Money Beagle

2009 is upon us and it is that time where we start setting out goals.  This is the first time I’ve ever publicly stated goals for the entire year, so I may skip around a bit.  I’ll try, though to keep it organized.

Balance Sheet Goals:

• Property - My goals here assume that we pay our normal mortgage payment, which is in our control. The thing that is out of our control is that I’m assuming that our property value remains relatively stable.  Hopefully the prices in our neighborhood don’t continue double digit percentage falls this year!
• Autos - I am assuming that the overall value of our cars goes up, but that we take on a loan.  This is assuming that we sell my car, and purchase a used automobile to accommodate the baby.  Neither of our cars are very ‘family friendly’   I’m looking at getting something modest and taking on a very small loan, but it’d be nice to not have to take one at all!
• Mutual Funds - With everything going on this year, we probably will not invest in non-retirement mutual funds.  We do hold some, and I’m hoping for a 10% increase in the value, which would mean that the market recovers this year.  Let’s keep our fingers crossed.
• Long Term Savings - We hold cash reserves for emergency fund as well as bigger expenses we expect to pay for in the next several years.  I’m hoping that this remains stable (i.e. no big emergencies)
• Retirement - I’m hoping that the value of our retirement account goes up about 30% this year.  That would follow the expected 10% market recovery this year, as well as several other things.  First, I’m assuming that I will become fully vested in my company match 401(k), which should happen due to the company being sold last year.  Second, I’m assuming that I can contribute 8-10% of my salary and realize the full 6% company match.

If we manage all this and things work out favorably in the market, this would increase our net worth by about 20% this year.  This is what I was averaging in years past until the free fall in stock and real estate in 2007 and 2008.  It’d be nice to get on the ‘right path’ again.

Personal Goals:

• Continue my quest to level out our monthly expenses
• Make a successful adjustment from a two-income household to a one-income household as my wife will not be working following the birth of our first child
• Don’t freak out when the expenses hit for the baby!  I took my first walk through of Babies R Us this week, which was my wife’s way of easing me into it!
• Maximize our rewards for normal spending.  We have a Citi Dividends card which pays us 2% for grocery and gas purchases, and 1% for everything else.  We also signed up yesterday for our bank reward program, which gives points for using our debit card.  I’d like to make sure we’re maximizing our rewards as the year goes on.
• Reduce student loan payments by 30-40%.  If we can hit this number, then the higher end loan that my wife has will be mostly paid off.  This would be awesome!
• Refinance the mortgage - We are currently paying 5.875% for a 30-year mortgage.  This is a good rate, but I think that rates will be below 5% before long to where a re-finance might make sense.  It’d be nice to reduce our interest obligation.
• Begin saving for major house expenses - Our house is about 10 years old.  I know that we’re getting a few years away from routine tasks that cost a good deal of money.  I expect a new hot water system will be needed within 3 years, a new roof within 5 years, new windows within 7, a new furnace within 10, a new deck and driveway within 12 years.  I’d like to begin saving for those now rather than figure out how to pay for them as they come up.

All in all, it will be a very interesting year with a lot of changes.  I will look forward to updating throughout the year as well as looking back at the end of the year to see how we did.

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When we moved into our house last summer, we had to purchase a new washer and dryer.  I owned a condo before we bought our house, and had a traditional (top loading) washing machine and a matching dryer.  But, I had to leave them behind as the offer for the condo stipulated that I had to leave the washer and dryer.  Given that the real estate market was already soft, I was more than willing to include this.

Once we started looking, it was apparent that the biggest decision would be whether to go with a top loader or one of the ‘newer’ front loading washing machines.  The up front cost of the front loader is much higher, often $400 or more difference.

The main benefit, however, is that they are much more energy efficient and use a lot less water and a lot less energy than a top loader.  Up to 65% less in both cases.  That’s many less gallons of water wasted per year, as well as a lot less energy usage.

In the end, we decided to go with the front loading machines.  I’m happy to say that we are pleased with the purchase.  The part that makes me happiest is that the water usage difference is significant and is more of an impact because of the water rates in our city.

For some reason, the cost of water in our city is one of the highest in the area.  Since we moved in, we’ve been hit with increases of 15% and 12%.  Therefore, it became apparent that any way we could save water is welcome.  I would have very much regretted it if we would have chosen the top loading machine.

