Tag Archives: Money

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

An Obligatory Tax Season Post

I am the Queen of Procrastination, so it’s quite surprising that I have already completed and filed my taxes.  This is the first year I’ve ever finished my taxes before the very late hours of April 14th (seriously!).  But I know a lot of folks probably aren’t done with theirs yet, so I wanted to share a great article from one of my favorite personal finance blogs, Get Rich Slowly.

The article is called “The Truth About Tax Deductions” and it’s a guest post submitted by a CPA.  The author, Greg Braun, does a great job of explaining how our drive to finagle every possible tax deduction can actually be counterproductive.  Braun sums it up nicely by stating, “The problem is that saving on taxes usually amounts to spending cash, or worse, signing up for debt.”

Even if you’ve already filed your taxes, the article is worth a read for next year.  It really makes you think about tax management and spending in a new way.

And just in case you’re wondering… I’m getting a tax refund of just under $1000 combined from my federal and state returns.  If anyone else told me they were getting a tax refund, I would encourage them to save or invest the money.  But I’m going to be a bit of a hypocrite and not follow my own advice.  I have an empty bedroom in my house that I would really like to turn into a fully functioning home office, so I’m going to use my refund to buy a desk, bookcase, filing cabinet, and wall shelves.

Should I be saving the money instead?  Yeah, there’s really no way to deny that my emergency savings fund is pretty meager at the moment.  But I’m desperate for a quiet, dedicated workspace in my home.  I know I will be more productive (and hopefully my HotFrugal posts will be much more frequent!) if I can sit down with my laptop somewhere other than on the couch in front of the TV.

I guess I should mention that I also tend to be the Queen of Rationalization, though usually it’s in the area of dessert.  (Most people don’t understand that chocolate is a vegetable because it comes from a bean, so I have to explain that to them.)  Anyway, it’s pretty difficult to live a HotFrugal lifestyle if you rationalize and make excuses for your spending.  I’m going to go ahead and buy my office furniture, but I’m going to do it fully acknowledging that it is probably not the best financial move I could make.

C’est la vie.

(Hopefully the next post will end with the usual “viva la frugal!”)

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Filed under Personal Finance, Shopping, Taxes

Monthly Update: June 2010

Reality checks are an important part of measuring the progress made toward achieving a goal.  Discussing my finances publicly has been very helpful for me, so I’m going to start sharing my little reality checks with all of you, dear readers.  Around the first of each month, I’ll post a quick review of some of my key financial measurements.  June is the first month that I’m making these calculations, so it will be my baseline.  In future months, I’ll compare my stats to the previous month and explain any significant changes. 

I’ll also update the action items in my 30 Sense plan each month.  Click here to see the latest.

To be perfectly honest, I’m getting that uncomfortable feeling again because I’m about to put even more of my financial information out into the world.  But I know that this process will be good for me.  I’ve had such phenomenal support from friends, family, and strangers who have been reading HotFrugal regularly.  I can’t begin to explain how helpful all of the encouragement has been.  I’m a very lucky gal. 

So here goes… 

Net Worth

My net worth as of June 1, 2010 is $78,291.  My assets and liabilities are:

Assets Liabilities
Emergency Savings $9,819 Home Mortgage $110,461
Mad Money Savings $2,362 HELOC $19,309
Checking Account $477 Personal Loan $17,539
Health Savings Account $1,458 TOTAL Liabilities $147,309
401(k) (Vested Balance) $31,359  
Car Value (per KBB) $5,125  
House Value $175,000  
TOTAL Assets $225,600  
   
Net Worth (Assets – Liabilities):  $78,291

Spending

Over the past six months, my spending has averaged $2,449 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.  All of these costs are deducted from my paycheck automatically, so my budget focuses on the spending I do with my take-home pay. 

There are two spending categories that I consistently struggle with in terms of staying on budget each month: Dining Out and Groceries.  I’m often appalled by how much money goes in my mouth each month, but that’s a subject for another post.  The following table shows my actual spending in these two categories for June vs. my budget.

  Budgeted Amount Actual Spend (June) Variance
Dining Out $160 $156 $4 under budget
Groceries $238 $272 $34 over budget

Summary

I’m feeling pretty good about the current state of my finances.  It will be interesting to see exactly how things shake out after my house is sold at the end of this month.  Everything seems to be going smoothly, but I won’t count that chicken until it hatches.  If all goes as planned, selling my house shouldn’t have much impact on my net worth, but it will affect the way my net worth is distributed.  July’s update should be interesting.  Stay tuned!

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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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