Here’s an oldie but goodie from early 2011!
Here are my top 10 tips to save money:
1. Save Automatically.
Setting up automatic contributions is the best way, in my opinion, to save money. It is simply harder to spend money that you can’t see. I’d suggest starting by contributing the minimum to your 401(k) to get the maximum company match. Then take a look at Roth IRA’s. If you don’t qualify, think about saving automatically to an account that you can use to invest in whatever you wish.
2. Prioritize Your Spending.
It’s much easier to say no to a fancy new car if you know that you rather fully fund your Roth IRA. If you know you absolutely adore your smart phone, maybe it will be easier to save elsewhere, like a magazine subscription you barely have time for. Prioritization is key.
3. Give up Expensive Habits.
Smoking comes to mind first simply since I saw a man in front of me at Kroger pay $7 for one pack! OUCH. Drinking, bar hopping, drugs, soda…any regular habit that costs money adds up fast. We’re saving about $250 a year now that we’ve given up our daily soda habit!
4. Find cheap hobbies.
Blogging and board gaming have been awesome for me. Blogging has actually turned into a money making opportunity and board gaming is only as expensive as allowed. We buy less than $250 worth of board games a year and we are entertained weekly. The trick is to find a hobby that you crave to be a part of that costs way less than the normal ways you spend your time.
5. Change to less expensive activities.
My husband has paused Curling (the ice sport) for the last 2 years and has saved more than $1000. His hobby jobs and board gaming have taken up this time. :-) It is all about prioritization. If we ever needed extra cash, expensive activities would be the first to go.
6. Cook at Home More.
This only saves money if you learn to cook using inexpensive ingredients. My mom is the queen of a yummy one-pot meal. I personally have started jumping into all recipes that use ground beef or turkey as the main ingredient, lol.
7. Make Grocery Lists.
This is a life saver if you actually follow your list. You have control over what goes into your cart…if you keep that in mind, you can save hundreds of dollars every month or two.
8. Compare Prices for Your Different Monthly Services Annually.
I call around for cable, internet, and insurance quotes every year and have kept our bills at the same or better rates they were 5 years ago. A 10 minute call can really pay off.
9. Make Long-Term Goals.
Goals keep your mind from wandering when a nice but expensive what-not pops up. Our early retirement goal keeps me driving my cruddy Aveo simply so I can continue to save instead of making monthly payments.
10. Re-Evaluate Your Housing Costs.
We were paying $730 for a one-bedroom apartment that was 1000 square feet in 2006. We realized that we’d only have to pay a few thousand more a year to own a home and build some equity. Then we had a $740 a month mortgage and spent $2300 a year property taxes by early 2007. Now we have paid that home off, use it as a rental, and bought our next home. If you take into account the rental income, we’re paying less than $600 a month now for our dream home including the property taxes of both houses and our current mortgage payment. Renting out a room on and off for the last 6 years helped a lot too.
What other everyday tips do you have for us?
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The following is a guest post from Shelli Elledge at Written FYI. Shelli is a business analyst whose interests are personal finance and healthy lifestyles. Some of her financial ideas differ from the mainstream, but she offers additional viewpoints about saving and investment. (Crystal’s Note: She’s also a sweety, so be nice whether you agree or not with her non-typical option, lol.)
In many ways, savings, investment, and retirement plans are viewed differently than in the recent past few years. Although the concept of saving for emergencies, large ticket items, and retirement is still the same, the tools are not as effective as they once were. The traditional plans, including money market accounts, IRAs and pension plans, are under scrutiny as to their stability in today’s economic climate and are questionable as to whether they are user friendly.
Savings and Money Markets
Savings or money market accounts earn miniscule amounts of interest, and then the interest earnings are taxed at the end of the year. This is nothing new. It means that the earnings on these types of accounts do not keep pace with the rate of inflation. To me, these types of accounts are not viewed as interest-earning but are simply a location to store one’s liquidity for temporary or short-term purposes.
Individual retirement accounts (IRAs) are retirement plans provided by various financial institutions. There are several different types but the overall benefit is the tax advantage. However, some of the disadvantages are that early withdrawals are penalized, mandatory withdrawals at certain age limits, meeting exemption requirements for withdrawals, and distribution amount requirements. In a nutshell, the most unappealing part is the tracking, the restrictions, the penalties . . . well, you get the picture.
Pension plans are not as common today as they used to be. Many corporations have replaced it with the more-common 401k plan. However, pension plans are still used by many government agencies as retirement plans for city, county, and state workers.
To put it another way, it’s the retirement plan that first-responders, firefighters, police men and women, and teachers, and other service workers rely on. Yes, the same public service workers who protect and serve the public’s needs on a daily basis. And it’s also the same type of plan that is being scrutinized in Detroit today because of that city’s dire financial problems. Many retirees and future retirees are playing the waiting game and are anxious to see how the bankruptcy proceedings play out. Although the immediate impact will be felt in Detroit, many other American cities are in similar situations.
