Tag Archives: Goals

You Say Tomato, I Say F-You Fund

Source: Federal Reserve
Credit: Lam Thuy Vo / NPR

The NPR Planet Money Blog had a recent post about Americans’ “rainy day” funds.  The post references research conducted by the Federal Reserve to determine why Americans save and how much they think they should be saving. 

At first, I was shocked by the research findings.  The research found that on average, Americans think they need only one month of salary in savings for a rainy day.  Remember, this is how much they think they should have, not how much they actually have.  I wouldn’t be at all shocked to find that most Americans have very little in their savings accounts, but I am shocked to know that they think they need so little.

As a homeowner, I always have a nagging fear in the back of my brain that I could be hit with a major, unexpected repair bill.  One month of my salary is far too little for a proper safety net if something like that happens.  I have friends who suddenly had to replace their HVAC system at a cost of nearly $10,000.  Unfortunately, one month’s salary for me isn’t anywhere near $10,000. 

I took a gander at the comments people made on the NPR post to see if I was the only one who found the research so surprising.  Interestingly, many of the comments centered around the definition of the term “rainy day fund.”  One commenter noted that he has both a rainy day fund and an emergency fund.  His emergency fund is for major unexpected expenses or liquidity if he loses his job, while his rainy day fund is just a cushion in case his regular spending ticks up one month.  Another commenter said that her rainy day fund is some cash in a jar that is literally used for rainy days, i.e. ordering pizza delivery while she stays dry watching TV or reading a book (she sounds like my kinda gal).

The comments have made me hopeful that many people responding to the Federal Reserve’s study simply misunderstood what the researchers meant when they asked about rainy day funds.  Or perhaps more likely, the researchers misunderstood how people think about and classify their savings.  After all, how likely is that the Federal Reserve asked about F-You funds

Does anyone else have a pet name for their emergency savings accounts?

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To the Class of 2012…

Graduation season is winding down, and I’ve been thinking a lot about the college graduates who are now entering the “real” world.  The transition from college student to independent adult is mostly awesome, though it does entail some new challenges.  All you new graduates out there now have the freedom (and responsibility) to manage many more areas of your own lives, including your finances.  Even if you are still searching for that first job that will launch your career, you can and should begin to develop a relationship with money that is healthy and positive.

In the ten years since my own college graduation, I’ve learned a few things about money.  I continue to be a student of personal finance, but I hope you will allow me to share with you the most important things I’ve learned so far:

The way you spend your money is a direct reflection of your values and priorities in life.  It’s very easy to mistake success for “stuff.”  Wearing a tee shirt with a designer logo does not mean that you are successful; it means you are susceptible to marketing.  If you looked at your spending as a snapshot of who you are, would you like what you see?

Experiences make you much happier than “stuff.”  Experiencing something is truly living.  You and your college friends will be separated in the future by time and distance.  Spend less of your money on “stuff” so that you can afford to meet old friends for dinner, or even vacation.  Remain connected with people you care about by experiencing things together.

You will never, ever regret starting to save sooner rather than later.  Albert Einstein said, “Compound interest is the eighth wonder of the world.  He who understands it, earns it.  He who doesn’t, pays it.”  Personal finance can seem complicated, but the most important principal is easy enough for a child to understand: Save as much as you can as early as you can, and you will build wealth.  It really is that simple.

If you want to live a free and independent life, avoid debt.  You must give up your time and energy to earn money, so having debt means that someone else owns a piece of your life.  Sometimes debt is necessary, but be honest with yourself about the significance and gravity of obligating your time and energy to someone else.

You don’t need to have personal finance figured out all at once.  Slow and steady wins the race.  Small successes in managing your finances will make you feel incredibly proud.  Congratulate yourself on every small victory.  Use that positive momentum to learn more and to create new goals for yourself.  In a very short time, you will feel confident and in control of your finances and your future.

We all have our own definitions of success and our own ideas about what makes for a happy life.  Regardless of what your ambitions are, always remember that the lead role in your life should be played by YOU.  Money should never play anything other than a supporting role. 

Congratulations, 2012 Graduates, and best of luck.  Viva la frugal!

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Filed under Money Philosophy, Motivation, Personal Finance

HotFrugal Goals: Where Are They Now?

