Is it easier to save?

Whenever I have needed to save money, like large sums of money, it has always been something that has been fairly easy for me. Many years ago I had two months to save $2,000 for a vacation with my grandma. I did that and then some, no problem. When I needed to save money to move to Kansas City, no problem saving up the money in a few months. Saving seems to be the easy part for me.

Even now, just a few days after my husband and I decided that we needed a hefty savings fund to pay for his lawyer and medical bills that we know are coming down the pipeline. ONE WEEK ago and already our savings account is at $3,929. (And Mr Woodpecker has another $1,500 check that is a wedding gift in his wallet that we need to cash – so there is easily our $5,000 goal and then some.)

What baffles me the most about all of this is how can I so easily save  money on one hand – and then be terrible at paying debt off on the other. Surely paying off debt is no different than saving money. It can’t be “compounding interest working in my favor” on these savings accounts. I’m looking at ONE WEEK at a 0.9% annual interest.

Perhaps it is just that I’m more encouraged by the total going up than a total going down?

Perhaps the immediacy of knowing that we WILL need this money? Paying debt is “saving” for purchases I’ve already made and purchases in the future that I haven’t yet planned. Saving right now has a very specific  goal: Keeping us from being crushed by medical bills in the next few months.

Instead of trying to analyze why saving money seems to have such a simple nature to it and paying off debt so difficult, maybe I should just say “interest be damned” and just save money until I get a pot big enough to pay off each debt in full. I’d still be paying minimums, of course, but perhaps if I can easily come up with $3-5,000 at a time using savings as a goal that I can just then transfer these amounts in huge chunks to my debt rather than just paying off the debt little amounts at a time.

Who knows… perhaps I’m not better at saving than I am at paying off debt. Maybe it is just easier to see because it grows, and debt just gets little chiseling and then BOOM monthly charges that work is gone.

Either way, I’m happy to report that our savings is growing. Our debt is remaining steady. And hopefully we’ll have enough saved to pay the onslaught of medical bills we know is coming.

The House Wishlist

All I can think about lately is this new house (and the new puppy I’m getting this weekend, pics to come!).

There is so much that I’ll need to buy and get done. It is a bit overwhelming!

I’ll have two people living with me when I move in, so they’ll be paying me rent. While I can afford the home on my own, the extra cash will help make living in the house a little easier monetarily. The plan is that all money that I get from my “tenants” will go to a savings account for the house! Between the two tenants I’ll be getting between $600-1000 per month (it is variable because one of them is my dad who pays me by the time he will spend in the house. $100 to store his stuff, $100 per week he is in town). The other “tenant” is Mr Woodpecker who will be paying $500.

So here is the “order” by which I’m planning on buying new things for the house:

1. Refrigerator – the sellers are taking their fridge. So the first order of business is a new fridge. We’ll be sporting a little portable fridge until I buy my new fridge. Since I have to buy a new fridge I’m going to buy a nice one that doesn’t break the bank. I’m thinking a stainless steel in the $750-900 range. This guy from Nebraska furniture mart is on sale for $900 with a $75 store reward card – that could be pretty useful! Time frame: 1-2 months from purchase.

2. House Emergency Fund Part 1 – The down payment, while I’m not using my emergency fund, is using the cash that I’ve had saved up for years as my back-up, super safety net, emergency fund. As such, I’m already feeling a little exposed not having it. So the second thing I’m saving for is a home emergency fund of at least $3,000. This is in addition to my personal emergency fund at $2,000. Time frame: 5 months from home purchase.

3. Backyard fence – One of the reasons I’m getting a house is to have a place where my puppies can roam in the backyard without me putting them on a leash. So a fence around the backyard is a pretty high priority. The approximate cost will be $2,000 for the fence I want ($18/linear foot, $90 for a gate). Time frame: 7 months from home purchase.

4. New kitchen table – Well, “new” is a misnomer as I don’t own an “old” kitchen table. Mr Woodpecker and I love playing board games so I’ll want a table for eating meals together and also for having friends over to play games. Approximate cost will be $600. Time frame: 8 months from home purchase.

