Wednesday, April 30, 2008
Since grocery prices are rising, I thought I'd list out a few things that might help us all save at the grocery store. Since I don't shop in the typical way, these aren't the typical tips, such as 'shop only on the perimeter of the store'. But they do work, and manage to keep our budget controlled.
1. No store has the best price on everything
I've blogged this before, but it's worth repeating. I hit 5 or 6 places over the course of a month, because no one store has the best price. Over the course of a month, I shop at BJs, a big-box store, Market Basket, a local chain that offers the best prices on boxed and canned goods, our local farmstand/co-op, Whole Foods, and occasionally Shaw's or Stop and Shop. Each has particular items that we use, and prices are
2. The perimeter of the store isn't the only place for healthy food
The baking aisle contains the ingredients needed to bake wholesome, rather than packaged goods. It's often cheaper to bake from scratch, and it's certainly better for you. But be careful about where you buy - BJs, our big-box store, sells 2 1-lb packages of yeast for $3.99 I recently priced out the single-use packages at Market Basket, and they were $2.99 for a 4-pack. Even if some of the yeast goes unused, BJs is by far the better deal. I give the other package to friends or family.
3. Constantly seek out new sources of food
I do this through word of mouth. Via friends, family and message boards, I look for new options. Recently my husband and I were in New York state to visit family, and came home with our produce for the week at a significantly lower cost than we might have found it here. Look around - are there farmers near you? Friends who are willing to split large orders? Creativity will help you save.
4. Buy in bulk
No, you shouldn't go buy 400 pounds of rice. That type of hoarding only contributes to the skyrocketing food prices and could turn the fears of shortages into reality. What you should do, is consider buying larger packages of things when it's cheaper. A 20-lb package of dried beans is significantly cheaper than the same amount in cans. I keep some cans on hand for days when I have little time, but soaking beans isn't that big of a deal, and the beans taste better.
But watch your prices, because not every bulk deal is a real deal. Check around before you spend on 80 lbs of beef, or 100 lbs of flour. You may find dramatic differences in prices.
5. Plant something
Even if it's a few herbs in pots, or a tomato plant on the deck, it will save you money. Ask your gardening friends for the plants they thin, or to try a few spare seeds (trust me, we all have more than we need). It's cheap, it's simple, and there's nothing cooler than watching the little seed become a big old plant.
Next week, more grocery saving tips. And we're going to learn how to create a price book!
Tuesday, April 29, 2008
So I've had to take some steps to keep me focused...or at least focused on something else besides that sale on shoes.
I find it easy to set the goals, and to make plans. What derails me is the little distractions - I want a different lunch than the one I brought, there's a sale on shoes, oooh, that cheese looks yummy, and so on. So here's my list of 6 things I do - and you can too - to keep me on track.
1. Avoid, avoid, avoid
Stay away from the mall, only go grocery shopping (and then go with a list, and a limited amount of cash, preferably) chuck the catalogs, and invite friends over rather than meeting at a restaurant.
2. Read everything you can related to your topic
I find myself re-reading books like Affluenza, Your Money and Your Life, and similar books over and over. It's a little harder to justify more shopping when you are so conscious of the impact, both to your finances and the world at large.
3. Make plans
I find if my weekends are filled with projects, there's little room for mindless spending. Now, I'm a fan of downtime as well - to me, there's little better than curling up with some tea and a book, but I find that if I plan to spend the morning in the garden, then I don't have to worry about empty time to fill.
4. Create an 'alternate option' when the urge to go shopping, or to buy something, hits
It's kind of like a smoker who wants to quit. If you always light up right after dinner, you need to find something else to do instead. You can't just stop, you have to replace. So if you find yourself wanting to shop on your lunch hour at work, decide - actively - to do something else.
5. Retrain your brain
When you pick up that pair of shoes, it might not be unreasonable to ask yourself where they were made, if the people who made them earned a living wage, and what the environmental cost is. How long would you have to wear the shoes before they 'paid back' what they took from the environment. That's not to say you should never buy shoes, but it creates an environment of conscious spending, and it makes the little purchases that drain a budget a lot less frequent.