When we purchased the machines, one of the salesman told us that the top loaders will most likely be phased out over the next few years.  I don’t know if that was just ’salesman’ talk, but in these days of trying to save energy, this would make sense.  After all, I have also heard from numerous sources that the incandescent bulb is expected to be phased out within the next 5-10 years in the interest of energy conservation.

As water and energy become more expensive and more valuable, it would only stand to reason that a gradual switch to front loading, energy efficient washing machines would also make sense.  In our case, the difference is huge, and as we expect to use the washer even more once Baby Beagle comes, the savings will continue to add up.

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With gas prices dropping to levels not seen in years, it’s very apparent that we’re paying a lot less for gas than we did even a few months ago.  Everywhere I’ve seen, including here in Michigan, the prices have dropped by 60% or so.

So, it got me thinking, what if everyone used this opportunity to ‘pay double‘ for gas?   Now, I’m not suggesting that we go into the gas station and pay the clerk double what they’re asking.  Ha ha!  What I’m suggesting is that people pay for their gas, but then go pay an equal amount towards debt.   So, if you fill up and it costs you $20 to do so, pay the $20, then go home and send another $20 payment toward whatever debt you’re trying most to pay off.

The way I figure, over the summer you were probably paying $50 or $60 for that same amount of gas, so even if you pay $40 (twenty for the gas and twenty extra towards debt), you’ll still come out ‘ahead’.

Chances are, when the gas prices skyrocketed, people got used to paying that price, so this would simply keep you near that level.

The added bonus will be when gas prices rise again (and trust me, they will), you won’t get sticker shock as your spending will already be adjusted.

Give it a try, you’d probably be surprised how much it can add up!

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One of the things that was new to me when we bought our house last year was having to pay for garbage pickup.  Prior to that, I had lived in a condo and so the garbage pickup was included in the monthly association fees.

When we were buying our house, I investigated and found that garbage pickup in our city was up to each individual household.  There are five trash haulers licensed in the city, and our subdivision has a recommendation of using one of the five haulers.  I signed up with them.

The cost varies with fuel costs, but most recently the cost was approximately $80 for three months, or approximately $27 per month.

I was surprised that there wasn’t a single trash hauler, and did a little bit of research on the subject.  I found that the residents had actually voted it down a few years back.  The details in the archive news stories were a little sketchy, but I think that the residents were nervous about it being an additional tax, some didn’t like the government ‘taking it over’, and yet other residents didn’t want to pay because they don’t use the service all year.  A lot of retired people in Michigan are ’snowbirds’ and spend the winters in warmer climates such as Florida or Arizona.  Many of these people felt it would be cheaper for them to pay as you go.

Recently, I heard that the city council has been inundated with requests from residents to consider this again. The costs have gone up tremendously versus what it was a couple of years ago.  Plus, the fact that there were multiple haulers meant multiple trucks.  This added to traffic, wear and tear on the roads, and the general displeasure of having to look at garbage on the curb as well as listen to garbage trucks going by.

Apparently, the city council is bypassing the city vote.  Instead of rolling it into the taxes, they’re basically still making residents pay the garbage hauler, but they’re eliminating all but one of the trash haulers licensed in the city.  People that leave for the winter can turn the service off, with a nominal re-activation fee in the spring.

And, the price for three months will be $45.  That’s $35 every quarter, or $140 saved per year.  That’s nothing to sneeze at.  Even people that leave for four or five months will save for the time that they’re using the service.  Plus, we’ll have one day of trash pickup in our subdivision, less wear on the roads, and I believe they actually provide better service.  They’ll take more recycling than they do now, they’ll provide residents with larger trash bins and recycle bins, and they’ve agreed to purchase all new equipment.

For us, the hauler that was chosen is the same one we’re using, so I’m hopeful that the transition will be relatively seamless when it happens.

I can’t really see a problem with this and am glad that our city government is helping our residents save money.

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First, I’d like to thank ‘Where Are We Now’ for including my post about the next steps the government should take in the 34th Money Hacks Carnival, and for doing a great job on the carnival this past week.

