Taking Control Over Spending | taking control over money | Donna Fielding

College costs: How to Get Some Aid

Sat, 13 Jan 2007 08:22:02 -0500

When my son first applied to college, I was terrified, in particular, of one of the many jobs that we had to attend to: in fact, I was so terrified that I put it off until June of the year he was to enter. Imagine my surprise when I completed the task fairly quickly. What is that task? It is the FAFSA form. FAFSA stands for Free Application for Student Aid and is a necessary step in obtaining ANY kind of aid -- government subsidized or private student loans. Until you fill that out, you cannot get a loan of any kind -- and, if you qualify for aid, the sooner you fill it out, the more likely you are to receive that aid. The money available is in short supply, and it can run out.

Why was I terrified? When I went to college, we were poor -- my parents sold men's clothing in a farmer's market. It was a cash business that did not leave any room for extras for the most part and certainly did not allow my parents to afford to send me to private school (even in the days when tuition cost the equivalent of a mortgage payment today). So, if I wanted to go, I had to get scholarships and aid. And my mom and I filled out these mammoth forms together -- it was time-consuming and so difficult for my teenage mind to comprehend: plus, I had to do it year after year after year -- through college and graduate school -- seven years of FAFSA. In those days, it was done by hand, of course, and it seems like it was one billion pages long.

For those of you who are new to FAFSA, take heart. It is not nearly as painful as it was -- you can fill out the forms on line and, if you have last year's tax returns done, you can actually do it fairly quickly. If you do not have last year's returns yet, you can still get a jump on the process by using 2005's returns and "estimating." Then, you can fill in a corrected form later.

What's the process?

You need to get a PIN number to sign the form electronically -- you should get PIN numbers for you, your spouse and your child who is going to college. Those numbers will be useful later when applying for and signing loans, etc. The process of getting a PIN can take a few days, so, if your child is going to college this year, jump right onto the site now, and start in the area that tells you how to get a PIN. The site is www.fafsa.ed.gov. At that site, you will also find ALL the information that you need to gather the necessary information to fill out the FAFSA as well as worksheets and directions.

It may look complicated, but, if you fill out the worksheets, it is actually fairly simple. If you know where your child is going to school, you can send the FAFSA to that school. If you do not know, just fill it all out and go online later to have it sent to the school the child will be attending.

After the FAFSA is processed, you will get back an EFC. This is an Estimated Financial Contribution -- and, it will make you laugh if you are a middle income person with a decent income -- but not a person who has $20,000-$40,000 to spend on sending your child to college. It will not make you laugh in a ha-ha way, but, in a "If I don't laugh, I'll cry way." The federal formula is pretty tight and what it estimates you can pay, and what you actually would have available to pay are pretty different things. Do not despair. Even if you do not qualify for any aid, including subsidized loans, you and your child can take out private loans -- although, at the moment, the interest on such loans is over 8%.

Do not assume that the FAFSA is the only form you will need to fill out and send to your child's school. When you decide what school the child is going to, you need to call the financial aid office and ask them what else you need to do to ensure you get your need-based or non-need based loans.

Also, do inquire into merit scholarships at all the schools your child may wish to attend. We were fortunate that the school my son wanted to attend had an automatic merit scholarship program (if you applied early enough to the school), and, his merit scholarship was included in his acceptance letter. We also checked if there were any other scholarship opportunities available to him there; however, there were not. So, we funded the rest out of our own pockets and through loans -- it's a killer, but he is going to a good school, with 1/3 of the tuition paid for, and, hopefully, it will help him to get a good start in a career.

Tuition at colleges is ridiculous, and, then, there are other fees and expense to account for: again, when you see the bill, you will bawl like a baby. There's room and board (if they are living on campus), fees for athletics and health services and some other things that only the schools will think of, books and, in our case, a big expense has been transportation to and from school and home (plane fare). Plus, while your child can work (perhaps at school in a work-study program or at an outside job), if you don't feel like they should work their first year or so, you will have to give them spending money. So even if you have saved, there are "hidden" expenses that you should think about when you decide whether or not to apply for a loan. If you do not have health insurance that covers your child, you will probably have to pay for the school's health insurance; however, if your child will be insured, you might be able to save some money by obtaining a waiver of health insurance.

Remember, without the FAFSA, you will not likely get any sort of assistance even if you are entitled to it. So, jump right on the site and get your form started right now. You may also want to get your 2006 taxes done as early as possible this year since you will need to get the FAFSA finalized and the sooner you can cross that off your list, the better you will feel.

The first year my son went off to school, I was a nervous wreck about a lot of things -- but, the one thing that really fueled my anxiety was the issue of how we were going to pay for his schooling. We found the right school for him and we wanted to give him an education that would be worthwhile in a place where he would be happy. We made the right choice about the school, but I fretted so over doing the paperwork to apply for the loans that we absolutely needed to pay for his schooling, that I basically made myself sick.

Take it from me: it is not worth getting sick over. Just start the process now and you will have a lot more time to insure that your funding is in place and you will sleep much easier. Trust me: I worried his second year that for some reason, additional loans would be denied. They were not. This year, I have vowed to do the whole process as soon as my tax forms are done, and, since I now am in control of my documents and my money, it should be easy.

Plus, save feeling ill for all the times you have to shell out more money for the next four years (plus each additional child). That's plenty of illness.

My daughter is going to college beginning in Fall 2008 -- for one year, I will have two in college. We are beginning now to look for all sorts of scholarship opportunities and so forth -- I will be updating the site to reflect sources of funding that I find of which some of you may not be aware. A brief search of the web turned up a number of scholarships for all sorts of accomplishments and even certain backgrounds that exist outside of what each individual school offers. We will be looking into that and applying for whatever is suitable for her. Although it may be a difficult process, it is better than doubling up our debt.

And remember, the financial experts all recommend that while you want to send your kids to college, you should not do so at the expense of your own savings: thus, you should assume that you will continue your regular contributions to your retirement savings while you take on this additional burden. Start now to figure out how you will do that and you will be much better off when the expenses start.

The tough choice is deciding that you do not have enough for the school your child chooses. Do you mortgage your life for your child's future? Remember, there are a lot of people in great jobs who are very happy having gone to state and local colleges. Some people go for part of their college careers, others get four-year degrees. These are all the sorts of choices you need to make based on individual characteristics of yourself and your child. Some people will do anything to let their child go to the top schools, others do not want to shortchange the rest of the family while allowing the college child this opportunity. It is not a clear-cut issue unless you have saved enough to send them to the most expensive schools (in which case, good for you and I mean that from the bottom of my heart). One way you can save is through a 529 account as I have written about previously.

But not all people can save enough for full tuition at a four year state school, let alone a private school. And not everyone sees it as their top priority -- I cannot say for you. But in my state, state schools run about $17,000.00 per year with room and board -- no lie. This is still about half of the average cost of a typical private school. Some of the most expensive private schools are above $50,000.00 per year with everything. But some states have programs that allow in-state residents free tuition. And some top state schools are still much less costly than private schools for out of state students ($25,000 - $30,000 per year). You really have to weigh all the factors when choosing the right school -- at this point, much as many of us hate it, money is a factor.

