Archive for the ‘Personal Finance’ Category

Changing a Need to a Want

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I recently made a change to something I had previously considered a need, dry cleaning.  I don’t have to wear a shirt and tie to work, as my workplace is business casual, but I prefer it.  I have been wearing a shirt and tie for work since my internship in college.  I have also been going to the dry cleaners once a week.  In the last few weeks, I have been rethinking that habit.  I have the money budgeted for the dry cleaning expense, but I began to question whether that’s where I wanted my money to be going.

Expenses Trending Upward

Over the past several months, I have been seeing a couple of my expense categories trending above their respective budget allocations, namely food and what I call house.  Other than I think the kids are eating more, I can’t say for sure what is driving the increased food spending.  I just know it’s been about $25 a month higher on average.  The house category has also seen increased spending.  The house category could simply have been under estimated.  I have been in my current house for 3 years now and I still feel like I am trying to get a handle on the routine maintenance costs for it.  I have a good handle on the things that I know come up on a regular basis, but costs still seem to be outpacing my budget.  Again, it’s not a huge amount, probably in the $25 a month range.  Since, I won’t receive any salary changes until April of next year; something would have to change if I wanted to address the shortfalls.  It may have been Crystal, that triggered me to reevaluate my expenses, but I decided to look and see if there was anything that I could change.

Is It Really a Need?

As I stated earlier, dry cleaning has been in the budget from the beginning and I have always treated it as a need.  When I reevaluated my expenses, I questioned that assumption.  I was spending about $105 a month for dry cleaning.  In the beginning, when I was wearing suits, this made more sense.  All of my suits were dry-clean only.  Today, I simply wear slacks with a shirt and tie, none of it is dry-clean only.  The only thing preventing me from cleaning and pressing the clothes myself was me.  I started thinking whether the $105 on dry cleaning was really where I wanted the money to be going or whether there were better ways to allocate that spending that money.  It was then that I decided that I could clean and press my own clothes and reallocate the $105 to other areas.

Redistributing

The first two things to account for were easy, food and housing.  I will begin to allocate an additional $25 each month to each category.  This should hopefully bring those categories back on budget.  The next allocation was to additional savings.  I will be adding $25 to the monthly amount that I send to my Vanguard brokerage account.  That will bring that amount to a total of $75 a month.  I then decided to up our allowances, or “fun money”, by $25 a month.  I’ll allocate $15 to myself and $10 to the wife.  Yes, this is certainly a want, but I reason it that I am doing something to earn it by washing and ironing the clothes myself.

Constantly Changing Budget

My budget never seems to remain the same during the course of a year, which is a good thing.  As my opinions change or evolve on what I believe the best use of my money is, my budget reflects it.  I certainly don’t make daily or even weekly changes, but a few times a year seems to be the norm.  This helps me to stick to the budget as I believe it gives me the best chance to achieve my goals.

Saving Money Everywhere We Can

cash 2

Mr. BFS and I just made the appointment to have our cable cancelled this coming Sunday night.  My discounted rate was expiring and I was not okay with the bill going up to $170 just to tape our shows.  And we’re making other cuts too.

Utilities

Our water bill is pretty much set since we aren’t allowed to shop around.  Same goes for our natural gas bill.  But I do find the best electricity rates that I can at the end of every contracted term.  I don’t even need to look at cool things like an energy conversion calculator to know that for every 1 cent per kilowatt hour that I save us, it’s like putting $15 into our pockets.  I have been able to consistently keep our rate between 8.5-9.5 cents per k/h for the past 3 years.  :-)

Extras

We generally spend on things that make us long-term happy but cut things that don’t affect us anymore.  Our next plan of attack is to transfer our cell phone service over to Ting Wireless.  Sprint has been charging us $150 a month for years for our unlimited everything plan, but I am sick of contracts and their pretty bad customer service.  Ting and Republic seem to be where the party is at now, and Ting will accept our phones (at least, I am 99% sure they will).

Altogether, we should be saving at least $60 a month by cancelling cable and $40 a month by switching to Ting (hopefully).  That’s $1200 a year that I can put towards our Roth IRA’s or even the vacation fund…SCORE!

What have you cut back on lately?

