Wednesday, May 28, 2008

Vacation on a Budget - Update

I have returned from my vacation on a budget feeling a bit tired and sore (from all the hiking) but also refreshed.

Comparing my travel/vacation budget of $2000 to my actual spending is always interesting. See below for my original plans.

The next step for a vacation on a budget is to give some real thought (and research) to how much the total trip will cost me. Some costs, like the flight, hotel and rental car are fixed so those costs are easier to plan for. My share of the rental car is $82 plus half of estimated gas costs ($50). My share of the hotel costs is $452 (including estimated taxes). Additionally, we have planned time at a Spa and my reserved services are $285 (includes estimated tip). My total known vacation costs are $1199.

What about unknown costs? I estimated unknown costs based on the kind of trip (this time around - mostly hiking/outdoors) and then I give myself a reasonable daily budget. I have given myself $200 a day for Saturday - Monday of the trip and $100 for Friday and Tuesday of the trip(travel days) for a total of $800 in spending money. My daily spending budget should cover things like meals, entertainment and any shopping. My total vacation budget is $2000.

My estimated travel expenses (drum roll please) came in at $1566 about $434 under budget.

  • The flight (a known cost) was $330.
  • My share of the hotel (a known cost) was $456 (budget was $452).
  • My share of the rental car (a known cost) was $82 plus my share of the gas $58 (budget was $50).
  • The spa expense was $317 (budget was $285).
  • The rest of the money, $323, was spent on dining, drinks, food/water supplies for our day hikes, and a few small gifts.

I could have spent the rest of my budget as I really wanted to buy a lovely necklace that I saw in a couple of different high end jewelry stores (I saw the same style necklace a few times and the price ranged from $400 - $900 depending on the store). I also saw a beautiful sculpture that I still might buy (I will save the artist's information and if I still want the sculpture in 6 months and Mr. Sam agrees I'll buy it) that cost $800. Since I really coveted these two budget buster travel souvenirs, it didn't make sense to me to buy other lesser items.

All in all, it was a wonderful vacation and I'm very pleased that there will be no credit card bills showing up in the mail to ruin it.

Sunday, May 25, 2008

Obsessed Update

Last week I posted about one of our mortgages being sold to CitiMortgage. I did, finally, receive the missing "welcome" letter from CitiMortgage which did not provide any real information but I am happy to have it for my files.

It appears, thus far, that CitiMortgage will draft my autopayment for the mortgage note on the 15th of each month. A 15th of the month posting date would be welcome since this is a mortgage for one of our investment properties - additional time to collect and deposit the rent before the payment is due.

Thursday, May 22, 2008

Gen-X Retirement Blues

I found this recent article from USA Today regarding the retirement savings habits of Generation X very interesting.

Generation X is generally defined as those born between 1965 - 1980 and includes me and Mr. Sam.

The article warns that:

The Center for Retirement Research at Boston College has calculated that 48% of Gen Xers are at risk of being unable to maintain their standard of living in retirement, says Andrew Eschtruth, the center's communication's director. Compared with the boomers, Eschtruth adds, the Gen Xers "always have the highest at-risk scores. The changing retirement landscape is gradually becoming more challenging."

Why are we so at risk? The article notes the changing landscape of retirement savings (i.e. the shift from company sponsored pensions to 401k plans) and that Gen X is burdened "by high housing costs, stifling college debt, stagnating wages and outsize health insurance and gas prices."

Bryan Short is the 30 year old lawyer held up as a cautionary example.

At age 30, Bryan Short has, by any standard, achieved professional success since graduating from Boston College and law school at the College of William and Mary. Yet despite his job as a Washington mergers-and-acquisitions lawyer, he's nowhere near as financially secure as he expected to be by now.

He and his wife own one car and rent a 500-square-foot studio apartment. More than one-third of his take-home pay is gobbled up by repayment of college and law-school debt. Children are unaffordable right now. And retirement savings? They've barely begun.

