Okay, everybody in the van. It’s time for the annual family vacation, wherein the kids fight in the backseat, everyone’s miserable, and someone gets left at the gas station. Sounds fun!
Or we could just recap this week’s blog carnivals.
First, the Carnival of Personal Finance #206 hosted by Greener Pastures. In addition to my post about what you would do if the bank made an error in your favor, I also recommend Money Ning’s article about knowing what to do when the opposite happens so you can dispute it successfully.
Second, the Money Hacks Carnival #66 hosted by Passive Family Income. In addition to my post about stupid banks, I also recommed My Life ROI’s tips for avoiding identity theft, because right now the banks have enough to deal with – they can’t protect you fully.
A couple months ago I blogged that my husband and I are saving nearly 25% of our income every month, and have been doing so for several months. We were able to reach that rather astounding figure because we significantly paid down our debt and spend carefully.Then something even more astounding happened. Yesterday I asked my husband how much we’d be putting aside this month. He tossed out a figure that equates of 53% of our take-home pay for the month. 53%!
How We Saved 53% This Month
Honestly, I’m still figuring it out. We aren’t living like misers. We went out to dinner just last weekend, we order out a few times a month, we saw Star Trek (with coupons). I also did some stocking up at Target and CVS. So what happened?
I can point to one deferred expense: our auto insurance renewal. Worried that the payment would be late, we put it on one of our credit cards rather than risk the combination of the postal service and the insurance company’s ridiculously slow processing time. (It’s the one bill we don’t pay through online bill pay because after all this time, they STILL haven’t figured out how to process the payments efficiently.)
Still, even if we had written a check for the insurance, we’d be setting aside 40% of our income this month.
How did we do it?
We didn’t get raises this month. We didn’t receive windfalls. Our credit card bills were typical, maybe $100-200 less than usual, but certainly not 25% of our income lower. We haven’t paid off any student loans in full. We could, but we’re trying to add as much as possible to our down payment/moving fund.
Is It a Result of Changing Attitudes?
As I write this, I still don’t know how we did it. It could just be luck. It could be falling interest rates automatically reducing his student loan payments. It could be both us unconsciously spending less. It could be a reduction in grocery costs. (That seems unlikely. It’s summer fruit season, which means I’m going overboard at the farmer’s market.) Gas prices are rising, not falling, so it can’t be that.
It may simply be that we’re both getting such a good feeling from saving so much money that we’re unconsciously looking for ways to save more and are therefore reducing our expenses without trying.
Next month we’ll probably only save 25-30% of our income because we’ll have to pay the credit card with the auto insurance bill on it. I don’t expect we’ll be able to continue the 50% success every month. Once we buy a house, we’ll be back to 15-20%. Our target for post-home purchase, post-car purchase is 10-15% of savings, outside of the money we set aside for irregular expenses. Then as our income increases, so will our savings goals until we’re back to 50% again.
How You Can Do It
You don’t have to live hand-to-mouth. It just takes dedication to saving. A commitment to prioritizing your savings every month. If you can, budget to save a set amount each month before you start thinking of ways to spend. Our savings is in our budget so we aren’t tempted to spend it on other things. Even if you only save for irregular expenses, you’ll eke out a little interest and discover you can live on less. Once you learn to live on less, push it a little more. Soon you’ll be saving every month without feeling deprived. Trust me – we don’t feel deprived at all.
If you think you can’t do it, remember that just nine months ago, we were putting all of our excess income towards debt payments and saving nothing. Then we paid off a significant chunk and the flip was switched to savings. If you can work your way out of debt, suddenly you’ll be able to save a big chunk of money without trying, too.
If you’ve recently determined that you need to create a budget so you can better control your money flow, or you’ve been forced to create a budget due to credit reductions, then this may be one of the most important bits of advice you read.
Most people look at one or two months of spending when creating a budget. That’s fine for regular expenses like fuel, child care, food, dry cleaning, tuition, etc. Unfortunately, it also misses major expenses that could set your budget back by thousands if you don’t plan for them.
Finding the standards is simple:
Go through your credit card statements, receipts, check register, and bank statement to find expenses throughout the month. Total up one or two months and then average them. That should give you a good estimate of the amount you spend on groceries and other staples throughout the month.
The next category is the oddball items. These are the sorts of things that you can’t really plan for but you know they’re going to happen, like new brakes. If you have kids, there’s also the steady stream of fundraisers, field trips, birthday parties, and other expenses throughout the year.
To find these, you’re going to have to review at least six months worth of statements, a year is better if you can find them. Divide them into categories and total them up. Now divide by 12. This is the amount you should be saving monthly to cover these expenses when they arise.
Irregular Budget Items
Irregular budget items are those you do know are coming, but only happen once or twice a year. These are things like auto insurance, DMV renewals, homeowners insurance, and property tax.
