing it to a movie theater. Have a pal waiting at the theater saying that you got really sick (and your phone died), and your date should head to your house. Leave a note on the door saying you've gone to bed with the stomach flu, but that there's some food in the fridge. Have a bottle of bubbly waiting and...
Share the love. Clean out a nice big jar (pickles, cookies, mayo) and stuff it with silly poems, why-I-love-yous, memories and future plans. Now your beloved has Valentines for days!
For other ideas, check out this list and good old WiseBread, a money blog to enjoy any time.
Got a memorable, inexpensive Valentine's idea to share? Please do!
Fuzzy Math Recovery (winners announced!)
Many thanks to all those who participated in last week's pop quiz!
Congratulations to Sophia and Kristina, our two winners!
Although several other readers came close—Stephanie, Amanda, Kateh, Jordana, Debi, Beth, Di, Jamie—we regret to report that fuzzy math derailed almost everyone.We take credit for some of the confusion, as two of the questions could be answered in different ways.
Luckily, this presents a fabulous "teaching moment," as the moms say.
- There are two ways to answer question 1:
- If you made only the minimum payment of 2.5% on a $10,000 balance at 19.99% interest, it would take 403 months—or about 33.5 years to pay it off. Use this minimum payment calculator on bankrate.com.
- BUT, if you read the question literally, and assumed a fixed monthly payment of $250, it would take 67 months, or about 5.5 years to pay it down.
- Adding an additional payment each year would shave about 5 years, 8 months off your mortgage, assuming it was a 30-year fixed loan for $160,000 @ 6.5%. Answers varied for those who used other terms. Use this mortgage calculator on bankrate.com.
- Most people did the basic math correctly on this one ($50,000 is indeed 4% of $1.25 million), but then forgot to factor in inflation.
What's the diff? The minimum payment is $250 (2.5% of $10,000)—but only at the start. It gets lower as you go: 2.5% of $9916 is only $247, etc. That why paying only the minimum turns into a 33-year jail sentence.
Assuming a 3% yearly rate of inflation, a $50,000 income would translate about $121,500. Thus, the total amount you'd need to save would be in the $2-3 million range—Sophia and Kristina came closest to getting this right. Use this retirement savings calculator on bankrate.com.