Category: Saving Money

Summer Vacation Money Saving Tips

How do you save money when traveling during the summer?  Well, here’s a step-by-step guide.

Step 1.  Airfare:  First, you have to get there, right?  The question that most people have on their mind is how to get the lowest fare.  The new lowest fare, for both international and domestic flights, is called, The Super Economy Fare.  They are the new, no frill, seats.  How do you know if you have one?  Well, they will not only be the lowest priced, but they will also, have you board the flight last.  Why? Because they are the last 2 -4 rows.  This means they are the seats by the bathroom.  They come with an absolutely, no refund-no exchange policy.  If you are certain you are going and don’t mind the above, then you will save some serious change.  Before purchasing, if you are an online, do-it-yourselfer, I recommend that you contact the airlines or a travel agent.  The seats have a code attached to them that you cannot see.  They can decipher the code and check it for you.  Finally, the airlines may limit your carry-on bag to zero.  There is, however, a way around it, shown in Step 2.

Step 2.  Amount of Luggage:  Purchase a luggage jacket.  It is a front-zippered jacket with both inner and outer pockets.  Some of the pockets are long, short, wide and narrow.  The pockets are expandable.  They are quite fashionable.  The vests are thigh length, colorful and chic, with long, short or no sleeves.  Now, you don’t have to carry on any luggage at all, or at the very least, you can get your two bags down to one.  Since they are re-usable, you will earn your small investment back in no time.  Once you arrive at your destination, you can empty those pockets and refill them with your passport or credit cards.  Look on the net under, Travel Jacket, for your favorite style.

Also, weigh luggage before you leave home and subtract five pounds.  This is because the airlines scales can be a bit off.  You may be able to get them to re-calibrate their scales by asking them.  Even better, just request a different scale. This can be a huge money-saver.

Step 3.  Travel Insurance: Simply put, not recommended.  Why?  Because you have to go through a lot to get reimbursed and even then you may not.  They also come with pages and pages of conditions.  If you insist on getting it, read the Terms and Conditions, line by line.  They are sold with loopholes in favor of the Insurance Company and are pushed heavily by travel agents and the airlines.  They are a huge profit for them.  Instead, check out the membership cards and your own credit cards. Many people do not know that certain American Express comes with it.  Those dollars that you just saved can now be used for an upgraded, not so restrictive, airfare or for more fun in the sun.

Step 4.  Hotels:  How to save money on your hotel is easy.  Request from the hotel the room that is the most restrictive in change-ability.  You will get the room at the rock bottom, lowest price.  These will be the rooms with the no refund-no exchange policy.  Now that you’re at that price, check to see if you can upgrade to the same room type but with less restrictions.  To find them you can go online or have your travel agent search and compare for you.  If you decide to call the hotel, use their direct number.  The 800 or 866 numbers are usually out-sourced.  The reservationists may not be provided the proper codes to book them.

Step 5.  Apps:  Need a City Guidebook now that you’re there?  Download a free App!  Simply say the Destination City plus the word Guidebook.

Now, with these five easy steps, you’ve saved quite a bit of cash.  You can now enjoy the summer with more money left on your card.

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Pay yourself first and keep MORE money

Here’s an obvious yet terrifying fact: Nobody’s going to save money for you. So, if you’re not willing to save then you’re kind of shit outta luck with no one to blame (besides yourself). The government may be saving money for you too, but who really wants to rely on that?

While it doesn’t hurt to wish that you had a few extra zeros in your bank account, wishing won’t actually make the zeros appear. A magic genie might, but I wouldn’t hold my breath.

It’s all up to you, and it looks like you’ve decided to save, and that’s great! Yay, I’m so happy for you. Alright that’s enough of a congratulations, because you haven’t actually done anything yet. I hesitate to offer a sincere congratulation because so many people faulter on their goals. If you’re going to be in the Moneyseed camp you have to start packing a little bit of stick-to-it-ivenss or you’re going to be in the same situation you’re in now. For those that have started saving already, kudos.