6. Find pleasure in things that don't cost money
Or that cost little. I knew I'd hit a milestone when I realized that most of the time, I would rather cook a new recipe than eat out. And that sitting home in front of the fire with my husband on a Friday night was one of the best ways I knew to start the weekend. Look for the joy in the little moments.
Sunday, April 27, 2008
Thursday, April 24, 2008
Wednesday, April 23, 2008
So I thought I'd talk a little bit about how I came up with our just-under-11-year timeline.
I have to admit, I picked December 24, 2018 kind of randomly. And it might shift around a little, say if I am employed in a company that gives bonuses in Q1 of a year, or some similar driver that might make the date move a bit.
But I picked 10 years because of a few reasons.
First, it would mean our first child is about the age of the preteen years - 9ish years old, if all goes well. For me, as much as I might enjoy being home when my kids are small, I almost feel as though it's more important to be there - if not home full time at least more available than my current career allows - when kids are getting older. When peer pressure, school pressure and activities start to pull more at my children's time. This is obviously a personal choice, but I think it's the right decision for us.
Second, and no less critical than the first, it's about the first window where we will be in a financial place to consider less income. By that time, we will have paid off our second mortgage, and we plan to hit a number of other targets that I have mentioned in the past, such as having a year or more's expenses liquid, enough saved to replace one car when needed, and sufficient retirement savings that we can reduce our contributions and still retire comfortably.
Now, if we were just starting out, and had made the decision to downshift before now, we might have made some different decisions, such as living only on one salary and banking the other.
But even then, it's not clear we would have made completely different choices. I know few people who can afford a home in our high cost of living area on one salary. And just moving is not so simple - we wanted to be close to friends and family, and raise our children knowing their extended relatives and the people important to us.
Also, my husband is committed to his work. It would have been difficult to uproot that.
The decision to live where we do was not without tradeoffs. It locked us into a large mortgage, for one thing. But it also allowed us access to a great job market, to be near the people we love, and so on. It's not a tradeoff that creates deprivation for us, although we are sometimes time poor.
An important point here, is that my downshift is probably not, unless we have financial fluke that occurs to allow it to be - an early retirement. I still fully intend to work. If I can, I'll make a living by writing. If that's not possible, I'll figure out what I can do that will allow me sufficient flexibility to be around more, but still allow us to say, eat.
Part of the downshift is figuring out exactly how much money we will need to have coming in and saved. I've got some general numbers, but they are hardly precise. I'll be reforecasting each year to figure out what we need and where we are.
So what can a future SAHM learn from my plans? The first is to make a plan. Let's say you want to stay home when you have children, approximately 3 years from now. You don't own a house yet, but are starting to save a downpayment. Here's some things you can do:
1. Check housing prices and calculate your monthly payment based on how much you will put down. Forecast for the worst-case scenario, the most expensive house you might have to end up in, or the highest interest rate you might have to pay just to be careful. http://www.bankrate.com/ has some great calculators to help you out.
2. Figure you can spend no more than 30% at the absolute outside of your post-tax income on housing, including property taxes. That gives you your limit.
3. Search http://www.realtor.com/ to find houses in your area in your price range. Calculate a payment and figure out what it's going to take.
4. Get rid of credit card debt and car payments. The fewer bills you have to pay, the more income can be put towards getting - and keeping - you home.
5. Save up an emergency fund. For a one-income family, I'd recommend no less than 6 months worth of expenses saved, rather than the 3 months typically advised.
6. Stay flexible. My sister, who is a stay at home mom, works a couple nights a week at a local restaurant. The money brought in there provides many of their 'extras' - vacations, dinners out, and so on. It gets her out of the house, and it allows her to work while still not needing child care.
7. Acknowledge that you probably aren't going to be able to keep up with the Joneses. If your neighbors or friends are remodeling their basement into a home theater, and you can't afford to do the same - even though you would really like to - just congratulate them and repeat to yourself "I am staying home, and that is more valuable to me than any consumer goods". Lather, rinse, repeat.
