Beating Broke

This is a guest post by the wonderful Heather Sokol. You can visit her where she writes for Inexpensively.com and also, you can follow her on twitter @justheather. She’s also a member of the awesome Yakezie group. If you enjoy her post, please let her know in the comments here and by adding the post to your favorite social bookmarking site, like StumbleUpon, Digg, Tip’d, or Reddit.

If I told you, I would give you $5000 for groceries every year, if you’ll spend an extra 30 minutes planning your shopping list, would you do it?

That’s exactly what the stores & manufacturers do every week with sale ads and coupons. Yet, nearly 90% of coupons go unredeemed each year and countless shoppers buy products without ever glancing at the sales ad or price tag. A little extra effort, a bit of advanced planning and mastering the art of couponing can go a long way towards reducing your monthly expenses.

Coupons are a multi-billion dollar industry – last year, over 500 billion dollars worth of coupons were distributed. Most of them landed in the garbage (or, hopefully, the recycle bin!). So, why are consumers throwing all that money away? The answers I hear when I ask readers, friends & family this question typically include “it takes too much time,” “it isn’t worth the effort” and “I can’t find coupons for the things I buy.”

Coupons take too much time.

I spend an average of 20-30 minutes clipping coupons each week. I spend about half an hour in the store doing the actual shopping. I don’t count the time I spend putting together grocery lists for Inexpensively, since there are literally hundreds of blogs dedicated to creating coupon ad matchups. The average shopper can completely skip that step (but, for the record, I spend about 30 minutes per store). Grand total? One hour for coupon clipping & shopping.

How much time do you spend wandering the aisles at the grocery store?

Coupons aren’t worth the effort.

We’ve already discussed the time spent, which I think is the bulk of the “effort” people refer to with a statement like this. Clipping coupons isn’t too taxing – I promise. I typically cut coupons in front of the television. I’ve even let my children help out now & then. If a 7-year-old can handle it, I think most adults could manage as well.

The question becomes one of time again – does the money you save really justify the extra time? My grocery bill typically shows a “total saved” (including sales & coupons) of around 50% – sometimes way more, sometimes less. I once tracked every penny saved & spent in Quicken. My monthly grocery budget was $400 per month. That year, I saved over $3000 in store sales & $2000 in coupons. It breaks down to about $95 per hour.

How much do you make for an hour of your time?

There are no coupons for {insert your favorite product here}.

Maybe not, but I promise it will eventually go on sale. Everything does – even the pricey gluten free foods my own family requires. Even if you don’t use coupons, pay attention to the weekly sale ad, check clearance racks and know where to find manager specials. You can find discounts on meat, produce, bakery goods, deli products and organic foods.

Plus, you’ll be surprised at the wide variety of coupons you can find if you start to look. Contact your favorite companies, and they may add you to their mailing list, send you loyalty offers or tell you where to print their coupons online. The store coupon machine (called a Catalina machine) will frequently spit out coupons for $2 off your next $25 purchase – you can buy anything you want!

Why would you throw away a coupon that’s good on anything in the store?

Getting Started with Coupons

Once you start to see the impact coupons have on your budget, it’s easy to dedicate an extra 30 minutes to planning a shopping trip. Here are a few quick tips to help you make the most of your time:

• Collect multiple coupons so you can really stock up on your favorite products.
• Don’t stress over clipping every coupon or missing an expiration date – it will cycle back around again soon enough.
• A sale is great and a coupon is awesome, but using a coupon on a sale item will cut your costs drastically!
• Google “your favorite store + weekly deals” to find a grocery deal site that covers the stores in your area – they match the weekly sales with coupons so all the hard work is done for you.
• Get into the habit of carrying your coupons everywhere you go – you’ll be prepared for spur of the moment trips and ready to take advantage of unadvertised specials & markdowns.
• Sort the coupons for your weekly grocery trip in order of the store aisle – you’ll save time, using the stack of coupons as your grocery list as you shop.

I have been using coupons for almost 15 years now, and I know they’ll be a part of our life no matter how far from broke we become. Hey – if it’s good enough for Warren Buffet, it’s good enough for me!

Heather Sokol is the married mother of 3 beautiful, active girls. While they do their best to keep her broke, she’s beating it with money saving tips, deals, coupons and grocery lists at Inexpensively.