 

The American Dream

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

The headline, as designed, caught my attention. “The American Dream is out of reach.”  It being a CNN Money article, I was curious to see what is was about.  Apparently, CNN Money had conducted a poll and about 60% of the respondents said the American dream was out of reach.  I think there are a lot of pessimistic people in this country.

The American Dream

The simplest I way to describe the American dream is that children generally end up in a better position financially than their parents.  I am sure that is what my parents wanted for me and it is also what I want for my children.  Now, better is of course a relative term.  My dream is certainly not for them to become the next Bill Gates or Warren Buffet.  That would be nice though.  No, my dream is that they are more financially secure.  My hope is that I can teach them the necessary tools to achieve it.  I think in the future, the emphasis should be on how you manage your money, not necessarily how much salary you can earn.  I don’t think that was the case as I was growing up.

Now versus Then

I’ve talked about the differences between my parents and myself previously.  They were blue-collar hard-working people.  Learning that work-ethic from my parents and being blessed with a certain skill set, I have managed to obtain a nice white-collar job.  The job pays me quite well.  Not Bill Gates or Warren Buffet well, but well enough that my wife does not have to work.  The job alone has allowed me to be in a better position financially than my parents.  This is why I think it will require more than just a job for my children and other children today to end up in a better position than their parents.  There are more people today working in cubicles than ever.  Most of them are probably earning more now than their parents.  In addition to that, there are a lot more dual income households, which the article touches on, making it that much harder for children today to out earn their parents.

Keys Going Forward

The article only mentions this statement in passing, but I think it is probably the biggest key.  The article mentions that the savings rate today is low.  No wonder people think the dream is unachievable; they aren’t doing anything to achieve it.  They aren’t setting aside money for retirement, for college, for anything.  People are just consuming.  Companies have become very sophisticated at separating people from their money for the latest products.  Smart phones, TV’s, computers, cable TV and even cars are being advertised so effectively, that people feel they can’t live without them.  This means they spend their money on these products, instead of saving, and wonder why they can’t get ahead.  I have learned this lesson the hard way.  I was in a financial hole.  The only way I was able to dig myself out was to stop spending more than I made.  This has meant no smart phone, no new car, limited cable and until recently, no new TV.  Discipline is going to be needed to get ahead in the future.  Without it, people will go through life complaining how they never get ahead, all the while buying the latest fad.

My Hope

My hope is that my children are able to find a job that they enjoy.  I won’t even mind if they don’t go to college.  My plan is to have money set aside for them in case they do attend college.  I want them to start out in the best position that I can possible put them in. I don’t really care whether their job pays them a higher salary than what I currently earn.  I care that they will be able to manage their finances and be happy.  By accomplishing this, they will be able to achieve the dream.

Time to Switch Again – AT&T Uverse vs Comcast

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I came home from work the other day and my wife said a gentleman had stopped by from Comcast. He informed her about a potential deal we could receive if we switched.  We currently have AT&T U-Verse.  We’ve been with AT&T about 9 months after switching over from Comcast.  When it comes to cable and internet service, I go with the least expensive.  This has meant switching every few years between the companies.  This might seem like a hassle to some, but for me, it’s how I keep my costs down.  My wife told the gentleman that I handled all of that; he said he would be back in the area on Saturday and would stop back.

The Deal

Sure enough, Saturday afternoon the doorbell rang.  The deal was basically $89 a month for cable, phone and internet.  I’m usually skeptical of deals because they usually are too good to be true.  Included in this deal would be a $150 credit for switching over.  It would also include a couple movie channels and faster internet speeds.  Ok, I’m now interested.

We talk some more and I learn that a HD DVR receiver is included and that I would be looking at about $122 a month when taxes and fees are included for the first year.   The second year would be $25 more.  Being in charge of the finances, I know I pay $157 a month now for those 3 services.  So, even in the second year of the deal, this is less than I pay now.  This deal is looking better and better.  However, I know that I have a termination penalty with AT&T; I just can’t remember the amount.  I also want to compare the channel line ups to make sure I have the channels that I currently watch included in the new deal.

I asked if I could get back to him after I compared the channel lineups and determined my termination penalty.  He left his contact information and the channel lineup and informed me that the $150 credit would be expiring on Monday.