I’ve cracked the surface on how to save money, but now it’s time to explain what it means to “pay yourself first”. It’s a really simple concept really. Basically you should just treat your monthly savings like it’s a bill.

You know that you have fixed monthly expenses that you wouldn’t even think about not paying ie., mortgage, student loans, cell phone service. Why shouldn’t savings become a fixed expense as well? If you didn’t pay your mortgage you’d get hit with a huge interest charge, right? Well if you skimp on your savings you’ll get hit with another form of interest charge: No interest (and I’m talking about the good kind)!!

You should already have an idea of the exact amount you make after-tax every month and the frequency of your paychecks. This will help you in setting a realistic goal for yourself. It isn’t realistic to say “I’m gonna save $10,000 this month” when you only make $3,000. It just wouldn’t make sense, unless you’re doing some crazy math I’ve never heard of.

When you know the amount you earn, and you want to pay yourself first, you can then decide whether you want to save a percentage of your income, or a fixed amount. For example if you make $2,000 every month, you could “pay yourself” 5% of that money into a savings account which means you’ll have $100 unspent. Alternatively, you could have just said “I want to save $100 a month” regardless of what the actual percentage is. I would recommend saving as much as you can, but not too much if you’re just starting. If you’re just overcoming a shopping addiction, you should be taking baby steps or you’ll end up back in the mall carrying bags from a myriad stores.

Make sure to set a goal for your savings. Saving just to save is stupid. I personally save for retirement, emergencies, vehicles, appliances, home purchases, etc. I know why I’m saving. I don’t care why you’re saving, but you should. Having a mental image of what your end result will be will keep you on track and not make that saved money look so pointless.

Johnny, wouldn’t it make sense to pay yourself at the end of the month instead, since you don’t know what your other monthly expenses are going to be? Short answer: No. The long answer is still no but here’s the reasoning behind my reasoning: If you pay yourself first, you’re set, the money is saved and you can wipe your hands clean. You can go ahead with the rest of your month knowing exactly what your bank account looks like and you can know that you’ve already achieved your savings goal. If you misfire, and you spend too much then oops you have to either cut back or you have to set a more reasonable goal for yourself.

If you were to pay yourself at the end of the month instead, you’ll pretty much always find that you spent too much throughout the month. You’ll have scraps left, because you nickle-and-dimed yourself like so many people do. I can attest to this, because for a while I was paying myself at the end of the month with whatever was left and it was always dismal compared to what I was anticipating.

Give yourself a high-five if you pay yourself first, or if you’re going to start now. And guess what? If you’ve already achieved your savings goal for the month, the rest of the money in your checking account is yours to spend (after paying your bills of course). For now anyway. We’ll try to cut back the money you spend on random crap and refocus it toward the things you actually care about in the next post of this series.

You really, really can save money. Here’s how.

We all know by now that the only reason that we aren’t all rich is because most people spend more money than they make. Since you’re reading a personal finance blog, and I’m writing one, I think it’s safe to say that we don’t want to be the type of people that have steady paychecks but little to no savings (and mountains of debt). Saving money can be a painful process, but it really doesn’t need to be.

As a wage-earning adult there are a few things you should know about yourself  before you try to save money. None of what I’m about to suggest to you is very abrasive. It’s all relatively easy as long as you take a few minutes each month to understand your finances. A lot of what I’m about to say is going to sound like a budget, but it’s not. I believe in the anti-budget and feel that real budgeting is as impossible as dieting.

You should have a general idea of the amount of money you make within a one-month period. If you’re a freelance employee, or you work on commission, it might be hard to figure out the exact amount you earn every month, but you should be able to come up with a decent average by basing this number off a “normal” month. Not the month where you had 1 billion sales and broke company records, and not the month where you had writer’s block and couldn’t get anything published. This isn’t really an issue for most people, because most people generally make the same amount every month, but surprisingly a lot of people don’t know what that amount is.

Whenever I talk about income I’m referring to the after-tax amount that hits your bank account.