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With a recession (depending on whom you ask) upon us, would it have been wise for us to have taken a loan from our 401(k)s before it started?  Bear with me here for a second.  A loan from your 401(k) is pretty simple.  You borrow the money from yourself and then repay it to the 401(k) with interest.  The interest is usually something low.  Normally, it’s a bad idea, as the market usually performs as well, if not better, than the interest on the loan.

But, if (and that’s a big if) you were able to time the market relatively well to know there was going to be a downturn, you could loan the money to yourself.  Because the money would not be in the account, it wouldn’t suffer from the loss of value in your investments.  And instead, you’d gain whatever the interest rate was that you loaned the money for.  Instead of a double digit loss, you could have a relatively decent gain.  In theory it could work.

In theory.  The catch here is that you would have to time the market correctly.  If you missed it by a day, you could cost yourself some money.  If you were totally wrong and the market rallied, you’d end up missing out on possible gains.  But, if it worked, it could work out pretty well.  In the end, the more I look at it, it’s really a form of gambling.  You’re gambling that you can time the market and save your money.

Gambling is never a safe bet when it comes to your retirement.  It’s always tempting though.  It’s important to remember that a fall like we had over the last few years almost always comes back up.  You haven’t really lost money so much as lost value.  There’s a big difference there.  And if you keep contributing, which you should, you’re buying the very same investments at a bargain price.  So, instead of trying to minimize your losses by pulling your money out, you should be increasing your investment to maximize your return when the account finally bounces back up.

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It struck me the other night, as I was reading a book and came upon a section on Ponzi Schemes, that insurance companies are borderline ponzi’s themselves.  The definition of a ponzi scheme is when the broker/banker/agent takes money and promises a unusually high return and then pays said return from the incoming money from other investors.  Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Now, let’s look at insurance companies.  We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event.  With health insurance it’s against some sort of health event.  With car insurance, it’s against some sort of accident.  In any case, it’s a payment.  Or a return on the premium.  Very seldom will you actually come out with your entire investment.  What would happen if the premium payers dried up?  It would get more difficult for the insurance companies to pay any claims.

Where the key difference lies is that if you stop paying your premiums, they stop paying any claims for you.  Also, as a premium payer, you never really expect your money back unless you have a claim.  You’re paying for the “in case”, if it were to happen.  In a Ponzi, you’re investing your money specifically for the return.  You’re not going to stop investing as long as the returns are stable.  And a Ponzi only really dies when the new investors stop coming.  If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.

So, no.  Insurance companies are not Ponzi Schemes.  But, it sure feels that way sometimes.

Photo Credit: Showmeone @ Flickr

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Quick!  What’s the first thing that pops into your head when I say “escrow account”?  It’s that account that’s associated with your mortgage, isn’t it.  That’s the first thing that come to me when I hear the word.  But, that isn’t all that an escrow account is.

At it’s very basic beginnings, an escrow account is nothing more than a savings account.  Of course, the usage of the money in that savings account is designated.  So, it’s a designated funds savings account.  Simple.  More commonly, it’s used in conjunction with a mortgage.  The escrow account that is tied to a mortgage usually holds the funds designated for taxes, insurance, and other non-monthly fees.  Each mortgage payment you make has a small portion of it that gets deposited into the escrow account.  At the end of the year, that account has enough money in it to pay your property taxes, and any other things that the funds are set aside for, such as homeowners insurance.  Yet another use is in the execution of a large purchase.  Say you’re buying a car on eBay.  You want to make sure that you’re not getting taken.  So, you use an escrow account.  You put the money for the purchase into an escrow account, and the buyer gives you the car.  Once you’ve confirmed that the car is what it was supposed to be, you can release the funds in the escrow account and the buyer is free to withdraw them.

What does all this have to do with you?  You can use escrow accounts in your personal finance as well.  Remember that an escrow account is really just a savings account where the funds are designated.  Many of you probably already have one of those.  If you’re particularly saving savvy, you likely have several.

Here’s what you need.  A goal, and a savings account.  Let’s start with a goal.  I’ll pick tires for the car.  You know you’ll need to buy some in about 6 months.  You know they’ll cost you a little less than $600.  If you had to come up with that all at once, you’d be flat broke.  In fact, some of you would just throw it on a credit card.  (I used to too, I understand.)  Instead, let’s set up an escrow savings account for it.  Get yourself a savings account.  Many banks and credit unions have them.  Many of them will allow you to give them nicknames.  If you’re bank or credit union allows nicknames, name it Tires.