With that being said, I received a check for $2,700 today. I knew it was coming but I’m debating what to do with the money. I had stock invested in a company that was acquired in a cash transaction purchase. Essentially what that means is that the purchasing company pays a certain cash price per share for the outstanding shares of the company that they are acquiring. The alternative, which is also very common, would be where the purchasing company swaps stock, in which case I would have had the option to own stock in the buying company.

Because they did a stock transaction, I had no choice and today received a check for my shares, which totaled $2,700. I have a few options on what we’ve considered doing with this since we received word that the check would be coming:

1. Re-invest the money into the purchasing company - Basically this would accomplish what a stock swap purchase would have.
2. Re-invest into the stock market through our brokerage account - In a way, the timing of this couldn’t have been better. The purchase price was agreed upon about 4 months ago, and thus the share price was locked. I’m convinced that the share price of my shares would have been pummelled during the downturn, and they’d be worth a lot less than $2,700. In this case, one could make an argument that this would be good to re-invest in the stock market in some fashion.
3. Re-invest into the stock market through our Roth 401(k) retirement account - We have a good chunk set aside for retirement, but not as much as I’d like, so retirement investing could never hurt.
4. Use the money to pay off debt (student loans) - We’ve been focusing our attention on paying down my wife’s outstanding student loan balance. I had been considering selling the stock anyways even before the buyout was announced, as it hadn’t been a very well performing stock. This would be a good chunk of the student loan balance taken out at once.

I’m curious as to what anybody might think. We’re leaning toward paying the student loan down, as we’ve been concentrating efforts on reducing our debt load. Still, I’d be interested to hear if anybody has any other advice.

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I had heard great things about ING Direct savings, so I was confident that we had made a good choice in choosing them to diversify our savings.  That confidence got a bigger boost when I found that they have created a “We, The Savers” pledge, which is a 10 point plan as drafted by their CEO of savings, that if people followed it, would provide financial independence.

Here are the ten points:

1. We will spend less than we earn. Saving a little out of every dollar we bring home is the foundation of independence. Without it, we can’t build equity in our home, we can’t invest for the future, and we can’t be ready for challenging times. We promise to pay ourselves first, always.
2. We will use our home as a savings account. Besides shelter and comfort for our family, the role of a house in our financial life is to build equity. We will have a healthy down payment when we buy. We’ll choose the mortgage that lets us pay down the principal fastest. And then we’ll leave that equity safe where it is instead of spending it on things that don’t last.
3. We will take care of our money. It’s not enough to have money in a bank. We will put it where it will grow. We’ll keep track of it. And we’ll check every account we have every year to protect ourselves against fraud or escheatment.
4. We will defend our credit worthiness. Good credit is going to be precious in the years to come. We will pay our bills on time. We’ll borrow only when we need to and in amounts we can comfortably pay back. And then we’ll do just that.
5. We will ignore unsolicited credit card marketing. We decide when we need a credit card, not some marketer. And mostly, we probably don’t need another one at all. We won’t even open those solicitations. We’ll shred them.
6. We will know the cost of borrowing. The interest lenders charge us is real money, too. When we buy a mortgage or finance a purchase, we’ll figure out what that interest is really going to cost in dollars, add it to the purchase price, and ask ourselves if it’s still worth it.
7. We will invest for the long term. Futures are built out of patience and prudence, not luck. We will not put off being a saver because we think there’s a lottery win in our future, in Vegas or on Wall Street.
8. We will take care of the things we have. We work hard for our money, and it’s disrespectful to waste it – or the planet – by treating our possessions as disposable.
9. We will remember what matters. We are not the things we own. If we have to spend and spend on bigger, more impressive things to keep up with our friends, then they are not our friends at all.
10. We will be heard. Our representatives in government and the corporations we deal with need to know that we are paying attention. If we’re silent, we’re accepting the status quo, and the business practices that got our country into this situation will continue. We are not going to accept that.

These are great points, and I urge everybody to read them often, because they hold a lot of truth.  Thanks to ING Direct!

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Here’s another good example of why it pays to ask for discounts, this time with regards to our cable TV and Internet provider.

Two years ago, I was unhappy with the cost of my cable provider (who provides cable TV and Internet). Their main competitor in the area, who I had been with years ago, was offering a promotional rate that was about $50 per month cheaper than what I was paying (for equivalent service). I called my cable carrier and explained that I was hoping that they could match the rate. I was really hoping that my carrier would come through, because the reason I had left their competitor earlier was because of awful service, and I didn’t really want to go back, but probably would have for $50 per month.