8. Beware of the risks. Women out of the workforce have a harder time re-entering it than they think they will. The stats bear me out here. That doesn't mean you shouldn't stay home, but it does mean that you might have trouble finding a job in your career after 5 years at home. And when you do your salary might be a lot lower than you wish for. That's okay - if you know it going in.
9. When the temptation to spend comes up between now and the time you do stay home, ask yourself "Is this what I REALLY want?". If those shoes mean your kids have to go to daycare, they might not be as tempting.
Jessica, I hope this helped answer your questions. I'm happy to answer more, or elaborate on my plans.
Monday, April 21, 2008
Sunday, April 20, 2008
Thursday, April 17, 2008
One of the toughest parts of retirement savings is trying to figure out what you will need in 20, 30, or 40 years. I have a tough time with this - I can barely figure out what I want for dinner most days.
Here's 5 tips to get you started down the road of being ready for a time where your only income will be from what you've saved. I'll be writing more and more as I work to refine the approach my husband and I have taken.
1. Save the maximum you can, no matter what
Often this is more than you think you can. If you are not saving a minimum of 10% of your pretax income, you simply aren't saving enough. And that's the minimum. Try for 15%. But if that makes you stressed and worried about loss of income for today, start small. 5% maybe. Then add.
2. Don't depend on Social Security
Our federal government may or may not fix the funding issues with Social Security. Several easy solutions are out there. But the reality is, more people will be retired in a few short years than will be working....and that's a problem. I personally think that by the time I hit 65, income qualifications will be the determining factor in who gets an SS check. So save like it isn't going to be there, and then be happy if it is.
3. Think about the kind of life you want in retirement
Do you see yourself as a snowbird, with a place in Florida and a place in your home state? Relocating? Downsizing? Travelling? Providing daycare for the grandkids? Building your dream house on the ocean?
Then put a price tag on those dreams. If you want to travel to exotic places twice a year, and be able to give your kids money to help them put a downpayment on a house, even if you don't have kids yet and have no idea what trips you want to take - put a price tag on it. Then, you can either run some numbers to figure out how to save, based on estimated earnings - or you can take the easy way out - and save at least 1% of your salary on top of what you currently save for each dream.
Is that a perfect calculation? NO. But it is what I do, and it is simple. I have no idea if a trip to Hawaii will cost $6k or $26k in 30 years, so I'm saving like it's going to cost $26k.
4. If you've made it past 15% of your pretax earnings in savings, consider other options
This could mean IRAs, or it could mean saving in non-retirement vehicles, such as mutual funds. I recommend meeting with a financial advisor and planning with she or he by what you want to do. If you wish to retire at 52, you don't want to lock up all your money into accounts that can't be touched until you are 59 1/2.
5. Make it a plan to pay off whatever house you live in before retiring
Most of us don't live in the house we plan to retire in these days. Some of us do, but many do not. Still, plan to have no mortgage in retirement. Sure, you'll still have to pay utilities, upkeep and taxes, but not having a mortgage will significantly lower your expenses and increase your security. And if it was really needed - you could get a reverse mortgage.
Sunday, April 13, 2008
Friday, April 11, 2008
I'm a little late this week, but here they are. This week, I've decided to focus on retirement planning. My husband and I are in our mid-thirties, and these days, we're watching our parents start the retirement process. Sander and I have been saving for retirement for a while, but it's really hard to put our fingers on what we might truly need to save for retirement.
More on that later, I'm still in the research process of how to *really* calculate what you need from 30 years away.
In the meantime, I've come up with some personal rules of thumb around retirement savings.
So here's my recommended steps to take with regards to saving in an employer-sponsored 401(k) - whether you are just getting started, or just want to check yourself.
