Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective

Archive for May, 2008

05.31.2008
Breaking the Rules

Creative Commons License photo figure credit: P. C. Loadletter

Well this is basically going to be a confessional post….

I did a bad thing the other day…

I broke almost every financial rule we have….

I bought something over $200 without the other person’s consent…

I bought something without thinking about it for at least 24 hrs…

I applied for and used credit without my spouse’s knowledge….

In my defense we have talked about this purchase and had decided that it should be put on the radar as something to start thinking about. Of course in a perfect world I would be able to pay as I go and save along the way. Unfortunately at the company I went to the product is offered as a package deal with a deep discount for prepaying. That is why I should have done my due diligence and realized that this is a huge red flag and reputable companies don’t make you prepay for services.

I broke the unwritten contract we have concerning money and I feel awful about it. This is what I have done to remedy the situation.

After doing a little research (that I should have done prior to signing on the dotted line) I have realized that:

A) Although the woman I spoke with said they do not give refunds, the paper I signed clearly states they do.

B) I have written a letter to the company requesting a refund and have copied the credit card and the Company’s main customer service department.

C) I will wait to see if the company makes good on the refund. I will give them 30 days or until I get the credit card bill. If they do not, I will send the letter to the credit card company and dispute it with them.

I can’t believe I fell for such a scam. I just finished reading Predictably Irrational… I didn’t learn anything, clearly. I have learned my lesson now. This is why we have the 24 hr waiting period, this is why we talk to our spouses before making big purchases, this is why when it looks like it’s too good to be true, it usually is.

I’m not proud of myself but this is something that is very important to me. In the heat of the moment I got excited. I forgot everything I have learned about finances and purchases. I know now that I did not approach the purchase correctly or fiscally responsibly, and I may end up eating a 10% administrative fee because of it. After the matter is resolved I will make an appointment with a reputable, local, licensed practitioner and see if I can save up the money to start the process the proper way, the way we agreed to do so. I hope Mr. MITBeta can forgive my financial transgression. I will try to make it right.

Update: I have heard from the company and I believe they will be issuing a refund minus the 10%. Cross your fingers for me.

Editor’s note: MITBeta forgives ScrapperMom… but is still not happy about having to pay 10% for nothing…

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05.29.2008
Carnival

Creative Commons License photo figure credit: SantaRosa OLD SKOOL

This week I participated in two carnivals.

Some other articles that I enjoyed this week:

Frugal Baby Part II: Feeding Baby

Author: ScrapperMom
05.26.2008
Baby Foods

Creative Commons License photo figure credit: twelve paws

Obviously with another mouth to feed it might stand to reason that the grocery bill will increase. Fortunately, we have managed to keep the grocery bill in check with a few frugal baby solutions. Some of these items may not work for everyone, but these are the things that worked well for us when feeding a baby on a budget.

Breastfeeding: This one is a no brainer when it comes to saving money, but I understand that it doesn’t work for everyone. I was determined to make breastfeeding work for us and made sure I had a lot of resources ready in case I got in trouble. It doesn’t necessarily come naturally for either mom or baby. As MITBeta and I found out, it is also a multi-person sport in the beginning, so don’t worry about leaving those Dads out! We realized early on that in order to get the baby positioned correctly and to keep her awake we needed about 4 hands. Also remember in the early days that it is important to watch your baby for clues and not the clock. Breastfeeding works on a system of supply and demand, so in the early days you really want to feed the baby whenever she seems hungry. This will help build a good supply of milk. Visit KellyMom for some great tips on all aspects of breastfeeding. This website is invaluable. The first fews weeks are long and I spent a lot of time on the couch or in a chair, but just made sure the MITBeta had a little table supplied for me with snacks and a drink and I soon became a natural. In the coming months I forgot all about the hard first month as it gradually got easier and easier.

A friend gave me some great tips when I was pregnant and they all helped make the process go smoothly after our daughter was born. Make sure you get all the support you can/want/need in the hospital. Ask all the nurses to check to make sure the baby is latched on correctly. They typically have lactation consultants on staff that can make sure you are doing it correctly as well, so you can avoid problems that can quickly derail your breastfeeding experience (latch-on, supply, and pain are some common ones). Make sure you buy some lansinoh (this product is very important in the early days). We also had a nurse make a home visit (this was covered by insurance because we were in the hospital less than 48 hrs after baby was born) and that was a great opportunity to ask questions and correct any potential problems. We also had a birth doula who came to see us for a post-partum visit as well.

