Archive for the 'Spending Plan' Category
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!
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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?
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Last week ScrapperMom and I had an interview with a financial planner. I have written before about using a financial planner and really didn’t think highly of the idea. So how did we end up in this guy’s office? Let’s back up a bit:
A couple of years back we discovered a brew-your-own beer place about 45 minutes from our house called Deja Brew. You go in, pick a recipe out of a big book, assemble your ingredients, grind your barley, boil your wort, add your hops, cool things off, add your yeast, and put your soon-to-be-delicious-goodness in a storage container. The process takes about 2 hours, makes a half barrel worth (15.5 gallons), and you pay depending on the recipe (different amounts of different kinds of barleys cost more or less). Two weeks later you come back and bottle your beer. The whole process is not exactly cheaper than the local package store, but it’s a whole lot more fun.
Anyway, on the counter near the door was a fishbowl that said, “Drop in your business card, and you could win a free batch of beer.” So drop my card I did, and forgot all about it. About 6 months later, the phone rang saying that I had “won”. All I had to do to claim my beer was to assemble 6 to 10 friends to join me in brewing, and sit through a 10 minute presentation given by this financial planner. Assemble I did, and free beer did we get.
After the brewing session, the guy started calling me. Repeatedly. Caller ID came through for me and I avoided answering — for more than 2 months of approximately weekly calls. Finally, I broke down and answered the phone. At the conclusion of the call, I had agreed to meet him at his office to discuss our finances and what we would like to work on for improving them. Salesmen can be persistent, and on some level I felt like we at least owed this guy a listen after he bought us a keg’s worth of beer.
So last Tuesday night, ScrapperMom, Daughter #1, and I sat down for a little over an hour with Mr. Financial Planner. We discussed a lot of topics. He quoted a lot of statistics and figures about what people should do versus what they actually do. He introduced a couple of concepts with which I was not previously familiar. I gave him the rundown on our whole financial situation, and discussed near and long term goals. At the end of the discussion the hammer fell: He asked for $500 to be my “Chief Financial Officer” (as he described it) for the next year. He would consider our goals and put together a plan that we could accept or reject. If we rejected he would make additional suggestions. We would talk monthly by phone and quarterly in person to assess progress. At the end of the year we would have a full review to decide if we want to do it again.
I have to admit to being tempted by the pitch and the offer. It would be a relief to have at least some of our financial planning burden lifted off of our shoulders. On the other hand, I’m not really sure if I can justify $500 in either return on investment or opportunity cost. ScrapperMom and I are also engineers, and by nature we analyze EVERYTHING to the nth degree. So I’m not even sure that having a FP would even save us any time, since whatever he recommended we’d want to go out and research ourselves anyway. Ultimately the primary issue is one of trust: Do I trust a total stranger to do a better job of managing OUR money than we can do ourselves? At this point, I don’t think so.
I did learn a few things that bear further exploration. First, I learned that we should be trying to split our savings in a 30/40/30 ratio between money that can be taxed now (CDs, Money Market, other taxable investments), things that can be taxed in the future (401k, IRAs, etc.) and things that can never be taxed (Roth IRA, tax free bonds, etc.). I also learned that, according to this FP, we are doing better than 90% of the people he deals with on a first meeting in terms of having our ducks in a row. I also got another vote for slowing our paydown of low interest debts in favor of building up the 30/40/30 (which currently looks like 16/76/8) savings. This is in line with what we had planned to do anyway, just not necessarily in the ratio suggested.
At this point, I think we have pretty much decided that we will stick to doing our own planning. We’ll still use outside help in the form of books from the library and ideas bounced around on other Personal Finance Blogs and forums, as well as here at this site. I think the toughest part will be trying to get this guy to stop calling. And in case you’re wondering, YES, all of this was worth the free Chocolate Cream Stout!
If you ever end up sitting down with a financial planner, take a look at this site for some great questions to ask:
10 Questions to Ask When Choosing a Financial Planner
Do you have any experience with a financial planner? Was it a good experience or a bad one? Please share your thoughts in the Comments section below, or click here if you’re reading via email.
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Can you believe it’s August already? This weekend we’re relaxing with friends at their home in New Jersey. In the meantime, I hope you enjoy the following:
Hank at MyInvestingBlog.com asks the question:
“If you were given $50,000 USD (tax free) today, what would you spend it on?”
I went back and forth on this question. The prudent thing to do would be to pay off the remainder of our low interest debts. The “dream basket” thing to do would be to use it for a down payment on a single family home, keeping our multi-family as an investment property. Paying off our debt would still leave half the money, and with the monthly payments on the debt gone, it would take us only 12 months to save that amount again, which is well within a reasonable amount of time to find and act on a new house. What would you do? Leave a comment here and then head over to the original article to enter for a chance to win an American Express gift card. If you leave a comment there, let me know!