1. Save in your 401(k) first before any other options.
For those that have them, a 401(k), named for the section of legislation that created it, is the best savings options. There are two kinds, a Roth 401(k)k, and a traditional 401(k). Traditional 401(k)s are pretax savings that reduce your taxes now. Roths are post-tax, but are not taxed when you withdraw them. Based on the reading I've done, I'd go Roth if it is available, and if you are 45 or under when you start it. You'll lose some tax benefits now, but I'm going to guess that our relatively low tax rates aren't going to stay that way forever. If you don't have a Roth available, go traditional.
2. Save in your 401(k) even if the choices aren't great.
Why? Several reasons. It's coming out of your check, so you won't see it. Also, even if you don't have a Roth 401(k) available to you, the traditional has great benefits. And employers typically match between 3-6% of your contributions. Never walk away from free money.
If your choices aren't good, you may want to contribute up to the match, and then save in other vehicles, but even when I had a not-so-great 401(k), I saved as much as possible in there. Then when I changed jobs, I rolled it over into an IRA.
3. Make your goal the maximum contribution.
For 2008, the federal maximum contribution to a 401(k) is $15,500 if you are under 55 years of age. That's a lot of money. Even at a pretax contribution rate, if you are taxed at 28%, that's still $11,160.00 that isn't in your paycheck.
But I said make it your goal, not do it tomorrow. If you aren't saving anything now, contribute up to the employer max. And then every 3 months, up it another 1%. Keep going until it hurts. Then stop. Every time you get a raise, go up another 1%. Do this at 25, and at 40 you may be saving the max without noticing the impact. Taking 10 or 15 or 20 years to get to the max is not unreasonable. Set the goal and start moving towards it.
4. Realize you are in this for the long haul.
You aren't saving for tomorrow or next week. You are saving for something 20, 30, or even 40 years away. So the best advice I can give is to put your money into some low-fee, high rated funds (you can check your fund ratings at http://www.morningstar.com/) and then ignore it. Once a year, go back and check the fund ratings and rebalance if you need to. But leave it alone, and let it grow.
5. Don't EVER withdraw, unless you are in danger of homelessness or starving.
This money is not for fun. It's to keep you off welfare and from eating cat food in old age, not for a kitchen renovation, or dream vacation. If you save hard, you may get the trip to Tahiti too, but if you keep cashing it out, not only will you pay a 10% penalty and income tax, you'll have years of unrealized gains just wash away on that beach you are dreaming about. You want a good life when you have time to enjoy it, don't you? Don't screw yourself out of the future.
Next week, we'll talk about IRAs.
Wednesday, April 9, 2008
For Bernanke to posit that we are about to hit an economic wall is big - really big - news. Not surprising news, most of us are feeling the pains both large and small of the constricting economy, but big news nonetheless. It means he's really really worried.
Now, just for a little historical perspective here, before the Great Depression, there were Panics. Throughout the 19th century, periodic panics collapsed banks and local economies on a frighteningly regular basis. Those pre-Depression and Depression era grandparents of ours had good reason to think their money was safer stuffed in a mattress. All too often it was safer there.
Credit was easy to come by in the 1920s, and it fueled purchases of cars, furniture, and rampant investment in risky ventures. There was a short-term spending spree in the US, after which massive deflation occured. Banks became afraid to lend. Heavy downturns in production and construction happened. Companies started laying off workers - at the height, there was 25% unemployment. People stopped spending in order to make their credit payments, which fed the downturn in production and construction.
Aside from the unemployment, and the deflation, it doesn't sound too different from today, now does it? And because of this, the Federal Reserve is being very, very careful.
There's some differences from then to now though, and they are important ones to keep in mind, before you pull all your money out of the markets and banks and bury it in the backyard.
The Fed did not intervene really during the 20s and early 30s, and when it did, it was ineffective. It was not until Franklin Delano Roosevelt took office in 1933 that a turnaround started, and economic policy changed for the better. The FDIC, or Federal Deposit Insurance Commission, which insures bank accounts up to $100,000.00 did not exist yet. In addition, the Securities and Exchange Commission was not created until after the worst of the Depression years.