They listened to my request, and said that although they weren’t able to match it, they would knock $40 per month off my bill. This was split as $20 each towards the cable TV service and the cable internet service. When I made the calculation, it was about $10 per month more than the promotional rate of the (poor service) competitor. I figured that the $10 monthly difference was worth the satisfaction of great customer service.

They gave me the rate for 12 months. Last year I wasn’t so diligent, and saw my rate jump up $40 once the promotion ended. I called back and asked if they would give it to me again, which they did. Still, I had about a month of paying (i.e. wasting) $40. So, I made a note to call before it expired this year, and today was the day that I made the call as it was set to expire upon the next billing cycle.

I’m happy to report that they were once again happy to renew the rate!

Since I had canceled some services earlier in the year, I was afraid that they might not be willing to give me the full discount, but the representative didn’t hesitate. The $40 per month represents a discount of over 30% of the total bill and will save us $480 for the next 12 months.

Not bad for one phone call per year!

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There are always ways to save money. Some of them involve cutting back on things, such as eliminating things you spend money on. You can also bring in more money and save it. Sometimes, though, you have to spend to in order to save. This means that you knowingly spend money in advance, with the idea that it will, down the road, provide savings later that are bigger than what you spent. In other words, you’re making an investment. You’re agreeing to the concept I call ’spending to save’.

This practice can be a positive thing, but only if you know where to draw the line. If you’re not careful, it can get you into trouble.

Let’s start with a few positive examples of ’spending to save’:

• For people who love to watch movies, a purchase of a Netflix subscription may be a good example of ’spending to save’. The alternatives are to spend money on going to the movies, renting lots of movies from the video store, or purchasing premium cable channels. A Netflix subscription can provide the same level of enjoyment as these things and end up costing less money in the long run. This would make it a good example of ’spending to save’.
• Taking energy saving measures around your house is an excellent method of ’spending to save’. For many parts of the country, you’re going to need to heat or cool your house no matter what. There’s just no getting around it. So, by taking such measures as adding attic insulation, caulking around windows, and purchasing a programmable thermostat, these things will most likely pay for themselves. Again, a good example of ’spending to save’ at work.
• For people who enjoy dining out, the purchase of an Entertainment book is a very good way that you can ’spend to save’. You can usually find an Entertainment book for $20 - $25, and they have 2-for-1 coupons or ‘percent off’ coupons that can be enjoyed for a variety of restaurants. Most metropolitan areas have these available. Tip: there are many other things besides food that the Entertainment book can be used for. Oil change shops, movie theaters, dry cleaners, sporting and concert venues, and many other places will often offer coupons. The biggest effort is in remembering to use it, but once you start, you’ll find yourself looking in it regularly.

Those are some good ways of ’spending to save’. But, that concept can get you into trouble if you’re not careful. How? Here’s some examples:

• Spending $1,000 on a $1,500 television set. Were you planning on buying a TV? Could you have lived with what you had? Did you need the bigger one or could you have gone with a smaller one? More points off if you use credit card to buy it, because the interest payments will most likely eat up your savings. In this case, you’re spending money on something that is questionable in terms of whether you really needed it.
• For people that enjoy reading, buying books on sale is a bad way of spending to save. Yes, you read that right. Buying something on sale in this case is a negative! How can that be? Easy. Because almost assuredly, you can rent that book or another that you’ll get just as much enjoyment from at your public library. Most communities have a library, and your tax dollars are funding it, so I say use it often!
• Buying something that’s on sale that you don’t need know, but are SURE you’ll need in the future. I won’t give any examples here because there are an infinite number to choose from. But, I’d guess that a good chunk of sales at dollar stores are geared towards customers who think along these lines!

So, ’spending to save’ can be both good and bad. I think that the best way to summarize the difference is that it can be a positive concept if you’re spending on things that are necessities. If you spend in a way that reduces your costs down the road for these things, I see this as a positive. It turns negative, however, when you’re ’spending to save’ on luxury items or things that you don’t need at all. When it crosses into this territory, it can work against you.

Make sure you use the concept of ’spending to save’ wisely!