Upon Further Review

First, I compare the channels and don’t see anything missing.  The biggest difference is that I am swapping Showtime for HBO.  Not a big deal for us as we only watch Showtime occasionally anyway.  Next, I need to contact AT&T to find out what my termination penalty is and when does it end.  Rather than call on the phone, I use the on-line chat feature.  The service representative looks up my information and says that my contract is up in August of 2014 and that early termination results in a $15 a month charge for each early month.  This is actually better than I thought.  I thought my contract did not end until 2015 and that there was a $300 termination fee.  The representative informs me they don’t want me to cancel and offer to lower my bill by $10 a month.  This deal is working out in all the right ways.

Signing on the Dotted Line

I call the Comcast guy back Monday morning and tell him I want to go ahead with the deal.  Even by cancelling AT&T early and paying the $15 a month fee, I still come out ahead by about $30 a month.  There is a termination fee with the agreement, which is no surprise to me, there always is with this type of deal.  It is $230 if I terminate before the end of 2 years.  Since my prices are looked in for the two years, I don’t really care.  The one item that did catch me by surprise was the $30 installation fee.  In all of my past experiences, this has been waived.  The fee is offset by the $150 bonus in my mind.  So, I only net $120.

I have had both AT&T and Comcast in the past.  I’m not really partial to either one, which is why I probably switch so easily.  Price is my deciding factor.  Whichever one gives me the best deal has my business.  In 2 years, I will go through the same dance and see if I can score another deal.

Have you been able to lower your cable bill recently?

My Cousin Thinks I’m Cheap

Don't Lend

Have you ever gotten into a fight with a family member over money? I did, and it may have cost me a relationship with a cousin who lives overseas.

I want to start off by saying that we should generally try to help family members when they are struggling. I will also say that we should never loan money to family members, or otherwise mix money into our family. I know what you are thinking, this sounds like a contradiction. That’s because it is. Mixing money with family is something that can easily happen, and a scenario that can easily go wrong. Whether it is loaning money to a relative or going into business with them, what you have is an almost foolproof recipe for disaster.

How I Lost a Relationship Over $100

In two weeks I am taking my wife, daughter, and a small group of friends (including my boss and supervisor) on a 10 day vacation to Croatia. The flights we purchased took us to Trieste, Italy, where we planned to rent a car and drive the remaining two hours to Istria. I was having trouble finding a large car that would fit five people and their luggage, mainly because there aren’t many options with an automatic transmission in Europe. I finally settled on a VW Golf that was a bit small, for $600.

When I told my cousin in Croatia, he felt that he could get me a bigger car if he rented it for me and drove to pick us up. He convinced me to cancel my reservation and we made new arrangements. About a week later, he asked me to do something for him in return for his favor, to purchase an unlocked mobile phone in the USA and bring it to him in Croatia. In explaining the request, he mentioned that he would incur expenses in renting the car for me, despite the fact that it had already been arranged that I would visit the agency the day after he picked it up and pay the entire bill. He said that he would not receive the car with a full tank of fuel, and that there would be tolls through Slovenia to Italy.

My thoughts returned to two years prior, when he convinced me to buy him a $700 phone, which he then proceeded to pay me back over the course of the year. I did not mind loaning him $700, but constantly having to deal with PayPal and having him ask me to let him know how much he still owed made the arrangment feel more like business than family. There was even a few month period where he wasn’t getting a paycheck and I let him pause the repayment plan.

With this all in mind when he asked me again, I told him I was happy to bring him a phone if he prepaid for it and had it shipped to my house. I also mentioned to him that I was myself getting a new phone, and he then suggested that if I gave him my old phone, after purchasing a new battery, that it would be an even trade. I agreed to this transaction, and added that the phone was “worth” about $150 if I were to sell it on eBay. I said this not to suggest that was what I wanted for the phone, but to let him know that it did have some value. He then mentioned that he could get a new version of my phone for $220, then after some radio silence (this all transpired over Gchat), he said that he changed his mind and I could just reimburse him for his expenses in cash.

The next day he sent me a note saying he was uncomfortable that I wanted to “charge” him an “almost new” price for the phone. But instead of asking me why I wanted to do that, he let forth some insults, saying that I was ungrateful for his work to find me a rental car, ungrateful for the past vacations where he allowed me to stay at his home, and “stingy,” because I earn a nice income and didn’t want to spend the money to reimburse him for his expenses.