All set?  Ok.  We know we need $600 in 6 months to purchase tires.  So, we take the $600 and divide it into 6 equal amounts.  (I’m no math genius, which is why I’ve got some simple numbers here.)  We end up with an amount of $100.  Each month, deposit $100 into the savings account, Tires.  At the end of the 6 months, you’ll have $600 in the account.  You can then purchase the tires with CASH!  How awesome is that?  And, if you’re any good at bargaining, you might end up with a deal when you start waving around all those benjamins.

You can apply the same principle to just about any planned purchase.  And it’s repeatable.  If you know you’ll need more tires in 6 months, you can just repeat and continue on with the escrow account.  I used to think that escrow accounts were these fancy, complicated accounts.  But, in reality, all they are is a savings account with funds that are designated for something.  There is one small difference in that usually, the money is out of your control after you deposit it and until it’s released for use.  You could replicate that, if you have a family member or very close friend that you trust that could be the controlling account holder.  If you’re even slightly afraid that they might run off with your money, though, you might just have to have some self control and do the account control yourself.

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When I entered college, I had no debt. Well, I guess I had some as I’d already signed the papers, but hadn’t received the money, for the loans I was going to be using to partially finance my education. When I finally graduated, 7 and a half years later, I had mountains of the stuff. Nearly 30k in college loans, close to 10k in credit card debt, a car loan, and a mortgage.

For the high school graduates: If you learn nothing in college, learn to avoid debt.  That single thing will make the rest of your life so much easier.  It allows you to start ahead of every single one of your college peers, and will make it so much easier to achieve the goals that you want in life.

If you’re reading this, and you’re a college graduate that never got the above bit of advice, you’ve likely ended up like I did.  Lots of debt.  Here’s my advice to you (and roundabouts to my past self).

1. Learn how to budget.  Creating and maintaining a budget opened my eyes to the ways that I was spending (and wasting) my money.  Create a budget for yourself and stick to it.
2. Learn how to avoid debt.  Very few of you will be able to completely avoid debt.  Minimize it.  Pretend it’s your leprous uncle.  Instill an aversion to debt.
3. Learn the meaning of appreciation.  If you’re going to add debt, only do so to buy something that you expect to appreciate.  New furniture doesn’t count. Houses sorta count.  Cars absolutely, positively, do not count.
4. Learn the value of shared costs.  Just because you’re a big boy (or girl) now with a fancy diploma (with fancy calligraphy), does not mean that you’re above having a roommate.   In fact, I would encourage it (unless you’re married, because that’s just a bit weird).  It doesn’t even take a calculator to figure out that rent/2 is better than rent/1.
5. Learn the value of patience.  Just because you can get a mortgage or a car loan, or whatever, does not mean you should.  Statistically speaking, you’ll change jobs several times over the first 5 years of  your career.  Do you really want to be tied down to a house if you need to move to another city?  Slow down and ease yourself into your adult life.  It’s not all that it’s cracked up to be anyways.
6. Learn the word Retirement.  Sure, your all excited about your newly earned earning potential and your fancy new career, but, if you’re like every other person on the planet, you’ll want to retire at some point.  Start saving now to make that dream come true later.
7. Remember to have fun.  Just because you’re all grown up and joining the “real world” doesn’t mean you can’t still have fun.  Your hobbies and activities are what make the “real world” worthwhile.
8. Wear sunscreen.  None of you will get this reference as you were probably 8 at the time.  The rest us do and it’s not that important. (in case you’re curious: http://en.wikipedia.org/wiki/Wear_Sunscreen)

The preceding is, by no means, an exhaustive list.  In fact, it can’t even really be considered a quick and dirty list.  It is, merely, a list of a few things that I have come to think of as some tenets for post college life.  Some, I have learned, others I wish I had.

Congratulations on your graduation, and best wishes as you join the rest of us in the real world.

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As you’ve probably gathered, I’m a bit of a budget enthusiast here.  It’s a budget that got our finances back on track and it’s a budget that keeps them headed in the right direction.  Our budget tells us when we’ve overspent and helps us adjust to bring us back to balance when we have overspent.  For our budgeting purposes, we have a pretty simple excel-like worksheet that has our income broken down, and has our expenditures broken into categories.  We don’t get super-duper detailed, but it has enough detail that we know when we’re running low on budgeted funds for something.