There are a lot of issues surrounding sending your child to school. If money is the least of those issues, that will make the whole transition much more smooth. Enjoy this new phase of life for your child and yourself. It really is amazing how they grow and change from this experience. We are very proud of our son and his growth since he has been away. We miss him, but it really has been an amazing time for him. We know that we have made the right choice to invest in his future -- we know that he will find a suitable career to start out in and will have the skills and personality to get a good job. The kind of peace of mind that kinds with knowing that your child will be able to be self-sufficient really should also influence your decision. Like other things in life, sometimes, expenses now are payoffs for the future: education is one of those things.

Reduce the "monthlies"

Sat, 06 Jan 2007 11:14:13 -0500

Honestly, I don't know how we survived the years of failing to pay attention to our finances. Obviously, we are now paying for that blindness: our debt load is far too high despite our income, and we always feel like we have no money. But, we forge ahead, looking for places to cut without eating into our lifestyle in large ways (such as selling our house and buying a smaller place would do). Although we continue to look for bigger ways to save, I have reduced over 300.00 in monthly "expenses," by just cutting back on some of the things we had automatically billed monthly. I was shocked at how a few "luxuries," can really add up -- $300.00 per month is $3,600.00 per year!!!!!!!

In an effort to help you find some of your own hidden costs, I will tell you what we did. First of all, by organizing and tracking our finances, we were able to figure out what we were spending and where we were spending it. Thus, step one is to organize your finances. That will give you a good idea of what you are spending your money on: you look at your debit receipts, credit card receipts and checks, and, although you won't know everything, you will see where you spend quite a bit of your money.

If you are like my family, you probably signed up for some goods or services that you can get more cheaply or can live without. In our case, we reviewed our homeowner's insurance and found that by increasing the deductible to $1,000.00 for an incident (from $200.00), we could save about $900.00 per year or $75.00 per month. Next to go was Poland Springs home water delivery. I signed up for it on a walk on our neighborhood boardwalk on a hot summer day a few years back. I thought that it would be ideal to get water delivered and to have our very own water cooler. Well, by the time I cancelled it, it had crept up to a $60.00 per month charge. I cancelled it, and, instead, I buy bottled water at the supermarket or at Costco for about $20.00 per month. That's a $40.00 savings.

One day, I was listening to Jim Cramer talk to the head of AOL and they both got a laugh over the fact that although AOL was offering free service to those who had a different method of connecting to the internet (such as cable as I myself have), about 50% of such people were still paying for AOL. I was part of that group. I contacted AOL that same day, shaving another $25.00 off of my monthly expenses -- with absolutely no repercussions whatsoever on our lifestyle. I also cut down some of my minutes on my cell service with another savings of $35.00 per month. Why did I do that? Well, I wasn't using the number of minutes I had signed up for -- one phone call and I got a lower plan. That saved me about $30.00 per month. I may save another $15.00 per month by getting rid of the phone insurance: I have been reading reports showing how such plans are not worth the money. (I haven't done it yet, so I am not including it).

In going over my credit card statements, I noticed that my Blockbuster monthly fee, which started at $22.00 per month for unlimited rentals, had crept up to $38.00 per month. We hardly even use it, so, out it went. At the same time, I walked across the street and cancelled my daughter's gym membership which had crept up to $70.00 per month from about $55.00 per month when we signed her up. She doesn't use it, we have a treadmill in our house, and plenty of equipment if she chooses to work out. Just an unneccesary expense. Finally, today, I bit the bullet on cable: we have the ultra-premium "gold" package, with every channel imaginable; however, other than HBO, and one show a year on Showtime, we do not watch the movie channels all that much. We do sometimes, though, but, it is definately a luxury to have so much abundance -- especially when that abundance costs an additional $50.00 per month. So, I cut to a much lower package -- no movie channels.

I keep looking at my bills to identify those places where we are spending unnecessarily. When I find others, I plan to cut those that we can. Some areas I still need to research are in the insurance arena: a better homeowner's, car insurance premium or life insurance/disability premium might further reduce monthly outlays. Those are for the future right now, because we are in the middle of cycles for them, and I do not have the time or inclination to make those sorts of decisions.

I also finally moved to a true budget to further refine our spending patterns and to, hopefully, find other areas where we are spending unnecessarily. However, even before I budgeted, I was able to save my family all of these expenses without really hurting our lifestyle. In fact, the water change just made my job a drop harder (as the shopper and carrier of the water from the supermarket), but did not change the family's ability to drink water. We do not miss Blockbuster at all: We still have a membership; I rented one movie over vacation, and, once in a while, we rent an on-demand movie from our cable service. That is fine for our movie needs for now. Paying for a gym membership that you don't use is a hard one: it is sort of like giving up on a hope. But unless you use the gym, that money should not go into the gym owners' pockets. Gyms make a great deal of money off of people who do not use them. Use it or get rid of it. When you are ready for it, it will be there for you again. The other things were just wasteful spending: paying for minutes we weren't using, and for a service that was free.

Little changes: huge savings. The grand total of savings is $328.00 per month or $3,946.00 per year. Imagine if I take all of that money and put it toward debt reduction -- I will certainly achieve my goal of being debt free far sooner than if I keep putting it into someone else's pockets. Where are you clearly "wasting money?" Look at everything and get rid of those things that are not really of value to you. While $50.00 in a vacuum may not feel like a lot of money, added to $20.00 here and $30.00 there, it adds up -- a lot.

Also, this change has allowed me to adjust my thinking as well: before I sign up for a monthly service or fee, I give myself time to think about whether or not it is something I can use. Very often, it is not. Then, it just ends up being money wasted and does no good in getting us toward our goals. And I have learned something else. Do not worry over what you have not done in the past: look at your future and work from there. Otherwise, the guilt over wasteful spending will eat away at you. Notice how I did not focus on what I could have saved over all this time that I was spending -- that money is gone. But the money that I do not spend in the future: that is going toward my goal of being debt free.

Savings:

Homeowner's insurance: $75.00

Poland Spring: $40.00

AOL: $25.00

Verizon: $30.00

Blockbuster: $38.00

Gym: $70.00

Cable: $50.00

GRAND TOTAL: $328.00 per month or $3946.00 per year!

It Takes Time to Take Control Over Your Spending

Sat, 07 Oct 2006 07:47:02 -0400

It takes a lot of time and patience to change how you choose to spend your money. Yesterday, I was tired at the end of a week of work, but I had a chicken in the refrigerator which I had defrosted to cook one day this week. Now, I do not like to cook at all on Fridays: it's my "tired" night; I'm sure most people know what I am talking about. You work all week, Friday night, some of you might enjoy going out, but I like to do pretty much nothing. I read, relax, watch t.v., have take-out, usually, and go to bed. Then, I am ready to enjoy the weekend productively.

I have always been a no show on Friday night festivities since I began teaching almost seven years ago. Before I taught, I got up at a reasonable, 7:00 or 7:30 a.m.; but now, I'm in a classroom by 7:30 a.m. and need to be high energy. With a 1/2 hour commute, and a little time to remember what exactly I am doing that day, I need to get up at 5:00 to get ready and be in school on time. Unless you have to, no one gets up that early. It dark when I start my day, but I am used to it; it takes it's toll on Friday, though. A full week of 5 a.m.. wake-ups plus doing all of my work at work and at home, makes for a long week. So, I take Friday nights off.