On top of all that, the dust bowl of the early 1930s, the result of poor farming techniques and a prolonged drought made the food supply, as well as the ability for people in the midwest to earn a living, a complete wreck.
So what about now?
Bernanke and the Fed are deeply involved in creating liquidity in the tightening markets. They are cutting interest rates, brokering deals to keep investment houses from going under, like Bear Stearns, and taking many other actions to keep us from sinking. In addition, like it or hate it, both Congress and the President are taking action to keep the foreclosure ghost towns to a minimum.
The reality is, we could be sinking. But Bernanke, the Fed and even private banks are doing whatever they can to bail water out of our economic boat as fast as they can in order that we can make it to shore. This includes some things that may be unpalatable to those of us who pay our bills on time, such as bailing out irresponsible lenders and borrowers on an individual basis, but on a macroeconomic scale it makes sense. It is better to swim than to sink, and the crisis that faces us is not a small one. If we let people sink on a large scale to punish them for making bad decisions, we will all pay the price.
So what happens next?
No one knows. In my personal opinion, we're in for Bernanke's prolonged economic downturn. I think that we'll see layoffs, people cutting back on their spending even more than they currently are, more foreclosures, and a general lack of economic expansion for a while. It could be the rest of this year, or we might not have bottomed out yet. I'm betting on a year or two of this, but I could be wrong.
So how do I make it through this?
No one - no one - can completely reassure any of us that we won't be affected. But you can do things to protect yourself Live below your means - that means don't spend every dime you have! Save. Pay off debt. Save some more. Work harder and smarter at your job - volunteer for projects, submit ideas, and make yourself more valued. Unless things go really wrong in the workplace, the good ones often survive a layoff. You want to be one of the 'good ones'.
In short, every penny you don't spend, and don't owe, is one penny longer you can keep your own personal economic sphere afloat. Sure, you could run out and spend to inject some money into the economy, but don't. Not unless it's planned and thought out and you know you can do it. As the airline safety movies say, put your own oxygen mask on before helping others.
I know this is scary. We're one year into homeownership, and our debt for our home feels massive. We have only a single car loan that we're paying off aggressively, but between that and the mortgage I often feel pretty exposed. But the only thing we - all of us - can do is keep plugging. And try to remember that every downturn has been followed by growth.
The economy is cyclical. What goes up must come down. But it goes back up too.
Is there an upside to all this?
I think so. There's deals out there. If you've been squirrelling away a downpayment, now may be the time to score a deal while interest rates are low. There's some real investment deals out there, although I'd recommend sticking with index funds and highly rated funds rather than chasing the next big stock. Stores are putting things on sale.
So really, what does it mean?
In short, a prolonged economic downturn means that instead of our financial discomfort and uncertainty lasting a short time, it's probably going to be here a while. That stinks, to put it bluntly. But the spending party had to end sometime, and there are still jobs to be had.
Some good things may come out of this at the end. These types of crises make legislators pay attention to the average citizen, rather than corporate interests. We may see a sea change in policies. And we as individuals might decide that life is pretty good even without a flat panel tv and a new living room set. And those Joneses next door might decide the same.
And at some point, the crisis will end. Will we be wiser? Who knows? But we might be a little saner with our finances, and that would be a very good thing.
I can see clearly now, the rain is gone.....
Monday, April 7, 2008
The weather is finally starting to get better here in Massachusetts, so I'll hopefully start prepping the garden beds over the next two weekends. We're still working out what the right spot is.
My garden is growing beautifully....and it's almost time to move it outdoors.
Friday, April 4, 2008
Um, so that's not a budget?
I think budgeting is so touchy because it feels like deprivation. "What do you mean, I can only have $100 of fun money each month? You can't put a price on fun! And don't even think about taking away my_____"
You get the picture. Most people see a budget as setting limits, and who wants more limits in their life?
But a budget can be a great tool, and it doesn't have to deprive you. It can also free you. Here's how it works:
Let's say you take home $3000.00 a month. After paying attention to what you've spent for a bit - and you should, I recommend tracking every dime for a month and seeing where it goes - you come to the conclusion that you spend $2100.00 on fixed expenses such as housing, transportation, utilities, and so on.