One of the many things that my wife and I did this weekend was spend some time at the outlet shopping center about an hour away from home.  We generally make an afternoon of it and go twice per year.

This weekend proved to be particularly fruitful, probably because of it being a holiday (Labor Day) weekend.  The stores had lots of sales and we took advantage.

The important part was that we limited our purchases to things that we were planning on buying anyways. How many times have you heard someone say that they saved SO much money, but that they spent money they weren’t planning on spending in order to get the savings.  That’s not really the definition of saving in my eyes!

In our case, we bought things that we needed or were going to buy in the near future.  We got some incredible deals.  Here are a few examples:

• I have a collection of Christmas Villages that I enjoy.   There was a sale at the Lenox Outlet for 75% off retail price.  I bought a piece and my wife bought me a piece in advance of our first anniversary, which is in a week.   I usually get one piece per year, and since I didn’t get one last year (too busy), this was just perfect!
• We have a set of dishtowels and dishrags for our kitchen that we picked when we moved in (summer 2007).    Everything is holding up fine except the dishrags are starting to show the most wear. In other words, they smell!   We found replacements in a color that will be discontinued, and got them for $2 cheaper than at the non-outlet store.    This ensures that we’ll have at least two more years of use from the set of towels that we have.
• My wife got me started on what ended up being the deal of the day.  She found a very nice shirt for me on the 75% off rack at the Geoferry Beane outlet.   It was originally $40, so I got it for $10.  I generally get most of my shirts at the outlet center.   As a ‘holiday’ bonus they gave me three $5 coupons, one per ’sister store’.   These were Bass, Izod, and one other whose name escapes me.  They were even lined up in a row.  How convenient!  I just had to spend $5 at each store to get the $5 coupon.  In two of the stores, I bought socks, which I needed anyways.  Two pairs cost a grand total of $0.99.  In the third store, I bought a tie, which I also needed as several of mine are starting to show wear (yes, I still wear ties to work!).  The tie cost me $4.99 after the coupon.  So the net result was a shirt, a tie, and two pair of socks, for just around $16.  All things I was looking for anyways!

I love saving money!

I’m trying to get in the habit of blogging every day.  I haven’t decided about weekends yet, but I would like to get at least one post every day of the ‘work week’ for sure.  I think that this will lay the foundation for a successful blog, because once it becomes part of my life and daily activities, it will be second nature.  Regular posts will get people in the habit of coming back to read my blog, at least that’s the plan!

I was thinking about this concept, and it led me to think that there are habits in personal finance which can help improve any number of areas, including debt, budgeting, and spending, just to name a few.  Here’s a few ‘habits’ that I came up with that help me keep control of my personal finances.  Let me know if any of these help you too.

• Save money by getting in the habit of checking your account balances every day - If you check your balances regularly, you’ll see if you’re coming close to getting an overdraft fee.  You also might look and realize you’ve been spending a bit too much.  How many times have you gotten a credit card bill or bank statement and not realized how much you spent until you saw the balance?  If you kept track regularly, you can catch this sooner and curb your spending before it hurts you.
• Become a pro at budgeting by creating and sticking to a payment schedule - Create a list  of recurring payments.  Don’t just look at monthly payments, but look for those that might come around once a quarter, annually, etc. Estimate what the payments will be and when they’ll be due.  Organize them in calendar order.  This will ensure that you’ll never forget about them, and will also get you prepared so the payment due doesn’t sneak up on you.
• Use automatic payments - Just about anybody accepts payment online, it seems.  You can even have recurring payments automatically deducted so that you never have to think about it.  This is great! I love the technology that’s gotten us that far.   I would sign up for these as it can simplify your life.  But, there’s a catch.  Don’t forget to…..
• Prevent disasters by verifying automatic payments - Automatic payments are great….until one gets missed.  Whether the bank messes up, the system went down, you didn’t have enough money, it doesn’t matter.  Once that payment is missed, there’s a problem, and a missed auto-pay often takes longer to notice, leading to the possibility of bigger problems.  The sooner you realize it, the sooner that you can correct it and prevent a headache.  Don’t always assume the payment goes through.  Get in the habit of verifying your payments.

Once you do these things regularly, they’ll become habit, and you will find yourself doing them automatically.  These are just a few things that you can do to make sure your finances are in your control!