Don’t Feed the Alligators

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

Archive for the 'Spending Plan' Category

Loose Ends

Creative Commons License photo figure credit: Andres Rueda

After last week’s post about Falling Back into Old Habits, I jumped right in and made a bunch of small, but important changes or updates to our automated finances:

  • I made our initial contributions to Roth IRAs for 2009.  As I said last time, it’s already February and we hadn’t contributed anything to our retirement accounts for the year.  I logged into our Vanguard accounts and contributed for January and February on both of our accounts in one shot.
  • I also set up automatic deposits for Roth IRAs for the rest of the year.  Now I won’t have to worry that I missed a payment or scramble at the end of the year to come up with enough money to fully fund the IRAs.  This is an example of one of the basic tenets of personal finance: Pay Yourself First.
  • I finally got around to rolling over my old 401k from the company I left over 4 years ago to a traditional IRA.  I wrote about how to do this back in October, but somewhat ironically had not gotten around to doing it myself.  Do as I say, not as I do?
  • I set up a low balance banking alert for my checking account.  I logged into my account last week and saw that I had a negative balance.  A series of bills got paid and I had not yet transferred the money from our Money Market account.  Luckily, the bills were in process and the balance was not “real” yet.  So I immediately transferred enough to cover the bills and then some to bring the account back into the black.  It didn’t occur to me at the time, but several days later I thought there must be a way to avoid this situation in the future.  A few minutes of poking around at the options on the website led me to the Alerts setup page.  Here I could set up all kinds of different alerts.  I chose to be notified by email whenever my balance drops below $1,000.
  • I adjusted the automatic transfers that occur a couple of times a month between our Money Market and Checking accounts to be sure that a situation, like the one described above, does not happen again.
  • I have been managing an escrow account of sorts for all of our annual expenses, such as life insurance, car insurance, umbrella insurance, our Christmas fund, etc.  So far, this money has been mixed in with our general slush fund — by which I mean money that sits in our bank account, but is otherwise presently unallocated — and tracked using a spreadsheet.  This has become cumbersome, and I have decide instead to stash the money that we put aside each month for all of these annual expenses into a new ING Direct account.  So I opened a “sub” account at ING, and then set up an automatic withdrawal from our checking account to occur once per month for 1/12 of the total amount that we have committed to each of these spending plan categories.
  • Lastly, but certainly not least, I created a new spending plan, as discussed in my last post.  This was not nearly as painful as I expected it to be.  My last spending plan, back in November, took a worst case scenario.  This scenario, fortunately, never developed, and we actually have a lot more money coming in right now than I thought.  Because I had buried my head in the sand on this, I have been worrying too much over something that wasn’t as much of a problem as I made it out to be in my head.  I hope I have learned my lesson.

So that’s it.  Each of the above items took only a few minutes, and I took care of most of them in one night.  I like that I am still able to accomplish so many personal finance improvements in one shot like this.  ”Installing” “hacks” like this in our personal finances is very satisfying, and should lead us to financial independence one of these days.

Nail Biting

Nail Biting: A Bad Habit Creative Commons License photo figure credit: coxy

We’ve had a busy few months:

During this time, we have not paid very much attention to our finances.  Most of our finances are automated, so our bills still got paid on time, and I know that we’re generally doing okay.  However, I really can’t say whether we’re still saving enough, or even whether we have anything to save.  

Our busyness is really no excuse for taking our proverbial eyes off the ball here.  The truth of the matter is that I’ve had my head in the sand since shortly after ScrapperMom lost her job.  I really did not want to have to acknowledge the drop in income and figure out how to live without it.  As a result, I haven’t looked out our Spending Plan in months, I have no idea whether we’re spending more than we earn.  I do know that we have not yet made any retirement contributions for 2009 even though we are already 13% of the way through the year, and that’s starting to bug me.

Good personal finance is a habit like any other.  Breaking bad personal finance habits takes time, dedication, and work.  We’re all susceptible to falling back into our old habits, especially during times of stress, inattention, etc.  I gained a few pounds over the holidays (no excuse again…), and I’ve been working to take the excess off again.  Similarly, it’s time to get serious with our finances again.

Tomorrow I will draw up a new Spending Plan.  I will find money to contribute to our Roth IRAs, even if I have to take it out of our savings.  I will forget about our spending over the last month or two and focus on the future.  I will get back into the habit of good personal finance.

Do you fall back into old habits?  How do you get yourself back on track when you do?  Share your story in the Comments section below.

Christmas Tree

Creative Commons License photo figure credit: SleepingBear

This week ScrapperMom and I started and finished our Christmas shopping.  This was rather easy given that we don’t have many for whom to shop, we budgeted for Christmas just after LAST Christmas, and we already had the money set aside for these gifts.

Several years ago, we agreed with our adult siblings that we would all concentrate our buying efforts on the children in the family.  Prior to this point, we, like most families, would simply trade a bunch of items that we thought others would like.  Sometimes a hint or two may have been dropped over a Labor Day barbeque or Thanksgiving dinner, but for the most part we were left to guessing.  As a result, we all often ended up with well intentioned gifts, most of which never quite lived up to their full potential.

Some might argue that the whole point of gift giving is to know enough about the person to whom your are giving the gift to give something that will truly be appreciated.  This is a great idea in principle, but my experience is that it rarely happens in real life.  Others might argue that it’s not about the gift itself, but rather the thought that counts.  This is also a nice sentiment, but results in a pile of “stuff” that may create guilt on the part of the recipient and resentment on the part of the giver.  Instead, we prefer to share experiences: watching the kids open their presents, sharing a nice meal, and just being all together.