I can relate to the Shorts. When I was 30 I still had $18,000 in student loan debt from professional school, $21,000 in a home equity loan (I had used the loan to pay off all my credit card debt run up while I was in school - ugh!), a $11,000 family loan debt, $3600 in credit card debt and I had a car payment of $366 a month. However, I had bought my first home by the
time I was 30 (with 20% down) and I was saving (according to my budget records - $184 a month went to savings) but not contributing to a 401k plan (I was not yet eligible to do so) although I had a small IRA that I occasionally contributing to.

Six years later I'm maxing out my 401k contributions (so is Mr. Sam) so I never see that money in my pay check. I also save $500 a month in regular savings (goes to our ING emergency account) in addition to our other savings goals. My student loan debt, family loan debt and car are all long paid off. My home equity loan was paid off when I sold my house and I no longer use a credit card (except for business travel or other business expenses once in a while) so I don't have credit card debt. Mr. Sam's MBA student loan debt was also paid off in January 2008 so we have no debt except for our mortgage.

But, even now the first expense we talk about cutting back on is our retirement savings.

USA Today provides a 7 item retirement savings to do list.

Monday, May 19, 2008

Vacation on a Budget

I'm starting to get ready for my annual Memorial Day weekend girl's trip. Along with packing and picking up supplies, I have reviewed my budget for this trip to make sure that I don't bring home any vacation debt.

One of our monthly sinking funds (which we keep at ING) is a vacation/travel fund. Each month we automatically transfer $50 into the vacation/travel fund. $50 a month in savings is generally enough to cover the cost of a flight or a deposit on a hotel - in other words it is enough to get a financial start on vacation planning.

So when it came time back in February to book my Memorial Day trip flight, I had just about enough in the vacation/travel fund to cover the cost of my flight on Southwest ($330).

The next step for a vacation on a budget is to give some real thought (and research) to how much the total trip will cost me. Some costs, like the flight, hotel and rental car are fixed so those costs are easier to plan for. My share of the rental car is $82 plus half of estimated gas costs ($50). My share of the hotel costs is $452 (including estimated taxes). Additionally, we have planned time at a Spa and my reserved services are $285 (includes estimated tip). My total known vacation costs are $1199.

What about unknown costs? I estimated unknown costs based on the kind of trip (this time around - mostly hiking/outdoors) and then I give myself a reasonable daily budget. I have given myself $200 a day for Saturday - Monday of the trip and $100 for Friday and Tuesday of the trip (travel days) for a total of $800 in spending money. My daily spending budget should cover things like meals, entertainment and any shopping. My total vacation budget is $2000.

For the last three months, I have set aside $300 a paycheck for my vacation. As a result, I have $1800 saved up for the vacation (remember I have already paid for my flight).

I expect you might be thinking that $800 in spending money for a long weekend trip is excessive. Vacation/travel is one of my favorite things to do. As a result, when I travel I don't skimp. Planning a vacation budget doesn't necessarily mean that I spend less money. Instead it means that I plan ahead and save up so that when I return from vacation I come home only with fabulous memories (and photos) and no debt.

While I do not use credit cards for day to day spending, I bring my one credit card with me when I travel just in case I run into a travel emergency. I will pay for my known vacation costs with my debit card. And, I like to carry my daily spending monies as cash.

Sunday, May 18, 2008

This week's collected points of interest

Friday, May 16, 2008

Frugal P.J.s

I made myself a fried egg sandwich last night (that's a frugal dinner choice for a late night dinner). As I was cooking my egg sandwich I noticed that my p.j. cuffs were seriously frayed.

Thinking about it, my p.j.'s date back to at least 1999 - 9 years ago. Am I in want of new p.j.s, yes - do I need them (who sees them besides me and Mr. Sam), no.

Thursday, May 15, 2008

The curse of the recurring monthly bills

I travelled this week for business and had a rental car with XM radio. I so enjoyed the XM radio I began considering adding an XM radio to my future (hopefully this year) nused car. I was surprised that the monthly subscription fee (if you sign up for a 3 year plan) is a reasonable $10 a month. There are also set-up costs for the system.