So, here I was, with a chicken that I could cook, or a husband who could pick up take out for about $25.00 last night. Now, I got a refund check on Thursday of $166.00 thanks to my home state, an unexpected check because, if you can believe it, we had a budget surplus, and our legislators decided to send most property tax payers a refund. Unexpected money: what to do with it? A while ago I decided that on the months where "extra" money comes in, I would use it in a proper way: in thirds. One third to my money market to build up emergency savings, one third to paying off whatever debt I am working on, and one third to add to my checking account for fun, unexpected expenses, whatever. That way, on extra pay day months (2 for me, 4 for my husband), and when I get paid chaperone pay or whatever extra payments I make, I would not just automatically integrate the money and "waste" it; instead, I would actually utilize it in a way that is helpful to the family.

So, when I deposited the check, I put it into the checking account and promptly transfered $55.00 to the money market account along with the $50.00 I put in there with every paycheck! It is very gratifying to watch that balance grow since I started doing this to over $400.00. I am now going into my web site to pay $55.00 to the debt I owe (even though they have gotten their payment this month). Thus, I still have $55.00 extra dollars. Of course, by now, you have all assumed that I spent $25.00 of it on that take-out. But, as I sit here Saturday morning, I am proud to tell you that I did not: it would have been a waste of that extra money.

I actually thought it through: I had the money to "burn" so to speak; however, my husband and I are spending the day in the city with my cousins and we are already planning on spending a bit more cash this week than we have been lately: not budget-busting cash, but, certainly, something. There are some bills this week that I need to take care of: one shots (once a year membership dues for my homeowner's insurance and a maintenance fee on my time share), plus, next week I pay the mortgage, which leaves us very little for the following week. So, I actually thought that the $55.00 would be better used today on our city jaunt, than last night on take out for two. And, I proceeded to cook the chicken. Since we are going out today, we would not have cooked it tonight, and it may have been in the fridge too long to cook it tomorrow. Thus, I saved not just $25.00 but the cost of the thrown away chicken.

You may think that it is a ridiculous thing to think about: what's $30.00 in the scheme of things? But for me it was an affirmation that I have changed my habits, a process that has been long and difficult. I started this process in August with the notion that we could not just keep spending whatever we wanted. Like all habits, though, sometimes, spending habits are not easy to change. Had I thought it through and decided to get the take out, I guess I would not feel bad or guilty -- I just would have had $25.00 less in my pocket for today's trip (which may have meant I would have to watch what I spend more or another trip to the ATM, whichever). However, I would not have felt guilty.

I do feel good about cooking the chicken though and having that $25.00 for today. Our $200.00 that we budgeted for today is now only $145.00 of our regular money (because of the state rebate) and we "theoretically" have "extra" money. I am glad that I do this: it makes me feel so much more in control and so much more likely to succeed in my goals of eliminating debt and gaining financial freedom. But, it is hard work and constant.

"My Best Piece of Financial Advice is 'Do Sweat the Small Stuff'"

Sun, 01 Oct 2006 14:45:53 -0400

Oftentimes, I think that we do not worry about little bits and pieces of spending and we surely do not spend enough time in figuring out where all the little dollars go. When you have big payments to make on mortgages, cars, clothes, and the like, who has time and energy to devote to $20.00 here or there. Moreover, how can it really make a difference to your overall financial situation? If it did not, it certainly would not be worth the effort to keep track of the small amounts of money that go out of our pockets.

I have started to take a different tack and, to my surprise, it seems to be paying off in helping us reach our financial goals. Honestly, before we went on this journey to take control over our finances, we just took some bills for granted, and spent money whenever on whatever. Never mind that such spending was hurting our bottom line: we just did not worry about it; there was always another credit card to take, another portion of our home equity line to tap into. Every once in a while, we would think to ourselves: we make good money, why don't we ever feel like we have it? But, we would block those thoughts out, because, the truth was, we were not spending on big ticket items, and, therefore, did not see ourselves as extravagant. Then, came the reality check: we were wasteful. Absolutely, horribly, terribly wasteful.

There is no shame in being wasteful with money if you do not mind finding yourself without enough to spend on important things. But when you realize that the debt interest alone eats up a week or so of hard-earned dollars, and getting rid of that debt becomes your priority, then every dollar really does begin to count. I like to read, so I never considered books an extravagance -- even hardcover. Also, $5.00 for a magazine or $10.00 for two every time I went to the supermarket did not feel bad to me; now, it does. Add it up -- while one $5.00 magazine is only $5.00, one per week is $260.00 -- 2 per week is double that.

But, $260.00 is not so much, standing alone. The problem is that the $260.00 per year on magazines stands right next to the $350.00 or so in downloaded songs, and the $480.00 to Blockbuster so we can rent unlimited movies and games (that we hardly rent) and the $300.00 for AOL on top of our $500.00 for online cable, not to mention the $900.00 for a gym membership that went unused and the $750.00 or more in coffee and other deli related items. And that is only a few of the items that we have reduced or eliminated in our lives.

You see, the small ticket items add up, but you don't notice them. You scratch your head and say, we work hard, we make money, we should be able to enjoy the goodies in life. But we were not getting that much pleasure from the items I just listed or some of the other things we were literally throwing money at: insurance is a necessity, but as my homeowner's crept up to double what it originally was, I never even bothered to find out why: until I got serious about our finances. Then I found out that I could save $750.00 a year by taking out a larger deductible. Honestly, my small deductible was not something that would be useful to us -- anyway, in one year, I have saved myself the difference. I just never checked before.

Since we have started really sweating the small stuff, not only do we seem to have more money, we are constantly looking out for ways to save in our spending. I check every statement to see what I spend money on individually and monthly; if something shows up that we just do not need anymore, I get rid of it. I just got rid of the monthly water delivery: it should save us at least $40.00 per month. I also am more conscious to look for discounts and sales: I do not buy at certain stores without a coupon -- in fact, I did not have a coupon with me at Bed, Bath and Beyond, so I went back with my receipt and coupon and saved myself $35.00. I turn in all my rebates within a few days of purchasing an item with a rebate -- $30.00 is then in my pocket, not someone else's.

So my best advice is to really watch and track what you spend. No, not every penny, but, look at what you are spending your money on by looking closely at your statements of every kind and keeping receipts of everything: once you get in the habit of getting receipts, it becomes normal -- then, you can use them to see where your money goes: without some method of tracking your spending, you will not realize all the places where you can cut your spending. Use your tracking software or pencil and paper, and every day or every few days, record it all: then, when you make changes, you will really notice them and their effect on your bottom line.

When you spend, think about whether or not spending that money is really worth it to you or whether it is preventing you from getting to some of your more important financial goals. I have probably managed to shave $300.00 per month (or more) from our monthly expenditures by getting rid of all the unnecessary little items and reducing the everyday spending. My husband and I ask these questions all the time: do I really need that? If I buy that, will I have to go back to the bank? If I go back to the bank, will I still be able to reduce the debts this month?