Until recently, it had been a year since I had written a HotFrugal post.  I’d say it’s time to take stock of my current financial situation and goals.  This is the type of post that is interesting if you’re nosy (I certainly am, so don’t feel bad), but it’s definitely long and detailed.  So dig in and join me, won’t you?

Savings Accounts

F@!# You Fund:  This is what I like to call my Emergency Savings Fund.  I censored it a bit since my mother reads this blog.  Basically, I want to have enough money saved so that I can say a big “F@!# You!” to any major unexpected expenses that crop up (major home repair disasters, car maintenance fiascos, etc.).  I also want to be in a solid financial position if I lose my job, and I’d even like to have the option to quit my job if it ever becomes really, unbearably horrible.  Goal:  $25,000.  Current balance:  $12,313.

Mad Money Fund:  This is a phrase I’ve borrowed from my mother.  Mad Money is fun money that can be spent on any kind of Want.  Typically, I use this fund for vacations, though more recently, I tapped it for a tattoo (!!).  There is no specific amount I try to keep in this fund; it just depends on the timing and types of vacations I have planned.  Current balance: $995.

Triumph Motorcycle Fund:  No, I don’t know how to ride yet.  But I know I want to!  I’m saving as though I’d buy a new bike and all necessary accessories (helmet, saddlebags, etc.).  Goal:  $11,000.  Current balance:  $568.

Roth IRA Starter Fund (formerly known as iPad Fund):  It’s time to kick this one into high gear.  Once I have enough saved, I will open an account with Vanguard and then track future contributions and growth in the Retirement section (see below).  Goal:  $3,500.  Current balance:  $40.

Retirement Accounts (Vested Balances)

Old 401(k) from Former Job:  (At some point I need to roll this over to an IRA.)  $43,750

401(k) from Current Job:  $9,003

TOTAL:  $52,753

Debt

Mortgage:  My house is worth $165,000.  I’m not working to pay down my mortgage more quickly because I’m not sure how long I’ll live in this house.  Remaining balance:  $128,096.

Car:  Yup, I bought a new car at the beginning of the year.  The old one needed more costly repairs, and I was able to get 0% financing.  I won’t make any effort to pay this off early since I’m not being charged any interest.  Remaining balance:  $13,964.

Net Worth

A rough calculation based on the above info puts me at $104,609.

So there you have it.  My number one priorities are the F@!# You Fund and the Roth IRA Starter Fund.  It’s going to take a long, long time before I’m able to buy a motorcycle, but I’ll get there eventually. 

Viva la frugal!

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Filed under Monthly Updates, Savings & Retirement

The iPad: Meh…

Obviously, it’s been a looooong time since I last posted here.  There’s no real reason why I stopped writing on HotFrugal…  Life just kinda happened and I got busy with a new house, new job, new involvement with several local organizations, etc.  Things have calmed down a bit, and I really miss writing, so I’m going to start up again.  I’ll just go ahead and dive right in…

 

Used with permission from Debbie Ridpath Ohi at Inkygirl.com

For a long time, I have been absolutely green with iPad envy.  Two of my coworkers have iPads with fancy keyboard cases, and they (my coworkers) always make me jealous by showing off all the fun things they can do.  Even my mother has an iPad, and she’s not exactly someone I would consider to be an early adopter of new technologies.

So, a few months ago, I started an iPad savings account in true HotFrugal fashion.  I have an online checking account with ING Direct, and I also have several targeted savings accounts with ING.  My emergency fund is kept totally separate with another online bank.  I love ING because it literally takes about 30 seconds to open a new savings account, and you can have dozens of accounts at any one time.  With a few clicks, I had a savings account named “iPad” with the goal to save $800 for the mid-range model and the keyboard case.

But then a funny thing happened… Over the past five months since I opened the account, I’ve only put $40 in it.  Whenever I have extra money to save, I never seem to want to put it in the iPad account.  Instead, I find myself wanting to put the money toward my general savings fund or toward one of my other “just for fun” funds.  Today, it finally occurred to me that maybe I don’t really want an iPad all that badly, or rather, there are other things that I want more. 

There’s a good lesson in this experience that I hope I will remember in the future.  If I had just gone ahead and bought an iPad without deliberately saving for it, I never would have realized that I didn’t even want it that much in the first place.  Fortunately, ING makes it easy to change the nicknames for savings accounts, so the iPad account is now called “Roth IRA Starter Fund.” 