Some other articles that caught my attention this week were:
- Rocketc wonders if a frugal culture exists at your work place. He feels obligated to eat out with coworkers for fear of missing important business discussions that may ultimately further his career. My office is split between go-outers and brown-baggers, but nearly everyone eats at the office. I admit to feeling not so much peer pressured, but food pressured to be a go-outer, but it’s better for my wallet and my waistline to be a brown-bagger.
- Boston.com presents a scary article about how many workers are breaking the retirement piggy bank. It’s almost never a good idea to use retirement money for anything but retirement. But you knew that already.
- J.D. writes about How to Cope with a Lousy 401k Plan. Most of us don’t realize that the plan we have through our job is not the work’s plan, it’s our plan, and we all have the power to change it, especially if we band together with coworkers. Many of these plans aren’t set up by financial experts, and very often the administrators are sold a bill of goods. A little research followed by a little bit of squeaky-wheeling, so to speak, can make a major impact on the size of your nest egg.
- David posted a list of state sales tax holidays. Tax holidays are a great way to save — especially on big ticket items. However, one should be sure that (a) This item is in your spending plan and not a splurge item (since otherwise you will have not saved anything…) and (b) that you know what the regular price of the item is and what a typical sale price is. In my experience, many stores have no sales on Tax Holidays and bring all of their sale prices back to full price. In many cases, you can actually save more money on the weekend before or after the tax holiday than on the holiday itself for this very reason.
- Finally, PaidTwice wonders about how much your time is really worth. I, too, have always been skeptical about arguments like this. The key here is to set the baseline appropriately: the choice is between earning $0 and something, not between your regular hourly wage and something. I don’t buy PT’s advice on earning hundreds of dollars per hour since in most cases you can’t actually do that. Yes, you might save a few dollars clipping coupons for a few minutes, but that’s not the same thing as earning $25/hour.
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Just about a year ago, ScrapperMom and I decided that we had reached the right end of the Credit Card Contiuum and that it was time to start earning some rewards for buying all of the things that we buy or pay for on a monthly or yearly basis anyway. We went in search of a rewards credit card.
Rewards credit cards come in many different flavors. There are air miles cards, new car purchase cards, free gas cards, free coffee cards, cash back cards, and even dedicated 529 earnings cards. ScrapperMom and I decided that since we could not afford to contribute anything specifically to our daughter’s 529 plan that we would look for a card that would allow us to earn money for her account.
One might think that since we wanted rewards to fund a 529 account, that we would choose one of the 529 rewards credit cards that are available. Unfortunately, the few 529 rewards cards out there have terms that are worse than those available from some other cards. For example, one card we looked at has a limit of $300 in earnings per year. Our goal was to put as many of our purchases as possible on the card, and knew that we would easily exceed the $300 limit. Another card we looked at was linked to a specific 529 plan that did not fit our criteria for such a plan.
Instead, it made more sense for us to apply for a cash back credit card. There are a lot of cash back cards on the market, and they all have different terms. Using the credit card finder at Bankrate.com, we looked through many different cards. Some, like the American Express Blue card have different rates for different spending amounts. You have to spend a lot of money before the rates rise to a level on par with many of the other cards. Most of these cards offer around 1% cash back on all purchases and 3%-5% on certain types of purchases, like fuel, groceries, and fast food.
Ultimately, we chose the Chase Freedom Card. This card offers 1% cash back on all purchases as well as 3% cash back on things like groceries, fast food, and fuel purchases. You can redeem your cash whenever you accumulate $50 worth, but if you are patient then you can collect $200 and trade that for a $250 return (which brings the cash back bonus to about 1.25%). We can’t use this card for most of our big bills like our mortgage, car, and student loans, unfortunately, but we can use it on a lot of the small stuff like cell phones, satellite TV, Netflix, periodic insurance payments, etc.
In the past year, we have earned over $750 in rewards that we have applied to our daughter’s college savings. In a typical month, we earn about 75% of our points at the 1% level and the remainder at the 3% level. Since it only takes about 4 months to accumulate $200 worth of rewards, it’s worth our while to wait until that point to cash out the extra $50, since that’s a much better return than putting $50 per month into almost any investment.
Obviously the key to this whole plan hinges on spending within our spending plan. We pay this card off every month with money from our checking account. Again, we don’t use the card to spend on things that we would not otherwise have purchased. One splurge purchase can wipe out a year’s worth of rewards in no time at all.
Many people have difficulty handling credit cards, and I understand that. However, many others have aquired the self-discipline to be able to handle credit cards without breaking the budget. I believe that not using a rewards credit card for things that we are going to buy anyway is just leaving free money on the table. I have spent years giving the credit card companies my hard earned money, and now it’s time to redeem some of it.
Do you use a rewards credit card? What kind of rewards do you get? Do you find it worth it?
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photo figure credit: Nictalopen