Once you know how much you make you should calculate the amount you spend every month in fixed expenses (mortgage, rent, cell phone, utilities, car insurance etc). This information is important to know, because it equates to money that’s already spent. Most of the time you can reduce these costs, but focus first on figuring out the exact amount you’re being robbed by paying these bills every month.

When you subtract your fixed expenses from your income you’re left with discretionary money. This is the money you spend on stuff whether it’s lattes or a Netflix subscription. The problem is that most people are spending ALL of their discretionary money and then some, so they never contribute anything toward savings or retirement. You should be saving something, though, right?!

I would never tell someone to save money just to save money. How dumb would that be? That doesn’t really answer the question “Why should you save?” I’m obviously not you, so I don’t know what your plans are in life, but if you set financial goals it’s easier to achieve them than just deciding that you want to “be a millionaire” or something crazy like that. I would ask you “Why do you want to be a millionaire?” and “Just ’cause” isn’t a good enough response.

If you’re a total noob when it comes to saving you should start small. You’ll fail if you go from spending 120% of your income to only spending 20%. Gradual life modification is the only way to go. Set a manageable and realistic goal that you can achieve within the first 3 months of saving. That will give you confidence that you can actually accomplish something financially, and you’ll be able to increase the lofty-ness of your future goals.

Having a savings account titled “House down payment” and setting a time frame of when you want to have the account fully funded will give you the exact dollar amount that you’ll need to contribute every month to meet your goal by the “deadline”. The cool thing about this is that once your account hits the magic number, you may not be interested in whatever you were originally saving for and decide that you have bigger goals you’d rather tackle.

You may have realized by now that if you’re going to save anything it’s going to have to cut into your discretionary money. That’s just life, take it or leave it. You won’t have as much money every month to spend on Hair Gel or Girl Scout Cookies, but you shouldn’t try to completely change your lifestyle overnight or you’ll fail. Think: Small changes. If this is your first financial savings goal ever, you’re going to want to decide on a  time-frame (I’m giving you 3 months), a dollar amount (No more than $500) and whatever the hell you actually want. A new cell phone? To buy yourself out of a cell phone contract? Whatever.

The next step (after you’ve decided your goal and time-frame) is to set up an automatic transfer from your checking account to your savings account for every time you get paid. I’ll use myself as an example: Let’s say I make $2,000 a month and I want to save $100 a month to buy a new lawnmower in 3 months. I would log into my bank account online (or if I was old-fashioned I’d call the bank) and set up a recurring transfer of $50 every pay period, since I’m paid twice a month. Doing this will make it so I don’t even have to think about the cost of the lawnmower. I know the money is moving itself magically, and when I look at the balance of my checking account I know that I can actually spend that money while my goal is accomplishing itself.

This is the basic idea behind the concept of “paying yourself first”.

Do you have an emergency fund?

When you’re living a fast-paced lifestyle, or just a regular one like me, you may come across some out of the ordinary expenses that can impact your financial world pretty substantially. Especially when you aren’t prepared. But, guess what. Being prepared isn’t difficult whatsoever, it takes almost no mental effort and hopefully no physical effort. You just need a plan.

Lately we’ve had to throw money around like it’s cool to pay for things like a home inspection, vehicle repair, and a trip to Rhode Island for my sister’s college graduation. Ahh! Too many non-standard expenses! What is a JM to do? I’d say that I’m fortunate to have a savings account to dip into to pay for these expenses, but then I wouldn’t be giving myself the credit I deserve. The bottom line is: None of these expenses made me accrue debt, because I am always prepared for “out of the ordinary” expenses.

It’s become conventional wisdom that you should have an emergency fund or a rainy day fund. While an emergency fund may be a great thing to have, I think it can seem either intimidating or pointless by those people who may still have debt. Some of the finance gurus recommend 3-6 months of expenses in an emergency fund which sounds like the most daunting task on Earth.