Viva la frugal!

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Filed under Frugal, Savings & Retirement, Shopping

Kickin’ Worry to the Curb

When I began living frugally and writing this blog, I really had only one goal: to live comfortably and never worry about money.  Anything more specific than that – building an emergency fund, paying off my HELOC, saving for retirement, etc. – was really just a tactic to achieve the overall goal of financial freedom and comfort. 

I thought that I would achieve this goal sometime in the very distant future.  I imagined that there would be some tangible measure or trigger that would let me know that I could finally stop worrying about money.  Maybe it would be paying off a mortgage and owning a home outright, or maybe it would be reaching a $1 million balance in my retirement accounts.  Whatever “it” was, I mentally prepared myself to wait a good 20+ years before I felt confident enough to say, “I no longer worry about money.”

In actuality, it took only 12 months to reach that point.

Now, don’t get me wrong… I certainly did not achieve any exceptional financial milestones in that time.  I didn’t generate an impressive investment portfolio, and I didn’t pay off my mortgage.  But after 12 months, I did have a focused goal, discipline, and enough progress to feel confident and excited about my financial future.  As it turns out, that’s all I really needed to stop worrying about money.

It’s probably important to clarify what I mean when I speak of worrying about money.  To me, worry is what I feel when I’m scared or insecure.  I worried about money when I asked myself these types of questions:  Am I going to be able to pay my full credit card balance this month?  If my house needs a major unexpected repair, how am I going to pay for it?  If I become really miserable in my job, can I afford to look for another one?  Am I going to have enough money to retire at a reasonable age?

When I worried about money, I didn’t have answers to these questions.  All it took to rid myself of worry was to have good, solid answers:

Q:  Am I going to be able to pay my full credit card balance this month?
A:  Of course.  My spending has been within budget so I’ll have the cash to pay the bill.

 

Q:  If my house needs a major unexpected repair, how am I going to pay for it?
A:  From my emergency savings fund. 

 

Q:  If I become really miserable in my job, can I afford to look for another one?
A:  If I ever feel miserable because I’m being put in a position that violates my personal or professional ethics, I can afford to resign and live off of emergency savings while I look for another job.  (Note: This is obviously an extreme situation, and not one I have ever been in or expect to be in.  But it’s very good for my peace of mind to know that I can afford to get out of a seriously bad situation.  If I simply didn’t like my job, I would probably never quit unless I already had another one in the bag.)

 

Q:  Am I going to have enough money to retire at a reasonable age?
A:  Yes.  I am contributing to my 401(k) aggressively and when I calculate my compounded return over the next 30 years, I can see that I’ll be in great shape. 

 

It was really important to realize that I could stop worrying about money simply by having a plan and sticking to it.  I’ve definitely lacked discipline in my spending over the last couple of months since I bought my new house, but I know I can get back on track.  In a way, getting off track has been good for me…  I absolutely love my new house and the things I’ve bought for it, but I hate feeling the financial worry creep back into my life.  This has been a good reminder that I love independence and financial freedom more than I’ll ever love things, even beautiful things that make my house look amazing.

The past couple of months have been a financial hiccup for me, but I’m going to take it in stride.  I’m going to use the worry that I feel to reinforce the importance of my long term goals.  There’s no reason why I can’t be worry-free again in a few months, and that’s something I will work toward with focus and confidence.

Viva la Frugal!

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Monthly Update: July 2010

Where the heck has the last month gone??  I lost the entire month of June somewhere between being crazy busy at work, selling my house, and enjoying the start of summer.  I have some new posts in the works, so I promise that July will be a more interesting month here at HotFrugal. 

Now, let’s get on to the June update.  The big news of the month is that I closed on my house and am now totally and completely debt free!  My net worth has gone down a bit due to the sale.  Closing costs and last minute repairs can add up quickly.  These costs ate into the proceeds from the sale, so that impacted my overall net worth.  No worries though…  I’m still doing quite well and continue to make progress toward achieving my financial goals. 

