From the monthly archives: September 2011
In the past, when I’ve had some extra cash and no large bills or purchases on the horizon, I would send a large payment to one of the loans that I had at the time. Anything above a minimum emergency fund level would be put towards a car payment or student loan. I’m now getting back to having that extra cash on hand, but this time I’m thinking of trying something a little different with my remaining student loan debt.
Our current student loans:
My new strategy that I plan to do use eliminate this debt will be to use the debt snowball method. This is a well known method where you make the minimum payment on all debt except for the one that you owe the least amount on. So I would pay the minimum payment each month on Loans B & C. However, I would pay extra (whatever I can spare each month) on Loan A until it is paid off. Then once Loan A is paid off I would add Loan A’s minimum payment to the minimum payment of Loan B. That would then become the new minimum I would pay towards Loan B. The gist is that you keep doing this until all of the debt is paid off.
A difference this time around is that I won’t be putting all of my “extra” cash into the debt. As outlined in a prior post, I plan to save for a down payment on a larger home as well as make more investments with my spare cash.
I’ve often struggled with the “bring vs. buy” debate because both strategies have their benefits. The buy crowd gets a great selection of food for lunch every day, and pretty much gets to eat what they want at that time. The bringers get the benefit of much cheaper lunches. If we’re just talking bringing a sandwich and an apple, well, you get what you pay for.
This debate always led me to do a back of the envelope calculation of how much money it costs per year to eat lunch out. On average a purchased lunch costs me about $8.00. Do that 5 days a week, 50 weeks per year, and I would end up spending $2000 per year. That’s quite a lot of money. A brought lunch is harder to quantify because I would have to figure out the cost of, say, two slices of bread, 4 slices of ham, a slice of cheese, etc…. Needless to say I’ve never bothered.
Telling myself that I would save $2000 by bringing every day has not been working. I bring most days a week for a month or two, then I buy most days a week for a month or two. I get sick of the meager lunches that I prepare and need some variety after a while. When I start buying lunch more regularly, the amount I’m spending never even comes into play. The money is there in the checking account. I go to a local restaurant or grocery store and swipe the debit card to buy some prepared food. Painless.
So I’ve come up with a new strategy that I’m going to try out for a bit. Every time I bring a lunch, I’m going to take that $8 I would have spent on lunch out of my checking account and put it into savings. Monetarily this is no different than before. However, now I will be able to keep track of exactly how much I’ve saved by bringing lunch, will be better able to make an informed decision when deciding to buy lunch, and won’t even have to quantify the cost of a brought lunch to save the money. I’ve artificially quantified the savings of a brought lunch to be $8 and dammit if I’m not going to save it. Effectively, when I buy lunch I’m paying others $8, but when I bring lunch I’m paying myself $8. Kind of a classic pay yourself first sort of thing.
I will be tracking this lunch savings in a separate account so I can easily see how much I’m saving. I’ll probably do the money transfers themselves once per week.
This is by no means a new study–it came out last year–but thinking about mine and Paul’s incomes made me want to dig it back up. It’s been written about in several different places over the past year.
Researchers at Princeton poured through years of collected survey data in which respondents recorded their daily feelings of well-being. They were looking for a relationship between income and happiness and they came up with some interesting results.
As income decreased from $75,000, respondents reported decreasing happiness and increasing sadness and stress. The data suggest that the pain of life’s misfortunes, including disease, divorce, and being alone, is exacerbated by poverty.
“We conclude that lack of money brings both emotional misery and low life evaluation; similar results were found for anger,” write the authors in the report. “Beyond $75,000 in the contemporary United States, however, higher income is neither the road to experienced happiness nor the road to the relief of unhappiness or stress, although higher income continues to improve individuals’ life evaluations.”
Basically, if you already make $75,000 per year, don’t expect your next raise to make you feel any more happy than you already do–the happiness effect just about plateaus there.
Sadly for Paul and I, we have already reached this level. So while we can expect to experience improved life evaluation, improvements in general day-to-day well being will have to come from somewhere else.
I just read a great blog post about little known facts about a Roth IRA. I knew most of it already, but the income cutoff limits were news to me. I’m glad our income is still well below the limit, because the Roth is a great savings vehicle!
Hopefully you have opened a Roth IRA, because it is a great, flexible way to save for retirement. I’ll talk more about the Roth IRA vs. a 401k in a future post.
Well, since Paul was on here talking about his own salary increase, I figure I’d chime in and talk a little about my income. One thing to note is that Paul and I work for the same company. He started a year before I did and is a level higher than I am in the corporate hierarchy. Last year I was trailing him by $14,000, but with this raise I’m starting to catch up.