If you’re under the impression you don’t need any savings, you’re wrong. Plain and simple. I think that developing a small nest egg is even more important than paying off debt, because being prepared is the best way to thwart off an increase in your debt. While I don’t think you need 3-6 months worth, I think you should reasonably calculate all of the things that could go wrong in your life and how much they would cost you. I like to imagine all of the bad stuff happening in one instance, that way my savings would cover anything short of a nuclear holocaust.

Car owners should have enough put away to pay their insurance deductibles, as well as any standard non-cosmetic repairs. Anyone who works a job without paid vacation days should have enough money saved to pay for unexpected days out of work, like in the case of a family member dying, or becoming hospitalized. We don’t like to think about stuff like this happening, but fortunately we can provide a little financial control in situations that really suck emotionally.

Once your emergency savings passes whatever threshold you determine is necessary to prevent yourself from letting Murphy’s Law push you into debt you can start saving to build wealth.

The oversimplified equation that I personally use for emergency savings is: The deductible on my home owner’s insurance policy + The deductibles on both of our vehicles + One thousand dollars for incidentals. The total is around $13,000, and our account never strays very far from that amount. My job is very generous with paid annual and emergency leave, so thank you taxpayers.

Peace of mind can be a powerful force, and if it’s the key factor that’s driving you to save and payoff debt then having money readily available can only help to ease your mind. Personally I think that having cash on hand for emergencies trumps the necessity to pay down debt. There are so many uncertainties in life, and there’s a clear reason why emergency funds are so heavily advocated. I’m not saying that you shouldn’t pay your debts, but you can stick to a “minimum balance only” plan until you have enough cash on hand to make you feel warm and fuzzy.

Once you hit your “magic number”, as far as emergency savings goes, then you either go down one of two roads: If you’re in debt, you start paying them off (highest interest rate to lowest). If you’re debt-free, you start investing. Use the time when you’re building up your emergency fund and paying down debt to learn how to invest.

For those that are completely lost with their finances and wouldn’t know where to begin with setting up an account like this here are the basics that you need to know: Call your bank, or log onto your bank account through their website and open up a Savings account. Typically, banks will let you name your accounts whatever you want to call them. In this case call the account “Emergency fund”. I would then set up an automatic transfer (either monthly, weekly, or whatever frequency you feel comfortable with) to move money from your checking account to the Savings account, so you don’t forget and end up being behind. Boom, that’s it!

To find the best Checking and Savings accounts available, try using Bankrate.com.

Only use your emergency fund if it’s an absolute emergency, but whatever you do don’t put yourself into debt because you don’t want to touch your precious savings. You may get pretty hooked on the fact that you have all these extra zeros in your bank account and you don’t want to lose them, but that’s what that money’s there for. Either way, you now have a spiffy new emergency fund (or are on the right track to getting one) and you’re one step closer to Financial Independence.

The Neglected “Secret” to Becoming Rich

I guess I wasn’t paying too much attention early on in my life, because I had no idea that middle class families actually struggled until I started my own. I’m not saying that my family didn’t struggle while I was growing up. I’m sure they did, but it wasn’t really a topic of conversation to be had over dinner. My parents made, what I thought to be, a shitload of money.

But now I’m older, and probably a little bit smarter (better looking??), and a fortunate member of the generation that was brought up with the Internet. It’s become apparent through all sources of the media that the middle class is struggling. Not able to pay their bills. Even becoming homeless.

There has to be something that these people missed along the way. And maybe the bills and cost of living truly outweigh the paychecks. I’m not going to claim to know everyone’s situation, so I’m speaking in general to the middle class.

I’d like to share with you today, the secret to becoming rich. The secret to a life of wealth. The secret to having a stash of Fuck You-money* that you can hold over your future employer’s head when you’re up in arms with them. And it’s extremely simple in theory, although it may (in some cases) take a complete life alteration.

The crazy thing about what I’m about to tell you is that I know for a fact most people aren’t doing it, because if they were there wouldn’t be too much struggling going on. There would still be complaints about tax raises and budget cuts, but most people would fare pretty easily.