Net Worth

My net worth as of July 1, 2010 is $64,888.  Last month my net worth was $78,291.  My assets and liabilities are:

Assets Liabilities
Emergency Savings $23,063 Nada!!
Mad Money Savings $2,362  
Checking Account $539  
Health Savings Account $1,646  
401(k) (Vested Balance) $32,153  
Car Value (per KBB) $5,125  
TOTAL Assets $64,888  
   
Net Worth (Assets – Liabilities):  $64,888

 

Spending

Over the past six months, my spending has averaged $2,533 per month (my goal is to keep this around $2,500 based on my current living situation).  This excludes savings, retirement contributions, health insurance, and healthcare costs.    

June was a heavy spending month because I did a lot of shopping for new clothes in an effort to look less like a hobo.  I got some great deals, but I did spend a lot of money.  That means clothes and shoe shopping are off limits for a few months. 

I continue to struggle to stay within my Grocery and Dining Out budgets.  This is something I really need to work on because it’s not only affecting my bank account, but my waistline as well.  Not good!

  Budgeted Amount Actual Spend (June) Variance
Dining Out $160 $187 $27 over budget
Groceries $238 $272 $11 over budget

 

Summary

I’m very happy that I’m this close to achieving my $24,000 emergency savings fund goal.  I’m getting a refund from the balance in my escrow account for property taxes and insurance that will put me over my goal as soon as I get the check and cash it.  This will be the first major financial goal I’ve accomplished, and I’m a little giddy about it.  Viva la frugal!

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She’s a Super Freak (Control Freak, That Is)

When it comes to money, I’ve become a total control freak.  It’s paying off; I’m starting to see significant improvements in my financial situation.  In our highly automated and digitized world, I’ve realized that I prefer a manual, hands-on approach to personal finance.  There are thousands of resources out there that are designed to make it easier to manage your money.  There are software programs like Quicken and websites like Mint.com.  There are automatic bill pay services and spending trackers.  There are tax services and financial planning services.  I don’t use any of ’em. 

Instead, I use my own custom created spreadsheets.  My financial spreadsheets are massive and exceedingly detailed.  They have color codes and abbreviations that wouldn’t mean anything to anyone but me.   They are not particularly efficient and they are definitely not pretty.  But I love my spreadsheets.  I dutifully and obsessively use them to track my spending, monitor my savings, and identify potential trouble spots.  I also use them to run “what if” scenarios.  I make projections based on different levels of future income or rates of return to see how the changes affect my goals and the time it will take to achieve them.

Sure, using financial software or websites to perform these functions would save me a lot of time.  But I don’t think that would be the best thing for me.  My cumbersome, manual approach to personal finance has many advantages:

It forces me to spend a lot of time thinking about my money and financial goals.  There are programs that will automatically link to your debit and credit cards to download and categorize transactions.  This is definitely an easy way to keep track of spending by category.  But if I relied on automatic processes, I know I’d only review my spending every couple of weeks.  Because I enter all of my receipts and categorize them by hand, I am forced to review my spending every couple of days.  This enables me to spot troublesome spending patterns and correct them immediately. 

It provides me with 100% flexibility.  No two people’s priorities are the same when it comes to spending.  When I was a blonde, I spent a lot of money maintaining my do.  In fact, I spent so much that I had an entirely separate “Hair” category in my budget.  None of the software programs I could buy would come with a Hair category built in.  Whatever it is, we all probably have some quirky spending categories that are significant enough to be tracked and monitored.  We might also have quirky goals that we intend to meet through creative means (yard sales, side jobs, blackmail, etc.).  A customized spreadsheet is the best way to handle these unique situations.

It helps me better understand personal finance and how wealth is accumulated.  Being actively involved in my finances has demystified the process of accumulating wealth.  Now I can see firsthand how debt drains resources that could otherwise be used for building a strong financial future.  I now realize that there is no magic to personal finance… It’s simply a matter of making a plan and sticking to it. 

It makes me feel more confident.  With greater understanding comes greater confidence.  I really like feeling like I’m in control of my own destiny, and that my destiny is not in trouble with me in the driver’s seat.  I have a long way to go to achieve my goals, but I never worry about my financial future any more.  I know I’m doing the right things.  I know I’ll be just fine. 

I’m not saying the manual approach would work for everyone, but it seems to be a good fit for me, at least for now.  I consider myself a financial beginner.  I’m still learning the basics of personal finance and defining my long term goals.  My net worth is relatively low and I don’t have a lot of investments that I need to manage.  At this point in my life, being a control freak is both manageable and educational.   

Now if I could just get Rick James out of my head…

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