5. New TV – Neither Mr Woodpecker or myself have a nice TV. Mine is old and we can’t even read words on it when playing video games or watching Netflix the resolution is so bad. Mr Woodpecker has a newer one, but it is the size of a computer monitor. As Mr Woodpecker and I both enjoy watching movies and television shows together and playing video games,  the next thing on the list is a new TV. Approximate cost will be $1000. Time frame: 10 months from home purchase.

6. House Emergency Fund Part 2 – I’ll already have saved $3,000 in my home emergency fund (step 2). After I get the things above I plan on saving to get up to $18,000 in my home savings fund (approximately 10% of my homes value). The savings fund can be used for home repairs, maintenance, etc, but like a regular emergency fund, if it is used it needs to be replenished as soon as possible. Time frame: 36 months from home purchase.

The Business Trip

Currently I’m sitting in a hotel room in a small, college town in Ohio. I’m here for a week with the purpose of working with a collaborator for a week doing some research and planning and starting to write a research grant. I’m pretty excited about this trip as it will be my first visit to another University since becoming a professor. I’m really looking forward to spending some time in the lab with one of my favorite collaborators.

The problem? I have to put all of my expenses on to a credit card. So that’s about $200 worth of gas and about $800 worth of hotel costs. I don’t exactly have $1,000 just hanging around to pay for things like travel expenses, which was always a big problem when I was in graduate school as well.

The typical story goes something like this: Have to go to a conference or meeting. Have to pay for everything up front and then get reimbursed. Pull out the credit card because I don’t have $800-$2,000 in cash on hand to pay for these things. Use the credit card. Get used to the credit card. Keep spending on the credit card even after the conference is finished. Walk away with about $3,000 worth of debt and only around $2,000 is reimbursable.

An added problem is that my work has a spending freeze until July 1st. So even though I will get reimbursed for up to $800 of it (that is all the money we have in the budget for travel, everything over that will come from my personal income, which I knew ahead of time and was fine with) – I won’t get reimbursed for at least 2 months. Which is… all the more frustrating since I’ll be earning interest on my credit card.

All of this comes down to one conclusion: I need a larger emergency fund so that I can handle a $1,000 trip without issue. Unfortunately, I’ll have to wait until I’m not receiving furlough pay (again, July 1st), to start increasing my savings contributions. However, I’ll likely just use my extra money from my community college teaching gig to bulk up my savings (I’ll get ~$900 per paycheck for 4 paychecks over my normal salary starting June 15th).

What if the Recession never happened?

Two and a half years ago I was a mess. I had no savings account. I had no emergency fund. I spent every dollar I had and then some. My credit card was maxed. I “got by” on fortuitous gifts of money from family. Every dollar I got I spent just as soon as it hit the checking account. Mostly because I had gotten myself so deep in to debt that each dollar went to debt payment before my paycheck could even clear.

I had to open up a new line of credit for every emergency, simply because I didn’t have any cash to pay for any of these things.

My only back up in case of hard times was about $25,000 in stocks and mutual funds that I hesitated to touch.

A great thing happened to me about the point where I had maxed my credit card, taken out 4 other lines of credit, and would finish up the last two weeks of each month with maybe $20 for the entire two week period because of my debt: The Recession.

I know that most people probably think of the down turn of the economy as a terrible thing to happen. But for me, financially, the recession was in fact the single best thing that could have happened. My stocks and mutual funds took a huge dip and suddenly I didn’t have enough money in them to pay off my debt anymore. My $25,000 in investments were now only worth $13,000 (and dropping).

Realizing I was worth less than I owed scared the crap out me. And I began to reconsider how I viewed money.

Anyone reading this blog for a while knows that this journey hasn’t been easy and it hasn’t been quick. But I’ve been able to save large sums of money for my emergency fund, to move, for a wonderful vacation with my grandmother. And best of all I’ve started to actually turn myself around.