That leaves you $900.00 each month to buy groceries, clothes, gas up your car, and anything else you need.
But after a few months you realize that you are cutting it pretty close, what with rising gas prices, the increased cost of groceries and eating out, and a few surprises here and there.
So you take your handy-dandy list of tracked expenses and you think "Hmm....how to squeeze out more dough?" And you make some choices, because you want to save more, or you have too much month at the end of the money, or whatever. The key here is you choose, you decide. And if, after a while you decided that you don't like the changes, you can change it back, or make different choices. It's not locked in stone.
That, my friend, is a budget.
It's really that simple. A budget is a tool. If you decide you want to buy a house in 3 years, and the average home in your area costs $200k, and you need 10% down, you need to save $20k. That comes out to about $556 a month going to the house fund.
Too much? Okay, save less. Or lengthen the window to 4 years. At 48 months, that's $418 a month. Maybe that's better.
The more you track and learn about how you spend, the more you may want to track and learn. Or not, this is also up to you.
But the end result is this: knowing what comes in and what goes out gives you what I like to think of as 'daylight'. It allows you to know your situation. Sometimes that's hard - no one likes to see their warts. But once you know, you can choose what to do next. Even if that choice is nothing.
Much research has gone into proving that people who write down their goals consistently acheive them - at a much higher rate than those who don't. A budget is just a tool to get you to your goals, whatever they are - a second home, private school for your children, early retirement, or just a cash cushion so that you don't have to play 'bill roulette' when your car breaks down.
A budget doesn't have to limit you. It can actually make you more free- because it puts all your choices in front of you.
And then you, and only you, can choose to put a price on fun.
Thursday, April 3, 2008
This week, I'm focusing the tips on how to address the concerns we all have about the state of the economy, our jobs, and our financial well-being. Here's a few things you can do to help you get through a scary time.
1. Take a step back and focus on something else
If you are in a constant panic about how the economy will affect your income, job and future, it's time to calm down, and do something else. Liz Pulliam Weston offers some tips in her article on when your money makes you crazy:http://articles.moneycentral.msn.com/SavingandDebt/LearnToBudget/IsYourMoneyMakingYouCrazy.aspx
2. Start a small "Under the Mattress Fund", in cash
While I'm a fan of my money earning money, my husband and I always keep some cash on hand. In an emergency, it comes in handy. Many times you can't get the cash exactly when you need it, like when your alternator dies, and the AAA guy comes to tow you. A bit of cash - no more than $300-$500.00 - on hand can go a long way.
3. Stock your pantry
The next few shopping trips, add some pantry and freezer items to your list. Don't try to buy all at once, just add a few cans or jars or packages to your usual shopping trip. For a truly good approach, do this by checking what products you use are on sale, or that you have a coupon for. This way, you are slowly working your way up to having a supply of food and paper goods and other supplies that you can rely on when times get tough.
4. Look for places you can cut back - now
The hardest part of an uncertain economy is not knowing what will happen next. But by minimizing your outgo, you can affect that uncertainty in a positive way- the less income you need, the easier it is to replace. That said, most of us cannot affect the terms of our mortgage or rent. So look in other places. Hang clothes to dry. Turn off lights when you leave a room. Shop the sales flyers rather than throwing whatever looks good into the cart. Skip the first run movie, get rid of HBO and get Netflix instead. In short, cut now, and it will be less painful.
5. Brush up your resume and network
I'm known amongst friends and collegues as someone who is very good with resume help, and well networked. I've put executives in touch with resources to help them implement systems, helped link up former coworkers with new job opportunities, and helped friends and family put together resumes and find jobs. I don't do this because I want something in return, I do it because I want to help. But in the meantime, I am also building a network of people who would help me if and when I needed it. So if you have a successful person in your life, ask them to edit your resume. Or if they know anyone looking for person with your skills. Or if you can do anything to help them.
What comes around goes around.