For years, I’ve used a copy of MS Money to do our check register keeping.  For some time, I even tracked our retirement portfolios in detail.  I still use MS Money, but it’s recently been dropped from the Microsoft list of current software.  They aren’t going to make any more versions, and they are ending the support for it at some point.  So, at some point, we’ll need to switch to a newer software and from a new vendor. There are several choices.  Quickbooks is a business favorite, but I feel that it’s a bit too much for our personal records.  GnuCash is a free software, but is very similar to Quickbooks and for the same reasons would be a bit of an overkill.  The most likely choice is Quicken by Intuit.  But what version?

My first thought was to try and use Mint.com.  They were purchased by Intuit and the service was integrated with and finally replaced the Quicken Online that they offered.  The nice thing about Mint.com is that it’s free, and it’s online so you can access it from anywhere.  The service connects to all of your accounts and updates them for you.  They’ve got some pretty nice tools.  A budget calculator, and a nice budget worksheet that really are nice.  I might still give the service a try, but it can’t connect to my local Credit Union account, so I’d still have to enter a lot of the stuff manually.

And, if I have to enter stuff manually, I will likely end up purchasing something like Quicken Premier and utilizing it’s more robust feature set to do reporting and tracking of investments and such.  Another pro for having the actual software is that I have control over where my info is and can easily backup my files.  I’m sure that Mint is very secure, but I still get a bit leery about having one place that has that much access to all of my financial data.

What about you?  What software am I missing?  What do you use?  I don’t mind being proven wrong, if there’s a better software out there, let me know!

Disclaimer: The links in this post are a mix of affiliate links and paid links.  Neither of those facts changed the content of this post and the thoughts are mine and mine alone.

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If you’d like to catch up on this on-going series, start here, then go here, and here.  Then come back here and read on.

There, now that you’re caught up, you know that my wife quit her job about a year ago.  Sometime around last August, she and two of her friends (and ex-coworkers) decided to start a business together.  And as of the last update, you knew that the business was going well.

Now, the business is still doing well.  Better than most of us expected, I think.  On May 1st, they began working with the clients that the certification that they picked up allowed them to.  Because of that, all three of them should be seeing full time hours fairly soon.  My wife has been working full time and then some for several months, but everyone else has been relegated to doing most of the office work (that is unpaid).  That’s good for us, but wasn’t all that great for everyone else, or for business partner morale.  Unfortunately, much of what my wife does is limited to people with certain qualifications.  Qualifications that only my wife has.  And, until the business is able to help pay for the others to get those qualifications, she’s got to do it.  With the new program that they just started, that should become more of a possibility towards the end of the year.  Of course, if the new program continues to do well, it might not be something that needs doing anyways.

As I expected, due to the added insurance costs, and some increases in withholding for ChildCare, my checks are much smaller than they were in 2009.  We had planned on that, and since a lot of the extra is pre-tax, it will help us in the long run.  It is a bit sad to see your net income be less than 50% of your gross income though.  To try and compensate, I’ve re-doubled my efforts here and at my other websites to try and make up some of the difference.  Income is increasing there, but it’s a very slow process, and it has yet to be enough to make any significant difference anywhere.

Due to my wife’s increased work load, we’ve been able to keep up with our bills and haven’t had any major issues.  It hasn’t been good enough for us to return to aggressive debt payments, but we haven’t added much new debt either.  That’s a win if you ask me.

The rest of the year looks pretty good.  My wife’s business looks like it will continue to grow and, with any luck, so will my side endeavors.  I’m hoping that we might even be able to start our debt snowball rolling again.

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Inevitably, you’re going to screw up.  You’re going to make a mistake and it’s gonna cost you.  If you’re lucky, it’s only going to cost you a few dollars or a bit of bruised pride.  If you’re not so lucky, it could cost you much more than that.

Let me tell you a little secret.  We’ve all been there.  In all likelihood, we’ll all be there again.  But, some of us will get back up, dust ourselves off, and get back to doing what it was we were doing in the first place.  The rest will sit on the ground where they landed, beaten and broken, and never get back up.  They’ve given up.  The world got the best of them, and they have lost the will to try again.

Getting back up isn’t the hard part.  Gathering the will to get back up is.