When I started this blog I was “worth” a negative $18,779 – and went another $2,000 lower in the 3-6 months that followed because of the economy. Two and a half years later I’m approaching the $0 mark (I’m currently at -$2,932). This is a huge amount of change on my part.

I know that recessions are supposed to be bad things. I know that I’m supposed to hope for economic growth and recovery. But this recession has been the best thing that ever happened to me. I was forced to take control of my finances. I was forced to face my debt. I was forced to change my lifestyle. And I’m so glad that I did.

What if the recession had never happened? I wonder how long it would have taken me to figure all of this out… if I ever did. How much more debt would I have gotten before I finally caved? A lot more I’d imagine. A lot.

$30 Broke the Bank

As part of my plan for saving a $500 emergency fund by the end of February I decided to try to skim $30 off my two week budget.

BOY AM I FEELING IT

I am strapped right now to the bone. I get paid next Tuesday but I only have about $10 left in my checking account (normally I would have $40 left and feel much more comfortable with only a few days left). Thankfully I have bought all my necessities for the next few days. I am pretty sure I have enough food to last me until Tuesday – obviously I won’t be able to eat out at all though.

Who knew that $30 (or $15/week) would feel so constricting?

I have a feeling it is because I had a lot of once every 6 week expenses that all fell the past two weeks. Mainly, restocking my cat and dog food which I buy bulk.

I’m contemplating canceling my $30 bimonthly transfer to my savings or reducing it to maybe just $15 or $20. I thought I wouldn’t notice that the $30 was gone, but turns out I did. And it hurts.

Getting $500

I mentioned in my last post that I’m going to go at the Baby Step #1 with full force. To this end I want to get my $500 Emergency Fund set up by the end of February. Here’s how I’m planning on doing it:

Current E-fund balance: $140

Fetus Step #1: Continue to transfer $50 per paycheck in to E-fund via direct deposit.

I have 3 paychecks between now and March 1st. This will net me a total of $150 in my E-fund to being my balance to: $290.

Fetus Step #2: Reduce payment on credit card to minimum for one month.

Right now I’m only paying $100 over my minimum, so this will get me to $390 in one month.

Fetus Step #3: I’m reducing the amount of money I give myself for toiletries and food every two weeks by $30.

I’ll do this for 3 pay periods, giving me an extra $90 dollars. After this fetus step my Emergency Fund will be at $480

Fetus Step #4: Reduce payment on mattress to minimum for one month.

I have a 0% interest loan on my mattress I needed/wanted to buy when my sister moved in with me. I have my automatic payments set to pay this off in 11 months and my 0% interest ends after 12 months. Skipping one month won’t put me behind schedule, and I have a feeling I’ll target this bill and then snowball the payment once I get my E-fund in order if Dave Ramsey has his way. 😉

My minimum on this is $40/month, so I’ll reduce my payment from $105/month to $40/month and put the remainder ($65) into my E-fund.

Which means after one month the value will be $545. HUZZAH! A little E-fund pot that is full of money. Yes, it is over $500 – I’m totally okay with that. I’m leaving a buffer in case the $30 decrease every two weeks is too much for me. 😉

I’ll be rearranging my automatic payments to arrange to do this immediately. It will be awesome to have a nice full E-fund in a MONTH rather than just slowly building it over time like I have before. Then I can concentrate my efforts on my debts.

Financial Peace University – Week 1

As you may recall, two weeks ago BF and I went to the preview night for Financial Peace University (FPU).

This week we went to week 1. The title of week 1 is “Super Savings”. And it starts right out at the very beginning: emergency funds.

Now, I’m old hat to emergency funds. Mine has saved my butt so many times that I can’t even tell you. I’ve used it to pay for car repairs twice and to help fund my move to Kansas. (Oh.. hmm… I guess I can tell you…)

There were two stories that Dave told that really resonated with me.

Story #1 involved him asking the audience to imagine that there was a deadly virus going around and the only way to save your child from this virus was to pay $5,000 in the next year to get the vaccine. If the choice was to have your child die or to get $5,000 would you be able to change your habits so that at the end of a year you have that money?