But then..... I start thinking about whether I want another recurring monthly bill. Another recurring monthly bill is a sure way to increase our monthly and yearly budget.

At present we have the following 6 monthly recurring bills for our home:
* mortgage with Wachovia
* utility bill from our city
* AT&T which includes a land line, two cell phones (one with a Blackberry data plan - but paid by employer) and DSL internet
* DirecTV
* charity payment (we made a yearly giving pledge that we pay monthly)

Do I want another? On one hand, I think that its just $10 a month. $10 a month is not a big deal, its equal to just one lunch out. On the other hand, its $10 a month, every month. And my commute is 10 minutes, not really long enough to get my money's worth.

How many recurring monthly bills do you have? Do you have any you can cut out or reduce?

Wednesday, May 14, 2008


I spend a lot of time thinking about our finances. I update our net worth a few times a month, I review our checking account balances multiple times a week, I check our ING account balances a few times a month, I review our investment balances about once a week, etc.

You could say that I am obsessed with personal finance.

This month I noticed that a mortgage payment for one of our investment properties had not posted via auto-pay. I checked the mortgage account (with Coldwell Banker) on-line and the account summary noted that the next payment was due 5/1. I also reviewed the payment history and confirmed that for the last year payments normally posted between the 5th and the 7th of the month. Since it was the 12th of the month I was concerned. Yesterday, I called Coldwell Banker and went through the dreaded automated menu and again was told that my next payment was due 5/1.

When I finally got to speak to a human I explained the situation and my concern. Surprise, surprise, the mortgage has been sold to CitiBank. I was told I should have received a 'welcome' letter - I did not. I was told that CitiBank would draw the mortgage payment on the 15th and no CitiBank did not need to ask permission to draw from our checking account.

When I had asked all the questions I could think of, my last question of the customer service rep was the following. Why did the Coldwell Banker on-line and automated phone system both inform me that Coldwell Banker was still awaiting the payment due 5/1? If our mortgage had been sold why not provide that information via the on-line account system? The rep could not answer that one.

Sunday, May 11, 2008

This week's collected points of interest

  • An interesting article from Janice Revel of Money magazine on the possibility of higher tax rates in the future and why you should be investing in Roth IRA and Roth 401k options to hedge your bets.

  • Hints that the sub-prime mess is seeping into prime loan territory from USA Today. 2.3% of prime loans were 60 days behind in February, up from 1.4% a year ago. If you prefer to look on the bright side, think about the status of the other 97.7% of prime loans.

  • Also from USA Today, consumers increased credit card borrowing at an annual rate of 7.9% in March 2008.

  • A different take on shrinkage, this time service shrinkage, from Red Tape Chronicles.

Latte Factor vs. Big Picture

I think most people have heard or read about the latte factor from David Bach's book the Automatic Millionare. Bach's plan is that by finding $5 a day (the cost of a latte) in your budget and directing that money into a retirement fund after 40 years you will find $1,000,000 in the bank.

Lots of experts also advise using the latte factor to pay down debt, instead of taking that $5-$10 a day and investing it you put it towards paying off your credit card debt or car loan. I'm generally in favor of this plan, I think its pretty easy to cut back on the day to day 'extras' and put that money towards your debt snowball. Once you start tracking your spending you will likely find lots of money leaks that you don't even realize are draining your wallet. (Here is a handy latte calculator.)

Walter Updegrave, Money Magazine's Senior Editor, advises that its better to stop "obsessing over every little treat" and focus on the bigger expenses in life. If you have a $500 a month car payment you would do better to cut out the car payment than you would if you cut out the latte.

I think Mr. Updegrave's advise is very smart but hard to implement mid-stream. If you already have a $500 a month car payment, it is difficult (and probably expensive) to get rid of the car payment. On the other hand, if you don't have a monthly car payment do your best to avoid taking one on.