The question is actually: is this more important than paying down our debt? Reducing our debt is our major financial goal: if the answer is yes, this is more important (like getting my son plane tickets so he and his girlfriend could come to a family affair), then, we buy. If not, we do not. Most of the time, it turns out that the things we need the least are the small things that, when added together, turn out to be the big things. The big ticket items are usually important (we really are not extravagant that way) but, the little stuff, that usually is not. And we keep using that money to pay off our debt. Then, we may have money to enjoy again -- but, right now, we are living tight. We are committed to meeting our goal of getting out of debt.

I always prided myself in my generosity -- I am still generous, I am just not stupid anymore. I now pride myself in knowing that I have saved some money somewhere and I have paid more of our debts off -- take my advice, watch out for the small things: you'll be better off financially for it.

Why You Need A Budget

Mon, 04 Sep 2006 17:54:29 -0400

Financial Freedom

Thu, 17 Aug 2006 21:41:08 -0400

POOL ENVY

    I was just outside listening to my neighbors splashing around in their brand-spanking new, five-figure costing, pool. It is a beautiful summer evening and life feels good tonight. But I started to think: how is it that so many people seem to be able to afford these "extras" in life, and we feel like we are just treading water without owning a pool and no pool in sight. Do they make more money than us? Spend less? Invest more wisely? Manage their finances better? Did they finance this pool and are up to their eyeballs in debt but got the pool anyway. Is it possible that they actually had enough money saved to pay for the pool without gaining debt?
Actually, I am not jealous of my neighbor's pool, I am jealous that they do not seem to have to worry about money the way I do (although, maybe they do and built a pool anyway). Lately, every dollar must count in our lives now, or, to put it another way, we must count every dollar -- no pools in our near future, we just want to make sure that we can pay the bills and get the things we need. I worry about how long we will be able to maintain the discipline that we have showed this summer as we have worked on managing our money to get out of debt and start to live more comfortably. I worry that while I have worked so hard to organize and manage the finances, I have not really done that much to make significant change. After all the years of not keeping good records, I can only guess at the effect of our changes. We have made a lot of changes, I know that: we got rid of one credit card altogether (shredder), we lowered our interest rates on all our other cards, we reduced our costs for insurance, and, most importantly, we stopped spending money without thinking about it first. We have been using a lot less money in our everyday lives and we have not increased our debt. We have some money saved, and I really am taking care of the bills. We still need to do better so we can afford our necessities without ever putting them on a credit card, but, we certainly are moving in the right direction. And, although we should have been doing this all along, I need to stop thinking about the past and just move forward from here.
   That has been my mantra lately. We must not just look back and see all the mistakes, we must look today at all the steps we have taken to correct the mistakes, and look at the future knowing that we are making choices about money, not being blind to the realities of our financial situation. I find myself constantly evaluating potential expenditures: is this something that is more important than paying off more of the debt? Most "things" are not; some are (most of the things that are seem to relate to my children, but that is a whole other discussion). Meanwhile, I learn a few new ideas every day. I fix up our paperwork more and more every day. I de-clutter our house a little bit more every day. All of that is making me feel better: we can be in control of our money because we have it organized and we know where it is going. I have made some amazing changes: I manage the money so much better now than I did two months ago. I worked hard to put a structure in place to allow me to track our money and keep it under control; now that it is there, I am using it every day and it is working really well to keep us focused on our goal of eliminating debt and increasing savings.
   All of this work must be having an effect on our financial bottom line. Certainly, we have made strides: some are not measurable yet, but I can feel us living on less and paying off more all the time. We are in front of the bills for the first time ever. The bills are paid through the end of the month; when I pay again, before the month is over, I will be paying September's bills. That is huge: we have never been in front of our bills. These are forward steps. They must be having an effect on the bottom line.
   But when do we get to take a breath? When do we get to stop worrying and just live? When will we feel comfortable financially? When will we have enough money? My answer to that, today, is that you have enough money when you can afford what you need and perhaps, some of what you want on top of that. I am not a materialistic person, so why so much focus on money? We have what we need: we sleep in a home, we have transportation, our children get good, solid educations and opportunities for lots of niceties in life, we eat, we are clothed and we basically enjoy a very lovely life. So, obviously we have enough. We have worked hard to achieve these things: we are both professionals in our fields and we work to earn every penny we have ever made. So, why are we in a bind financially? Why am I so worried about money? Because my husband and I stuck our heads in the sand when it came to money for so long that we failed to make choices about money; our attitude was that we both have good jobs, the money comes in, so what do we have to worry about? That has allowed us to make poor money choices, or, perhaps, even worse, we have failed to even make choices. Now we are in a precarious financial position: an illness or job loss would put our lives in serious jeopardy. That is why we need to take control over our money NOW: while we have what we need, and have little need for much else, we need to shift from paying debt to saving money for emergencies, and other expenses; then, we can think about the extra goodies.
   I do not really have pool envy. My real envy is that I want to be able to afford a pool, (metaphorically speaking). I do not actually, necessarily, want to own a pool. The goal of our recent efforts to manage our finances and to systematically eliminate debt is to gain financial freedom. What is financial freedom? True financial freedom cannot be about having enough money to buy more stuff; as I have learned, stuff is just stuff -- it is temporary and much of what we buy is irrelevant to good living. So what is financial freedom? Today, I am starting to think that financial freedom is a feeling that you are in control of your money. Financial freedom is becoming unshackled from the chains of spending what you do not have. It is freedom from debt, because paying money on the use of money is often a gigantic vise grip that forces you to work harder and harder to enrich the institutions that loaned you the money. When we looked at our debt, we knew that we no longer work for ourselves: we work because we have to pay back what we borrowed from the banks and financial institutions with whom we made a reckless deal: a deal that has allowed us to live above our means. That is not freedom: that is indentured servitude. Financial freedom is the ability to make choices about where your money goes and the ability to feel secure with your monetary situation. Gaining that freedom does not mean you actually have more money coming in to your house (although increasing income is a way of helping to take control over money); it means you get to make the choice about what to do with that money. How many of us have that kind of freedom? We certainly do not. We have to work or the bank will take back our shelter and our transportation. We have no choice now but to spend a huge chunk of money every month because of our recklessness and lack of control over our money earlier.
   So, we are now choosing to become free from those debts: when we are, we will have gained financial freedom. No, we are not going into bankruptcy; we are actually systematically paying off our debt. We hope to eliminate our debt gradually. Instead of debt payments eating up 1/2 of our salary every month, debt will consume a lesser and lesser percentage of our income, until we have no debt. Then, we can save that money or spend it or do whatever we will do with it. Maybe we will give it away. That will be financial freedom. And we will get there: we will keep being patient, disciplined and assertive about controlling our finances so that they no longer control us.
   The reward will not likely be a pool (although you never know). The true reward will be the peace of mind with which someone who can afford a beautiful new pool lives. That is what I want: pool-affording peace of mind. That is why I am working so hard on taking control over our money. It is a hard road, but at the end, is really the pot of gold...literally, I hope.