Of course everyone in the audience agreed. Given the choice between the death of your loved one and some of my spending habits I could definitely get $5,000 in a year. Easy.

It’s all about priorities. And of course at this point Dave took the opportunity to reinforce to us how important a priority it is for us to get an Emergency fund. He talked about what an emergency is, why it is important to prepare for it, the security that comes from having an Emergency fund.

Which brings me to Story #2.  It involves a woman who was going to one of Dave’s book signings and on the way there something happens to her truck. She is distraught and stressed over how much money it is going to cost her. She tells Dave that she’s on Baby Step #3 (save 3-6 months of living expenses) and currently has $12,000 saved. To which Dave asks her: “Then why are you upset? This isn’t a crisis, you have the money to fix your truck.” The woman suddenly realizes that this was the very reason why she was saving money. Lightbulb!

Now, that story isn’t so great, but the implications are.

I have a Pavlovian response. I’m trained to go in to stress and worry and crisis mode whenever anything happens to my car. I panic. I flip out. Even though I save $720 every year that is DEDICATED to maintenance on my car, it still worries me when I go to the mechanics. But you know what: Everything is a crisis when you don’t have money.

And while I’m better with money, I’m still not in a fantastic spot. So things are still a crisis. Apparently though, according to Dave, at some point I’ll have enough money saved that I won’t have a crisis anymore. I’ll just have a problem that can be easily fixed by using my Emergency Fund and getting on with my life.

Wouldn’t that be nice? Wouldn’t it be great to go to the mechanic, find out you have to replace your alternator, write a check for the amount and not have to worry about it? Wouldn’t that be just an amazing feeling?

The first step in Dave Ramsey’s program is to save $1,000 to an emergency fund (or $500 if your income is less than $20,000/year).

I’ve never done my E-fund like this. I’ve always been the type of person to pay off debt and save at the same time. For the past 2.5 years I’ve consistently put $100/month in to my Emergency Fund and then $150-400 over my minimum on my debts.

But, I want to be true to this program. So I’ve decided that I’m going to compromise.

(Yah, I bet you didn’t expect to see those two sentences going next to each other did you?)

As many of you know, I keep a yearly savings account. I put away $235 per month into paying for expenses that I know will happen every year. This is how I save $720/year for car maintenance.

In the history of my adult life I have only once had an “emergency” that wasn’t car related. All the rest have involved my vehicle. So because I’m already saving $720/year for maintenance I’ve decided that I’m going to tweak the Baby Step #1 to apply to my life and only save up to $500 to my E-fund.

But, contrary to what I’ve done in the past, I’m not going to just pay my $100/month until it gets to that point – I’m going to attempt to get there as fast as possible. So I’m backing down and paying minimums of my accounts for the next month (or two) until I get $500 in my E-fund.

And then… I stop contributing to the E-fund. Period. I stop. (I’ve never stopped before, I always just keep saving.)

After I get to $500, well, it is on to Baby Step #2 for me…

Reflections On Week #1

I never thought I would get a whole lot out of going to FPU, to be honest. Being a PF blogger I think about money all the time. But the energy of Dave in contagious. Also, plugging away at this debt thing for so long has gotten me to a point where I feel quite passe sometimes about savings and debt. After 2.5 years a lot of that initial fire has been lost, and the FPU is helping me get that back.

Also, BF is still totally in to the process with me. We’re planning on both doing the homework for the course (this week is doing a budget). He even says he’ll go through the steps with me as well.

If nothing else, it provided us with another great opportunity to talk about personal finance together. We talked afterward about what we considered emergencies and also talked about how long it would take for each of us to individually complete Baby Step #1.

I can’t wait till next week!

The E-Fund

I know this will come across as a “no duh” kind of post. But I sort of had a mini-realization about emergency funds.

I’m fully aware that an emergency fund is supposed to help you in emergencies. Not inconveniences, but emergencies. Losing your job. You suddenly need your $1,000 deductible you have on your car insurance or $2,400 deductible on your health insurance. You find out that a family member is sick and you need to fly across country on short notice. Expenses that aren’t foreseen except that we know that at some point each of us will have to face them.