What do you think?

Friday, May 9, 2008

Baby Budget Busters

Background, we barely use our home phone, in fact the battery in the handset has been dead for weeks (need to get that fixed), but we keep the land line because we need it for our alarm system. Today, I made a change in our residential phone service which will save us $10 a month and $120 a year. Five minutes of time saved us $120 a year. Is $120 a ton of money? No, but its money that we have now freed up to direct towards investing, saving or even other spending priorities (even fun ones like vacation).

Take a look at your billing statements and spend five minutes once a week calling your service providers to see how you can reduce your monthly bill.

Thursday, May 8, 2008

Bag, Borrow or Steal - does it make cents?

I'm not one of those gals that is particularly interested in carrying the latest "it" bag, especially when they are so pricey. The other day, I saw a woman at my office building wearing brown on brown Coach logo shoes and carrying a colorful Louis Vuitton logo hand-bag. I found the look both confusing and pretentious (sorry).

But, anywho, if you must carry the newest bag, does renting one make cents? If you bought this Louis Vuitton bag it would set you back $685. If you rented it at it would cost you $43 a week or $125 a month (assuming you signed up for a membership - 1 year membership is $60). I guess if you are the type to buy a new bag every couple of months then it probably would be more practical to rent instead.

However, I would suggest that this rental service ought to be reserved for very special occasions (wedding, prom, 10 year high-school reunion).

Wednesday, May 7, 2008

Be different!

Living a debt free life, avoiding credit cards, saving up for purchases -- all behaviors that are likely to set you apart from friends, family and the general public.

Dave Ramsey preaches "live like no one else so you can live like no one else." Said another way "Don't let the world squeeze you into its mold."

How do we live differently? The most visible evidence of our debt free life is that we drive old ('99 and '97) paid for cars while our friends and co-workers drive shiny, luxury-brand leased cars. We could easily afford a new car payment or a lease payment, but instead we continue to drive our current cars and we are working on a new/nused car fund (one of our 2008 goals is to save $17,000 for a nused car for me).

Most people don't care what kind of car you drive and the people who do care are not worth associating with.

Tuesday, May 6, 2008

Penny Pinching Ideas

I caught a Good Morning America segment this past week on saving money during tough times. The top suggestions -

Smoking. No butts about it. At about $5 a pack, a smoker who smokes a pack a day is spending about $35 a week which adds up to about $1,820 a year.

Drink from the tap. A bottle of water runs about $2, so if you drink just one bottle a day every week it will set you back $56 a month or about $2,900 a year.

What are your penny pinching ideas, what regular purchases have you cut out?

Monday, May 5, 2008

Spending Fast

Recently, I posted step 2 of how we paid off $55,500 in debt which includes advice on creating a baby emergency fund.

Another idea for coming up with cash to use to fund a baby emergency account is to undertake a family spending fast.

A weekend spending fast.

Do you spend your weekends spending? It is super easy to spend Friday, Saturday and Sunday eating out, hitting the bars, going to the movies, shopping at the local mall, etc. It is even easy spending money doing chores - picking up the dry cleaning, picking up supplies at Home Depot, grocery shopping.

Instead of going to the movies, find the free events available in your community or head to the local park. Instead of eating out and even instead of going to the grocery store - go on a pantry diet (live off the food that is already in your pantry/fridge - eat soup, pb&j, eggs for dinner, etc.) Hold off on house projects so you can avoid the Home Depot (H.D. stands for hundred dollars in our house).

On Sunday night or Monday morning take the money you didn't spend and put those savings towards your emergency fund. Try committing to a weekend spending fast once or twice a month.

A work week spending fast.

On Sunday, hit the grocery store (make sure you plan out some menus and bring a list) and fill up your gas-tank.

For the next 5 days, Monday - Friday, spend no money!! No lunches out, no take-out for dinner, no coffees at Starbucks, no stopping by 7-11 to pick up a soda/water/candy-bar, no lunch money for the kids. By cutting out those work week purchases, you likely will find that you save $10-$20 a day or $50-$100 a week. In 10 work weeks you will have saved enough for your $1000 baby emergency fund.