Getting the Most Out of What you Buy

Wed, 16 Aug 2006 11:09:31 -0400

I am one of those people who does not like to shop. I go to the store, I get what I need, I get a little bit more than I need, I get out. I tend to forget to look at prices (except when they are exorbitant), and, I rarely comparison shop. Well, that was me anyway. Not so much, anymore. Our new awareness that everything you buy is less that you can pay off debt with has led us to be more aware of shopping and its place in my life. I go to the cheaper supermarket always now; I used to sometimes go to the more expensive one out of convenience. I look before I shop and I take advantage of programs and offers of discounts. In fact, although I tend not to clip grocery coupons (a habit I may start to pick up), I do get coupons for other items and put them in my filing system. I just found this excellent on-line site, keycode, that allows you to print out coupons for many of the major stores that I use on a regular basis. Before I shop, I check out that site to see if any place I am planning to go to has a coupon offer. On a day that I am off to shop, I either grab the whole folder or take the coupons I will be using.

I am following up on rebate offers as soon as I get the purchase home and make sure I am not returning it immediately. I am returning items that are not going to be used: as soon as I see there is a problem, I write it in the s piral notebook. I use promotional sign up programs: not credit cards from the store, but, many stores, such as home improvement, book stores, office supply stores, have cards that you can get for free that allow you to add together your purchases for money back on later purchases. Obviously, some of these programs are better than others. The reason they are offered should also be understood before you do it: they want your name and e-mail on their list so that they can target you for advertising. That is okay with me if it is a place I frequent. I do not sign up with these programs on the first shot except for airlines and hotels. We fly on one airline frequently, we signed up for their frequent flyer program. Recently, I was looking for a place to stay in two locations a couple of nights apart. I registered at the same hotel chain and signed up for their privileges.

The same is true for credit cards -- in today's competitive credit card environment, it makes no sense to use a card unless it gives you rewards (you just do not usually want to pay an annual fee or higher interest in exchange for rewards: Read the fine print). Often shopping online will lead to savings, especially if you get free shipping; however, if you do not get free shipping, you might want to look for something at a store. Another great way to save money is to buy "off-season" when possible. Many professions have unions or professional organizations that can offer you group discounts on things you need, like life insurance -- you should look into those things before you buy elsewhere. You should also learn as much as you can about big-ticket items; home renovations have certain areas on which you should not "skimp"; however, that does not mean that you cannot look into other types of savings if you are planning to renovate your home. And beware of whistles and bells -- if you can get an item that offers fewer features, and you do not need those features, you should really think about whether or not you want to pay for them or step down a model. Maybe an oven does not need six burners for your family (maybe it does). When buying expensive items, I am trying to plan ahead now: think about what I want, research it on line and look for it on sale. Think about what I can buy that might be "equal" as a substitute. And when you buy big-ticket items, you need to think ahead and anticipate your future needs; a cheap computer today may no good for your needs in the future although adequate now. This is especially true of home goods and cars: you may not yet have a family but think you will be having kids in the next year or so: will that item still work for you once those kids are born?

We bought a new car recently. This is the first big item we had to purchase since we were on the new system of being thoughtful about our spending habits. In the past, we have gone to "look at" some model we had an interest in, and, come home, owning a new car. This time, we planned first -- we had a model in mind, and we researched that car as compared to other cars for maintenance, reliability, gas mileage, etc. We started looking about two to three weeks before we actually set foot into a car dealership, and, then, we even got price quotes on line (which really did not amount to "quotes"; but, just the names of a couple of dealers). We watched the paper for ads, and we debated a new versus used model; however, the car we chose was on the lower end of what we thought we could afford and had been redesigned in the 2006 model year. Why did we even buy a new car? Well, my husband's car had 120,000 miles on it and was about to cost us $5,000.00 to fix. It was not worth that: thus, we had a decision. Spend $5,000.00 on a car that will probably not last us the year, or trade that car in (ethically, we could not sell it on the open market because of its problems; the dealer knew the problems and gave us some value out of it), and put that money into a new car. We decided to buy the new car. When we finally went to the dealer, we had a good idea of what we should be spending on this car, and, we came with the attitude that it will hurt them more to lose us as customers than us not to buy the car from them.

We actually chose a dealer whose service department we had used previously and liked very much. We decided not to shop at a competing dealer whose service department was horrible. So, basically, when we went in to the dealer, we knew what we wanted, had a pretty exact number for what we would not go above, and were pretty certain of what we had to get for our trade-in. And, that's what we did: we got a little less for the trade in, but, we paid a little less for the new car, so, in the end, we got the car we wanted at the price we had decided to spend ahead of time. But, buying a car, or anything big for that matter, is often not just about dollars and cents. There is a human intangible that our salesperson knows very well: he made us feel good about doing business with him and his dealership. It feels good to tell your friends that you made a good deal, or, at least, that you didn't get ripped off (which I believe we did make a good deal and did not get ripped off), but, it also gave me pleasure to make the sale with Andre, the salesperson who worked with us. I know he is a good salesman because he made me feel personally great about putting money into his pocket. I do not think I have ever felt that way about a car salesman before, but, the whole place had a quality of trying to be "new" and doing business a bit differently. So, money is a major consideration, but so is doing business with whom you want to do business.

Remember: I did a lot of research to find things that the average person can do that can make them much better off financially. I did not ask for help from a financial planner: I learned by researching and listening to people I respect. And, while experts are useful for some things, when it comes to money, be careful of Wizards Bearing Promises of Wealth With No Work. I am implementing those ideas that have value and sharing it all with you. Who needs Wizards when you are taking control over money?

Reduce your bills

Wed, 16 Aug 2006 10:15:25 -0400

Even items you need can cost less if you do a little research. First, think about your insurance: it adds up to a lot of money because there are a lot of different kinds of insurance: homeowner's, flood (if you need it), renter's insurance, automobile insurance, medical insurance, life insurance, disability insurance, nursing care insurance, etc. Some people use insurance products for different purposes, such as whole-life policies as ways to save money (I may research that in the future -- we were told it was a rip-off, but I did have a good one at one time that I think would have been worth a fortune, had our "friend," who became an insurance salesperson not advised against it in favor of term life...as my husband says, the woulda, coulda, shoulda.)

First, analyze your needs. You want to be insured for what you need to be insured for: hopefully, you have property insurance (homeowner's, rental, flood, etc), automobile insurance (required in most, if not all states), medical insurance, and, if you have a home and children, life insurance. Many of these products are given as benefits by your employer, in particular, many employers offer medical benefits, and some offer some amount of life and disability. Those may or may not be sufficient to meet your needs. In addition, you may end up with medical benefits from two employers: you and your spouse's. You may, or may not, be paying a portion of that cost as your contribution. You need to check your medical and other benefits periodically so you see if you can reduce their costs or to make sure you are getting enough insurance for your particular needs. In our situation, my husband contributes for family coverage; however, I could be covered (and so could my family) at work also. I have opted-out, because my employer gives that back as cold-hard cash if you do not take the benefit. But, we are recalculating: is what he is paying to cover the family more or less than what I get back. Obviously, if it is more, we are making a mistake in using his coverage; if less, we are making the right decision. I will be looking into that further when I get back to work in September.