I informed him that he misunderstood me, and reminded him that we had also agreed that we would settle up the expenses when we got to Croatia. I will admit that I was being evasive with him because I did not want to enter into another long-term financial arrangement with a family member. I could also tell that he waited to inform me of the fact that he would incur expenses until he could find a phone he wanted, or some way to use this fact to his advantage. But instead of apologizing for the misunderstanding, he continued to insult me, mad because he wasn’t getting his way. He told me that he expected to be paid back for his expenses, and told him I didn’t appreciate the insinuation that I would not. I then told him that he wasn’t very grateful when I loaned him $700, and he then said if he knew that I had paid all the money up front and not monthly on a credit card, he would not have asked me to do that. I told him that I wasn’t the type of person that holds money over people’s heads, and that if he were visiting me in America, I’d drive 6 hours if necessary to pick him up and never ask for a dime.

Just a Bad Idea

That’s why entering into financial arrangements, or loaning money to family, is a bad deal. It is a business arrangment where the parties cannot behave as if it were an simple transaction. This allows at least one of the parties to gain unfair advantage. In my situation, he thought because I make a good salary that I have money to burn, and that caring about new cell phones is something I’d naturally understand. He couldn’t fathom why when I told him that I was getting a new cell phone that was a downgrade from the one I currently have, and that I was doing it to save money. He couldn’t fathom the fact that yes, I am cheap in most parts of my life, so I can afford to splurge on the things that matter to me – like traveling to visit my family. He thought he understood the situation, and when he realized that he didn’t have control of it, he reacted like a child and insulted me to the point where the damage cannot be undone.

I had forseen this happening, and tried my best to avoid it, but that didn’t work. So my cousin has thrown away our relationship over $100, but maybe it is really over more than that. This is about him wanting to manipulate and control me. It has allowed me to see him for who he truly is, someone who can’t hear you say “please pass the butter” without thinking what favor he can extract in return. This further shows that money should not be allowed to mix with family, because there is nothing about blood that makes someone beyond reproach. Maybe brothers, mothers and such deserve some leeway, but we should not be afraid to disassociate with those who abuse us and treat us poorly.

Life is too short to allow these people to hurt us. This post was me putting this behind me. I will not allow him to ruin my vacation, and am looking forward to the extra free time I will not have to spend listening to his manipulations.

 

Paying For Past Mistakes

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

There have been a couple of instances recently where past actions or decisions have come to back to haunt me financially.  One instance is me now having to pay for not taking care of my health in years past.  In the other instance, I was not able to take advantage of the best financial option and as such, incurred increased expenses.

Sweet Tooth

I have always enjoyed sweets.  For as long as I can remember, I have had an addiction to sugar.  Unfortunately, I was not diligent in taking care of my teeth.  I brushed, probably not very well, didn’t floss nor did I visit the dentist regularly.  As a result, I have had numerous cavities and subsequent fillings.  I shudder to think what the lifetime cost has been for me.  This came up recently because I had a filling that began to fail.  The filling represented such a large percentage of my tooth, that another filling wasn’t possible.  So, I need at least a crown and possibly a root canal.  What does this mean financially?  The cost is probably about $600 after the insurance covers 50%.  It is annoying more than anything to me.  I have the money to cover the cost from my HSA.  The annoying thing to me is I didn’t understand the implications of my actions in the past.  Had I simply been on top of my health in years past, I would not have to incur this expense today nor would I have incurred all the other expenses through the years.

Increased Costs

Included with my inheritance was an IRA.  I did have the option of rolling this IRA into what is known as a stretch IRA.  A stretch IRA is one in which I would have been required only to take annual distributions, but the distributions would be based upon my life expectancy.  Since I am only 38, the IRS would expect me to live on average another 45 years.  So, my RMD (Required Minimum Distribution) would have only been about 2% (1/45) of the account value.  Chances are I would have been able to produce investment returns of greater than 2% and grown the account.  The RMD would grow every year, but it would be a significant time until the distribution would be a high percentage of the account value.  So, one of the costs that I incurred was the opportunity cost of not rolling the IRA into a stretch IRA.  Because of past mistakes I made with my finances, I was not in a strong enough position financially to take advantage of this opportunity.