A 30 day spending fast.

I don't think it is realistic to go 30 days without spending any money. But, you CAN, for the next 30 days, avoid the mall, Target, Wal-Mart, Barnes & Noble, Home Depot, internet or catalog shopping, etc. Whatever triggers your spending, for me its all those glossy catalogs, avoid it for 30 days (I recycle those catalogs without looking at them).

What else can you put off for 30 days? If you get your hair cut every 4 weeks wait a couple of weeks and get your hair cut at 6 weeks. For the ladies, cut out the weekly, biweekly or monthly pedicure/manicure.

By putting off a purchase for 30 days you likely will find that you no longer want that particular item. A spending fast will also help you sort out the difference between a want and a need. If you can do without an item for 30 days it most likely is a want not a need.

Note, even if you 'fail' at your spending fast you will find you are much more aware, or engaged, in how you spend your money. A spending fast is a great way to become more aware, and more mindful, of where and how you spend.

Friday, May 2, 2008

How we paid off $55,500 in debt - 2 of 6

Step two of paying off our debt was to change our day to day habits such that we stopped adding to our debt. What does that mean??

First, we cut up all our credit cards. Dave Ramsey suggests switching from credit to using cash for all day to day purchases. We tried using cash for every day spending, but we found that cash was too difficult for us to track and instead switched to using our debit cards for all of our day to day purchases.

Second, we established our baby emergency fund of a $1000. The baby emergency fund is designed for those expenses, like a car repair, a medical bill, a home repair that used to land on our credit cards. Dave Ramsey recommends establishing a baby emergency fund before moving on to the debt snowball. And if you end up raiding the baby emergency fund, as we did a couple of times, you rebuild it before continuing with the debt snowball (more about the debt snowball in step 3).

I'm sure you are asking yourself, how do I save up $1000 for a baby emergency fund when I'm deep in debt and I'm living pay check to pay check . . .

  • Pay yourself first. Include savings for your emergency fund as you would any other bill and put it at the top of your bill paying list.

  • Found money. Use your tax refund, your stimulation check, bonus, birthday money, any 'windfall' money for your baby emergency fund.

  • Clean house. Sell stuff - hold a yard sale, list items on or Down size - sell your car and buy a less expensive vehicle, sell the boat, camper, RV, etc.

  • Up your income. Take on a part-time job and put your nights and weekends to work. Pick up extra income by baby-sitting or pet-sitting.

  • Work your budget. Track your spending, every penny, for a couple of weeks and figure out where your money leaks are. Ask for receipts or carry a small notebook to track purchases. Are you spending $5-$10 a day on coffee or lunch? Plug up those money leaks and put that $50 a week into your emergency fund. Take a hard look at each and every regular bill (think cable, cell phone, internet, gym membership, cleaning service, lawn service, pet service, club dues, kids' activity fees, etc.) Anything that you can do yourself -- cleaning the house, cutting the lawn, walking the dog -- should be cut out all together. Consider also getting rid of the cell phones, cable T.V., etc. -- can't live without the cable, then reduce the number of channels and reduce the monthly bill.

What should you do with your emergency fund monies? Well, that is up to you - you need to figure out what works best for you. We kept part of our emergency fund in a regular savings account linked to our checking account with Wachovia. We kept the rest of our emergency fund in an ING high yield savings account. We earn more interest on the money in our ING account and its harder to access as it generally takes a day or two to transfer from ING back to Wachovia.

Are you interested in living a debt free life? Make it happen, move forward by establishing a baby emergency fund of $1000.

If you want to pay off your debt, stop incurring new debts. Cut up your credit cards or put them on ice (literally - freeze your cards in a block of ice).

Check back for steps 3 - 6 of how we paid off $55,500 in debt in 12 and a half months.
See step 1 of 6.