After assessing your needs, be sure you are getting the insurance you wanted to have. For example, in homeowner's insurance, there is a difference between replacement value of items and non-replacement. The replacement cost is generally fairly low so it usually makes sense to get it: if I do not have replacement value and something happens, I will only get the value of what the item was worth. I may not be able to replace the item for that amount. Thus, you really want to make sure that you are getting the coverage that really helps you in the event of a loss; however, you want to be smart about what you pay. Do not assume that the company you are with is necessarily the best or the cheapest. Ask around about other insurance companies used by friends and family or use the internet to compare quotes. But, compare apples to apples: in other words, you want to use the declarations page of your insurance to see what you actually have in coverage so that when you are quoted a rate you know whether or not you would get that rate for the identical coverage or if that rate is for a lesser product.

However, you need not have the most expensive insurance out there. You have to decide what is important to you. One thing I uncovered in researching my finances is that it is highly unlikely that I will make a minor claim with my homeowner's insurance. Thus, if anything happens, it is likely that it will be a major claim. Therefore, I do not need a small deductible. It turns out that I was paying almost 1/3 of my homeowner's amount in maintaining a $250.00 deductible. By increasing my deductible to $1,000., I saved about 1/3 the cost of the insurance. That sounds incredible, but it makes sense. The company knows that I will not be putting in claims minor damage. I will not be nickel and diming them. So, I am a lower risk and I pay a lot less money. If I did have a claim, it would cost me $750.00 more out of pocket, but I will make up for that in a very short time by the reduced premium. The longer I need not make a claim, the longer that this will become a true savings.

Homeowner's really is about catastrophe anyway. The $750.00 will not feel like such a big deal if I have a huge claim anyway. While I was researching, I learned something very important: homeowners who are putting in small claims for any kind of water damage (burst pipes, etc), are being put on a sort of blackball list. It has to do with mold: any water damage in a home could mean that there is a bigger mold problem which is a costly problem for insurers. Thus, homeowners who put in these claims unknowingly set off a chain reaction of being put on a list of "water-damaged" homes and essentially blackballed from getting standard insurance. Then, when they try to sell their house, they find that it is uninsurable. It is amazing that this practice is permitted, but, from what I have read thus far in very reliable sources, it is occurring. So, be careful about putting in minor claims for water damage; in fact, the recommendation I got was not even to call to ask about whether you can make a claim when there is water damage because that can trigger your addition to the list. This is really unconscionable on the part of insurers, but, unless it becomes illegal, it will continue.

I also quickly handled the return of plates on a car that we just got rid of so that my automobile insurance could be reduced as soon as possible; doing that quickly allowed me to save more money than had I procrastinated and not returned those plates. I did it quickly because my spiral notebook system forced me to write down that task and I dealt with it immediately. Again, not rocket science, but certainly an excellent result. We were also discussing taking the collision coverage off the older car; but we got rid of that car and bought a new car instead. We will be looking into ways to further decrease our insurance by taking defensive driving courses. (I'm learning whether or not on-line courses are allowed in my state because I found one for $45.00 per person.) Also, what we pay with a young, male driver in the house would be a lot more had we not known that they reduce the amount of the insurance premium for such things as being away at college, having a B average (a good student discount), and, having taken the regular driver's education class that most new young drivers take. Thankfully, our insurance company asked us about those things -- but, if you do not get reductions for those, you might call your own insurance company. Finally, I am sending my homeowner's policy to my auto insurer for a rate quote; having both policies together may lessen their overall expense.

I have been learning far more about our benefits from work and how to use them properly, and, with my spiral notebook, it is easy to make sure I deal with an issue and later follow up on it. One example is dealing with an insurance claim for a procedure my son had while he was at school. If the insurance does not pay, the entire bill will be about $1,000.00. However, I believe they are just not processing things correctly. By dealing with that issue and being persistent, I will save that money. For those of you with Flex Accounts, use them to the maximum need you have (which is not necessarily the maximum allowed). They are pre-tax dollars, and money that comes back to you should you use a covered service. But, many policies still have "use it or lose it" so people fear them -- look at your plan again, there are new rules giving companies the chance to opt out of the entire use it or lose it issue, and, you may be surprised at what is covered. For example, over-the-counter medicines of all types can be reimbursed -- you just need a paid receipt. Because these benefits are pre-tax dollars, it just makes sense to take the maximum that you need; otherwise, you will still be paying for the services and the medications but you will be using after-tax dollars.

Buying A Time Share

Wed, 16 Aug 2006 10:11:24 -0400

Another example of getting value out of what we own involves a time share that we bought seven years ago – an expensive one that we are still paying off. We are considering selling it although the re-sale market does not give you back a lot of value from what we are learning. I am considering it because getting rid of that debt is very appealing to me and I would not sell it unless I could get some money on top of what I still owe. In the meantime, though, I am at least using it properly to get some value out of it. For all the years we owned it, I just did not have the patience to learn the trading game: you turn in (deposit) your time share week and get a vacation elsewhere in a nice place "for free." The way our time share works is that we have one fixed week to come back to our home resort for a great week, and one "floating" week that can be a good or bad time of year. That week is part of the deal so that you can trade for other vacations. We used our fixed week every year for four years, let it sit vacant one year and gave it to my sister last year. This year, I traded it in and am looking for a trade against it. But, I also finally deposited my floating week, and for the first time ever, I figured out how to use the trade system and I actually got a great place for Spring Break 2007 near where both my son goes to school (he'll be in school that week) and where my mother lives. We wanted to go down there to visit anyway; now, we have a place to stay.

Before that, by being ignorant of the process and unwilling to do the work, the time-share just sucked money out of our pockets and did not give us back any real return (other than the great vacations my family had there until they got older and bored). The weeks we were not using were only costing us money because I could not figure out the time-share trading system. By learning that you must deposit early and be persistent if you want to trade: call and go on line every day, I was able to use the system to get me something that I would have had to pay money for. Our trip in the spring was planned, but we would have had to stay in a hotel; now, we have a "free" place to stay. I also have some people interested in renting my 2007 home week which will bring in some money. Ignorance and an unwillingness to invest the time in dealing with this property every year, have made me lose value in something that should be providing value.

However, if you are considering a time share, think long and hard. It can be a good thing if you have non-school break weeks to use and you like to travel; however, if you can only travel during school breaks when everyone else is traveling, you will need to work hard to make the time share worth what you will pay for it. And you should consider the re-sale market before you buy directly from the resort. Plenty of people are selling good time shares for a lot less than what the resorts are charging. Be careful of buying at resorts that are just selling you "trading power." You are better off buying at a resort that you would want to return to on your fixed week -- that is your only guaranteed vacation if you are on a "weeks" plan. You also might consider "points" programs: they seem far more flexible than weeks' programs. Either way, check out what you get: although expensive, I am in a desirable vacation resort which has top ratings and I own my weeks forever and can pass them to my heirs, etc. Many of the time-shares are more like long-term leases which do not give value to your estate. Although the time share people act as though all timeshares are equal, they are very much not equal. You must do your homework. Also, because it is so costly, do not make a decision on the spot. That is what got us into our time share in the first place: an impulse buy during a week that you are having an amazing vacation at a beautiful place. That impulse buy has really cost us a lot more than what it would have cost us to vacation each time we have actually used it. Think about it. They will show you pins and dots showing that all the weeks in the place will be gone if you do not buy right away -- that is not true. Also, they will build more units most likely and you'll just buy another one if you want to think about it at home. Finally, one more piece of advice that I cannot resist: we never thought of trying to refinance the time share and paid far more interest than we might have had we changed to a different method of financing.