So, if the typical savings and retirement vehicles aren’t really so attractive, what choices do we have to house funds for long-term? What I’ve done over the years is taken out whole life insurance policies. I know . . I hear the groans now but don’t shut me off yet.
My husband and I both have term insurance policies as well as whole life insurance policies. Term insurance is cheapest and we consider it a safety net in case we die. After all, it’s the cheapest type of life insurance. However, our whole life policies we have long considered avenues for long-term savings – with a death benefit. Yes, it is more expensive but it does more things.
For example, we’ve used our policies to buy real estate because we’re able to access cash value in the accounts. The insurance company considers them loans and we still pay them back, but the funds are liquid and it’s available for us to use. There are no early withdrawal penalties and earnings on the funds housed in our policy are not taxed. It forces us to put set aside funds, yes, just like we would set aside funds for a savings or retirement account. But we are putting our funds in a life insurance policy, which is a financial tool that we should have anyway.
What sorts of accounts do you use?
Since we do want to build back up our $10,000 emergency fund as quickly as possible (you can click here to read about the dental bills that are wiping it out), we have decided to do several things:
- Mr. BFS is signing up to officiate as many football games as possible between September and November. That should bring in about $4000.
- He is also looking into tutoring opportunities to use all of his teaching experience. Those can pay between $18-$25 pretty easily.
- I am looking for more babysitting and petsitting opportunities since I enjoy it. That doesn’t make a ton, but it’s fun to me.
- I may be taking a part-time marketing position for a friend of a friend’s air conditioning business since he needs some experienced help. We’ll see how that turns out by the end of this week or after we get back from our cruise.
- We are making sure to spend consciously. That means we literally think about every purchase we make to ensure it’s worth it.
The Return to True Conscious Spending
Mr. BFS and I aren’t spendthrifts. But if you’ve read my blog for even a week or two, you probably figured out that we are not in the “frugal blogger” niche at all either. We save at least 10% for retirement, invest at least 10% (either real estate or stocks), save for large other goals, and spend the rest. We truly believe it is possible to budget in a fun life even while you are responsibly handling your future. We live that way.
So, in the last few years, we have pretty much stopped sweating the small stuff. We have concentrated on the big picture and moved on with our lives. For example, we saved up more than $100,000 over 18 months to pay off our first home’s mortgage and to put down 20% on our new home at the same time. But we also splurge for $700 food bills each month, a $200 housekeeper, and $80 a month for lawn care. We prioritize regularly to make sure that we are getting the most use and enjoyment out of our money spent.
Honestly, I think that is the mentally healthiest way for us to live since I am detail-oriented to a fault when I really get going. BUT, we know we can shave off about $1000 a month in spending if we truly evaluate every purchase and only spend when it’s worth it to us.
So for the next few months at least, we are going back to our post-college selves. We are asking ourselves “This or the emergency fund?” about everything. So far, it has helped us avoid spending extra on convenience food, home stuff, and even a few little things that we just liked when we saw them on Amazon. Gifts are becoming a little cheaper but very thought out. We have started eating at home before we leave to meet friends somewhere. I’ve even been limiting myself to a one-drink minimum ($4) plus water at the karaoke bar I have started going to with our friend, B.
This is Most Likely Temporary
Based on these last couple of weeks, I know that we can totally do this for the rest of the year. But once our emergency fund is back up to $10,000, I bet we return to looking at the big picture. Analyzing every expense is work. It’s not difficult, but it also isn’t enjoyable. It was necessary years ago, but not now. I liked being able to aim for just not spending more than a certain target number. I understand that we splurged regularly, and I am okay with that. My main reason for not being a frugal blogger is that I think it’s generally a big time suck.
I value time way more than money. I waste it just like everyone else, but I like knowing that I am wasting it by choice when watching Dr. Who or something. Thinking about small expenses all of the time and avoiding $1 McDonald’s drinks is an excellent way to save up money fast, but in the end, I think that not worrying about stuff like that worked better for us.
We had to do it right after college to save up to buy our first house and get the life that we wanted. It makes sense to do it when times are tough. And we are choosing to do it now to save up $10,000 faster than we could by just waiting for it to accumulate.
Think of this as proof that conscious spending works. But on the flip side, it is also okay to choose a less frugal lifestyle (without going overboard) if you have the money to do so. I don’t think it’s healthy to live paycheck-to-paycheck since it’s super stressful and it all can crumble with one bad month. But I also don’t think that it’s necessary to crack down on yourself forever even when you are saving appropriately anyway. In short, finding your own happy balance is the key. Temporary visits to different sides of that balance can work too though, lol.