None of us who have fallen and gotten back up have any greater aptitude for it than anyone else.  Sure, we may be better at some things than other people, but when we fail, we are all the same.  Here’s a little bit more of a secret.  Some of us are better prepared for the fall.   We’ve done what we can to soften the blow, not because it’s inevitable, but because it could happen.  Think of it this way; you don’t buy health insurance because your sick, (well most don’t) you buy it in case you get sick.  You don’t wear a helmet while bicycling because you know you’re going to fall, you wear it in case you do fall.  Sometimes situations are out of our control.  We certainly don’t choose to get sick.  And we don’t choose to fall off of our bikes on to the hard concrete below.  But, sometimes it happens.  And the better prepared you are for it, the easier it is to get back up and get going.

An example.

Many years ago (something like 7), I drove a old pickup (older than I am).  One particularly cold day, then engine refused to start.  It refused to start the next day despite having a charger on it and attempts to pull start it.  I couldn’t go without a car, so what was I to do?  I had no savings, and no means of coming up with any extra money.  I had fallen.  In order to get myself up and out of the hole I had dug, I was forced to take on a massive (for me at the time) car loan on a used car.  The bank wouldn’t finance much without a down payment, so I took what I could get.  It was a terribly low spot for me, financially.  I went from having no car payment at all, to having a car payment of a little under $200 a month.  I could afford it, but just barely.  If anything had happened to my income or if an emergency of some sort had arisen, I would have fallen that much farther (and harder).  To be honest, I didn’t learn all that much from that particular episode.  But, I did get back up and back on the road.

A week or so ago, my car sprung an oil leak.  The repair wasn’t horribly expensive (only about $150), but enough that it could have been very damaging if I had been in the same situation as I was before.  But, I’m not.  I’m prepared.  I have a small emergency fund that can easily cover an expense of that magnitude.  The fall wasn’t nearly as bad.  It wasn’t as bad of a situation as it was before, either.  But, because I had prepared, the fall was very short and I was able to recover quickly.  In fact, it was less of a fall than it was just a little bump.

Preparing for an emergency isn’t a bad thing.  It doesn’t mean that you are expecting to have an emergency any more than having health insurance means you’re expecting to get sick, or wearing a bike helmet means you’re expecting to fall.  But it cushions you against the fall.  Getting sick is less stressful if you have insurance that you know will pick up part of the bill.  You’ll have less road rash if you’re wearing a helmet.  And, if you have an emergency fund, more falls will become bumps.

Do yourself the favor.  Prepare now, so that when you do fall, you’ve got some cushioning to land on.

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It’s been an incredible week here at Beating Broke.  We’ve been included in three carnivals and festivals!  First up, we were included in the Yakezie carnival.  Then, we were included in the Carnival of Personal Finance, which is quite likely the most creative presentation of a carnival that I’ve ever seen.  Very nice.  And finally, today, we were included in the Festival of Frugality!

What a week!

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There’s been some talk recently (and in the last several years) that we should get rid of the dollar bill and move to using a dollar coin.  Most of that talk is pro dollar coin.  And, for the most part, their argument makes a lot of sense.  The dollar bill is an expensive bill to make, much like the penny is an expensive coin to make.  Dollar bills quickly degrade and need replacing.  And, really, what can you buy for a dollar anymore anyways?

In fact, it almost seems like anyone in the personal finance blogosphere really should like the idea of a dollar coin.  But, I just can’t bring myself to like it.  First, let me describe my relationship with cash, bill or coin.  I don’t carry it.  At any given point in time, I probably have a few dollars up to twenty or so dollars in my wallet.  It’s probably been there for months.  I don’t use cash.  On most work days, I go to work, and, when I’m done with work, I return home.  I have very little calling for spending money during the week.  And I really have very little calling for it during the weekend as well.  But, you know what I hate more than carrying cash around?  Carrying coins around.  They’re always weighing down your pocket, jangling around with whatever else is in your pocket.  They fall out of your pocket, leaving themselves buried in somebody’s couch.  They’re dirty.  I just don’t like them.  If I happen to end up with some, the first thing I do is either deposit them in the little tray at the counter or throw them in the console of my car.

So, as you can probably tell, if I had my choice between the dollar bill and the dollar coin, I would pick the dollar bill every time.  And, in case your wondering, when I do spend money, I prefer to use my debit card.  It only takes up one little old slot in  my wallet and it’s “accepted everywhere I want to be”.

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