Getting More Value Out of What You Already Own

Wed, 16 Aug 2006 09:12:45 -0400

Aside from changing our spending habits, we also decided to get more value out of some of the things we have or need: for example, we are planning a garage sale which has a two-fold purpose: it is forcing us to “de-clutter” our entire house (in 15 minute increments), and it may give us back a fraction of value – I’ll update you on whether it was worth it and provide details of my learning experiences as a result of my first ever garage sale. We are planning to donate all leftover goods (and have already donated a few good things to someone I know who needed them). I am excited about finding new homes for my old things. (I am an avid fan of DIY shows and, as such, have seen many people find great things for themselves at "bargain" locations such as garage sales).

And, other than the garage sale that we’re planning, I have been looking into ways to sell some of the things we own, possibly on Ebay. Part of this is that we realized that our things are really hindering the life we want to live, yet, part of it is that we are in a financial position that we would like to get out of. We learned from that process that we bought a piece of art (my birthday gift in 2000) for a small amount of money and it is now worth 10 times that amount and seems to be going up. (If only we could buy more – what in the world is getting that rate of return?) It was a present from my husband to me, on my 40th birthday, and, I am not going to sell it, but, it was nice to find that out. I do have a brand new Liz Claiborne beautiful coat that does not fit that I am going to sell on EBay, and, as we de-clutter, we find more items to sell or donate. Donations are good for your mind and help at tax time. I just am making sure to get a receipt for my donations and to file that receipt where it can be found next year at tax time: in my file system under current year tax deductions. These kinds of changes have not impacted on our live style at all: except in positive ways; I am learning new things (garage sales and EBay), and we are getting rid of the clutter in our house.

Again, this is a short-term fix, but a real eye-opener. As we de-clutter, we realize the waste: the unused or barely used items, the impulse buys, the full price buys, items that did not fit but did not get returned. For some, this all may sound insane: but, in my life, this was eye-opening. I was truly wasting money and had you asked me if I thought I was an extravagant spender, I would have said no. But extravagance is not what you buy, it is why you buy it, and, having no good reason to buy something is extravagant living even if it is as cheap as a dollar picture frame. Other things we have are not as tangible, so I have been looking for ways to reduce their costs or get value out of them. One of them is a timeshare that we own. Another is reducing my insurance costs.

This is so simple, it seems almost unbelievable. So far, we have changed our relationship with money and our financial situation simply by investigating what exactly we have, need, want and taking stock of it all. The process is clearing our heads, our hearts and adding actual income into our pockets. These steps will not make us rich immediately, but over the long term, we will have saved money by really thinking before we spend because now we see how unwelcome the accumulation of unnecessary things is in our lives and on our wallets. I have also been making copies of savings tips -- little things like cutting your electricity bill that require very little work on our part, but can generate big savings. One example is that many of your electronics use electricity even when not in use (for powering up lighting displays etc.; thus, it may make sense to put them on a power strip and shut down the strip when you are not home). But, remember, once you look at your spending, you will have a better grip over how to make sure that you are doing the right thing with your money -- using it to add value and not wasting it on things that do not bring you any value. We had a health club membership for my daughter and she was not using it -- it turned out to be $75.00 per month. That was strictly the equivalent of throwing money out the window. Plus, we are learning to be more savvy shoppers and looking at price in a whole new way.

Coming soon will be how we start dealing with our new habit: getting receipts for everything we spend and creating a cash account on Quicken. We created a box to put envelopes in to just hold our receipts. My plan is to put the information on the computer account software. I will let you know how that helps our situation and be able to start running tallies of all of our savings from previous patterns of spending. I imagine that we will find that the bulk of our money is spent in a lot of little ways that could be changed without a significant impact on our lifestyle while freeing up a significant amount of cash for the other phases of our plan.

Changing your relationship with money

Wed, 16 Aug 2006 08:23:49 -0400

One thing that is for certain: when you look at what you spend, both how much and where it goes, it really helps to underscore how you must take control over your spending to eliminate the debt to accumulate savings. Our first decision was to allow me to continue with the financial management, but to start working together on what is most important to us. This is a big first step: if you are married, you and your spouse must both be on board when it comes to spending and how you are going to take control over spending. If just you decide to stop spending so much money, and he/she comes home with a new plasma t.v., all your hard work counts for nothing. So, you must work together. In my research, I've learned that money is one of the biggest sources of arguments for couples. So, you need to listen to each other. My husband has a very stressful job and he works long hours. He does not want to spend the weekends on the lawn. Thus, lawn maintenance is either something I would have to do or we can continue to pay someone (our lawn is small and so is that expense, it is just used here to illustrate that you need to have your priorities together.) You have no choice on certain items: at least the minimums must be paid on the debt and mortgage, and you need to have insurance and other things. The key, however, is to try to reduce those expenses where you can. I explain the debt portion of that in the articles under "Taking Control Over Debt."

But, how do you take control over spending? By a bit of work, you can do some of the things I did, plus many things you will think of on your own. I think the most important thing we did is to just stop spending so much money. It sounds so easy, but it is a hard realization that you must stop wasting your money. Once we realized how little we had left after our major bills and the monthly costs that were important to us, and once we realized that our spending habits had to change to change our life situation, we stopped spending money on things we wanted and tried to only buy those things we truly need. We make coffee here, we do not need to buy it at the deli; we can cook at home, no need for takeout; I have three bathing suits, no need for a new one; and, no way can we afford an expensive vacation for a while, or the flat-screen t.v. that my husband has been eye-balling. (Hopefully some time, but not now). Small or large, we just keep saying "no." While that sounds easy in theory, we all know that it is, in reality, not so easy. The "convenience" spending had to stop, and, the unimportant spending had to stop, but where do you draw the line. This is the decision that you need to make and cannot make unless you look at what you really have to "spend" and still get out of debt and still save. Those goals have to all work together. Now, spending for no good reason had to go, but, it is not realistic to think you will never buy anything unless you absolutely need it.

While this is admirable, other changes have to be made. Just saying no to spending is not a long-term solution, believe it or not, because we have created a life that causes expenses: both planned and unexpected, to occur, and many of those aspects of our lives require money. But, just because those aspects require money does not mean that we cannot make changes with respect to how much or whether or not to continue with a particular expenditure at this time. By trying not to spend, we have had a chance to reevaluate what we spend our money on and to try to rid our lives of those things that cost money but add little real value to our life – examples are items we have bought that are consumable and could be obtained with less money and/or for free, or, are simply, unnecessary. For example, I now go to the library for books and magazines that I used to buy. I still get to indulge my passion for reading, but it is not such a costly hobby. That does not mean I will never buy a book again - I will just think first about whether I can wait to read it and/or can get it at my library. My life has not changed - just spending money for my hobby has. That is one example of taking control over our spending.