What do you think? Balance? Spendthrifty? Frugal? What is your way of living?
For the last few months, I’ve let our finances basically go on auto-pilot since we do make enough to pay our bills and save some for the future. I was watching everything like a hawk daily last year since we were buying the house, so I set everything up this year to make it pretty easy to handle again.
Automation Kicks Butt
We have automatic payments set up in our blog income account to auto-transfer biweekly paychecks to our checking account. All of our bills (except the stupid water bill on the new house) are automatically charged to our credit cards or drafted from our checking account depending on what the billing company accepts. The water bill has a 5% fee for having it auto-drafted, so I get the bank to send them a real check every month through bill pay.
Other than that, I only log on for about two hours every month to print off our credit card statements, enter everything into our budget, and once I verify all of the charges were ours, I set up the credit cards to draft their payment from our checking account. I also use that same time to move any extra money to the savings account or investment that we are working on at the time.
So our finances are handled with about 2-2.5 hours of work per month.
Reviewing Our Finances
The odd thing is that even though this is working for us – in fact, it’s awesome for us – I still can’t help but to want to review everything in detail every few months. I guess that’s great since it means that I am keeping an eye on everything, but it also means that my anal side is showing. Oh well.
Here is what I’ve decided for right now:
- Our emergency fund is going to take a $6000 hit in a couple of weeks for hubby’s dental stuff, so refilling our emergency fund is becoming a priority.
- The automation is working well, but we could stand to review all of our little splurges and see if there are any painless cuts that can be made again.
- We need to make up our minds on whether to fully fund hubby’s Roth IRA this year as planned or save that $5500 towards a down payment on another rental property.
- Early next year, we’ll need to decide whether to start funding a SEP IRA or use that cash for rental properties too.
- Overall, we are on track. All of our bills are covered and we are hitting all of our basic savings and investment goals. It would be nice to cut our bills down by $500 or so in food and entertainment splurges, but overall, we aren’t hurting ourselves.
- I really, really miss late 2011 and early 2012…our income was just amazing back then. But I am very thankful we are still doing well.
Do you automate your finances? Do you check in on everything anyway too?
For the past year, we really haven’t been able to stick to a specific plan for saving, investing, and putting aside money for fun. From April through October 2012, we were stashing away as much cash as possible just to close on our new house that was being built. From October through December 2012, we were rebuilding cash reserves and making an attack plan to pay off our rent house mortgage. And from January to early April 2013, we were redirecting all extra money towards that mortgage which is now paid off. So, for the first time in a year, we could really use a plan that isn’t all-or-nothing.
The New Plan
Mr. BFS really misses the balance that we had up until this time last year between paying our bills, saving for our future, and budgeting in the fun stuff . He wants to get back on track. I agreed that it was time to step back and breathe a little. So here is our new spending and savings plan…
Step One – Cover the Stuff in Our Budget
Here is our current budget of necessary expenses, chosen luxuries, and the new-to-us car savings goal that we need to be able to cover every month no matter what…
- Income Taxes – $2500
- New-to-Us Car Fund – $500
- Home Mortgage – $990
- Home Insurance/Property Taxes/HOA – $750
- Rent House Home Insurance/Property Taxes – $275
- Health Insurance – $360
- Life Insurance – $30
- Car Insurance – $55
- Electricity – $175
- Water – $60
- Natural Gas – $40
- Gasoline – $150
- Eating Out – $250
- Groceries – $250
- Sprint – $150
- Cable/Internet (DSL) – $120
- Medicines – $20
- Toll Roads – $25
- Housekeeping – $175 (average over the year)
- Lawn – $80 (average over the year)
- Miscellaneous – $200
- Cash – $100
- Total Expenses = $7255
Then comes the fun part. :-D We bring in about $8000 a month from the business and at least $2000 from rent house and reffing income that Mr. BFS brings in. So, in a normal month, it looks like we’ll have about $3000 extra to leverage how we wish. Here is what we came up with.
Here is how we are allocating the monthly extra until our 2013 Roth IRA’s are taken care of:
- Roth IRA’s – 60%
- Emergency Fund – 10%
- Rental Property Maintenance Fund – 10%
- Mortgage Payoff – 10%
- Vacation Account – 5%
- Fun Money Accounts – 5%
Long Term Plans
We aren’t 100% on all of our long-term plans, but we do know we want to be financially independent as soon as possible. That mostly means that we want to work towards complete debt freedom and funneling more into our retirement planning. With that in mind, when the Roth IRA’s are fully funded, we will be opening a SEP IRA and Mr. BFS will start investing in some of our favorite stocks again. In fact, we may end up doing it this way every year – fully fund all of the Roth IRA’s and then move on to putting as much into the SEP IRA and stocks as we realistically can while still having fun with 10-20% of the extra too.