I received a 6.25% raise which brings my salary up from to $79,850. Now I still have a ways to go to catch up with Paul, who’s at $91,550 as of this writing ($11,700 to go!), but it’s possible I could do something awesome at the company this year and close the gap further. Either that or he could really screw something up–either is fine with me: we’re in a race here, people!
Anna and I got engaged in May of 2011. It’s been kind of a whirlwind romance, considering we met only a year before that–in that time we dated long distance, and after 7 months she moved here and started a new job. I proposed to her the day we moved in together and we immediately started planning our nuptials.
In our discussions we had two dates in mind, either this October (to take advantage of the lovely fall weather, and keep on our already pretty accelerated courting schedule), or next April which would give us longer to save money and get married on the anniversary of the day we met. In the end, we decided to go for the closer date for a variety of reasons, but above all: we just really want to be married.
Our Goal
I put together a spreadsheet in the first week and have been refining it ever since. Our back of the napkin estimate for a wedding party with ~100 guests (including catering, photography, location, booze) started at $10,000 and has remained around there even as we’ve ironed out the details. Add our honeymoon in there (7 days in Mexico!) and our current estimate is a grand total of $13,925.
Starting Point
After purchasing the ring, I had about $1,800 left over. That became the seed around which the rest of the savings have grown.
The first thing I did was to create a new ING Direct account. ING is where I keep all of my short term savings: it’s easy to move money around online, you can create multiple accounts for free and earmark them for whatever you’d like, and it still pays some interest (1% as of this writing). I currently have the following accounts set up:
- Home Improvement – About to be totally cleaned out by my siding contractor
- Car Insurance – A way to pay myself every month and get some interest before paying State Farm every 6 months.
- Motorcycle Accessories – $25/paycheck goes a long way when you shop very rarely for the bike.
- Travel – This allows us to have a cash buffer for vacations when we feel like it.
- Emergency – I’m not going to tell you the balance here, but trust me: it needs work.
- Wedding & Honeymoon – The new addition!
Anna is an incredible saver, even though she’s pretty disorganized about it. She had about $6,000 sitting in her checking account and we immediately moved $4,800 of it into the Wedding & Honeymoon fund, giving us a huge head-start at $6,600. After that, we had $7,325 (give or take) to go, and 23 weeks (11 pay checks) to get there.
Saving
With that goal and that timeline, we were looking at $1330 per month that needed to be put away in order to make it in time. I immediately diverted all of my monthly savings to the Wedding & Honeymoon account and added a bit more on top of that. That turned out to be $600 per month. It may not sound like much, but I let my salary pay for all of our fixed expenses (with the exception of Anna’s car payment) while she covers more of the fun stuff.
Since she had moved into my house, that freed up at the very least the cost of her rent, or $725 per month. Rather than impose an automatic savings plan on Anna, we let her savings grow organically in her checking account, but as she is by no means a spender, this was not an issue.
That put us just shy of our target at $1325 per month.
Gifts and Happenstance
We were very fortunate to receive $3,000 from Anna’s grandpa and an additional $1,000 from mine, along with Anna’s $1,850 deposit from her apartment. All of this brought us closer to our goals.
Diversions
As always happens, there are other things to spend money on. We had some house work that required about $3,000 which was not in the Home Improvement account, so this came out of the Wedding & Honeymoon fund, dropping us back a bit.
Bottom Line
With 5 weeks left to save, we have $110 remaining to pay for the wedding and the honeymoon. This puts us in a great position, and well ahead of schedule. We can continue saving into the wedding account, and after the wedding divert anything left into the Emergency fund and start growing the bottom line there.
| Item | Amount |
|---|---|
| Estimated Cost: | $13,925 |
| Spent: | $1,839 |
| Owed: | $12,086 |
| My Savings: | $6,976 |
| Anna’s Savings: | $5,000 |
| Remaining: | $110 |
Later I’ll write a post about our personal savings plan going forward–as soon as we have one. Don’t expect it until after we get back from the honeymoon. 
I just added our blog to technorati to hopefully get it some more exposure. In order to do so I need to make this post with the following code: ZGAEYU8KNCM2.
Kind of lame, but it needs to be done. Please comment on this exciting post!