I think I’ve built up enough of a hype already so here we go: The secret to becoming rich, wealthy and powerful (if that’s what you’re going for) is to spend less than you make.

Now you’re thinking “No shit Moneyseed”. Obviously this isn’t a secret, but with the way that people blow through money, you couldn’t help and think that maybe it is. If this is a known, why isn’t it put into practice? Why are tax returns spent on “me” money? Why do people have smartphones with a $90 data plan and continue to say they’re struggling? Why are they consuming gas? Why why why why!

I can’t really answer why for anyone, besides the fact that it’s what they’ve been programmed to do for the past x years of their life. Advertisement and social acceptance play a huge role in the way people spend money whether they realize it or not.

When the Mrs and I decided to get married, we both lived at our means. There was no saving. The fact that we were both making full paychecks and had no additional mouths to feed and still couldn’t save is borderline terrible. You see, our parents grew up in a generation where they had pretty much nothing, so once they had kids of their own, they decided “My kids aren’t going to have the same shitty childhood I did”. As one might have guessed, this led to chronic consumerism.

We had brand new expensive cars, cell phones, laptops, wardrobes. I’ll summarize: We had expensive taste in everything. But one day it hit me like a piano in an insurance commercial; we can’t keep spending like this. Stuff isn’t as important as our futures. Our future kids’ futures. And the simple solution to have money for the hard times was to spend less than we made.

Starting to save money wasn’t very hard for us. We set ourselves up on an extremely loose “budget”. Once our paychecks hit our bank account, we transferred about $100 into a savings account. Over time our accounting got better and better. Over time we learned what parts of our “budget” we were putting too much money in to.  Over time we learned what areas of our “budget” were completely unnecessary.

You can live your life thinking that other people are the problem. You can think that people have it out for you, or members of your family. You can habitually spend your entire paycheck or more. You can make that stupid joke a few hours after you get paid “my whole paycheck is already spent lulz”.

The media can tell you that you’re struggling. They can make you believe that it’s the system. That everyone is struggling. You might even hear everyone saying that they’re struggling. Well, we heard them too. But we decided to not believe them. We decided to not make excuses.

We decided to take the less common path, and started to spend less money than we earned.

I’d like to personally think that the Moneyseeds have left the middle class. It may not be true on paper, but we don’t live a lifestyle like anyone we know. We save over half of our take home pay. If our employer was downsizing and said “Hey Moneyseeds, money’s gettin’ tight, we’re gonna need to let you go” we would be able to sustain ourselves comfortably for almost 2 years with what we have saved.

Here’s the crazy part of the whole thing: We are average people. If you met us you wouldn’t think that old Johnny Moneyseed is a crampy-pants cheap-ass. You’d probably just think I was a regular dude. You’d probably notice that our kids had decent clothing. And that our cars aren’t rust buckets. But if you looked at our bank accounts, you might have a heart attack. But like I’ve stated before, the only thing we did was spend less than we earned.

You’d be surprised how fast savings can add up over time. If you read this blog regularly, it might add up even faster!

** Credit for the term “Fuck You-money” goes to Jim Collins.

Reducing the cost of commuting by moving

We live roughly 11 miles from work. Luckily, the Mrs. and I, work in extreme close proximity to each other, so we can share a nice car ride to work together every morning, and again at the end of the day.

Even though we live within a mile from the highway that leads right to our workplace, our 11 mile commute takes anywhere between 45 minutes to an hour. Every single time we drive to work. And again every time we drive home.

When we were in the process of buying a house, we were told that no matter where we lived we’d be fighting crazy traffic every morning. We were led to believe that sitting in shitty Maryland traffic day after day was the norm. Everyone does it!

The house we decided to buy was pretty much our dream home. 3 bedrooms 2 and 1/2 baths (one of which being a 12′ x 12′ enormous luxury bathroom). Hardwood, granite, stone face, the works.

Our monthly mortgage payments came out to about $2200 a month, but after closer inspection, it seems like our distance from work should be added into the cost of home ownership.