Now, I have never been a very frugal person so, for me -- this was a huge discovery: the power of spending on what you need and what you really want -- and nothing else. There are many “consumable” items in our house that, frankly, are not even being used. Just stop spending on those things that don’t add value to your life and look for bargains -- you don’t have to go crazy, but deciding to say no to more things and buying more items more cheaply has a certain satisfaction built within it. It is not deprivation, it is a different way of thinking about money. There are things we have bought that we have never used – at the least, it takes away no value to stop buying those things. We have multiples of some items that we do not need. Thus, with virtually no change in life-style, we found places to spend less money. I know it sounds like a no-brainer, but we were not living that way, and, many people are living like us, spending on little and big things without really thinking about whether or not you truly need it, want it or have the money for it. The coffee you buy rather than bring from home; the work you pay for on your house rather than do yourself. Take out instead of cook in. Some of these items are important to us and should not be removed from our lives; others, not so important. Take stock. You may find some surprises like we did. Our next step was to get more value of the things we have so we can continue taking control over spending. Go to "Getti ng Value out of What You Own."

What do you spend money on?

Thu, 03 Aug 2006 22:44:50 -0400

In previous posts, I have advised that people look at all of their finances to really get a handle on their actual financial situation. To put my money (so to speak) where my mouth is, I have, of course, done the same. When I did so, the most amazing thing happened. I sat down with my husband and showed him the finances. I have been the one who has taken care of all the bills, and he was the one who never understood why money seemed so tight. But after I pulled the finances together, I showed him where our money goes. It was a great exercise to figure out all our monthly bills and our other spending and figure out how to change our financial situation.

In fact, I have come to believe that doing so is absolutely essential as a first step toward taking control over money. However, some people feel overwhelmed by this. This post will show you the basic categories of expense and a simple method for tracking your own personal expenses. For a list of general categories, click here.

The first category of expense might be seen as fixed (or semi-fixed) expenses. These are expenses that you have committed to and which are not going to change in the near future. The biggest is most likely your housing expense which includes mortgage or rent along with property taxes and insurance. Then comes all the rest of the debt: home equity loans or lines of credit, student loans, car loans, credit card debt, store debt, and other personal debt. Although the amounts may fluctuate a bit monthly, for the most part, this is money you have no choice but to spend because it is already spent – you are just paying it back.

After debt, there are other semi-fixed monthly expenses that you may or may not be able to change: these include insurance such as health insurance, life insurance, disability insurance, flood insurance and vehicle insurance. In addition are utilities: home telephone, cell phone(s), gas/electric/oil (energy), cable, internet service provider, etc. Other expenses, which are far more discretionary, can include home maintenance (lawn care, cleaning service), transportation expenses (gas, train tickets, tolls, etc), costs associated with work (union dues, clothes, cleaning, supplies, lunch, etc.). Many of us also have discretionary expenses that are monthly such as subscriptions for newspapers and magazines, health club fees, dvd rental plans, water delivery, etc. These expenses can often be cut without too much impact on your life-style; it depends on your personal priorities. Another major expense, which can be reduced, is grocery and drug store items, and hobby-related expenses for you and your children (such as my daughter’s voice lessons).

You might also spend money on education for either private school tuition, college tuition, books, supplies, and/or lessons. These may or may not feel discretionary to you. If you work and have young children, you are also probably spending money on day care. You might be helping to support others – your own children or some other family member. There are also sometimes what I like to think of as “seasonal expenses” such as for clothes and shoes, vacations, car maintenance and upkeep, personal grooming, or even “one-shot” expenses like vehicle registration (every other year where I am), gifts, charitable donations, doctor, dentist, eye care, etc. Some of those are very discretionary, while others are absolutely fixed. You need to look at everything.

The last, and far more elusive type of spending, is cash. Where does all the cash for the week go? You’ll need to get receipts of everything you spend to figure that out; however, that money seems to be the least important when we budget but the easiest kind of spending we could cut down if we choose to become aware of it. One example is the lottery or other “vices/habits/random spending.” My husband or I often came home with scratch offs or lottery tickets and we never thought about how much we spent on that. I did some quick calculations and figured we might have been on the road to a $2,000.00 per year “habit.” We had no idea. Now, I do like having a lottery ticket, “hey, you never know,” as they say around here. So, I looked into a subscription. Now, I pay $196.00 per year and that is it. Will I ever buy an extra ticket or a scratch-off again.? I do not think I will buy a scratch off, but I may buy a mega-millions here and there. But now I know; before, I did not even notice that money being spent.

The best way to figure out what you spend monthly is to allow yourself a month to let the bills roll in naturally. You can then organize your finances, figure out your “fixed” expenses, and begin to look at your more discretionary expenses. You might be able to lower some of the seemingly fixed expenses such as debt and insurance. You can ask your creditors to lower your interest rates or look into alternative insurance products or whether you are covering more than you need to be covering. You might be able to lower some of the more discretionary items by deciding whether or not a service that you employ (lawn care or house cleaning) is worth paying for or doing yourself. You might be able to lower your grocery bills by buying in bulk, setting limits, using a list, clipping coupons, etc. You can definitely lower your spending on non-essential items simply by not buying them (although, as I have said before, this is easier said than done).

Once you have the information, do not let it go to waste: create a written record of your expenses so that you can see where cuts can be made. We decided to create a record on Quicken; however, a good old fashion ledger, or even a notebook, can serve this purpose just as well. Once it is written down, you can decide where to make changes that you feel will have the least impact on what you believe is important to you and your family. For us, it was a lot of wasteful spending: a dvd rental program that we really do not use much, getting take-out or delivery, buying coffee on the way to work when a perfectly good pot is sitting at home. Those are little things, but, the really big issue that we uncovered is that we are carrying too much debt, and, by giving up the little things, we can lessen that debt much more quickly than if we kept wasting our money in these ways.

I recommend you go slowly: if you are like us, it is a bit of a shock to find out that what you thought was a decent salary for hard work is not going as far as you had hoped. Not only does the government take a huge piece of your pay, but, you are probably giving it away in lots of ways that are not productive for your financial health. By looking at that now, you can save yourself some stressful times later. Some people might advise you to go further and really cut back everything; because we are newly conscious spenders, right now, we are trying to gain more awareness of our habits: over time, we hope to make even more significant changes. Also, for us, there are some things that are more important than reducing debt and accumulating wealth; obviously, we will continue to pay for those things. But, we have been stunned to learn that we are also paying for things that we do not find more important than reducing our debt and gaining wealth; those things have been cut.

After looking at all of our "expenses," it was no wonder we always felt like we never had any "extra" money. We didn't. We were bringing in enough after taxes to just keep up with all the bills; thus, it was important to change our spending in as many ways as we could think of and as quickly as possible or we were going to go deeper and deeper into that hole of debt from which we might not poke back out. For us, that meant changing our relationship with money to take control over our money rather than allowing it to take control over us; however, creating a list of expenses and honing that list, along with creating a plan for eliminating our debt and cutting our spending, has been a tremendous push in the direction we wish to go: toward gaining control over our money and gaining wealth for all of our hard work.