I’ve been saving $100/month to an Emergency Fund since I started this blog. It’s gone up and down as my life situation has changed in the last 2.5 years. Now it is at a very uncomfortable down point.

I realized though, in a bit of a “no-duh” moment, that the money that I have squirreled away in mutual funds and stocks (around $7,000 worth right now) is – TA-DUH – part of my Emergency Fund.

I had always mentally thought of it as my safety net. The thing that would keep me afloat if I needed it. And in the last 11 years (since I received the majority of that money), that’s exactly what it has done. It has been the safety net that allowed me to move after graduate school, that kept me afloat financially when I was paying for some rather expensive things when my brother was sick, when I was just poorly managing my money and needed funds ASAP. It has been there.

I’m not sure how or why I never considered this part of my “Emergency Fund” even though I’ve been treating it as one for over a decade. It is just money I’ve had for most of my adult life so I never really thought about it as anything more than an “investment”. But it is in fact my ultimate emergency fund. It is the “when the rest of the world has fallen apart this will save you” pool of money that I rely on.

I realized that I don’t just have one E-fund. I have two.

I have a short term emergency fund that is exceptionally accessible to me (I can have money out of this account instantly if need be) and I have another emergency fund that is long term. That long term account I never touch unless it is absolutely, positively required. A true emergency. If I need it I can have it within a week. Which, for anything that is absolutely required, is good enough time.

This makes me feel a lot better about how low I sometimes let my “short term” emergency fund get. When I have car troubles I have no problem paying out of my short term emergency fund for the repairs. If I have medical bills that need to get paid I wouldn’t think three times about using my short term emergency fund. But I would never touch my long term E-fund for such menial expenses. I will hardly pull money out of that long term account for anything.

There is some sort of peace of mind I have knowing that there is a large pool of money that is available to me should I require it. I sometimes think about paying down my debt with it. Part of me thinks I should. But the part of me that requires safety thinks it should stay where it is. I love the security that having that money brings – even if it would take an act of congress to get me to spend it.

Do you have an account of money that you wouldn’t spend no matter what but could if absolutely required? Or a short and long term emergency fund?

Where do you go when you have an emergency that is too big for the money that you have in regular savings and checking?

PF Fantasy World vs. “The Real World”

Imagine that it is me and Clinton standing side by side...

Reading Ashley’s post at A Story of Debt  “Preparing for the Real” really got me thinking.

In the personal finance world we have created these images of how our life will be when we’re out of debt. I loved that she mentioned all the amazing clothes she would wear, I can definitely see myself doing this in my imagination, too.

In my PF Fantasy World life this is how I imagine my life without debt to be:

  • I will suddenly stop using all cards to pay for anything. Cash will be king and I’ll magically keep track of every little expense.
  • Strangers will stop me in the street and congratulate me on having no debt. (Hey! This happens in real PF world!)
  • I will always have enough money to pay for everything I want, whenever I want it.
  • It will never snow. Ever. (I can apparently also afford to change the weather in my PF Fantasy World.)
  • I will have enough money to buy a house in about 5 years of saving.
  • I will have enough money to buy a new Mercedes in about a year of saving.
  • I’ll suddenly develop a (until debt-free hidden) sense of style and be on my own personal finance/style show co-staring Clinton from “What Not To Wear.”
  • I will magically weigh 123 pounds. Dunno why having no debt makes me thinner, but it does.
  • I will become a nicer a person all around. Children will flock to me. Coworkers will envy me. People will want to be friends with me.
  • People will suddenly “know” I’m debt free and start coming out of the woodwork asking me for financial help. I’ll probably be asked to teach the Personal Finance class here on campus knowing my luck…

The reality? The “Real World” reality? None of that will probably happen.

In Personal Finance world this debt is seen as a REALLY HUGE DEAL. However, in the “real world” – no one really cares that you have debt. In reality, none of my coworkers or many of my friends will even KNOW that I’m debt free. The difference between the last day of debt and the first day of debt free will probably be exactly the same.