The first and most obvious calculation is of course gasoline consumption. FuelEconomy.gov states that my 2008 Volkswagen Passat has an average MPG rating of 22 miles, with premium gasoline. More realistically, including warmup time, acceleration, braking, stoplights, and dealing with Maryland drivers, I’m probably averaging something closer to 15 MPG.

The old VW traverses about 484 miles each month, divided into two daily 11 miles trips over an average of 22 commuting days . As we speak, the current local price of premium gas is: $3.95/gallon (GasBuddy.com). 32.35 gallons of gas is the amount that it takes to get us to and from work in one month. In dollars: $127.45.

But that’s not too bad, right? An extra $100, who cares! Well, it’s actually a lot more than $100, since that was only our FIRST addition to the cost of home ownership for us.

Next, you have to take into account wear and tear of the vehicle. CommuteSmart.info has a nice calculator to show “true cost” of your monthly commute. Their estimate of $3.357/gallon adds $.59 to every single mile you drive when you take into account general degradation, vehicle registration, insurance, tires, license, depreciation and finance charges. I ramped up the estimated cost of a gallon to the $3.95 (mentioned previously) bringing the total monthly cost of driving to: $472.71, of which only about $127 of that is gasoline.

Driving together every day for a month is ideal, but it isn’t always the case. Occasionally we have meetings or appointments we need to attend, and they are never as local as we would want them to be. I won’t add those numbers in here. Just imagine a bigger number.

So far the cost of commuting has added $472 to our mortgage, bringing it to a total of $2672 per month.

The most precious expense to Mrs. Moneyseed and I, is our time. It’s invaluable, but I’m going to assign it a value anyway, because that’s what Vicki Robins and Joe Dominguez taught us in Your Money or Your Life. At 90-120 minutes per day commuting, we waste almost 38.5 hours per month in traffic (EACH!). The value of 1 hour of each of our lives is about $8. It’s fair to say that we spend $616 worth of life energy EVERY month, sitting in traffic.

Amending the original mortgage cost of $2200 with the cost of commuting, and the value of personal time lost, we are left with a grand total of $3288.

What can we do about it? Well, we’ve had a hare-brained idea recently, inspired by the trek towards early retirement to reduce the cost of our commute. Without the availability of public transportation or the safety necessary for travel by bike, there’s only one real option: move closer to work. We’re not married to the idea of moving, but the idea of saving money daily is intoxicating.

We could rent our current house out pretty easily for the amount that would make a mortgage payment on it non-existent for us. That gives us the freedom to move without having to pay two mortgages out of the same coin purse we were using for the single home.

After searching the Internet and talking to our realtor, we found a few houses with price tags that are $150,000 lower, and are within 3 miles of work. With a 15 year mortgage, we’d be looking at a monthly payment of about $1400. Aside from the fact that it would be paid off in half the time, our payment would be $800 lower than our current home.

Being 3 miles away from work (and under extremely lazy conditions) the cost of commuting for one month would be: $273.53 Between the location of our potential home and our current place of work there are virtually no known traffic spots. Smooth sailing, 6 miles a day. As far as life energy is concerned, we would be spending a significantly less amount of time behind the wheel. 7.33 hours combined between the two of us @$8/hour that adds about $58.50 to our total. $1400 (mortgage) + $273.50 (commute) + $58.50 (life energy) = $1732, or $1556 LESS than our current situation.

Our full intention with living close to work is to be able to commute by bike whenever it’s nice enough to accommodate this behavior. We would literally be the only people that biked to work, but we’re also the only ones that are going to be retiring in their 30s! I consider biking to be a positive because not only is it free, it’s also great exercise!

The downside? Becoming landlords. We could take the easy route and hire a property manager, but since we live in the local area I feel like that would be a waste of money. I haven’t done too much research on the process, or the pros/cons of becoming a landlord. So I’m turning to you, Moneyseeders.

Do you have any horror stories about becoming landlords? Have you had any problems with the ownership of a second property? Do you think this idea could potentially put us in over our heads?