Anyway, thanks for reading along as we figure stuff out. How have you been doing? Anything you want to just let out?
The following is a guest post by Kim, an optometrist by day and blogger by night. You can follow her journey toward 20/20 financial vision at Eyes on the Dollar. She’s been a huge supporter of BFS and I am very happy to have her featured today!
With health care costs on the rise and lots of confusion about new health care laws, it might seem easier to ignore the whole thing. While tuning out the politicians and insurance companies might be appealing, one option you need to follow through on is having some sort of health insurance. Even if you are young and healthy, what would happen if you were hit with a serious injury or extened illness? A week in intensive care could set you back $100,000. If you don’t have that kind of emergency fund, you need health insurance. If your employer offers a very complete plan at little or no cost to you, that would be a great option. If not, you will have to decide which type of policy makes sense for your needs and budget. While there are several options available, I think the advantages of a health savings account far outweigh other types of health plans.
What is a Health Savings Account Plan?
An insurance policy that is health savings account eligible is a high deductible health plan. Generally, the premiums are less than a plan with a low deductible, the theory being that the savings in premiums will be more cost effective that paying a higher bill each month for coverage you don’t need. To go along with the plan, you set up a separate health savings account at a bank or other institution that offers this type of service. When you have an eligible medical expense, put money into and pay the bill from this account. You can make regular deposits up to the maximum annual contribution limit, or you can put money in only when you have an expense.
Who Benefits from a Health Savings Account Plan?
If you are healthy and only go to the doctor for an annual physical and the occasional illness, this is a great plan for you. If you have a chronic condition that requires multiple doctor visits and several medications, this might not be the best idea.
My husband is a teacher and has wonderful health insurance that is covered in full by his employer. My five year old daughter and I could be added to his plan. It covers most everything with small copays for some services. To be added to my husband’s group plan, the cost is $500 per month. We elected to go through the private sector and purchased a high deductible HSA plan that costs $190 a month, effectively saving $3720 per year in premiums alone. If your annual medical expenses averaged more than $6000 a year, the group plan would probably be the better option.
A huge advantage of a health savings account is the tax benefits. If you have an eligible plan and set up a corresponding HSA account, any money deposited into this account is subtracted from your Mean Adjusted Gross Income for tax purposes. For 2013, the maximum amount you can contribute is $3250 for individuals and $6450 for families, with an extra $1000 “catch up” contribution allowed if you are over age 55. We generally average around $2000 per year on doctor visits, dental visits, and medicines. In our tax bracket, using the HSA to pay medical bills saves $600 a year in taxes.
Last year our income was just over the threshold to include my husband’s master’s program tuition as a deduction. By switching $2000 from savings into our HSA, we qualified for the deduction, which saved an extra $1600 in taxes! You have until April 15 of the following year to contribute for prior year’s tax benefits. If you need some tax help for 2012, you still have time.
Interest earned on HSA money also grows tax free, forever. There is no “use it or lose it” penalty like with flexible spending accounts. If you withdraw money to pay for qualified medical expenses, you will never have to pay taxes or penalties. While I haven’t done it, you can set up an HSA account to invest in stocks, bond, CD’s, or annuities, but always consider volatility and how fast you can get to that money if you need it.
What are Eligible Medical Expenses?
Another wonderful advantage of health savings accounts is the variety of things you can do with them. If you have money in your HSA account, it can be used for regular doctor visits, dental visits, optometrist visits, glasses, contacts, braces, LASIK surgery, medicines, chiropractor visits, physical therapy; the list of eligible expenses is very long. You can even use HSA money for over the counter medicines IF you have a prescription from your doctor. If your doctor recommends that you take vitamins or use aspirin, have him or her write that in a prescription.
Are There Any Penalties?
If you do use your HSA money for non-elilgible expenses, you will have to pay regular income tax and a 20% penalty. Much like taking money from your 401(K), you need to think really long and hard before you use this money for something other than it’s intended use.
You also can’t use HSA money for non-dependent care. With the new health care laws, you are able to keep adult children on your health plan until age 26, but if you don’t claim them as a dependend, you can’t use HSA money for their medical expenses.
While it might be nice in theory to have expansive insurance coverage, it is expensive. Financially, an HSA plan makes more sense for my family. Last year alone, it saved us over $5000 in taxes and premium payments. No one likes to pay money for health coverage, but you really can’t afford not to. If a health savings account makes sense for you, it is a great way to take some of the sting out of the high cost of health care.
Crystal’s Comments: Thank you for the explanation, Kim! Does anybody else have experience with HSA’s? Anything to add to Kim’s breakdown?