I know (especially making $51,000 a year) that I won’t be able to buy my dream items immediately. A house in 5 years – paid in cash? As if!

But in my mind… oh in my beautiful mind… life will be so wonderful and so grand when this debt is gone. Life will just be BETTER…. or will it?

In some ways debt is a security blanket from “real” financial life. Right now the financial game plan is simple: Get out of debt.

The biggest concern of personal finance bloggers who are in debt is this: Emergency Fund/Freedom Fund Savings or Debt?

That’s it. That’s the big question. Which to do.

But after that debt is gone a whole new WORLD is opened up. Investment options. 401(k)s. IRAs. Stocks. Bonds. Mutual Funds. College savings funds. CDs. High interest savings accounts. Etc. Etc.

And to be quite honest – the “real world” of life without debt is – well – a little scary! Those decisions are huge. They’re big. They’re frightening. In a lot of ways it is just EASIER to stay in debt. You don’t have to worry about what to do with your money because you don’t have any to worry about!

I’m also pretty sure that once I’m debt free it will still snow in Kansas City.

That doesn’t mean I’m not going to press on. This whole journey is about freedom.

Right now I have no freedom with my money. It goes, every month, straight to living and debt. Some day I’d like to be able to CHOOSE where my money goes. I want to be able to make MISTAKES with my money. I want the freedom to invest when the market is high and to pull out when the market is low. I want the freedom to not contribute to my Roth and instead go on a killer vacation. I want the freedom to max out my 401(k). I want the freedom to save up to buy a house in cash if I want to.

It isn’t as awesome as hosting my own TV show – but it is a lot better than being straddled to debt.

What are your illusions about life after debt? Am I the only absurd one here who imagines a perfect, completely unbelievable existence when the debt counter reaches 0?

Making Bank

As my dear readers who have followed me through the past few months will know, I recently moved from un-named place in the Midwest to Kansas City! I am finally past the “training” portion of my life and for the first time in my entire life I have a “grown up” job.

Before I was a post-doctoral researcher in a Chemistry lab. I also worked part time at Tutor.com and taught part time at the local community college. I was making (at the height of the money flow) $2556/month from my “main job” – i.e. being a researcher. Then $904/month at the community college. And when I was teaching at the community college I only made typically $30-80/month tutoring. When I wasn’t teaching at the community college I would make around $300/month tutoring. All told my “steady” income from these 3 jobs was ~$3490 per month. I was also getting a pretty sweet instant 10% retirement savings on top of my salary with 0% matching contribution. However, I was absolutely miserable in my job and in the town I was living in.

So I applied for a new position at a few different schools and low and behold I am now a PROFESSOR at a University! My salary is increased from what I was making before. I negotiated up from $49,000 for a 10-month contract to $51,000 for a 10-month contract. I’m free in the summers to pursue outside income if I so desire. However I’m paid twice a month regardless if I get the extra money – so I’m paid LIKE I get $51,000 per year. Which works itself out to be about $3,600/month in take home pay after taxes, ect. That’s right – I moved and took a new job to make about $200 more a month. BUT I make it from ONE job, not 3. So I have a lot more free time and (to be honest) I have a lot more joy!

The biggest change for me has been switching to budgeting every two weeks instead of every month. At first I thought it would be difficult, but I’m learning to love it. Fresh money in every two weeks is pretty nice. I pay my rent with one paycheck and then all my other bills with the other. Which is pretty sweet to get the rent paid two weeks in advance of its due date. I’m slowly trying to get the financials back in order, as I’m sure you’ll see progress of in the next few weeks. I’ve decided to “punt” on new goals for now and just focus on getting in to a rhythm with my new life. I may decide in November or December to change this, but I have a feeling that 2011 will be a good time to start defining what my new life goals are and what I can do to obtain then. Until I’m just going to keep saving $100/month in to my Emergency Fund, $190/month in to my Yearly Savings account and pay $700/month on my debt.