I just signed up for a free eChecking account at First Niagara bank after receiving an offer for $100 to be deposited over 5 months. What a nice way to earn free money! I didn’t even have to setup direct deposit.
https://www.fnfg.com/LandingPages/atms4free_general.aspx?cid=dm-_-dm-_-08everyatmfree-_-General-_-&utm_medium=DM&utm_source=FNFG&utm_campaign=08EveryATMFree&utm_content=General
I keep several cash accounts besides checking. Online savings accounts make it so easy to open as many as you want. Anytime I have a specific item or goal that I am saving for, I open a new savings account.
General Savings
My wife and I keep an account just for general savings. Anytime we need extra cash this is where it comes from. This also doubles as our emergency fund. A significant portion of my pay check goes into this account every payday.
I spoke in a previous post how I think that this account doubling as an emergency fund is a problem. Soon I should be able to open a separate account for our emergency fund and continue to grow our general savings.
Yearly Bill Savings
This account’s purpose is to hold money needed for bills that I pay once or twice a year. Things like my garbage bill, my school and county taxes, car and motorcycle insurance, and home insurance are all paid out of this account. What I have done is total up all of these bills and divide that by the total number of pay periods that I’m paid per year. I then save away that amount in this account every paycheck. That way, anytime one of these large bills comes due I have the money already set aside to pay it.
Husband and Wife Savings
There are actually two accounts lumped into this category, one for myself and one for my wife. These accounts are used to hold “my own” or “my wife’s own” money. We each get $25 put into this account every pay period. This is spending money that we each get to spend on whatever we want. To be clear, this money is for toys, not for necessities. For example, we don’t use this money for clothing unless it is something we wouldn’t normally buy (a.k.a. something we don’t need). We each typically let it accumulate to purchase something fairly expensive.
We find this is a good way to allow ourselves to spend a little money without dipping into savings. This strategy also keeps us disciplined. If we don’t have enough money in our account for what we want, then we have to wait.
Vacation Savings
This is an obvious one. $75 every pay check gets put into this account towards trips. A discussion between my wife and myself is necessary to determine whether we should increase this. I think it is a little low right now, especially with the addition of the little one.
Home Improvement Savings
And last, another obvious one, is our Home Improvement Savings. $50 every paycheck. This one we typically aren’t as disciplined with. We often decide to do some work on our house that costs more than what we have in our account. We end up emptying the account to pay for as much of the home improvement expense as we can, but the balance typically comes out of general savings.
Future Accounts
In the near future, I should be opening an account purely for an emergency fund, transferring $10k from general savings into that account. I also plan on opening an account to begin saving for our next home.
My wife and I find that automatic, targeted saving like this helps us stay focused on saving. Automatic deposits from our paycheck keeps our hands off the money. When we don’t actually have to initiate the transfers it’s a lot easier to stay on track. Then, all we have to do is use the money for its intended target when we’re ready.
I’ve got some short term goals that I would like to get out there to help keep myself accountable. I feel like I’ve been slacking a bit on these, so I hope writing them down here will help me work towards resolving them.
Goal #1: Life Insurance
I currently have quite a bit of life insurance through my work at a very cheap price. However, I feel like I need to have a longer term life insurance solution, especially with the new baby. Through work, I automatically get 1.5X my salary in basic life insurance, and I pay for an additional 5X my salary for supplemental life. But if I were to lose my job for some reason, then that life insurance would be gone. For this reason, goal #1 is to get a 20 or 25 year term life insurance policy that will cover all of our current debts, plus put my son through college. Anyone have any suggestions for good life insurance? Are they all the same?
Goal #2: Get Emergency Savings to $10,000
I currently have about $6,400 in an account called “Joint Savings”. However, this account represents emergency funds as well as cash available for spending on bigger things, like trips or my recent trailer purchase. The goal herer is to separate my emergency fund into it’s own account and get it up to $10,000. I think my method for doing this will be to continue saving in my current account until it reaches $10,000. Then I will open a new account for general savings
Goal #3: Begin Saving for Second Home
As a middle-term goal my wife and I would like to move in to (or even build) a larger house. We would like to also have this house be on some substantial amount of land, like maybe 8+ acres. A secondary goal to this is to keep our current home and rent it out once we are able to move into our new home. This is going to require us to save for a down payment on the second house, because we aren’t going to be able to tap the equity in our current home as a down payment. We need to setup an account and start automatically funding it every pay check. I think saving for this starts when Goals #1 and #2 are complete.
Donald
Age: 32
Assets: $401,669
Liabilities: ($129,290)
Net Worth: $272,379Memberships
Paul
Age: 31
Assets: 477,660
Liabilities: ($123,725)
Net Worth: $353,935