The other costs I incurred with the inheritance were taxes, both federal and state.  I had anticipated some of the impact to my federal taxes.  I knew the money would be taxable, but the one impact I didn’t anticipate, was the additional income pushed my income up such that I lost one of my deductions which caused my taxable income to be greater than I thought.  So, rather than receiving a few hundred dollars back as my refund, I only received $161.  The biggest tax impact was to my state income taxes.  The increased income due to the IRA caused a significant tax liability.  I ended up owing about $1,200 to the state.  Just to give you some context, my income for 2012, 2013 and 2014 are all in the same general range give or take a few thousand dollars.  In 2012, I received a $237 refund and 2014 I expect to receive a roughly $300 refund.  That is a pretty big swing.  Thankfully, I had the money in my savings to handle it.

Looking Towards the Future

What both of these situations have shown me is to pay attention.  Due to the lack of attention to my health and finances in the past, I caused myself to incur costs in the future.  It is reminders like this that keep me dedicated today.  To make sure that I keep my financial position as strong as possible, so that I can take advantage of opportunities when they present themselves.  To make sure that I pay attention to the little things that could turn into major future expenses.  I guess I could say that these lessons have made me smarter and that’s the bright side.  I can pass this knowledge, hopefully, onto my children and maybe they won’t repeat the same mistakes.  Still doesn’t make me like the incurred costs any more.

5-Year Progress Check

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

Just for fun, I decided to compare my budget today; to the budget I had in place 5-years ago.  This exercise isn’t something that I do on a regular basis.  It was prompted by a discussion I had with a coworker.  She is in the process of buying a house and that got me to thinking back on saving and buying my first house.  As I have said before, I have made decent progress over the past several years in managing my finances better.  How much better you might ask?  Let’s take a look.

Income

Five years ago, I had been with my current company for about 5 months.  My salary at the time was $79,000 a year.  Having a dependable income was precisely why I had left my previous job 5 months earlier.  The old job was commission based and I wasn’t a very good salesman.  Today, my annual salary is $95,000 a year and this year I received a bonus of $20,000.  So, I have managed to increase my income quite a bit over the last 5 years.  I wish I could say that this was deliberate on my part, but I can’t.  All I’ve done is simply work hard and changed positions internally when necessary.  I will say that I was surprised that my net take-home pay has not changed as dramatically in those 5 years.  Back in 2009 my monthly take-home was $4,776.  That is after taxes and benefits.  Today, my take-home is $5,267.  That is a difference of only $491 a month.  Where is the rest of it you might ask?  The rest of it is being saved.  Back in 2009 I was still trying to dig out of the hole that I had placed myself in, so I was not contributing much, if anything, to my 401k.  Today, I am contributing 7%; my employer is contributing 8%.  I am also maxing out my HSA account at $6,550.  That means I am saving over $12,000 a year.  That’s how you dig out of the hole.

Savings

No surprise, I had very little in the way of savings 5 years ago.  The best I could find for my bank savings and brokerage account were the year-end balances.  I had $3,300 in cash savings and $200 in the brokerage account.  Today, I have just over $26,000 in the bank and about $5,000 in the brokerage account.  The 401k balance is just as dramatic.  I was able to find the balance from April 2009, it was $407.  I had contributed for one month and then had stopped in order to eliminate my debt.  Today, my balance is just over $41,000.  I have become much more disciplined in my contributions and trying to increase my contribution whenever possible.

Net Worth

As I said, I was still digging out of a hole 5 years ago.  My net worth at the time was about -$18,000 or so.  I had credit card debt payments at the time of $400 a month and student loan payments of $140 a month, along with a car payment and mortgage.  Today, I just have the car payment and mortgage.  Both the car and mortgage have such low interest rates, that I have no desire to pay them early.  My net worth today is over $123,000.

Progress

I still can’t believe the progress that I have been able to make in just 5 years.  Certainly, the increased salary has made life a lot easier, but discipline was also needed and a change in mindset.  My wife and I had to change our thinking on wants versus needs.  We had spent too much on wants in the past.  We were tired of playing catch up.  By taking advantage of the increasing salary and saving more, we have built up a larger safety net.  The unexpected car repair or tax bill, no longer puts us back in the hole.  We plan for major purchases and save the money ahead of time.  This has allowed us to make the progress over the last 5 years.  I’m curious to see what kind of progress I can make in the next 5 years.

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