A few years back, we also started setting a pretty strict limit on what we would spend per gift recipient.  The obvious and immediate reason for this is that it limited how much we could spend in total and kept us from going into debt to finance Christmas.  The longer term reason, however, is that it allows us to anticipate how much money we’re going to need to cover Christmas all year long.  Knowing this allows us to begin saving for Christmas next year almost as soon as Christmas is over this year.

Christmas Club” savings accounts are not a new concept, but have fallen out of favor lately with the more prevalent use of credit cards.  Christmas Clubs are simple savings accounts that allow you to allocate a certain dollar amount per paycheck, week, month, or some other period.  The key to the success of this type of account is that the money is automatically deducted from your regular income stream and set aside in an account that is relatively difficult to access.

Many banks and credit unions still offer Christmas Club (and Vacation) savings accounts.  Our Christmas Savings account resides at ING Direct as one of our sub-accounts.  This is not truly a traditional Christmas Club account, and it has some advantages and disadvantages.  The ING account allows us to make it automatic.  Every month, ING automatically transfers 1/12 of our total Christmas budget for the year to the Christmas account.  The ING account also pays interest, which many Club accounts don’t.  Many Club accounts also restrict access to the money in the account, forcing you to leave the money alone or pay a penalty.  This is good for forcing you to save, but bad if you really need to get access to the money for a dire emergency.  The ING account allows me year round access to my money, but since it does not sit at a bank that is involved in our day to day financial business, the temptation to tap into it is very low.

This year we budgeted $800 in total for Christmas, and deposited $66.67 per month at ING.  By early December we had $800.04 sitting in our account, ready to be spent.  We used our new reward card of choice, the American Express Blue Cash card, to make all of our purchases, and will pay off the balance in full when the bill arrives.  Since we actually came in a bit under budget, we will probably not adjust our budget for next Christmas, and will begin paying for it in early January.

How do you pay for Christmas?  Do you take on debt to do so, or are you a Christmas Club user?  Do you set a Christmas budget or spend as the mood strikes?  We’d like to hear about it in the Comments Section below.

11.13.2008
Rainy Window

Creative Commons License photo figure credit: Nictalopen

Having just settled in to the reality of ScrapperMom’s layoff, we learned this week that our tenant for the last year will not be renewing his lease.  Assuming that ScrapperMom gets no new work and that it takes us at least a month to rent the apartment, this leaves us with 38% less income in December than in November.  The only thing keeping us even next month will be the raise that I got last month.  This means that all of our savings and discretionary spending has gone to zero in the upcoming budget month.

Thankfully, we have planned well, and have an emergency fund that can get us by for quite a long time under the present circumstances.  Having just received that raise, there is no reason to expect that my job is not secure for some time to come.  Though with a paying down low interest debt in favor of boosting our savings and emergency fund.  We are still overpaying a couple of our loan accounts, and while it’s not by much, I may still have to bring these down to the minimum payment until our income rises again.

  • I’m glad that I have resisted the urge to invest given the down market.  While a great long term opportunity, this would have tied up cash that we may need to have available in a long term investment.
  • I wish that we had made it a priority to increase our savings sooner, despite the fact that we still have some debt.  This would have given us more confidence and breathing room in the current economy to know that we can weather the storm.
  • I wish that we had not bought an alligator.  We’re now feeling more stuck than ever, and I’m amazed out how quickly our fortunes have turned.
  • We’re not ruined yet, so we’re going to be looking for new ways to trim our expenses.  Many of our recurring expenses, like our Netflix or DirecTV plans can be trimmed by $5 or $10 per month.  Two months ago I would not have thought that this would make much difference, but now that every dollar matters so much more it may be worth doing.  On the flip side, we’ll be looking to stir up new business in the form of a new tenant, as well as looking for ways for ScrapperMom to bring in some new engineering work, or perhaps investigate some new opportunities.

    Have you or your families been affected by the economic downturn?  Do you have any ideas for us to trim our expenses or boost our income?  Let us know what you think in the Comments Section below!

    Odometer

    Creative Commons License photo figure credit: michaelrjohnson

    I do a fair amount of traveling for work using my own vehicle. Whenever I do, my company reimburses me on a per mileage basis. I have the option to enter my actual costs, but since these are generally much harder to figure out, I tend to use the per mile option. The IRS periodically updates the Standard Mileage Rate, which is the rate recommended for businesses and business deductions.  This rate goes up and down, and is presently at 58.5 cents per mile.

    This rate is meant to cover the total cost of the use of a vehicle: fuel, wear and tear, periodic maintenance, etc.  Something that has never quite sat well with me, however, is how to use this reimbursement for anything other than the cost of fuel.  By my calculations, it only costs me about 6.1 cents per mile in actual fuel costs, less than 1 cent per mile for oil and tires combined.  So what is the other 50 cents per mile to be used for?  I suppose that some portion of it should go towards insurance, and maybe even the cost of the car.

    Up until now, however, I have been failing to allocate any of that extra 50 cents to anything in particular.  It doesn’t show up as a budget item, and therefore simply ends up in our general slush fund.  Since this is extra money and we won’t miss it from our budget, it occurs to me that I should be using it for something vehicle related.

    The two most obvious choices for this extra money are 1. making extra payments on our existing car loan, and 2. adding to a future vehicle fund.  I’m inclined to opt for option #2 since it adds to our overall savings and does not tie up cash in a low interest loan.  This is especially important in the current economy where anything can happen at any time, and with ScrapperMom out of work.

    Do you travel for work and collect mileage reimbursements?  How do you allocate the “wear and tear” portion of the mileage benefit?