I also found it advantageous to have a pump on hand (you can rent hospital grade pumps, buy cheap manual pumps or invest in a pump that would be good for daily pumping sessions if you plan to pump and work). I have an Ameda pump. My milk came in a few days after we got home from the hospital and even though my little one is took to breastfeeding like a champ, she sometimes just couldn’t handle that kind of volume! Plus I was back at home and now had no one around to help me out. I found it very useful to have my pump all set to go, just to relieve some of that early discomfort and make it easier for the baby to latch on. Now even if you decide you don’t want to breastfeed, having some type of cheap pump may be helpful, since your body will think you want to make milk no matter what, at least in the beginning. Having the number of someone you can call if you run into troubles is a good idea. This could be a lactation consultant, doula or LLL leader (see below).

Your local La Leche League is also a great source of support and encouragement. They typically have meetings once a month. I have been going to the LLL group meetings in my area since our daughter was born and I find a lot of great support there for a lot of parenting issues, not just breastfeeding. It’s always good to run things by other mothers who have been in a similar situation so you can make sure that everything is normal.

If you have tried breastfeeding and have decided that formula is the way to go for your family, you should check out this post about taking advantage of the great deals at CVS. By playing the “CVS” game you can save a lot of money on formula.

Homemade Baby Food: This sounds like a lot of work, but is surprisingly simple. The nice thing is that you really only have to do it for about 4 to 6 months. I started introducing new foods around 6 mos. I tried one new food every few days. I would make a batch of one type and freeze it in small portions (ice cube trays work great for this, see photo above). After a few weeks I had built up a little stash of different items. Some examples that we typically had on hand were sweet potatoes, squash, apples, pears etc. Most things can be cooked until soft and mashed up in a blender or food processor or even just with a fork. Things like mashed potatoes, avocado and bananas are super easy. No special tools needed.

By around 10mos your baby will probably be trying to eat what is on your plate, so you can usually find something on your own plate that you can mash up and give her. Our daughter was grabbing for what we were eating by around 10 mos and by 12 mos I was not pureeing anything anymore. So it was a short amount of time and definitely a money saver. This is a great website: Wholesome Baby Food that has a lot of information on introducing new foods and recipes and tips for pureeing foods. It also gives you tips on when you should introduce different types of foods.

We took a road trip to Washington DC when our daughter was around 8 months old. I brought a lot of frozen food cubes in freezer baggies, along with yogurt and string cheese. We had access to a freezer where we were staying so it was easy to continue feeding her on the road. I was also breastfeeding so that made things easy while we were out and about sightseeing. I fed her in all kinds of places, including the Air and Space Museum and the top and bottom of the Washington Monument!

Hopefully these tips will get you off to a good start, and if you’ve got any more, let’s hear them in the comments!

Coin Stacks

Creative Commons License photo figure credit: PPDIGITAL

Next month ScrapperMom and I will have both maxed out our Roth IRAs for the year. Since this is currently the only tax advantaged vehicle available to us, for us to continue to save will require a new strategy of some kind. Our prior experience with saving in taxable accounts has been in high interest savings accounts. We have never purchased stocks or mutual funds outside of a retirement account.

We have a number of medium term plans, including purchasing a new home, paying cash for a new (to us) car, buying more investment properties, etc. Some of these, like the new home and car, are expected to take place in approximately five years. This leads me to start wondering again what kinds of investments make sense for parking the money which we will begin to save in 2 months.

One idea that has crossed my mind a number of times is that of using Target Retirement Funds. Target Retirement Funds are a relatively new concept that has gained ground quickly in recent years. Generally TRFs are funds of stocks, bonds, and/or other funds that are balanced by the fund manager to be appropriate for someone who plans to retire close to the year in the name of the fund. For example, the Vanguard Target Retirement Fund 2010 has an appropriate mix of stocks and bonds for someone who is just about to retire and needs to shift from growth to a more steady income with preservation of capital. The nice thing about these funds is that they automatically adjust over time so that someone who owns shares of one of these funds does not have to rebalance her portfolio periodically. The funds also continue to adjust as the date of retirement passes by, so they continually become more and more conservative.

The Vanguard 2010 Target Retirement Fund (VTENX) is currently composed as follows:

Top 10 Holdings

Security Net Assets
Vanguard Total Stock Mkt Idx 44.08%
Vanguard Total Bond Market Index 40.28%
Vanguard European Stock Index 6.18%
Vanguard Inflation-Protected Secs 4.43%
Vanguard Pacific Stock Index 2.69%
Vanguard Emerging Mkts Stock Idx 2.27%
Vanguard Total Stock Market ETF 0.05%

Typical TRFs have some interesting characteristics. They are passively managed, meaning that the funds or the contents seek to match some index, and are only adjusted periodically by a manager to track the index. The balance in the fund is only adjusted periodically to be appropriate for the date of retirement. Because of this, the management fees or expense ratios tend to be low. They also tend to be tax efficient since there isn’t a lot of trading so the realized gains are low. They are now available at most major brokerages. As Kevin at No Debt Plan shows, one huge advantage of a TRF is that the barrier to entry into the fund is substantially lower than inventing in each of the funds in the fund individually.

Why am I considering a “retirement” fund for medium term savings? Well, that’s what I’m trying to figure out also. If a 2010 TRF is a smart move for someone at or near retirement who needs to try to continue to earn enough to keep pace with inflation but can’t afford to lose any money, then why wouldn’t this also be ideal as a medium term savings vehicle?

Let’s look at the pros and cons:

Pros:

  • Low cost barrier to entry; if I wanted to create a well rounded portfolio for this savings goal it would take nearly over $15,000 just to get started.
  • More upside potential than a cash account like a CD or Money Market account
  • Easy to manage
  • Tax efficient

Cons:

  • No guarantee on return
  • No guarantee on capital; more downside potential than a cash account
  • Periodic fees in the form of expense ratios
  • Lack of “peer review” in concept

I’m the type of person who is generally willing to take on a bit more risk than many. While this investment is not without risk, the risks are generally low, as the fund is well diversified across several different investment classes, many different investments within those classes, and through global investment exposure. I’d like to see some real estate investment trusts in the mix, but I think this is probably as good as it’s going to get for now.

So what do you think? Am I crazy or brilliant? Is this a good strategy for a medium term (5-10 year) savings plan, or is it too risky for such a short term? Should I go for the 2010 or 2015 plan? What do you think about using the 2020 or 2025 TRF for longer term goals?

In Part I of this series, I explained a way of creating a spending plan. Now we should look at how to put it and keep it in action, as well as how to fine tune the plan. Now that the plan is in place, I would like to make a very important point about spending plans:

Spending plans are not static.

Many people set up a spending plan and then begin to hate it, eventually giving up on it altogether, as they feel boxed into having to spend a certain way every month. This is simply not the case.

At the end of every month, I review my spending plan for the previous month and determine how closely my plan met reality. Since many of my plan entries are averages, I usually compare with my plan from one or two months earlier to determine whether the number in the plan is correct or whether it should be adjusted up or down. As long as I’m hitting the average over a number of months, I don’t worry too much: underages simply get swept into my money market account, and overages are absorbed by that same account. If, however, the number in the plan is no longer average, I have to adjust the entry for the next month’s spending plan. Of late, I have adjusted Fuel and Food up, and Electricity, DirecTV, and Auto Insurance down.

Since I’m using a simple spreadsheet for my spending plan, it’s easy to create a plan for the coming month. To do so, I simply copy the current sheet in the spreadsheet to a new sheet, and then rename the sheet for the upcoming month. In addition to the changes that may be necessary to some of the average categories, any special spending categories or extra expected income should be entered. If there is special spending (upcoming car maintenance, wedding present, etc.), it should be accounted for such that spending in another category is reduced to compensate. Ideally, debt and savings should be tapped only AFTER discretionary spending is reduced. In the same way, if you’ve got extra income this month, consider applying some or all of it to your debt snowball (sometimes referred to as “snowflaking”…) or to additional savings before applying it to discretionary spending.

We looked at the concept of “snowballing” debt reduction in my post Getting Out of Debt. My sample budget includes a number of items that should fit into a debt snowball plan. As time goes by and the first debt disappears, you need to update your spending plan to reflect this, as well as to apply the snowball payment plus the minimum payment from the paid off debt to the next debt on the list.

If you get paid irregularly, on a term greater than 1 month, or get paid irregular amounts, entering the income section of your plan can be tricky. Chances are that if you’re in this camp, you’ve already learned how to budget pretty effectively. But if you haven’t, there are a few ways to handle this. These solutions all make some assumptions that you have an idea what your average income will be.

  1. If you have enough experience with your income to be able to create an average, then you can enter this and work off of it as if it were one of the expenses discussed above. You will have to review this monthly to be sure that you’re not spending more than you’re earning.
  2. You can enter the full amount that you expect to make in the coming month. If this expected income is greater than average, allocate the difference to savings. If the expected income is less than the average, draw the difference from savings as if it were another source of income.

If you don’t know what your average expected income will be, then you’d better eliminate most of your discretionary spending until you get a better handle on your income.

In conclusion, it takes some time to set up a spending plan. Once set up, it becomes a living document that is pretty easy to maintain from month to month. A spending plan has proven essential to meeting my savings and debt reduction plans.

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