Fortunately, you should know exactly when these bills are coming due. If you bought your car in December, your registration renewal is due in December. If you signed up for your policy in August, the homeowners policy renews in August. The auto policy is probably bi-yearly. Property tax depends on your locale. In most places, you pay it in two installments and these installments occur at the same time every year.
So, get out those bills and then add about 4% to each. Divide that number by 12. This is the amount you need to be putting in your savings account every month so you have the money saved to pay the bills without squeezing other parts of the budget.
Why 4%? It’s a hedge. Your auto registration will go down every year, until you buy a new car. Your auto insurance may go down every year, until they reset rates, when it could shoot up. The homeowner’s insurance will go up every year, as will the property tax. You can’t predict exactly how much it will go up or down, so saving a little extra is a good hedge against surprises, and also provides a cushion for the year you do buy a new car or house.
If you can’t find your policies or property tax bills, visit your county’s website or call your insurance company. They’ll be happy to tell you when you owe them money and look up your account to tell you the amount due.
Tracking the Money Properly
Most people only have one savings account. That’s fine. You can keep your emergency fund, vacation savings, Christmas savings, budget oddballs, and irregular budget savings in one account. Simply create separate items for each in your money management software, Excel, or on the paper where you keep your budget. Each time you make a deposit, split the payments between your non-monthly budget categories. ING Direct will actually let you create sub accounts in your primary account to make tracking easy.
Once that’s established, don’t use the budget oddball money for vacation or the irregular budget items as part of your emergency fund. A property tax bill isn’t an emergency if you plan for it. A blown engine is, and it’s unlikely that your budget oddballs fund will cover it.
Making the System Work for You
So let’s see an example of how this would work in real life.
Property tax: $5000
Auto insurance: $1600
Homeowners insurance: $1000
Auto registrations: $300
Budget oddballs: $1000
These numbers include a 4% hedge to keep them round and simple.
Divide each of these by 12:
Property tax: $416
Auto insurance: $133
Homeowners insurance: $83
Auto registration: $25
Budget oddballs: $83
That means every month, you transfer $989 to your savings account, plus whatever amount you’ve dedicated for your emergency fund. We make our transfer on the 5th of the month rather than the 1st to ensure that our paychecks are deposited without a problem and our monthly bills have cleared.
However, if you have a budget item coming up, you can deduct that money from the deposit, rather than depositing it and then taking it right back out. Apportion the rest of the money appropriately.
What If You Can’t Afford to Save?
If you can’t afford to save these items up during the year, then you can’t afford them. If you don’t pay your property tax, the county will take your home. If you don’t pay your auto insurance and get in an accident, you’ll be in big trouble. If you can’t afford these items, first look to cut things like the vacation savings. Then look for ways to reduce the oddballs. Maybe you can’t donate as much to the school this year. Christmas can be scaled down. Make sure you save the money for those items that will keep a roof of your head. It’s tough, but you’ll be happy you did it when the other option is eating rice and beans for a month straight so you can pay the property tax bill.
The New York Times has done it again, this time in their Bitten blog. What, you may wonder, am I so upset about? I’ll tell you – fake frugality. I know life is more expensive in New York City. It’s pretty darn expensive in Los Angeles, but at least our food is fairly cheap because we grow it here. Still, this is the second time in recent months that they’ve “challenged” themselves to create a “frugal” dinner or dinner party on a budget that most of us would consider lavish. Look, if you want to be hoity toity, be hoity toity, but don’t whine that your big budget is a serious challenge. It only makes the rest of stabby.
The $50 Dinner Party
Earlier this spring, many newspapers and TV news shows challenged reporters to live on a food stamp budget. That is a worthwhile challenge. They consulted frugality experts for tips on eating healthy on a very tight budget and shared that with the audience. This is valuable information and good reporting.
The New York Times took a different approach. They gave two reporters $50 each and charged them to serve a dinner party for 6 with that money. Note: the $50 didn’t include alcohol. $50 for six people? That’s a challenge? Please. I spent about $100 a week for the two of us to eat 14 dinners, 10-12 lunches, and 10-12 breakfasts. We’re not exactly eating ramen noodles. In fact, many bloggers spend far less than we do for more people. I don’t claim were the pinnacle of frugality – we consciously chose to spend more on food.
One of the reporters did come in under $40, which is becoming more reasonable for dinner for 6, but I think the average person could spend less than $30 and still provide a satisfying, somewhat fancy menu with appetizers and dessert. This assumes it’s dinner for friends, not dinner for the boss you’re hoping will give you a promotion and a raise. That’s a whole different ball-game.
The $20 Dinner for 2
Next, a blogger for the Times Bitten blog, which I love decided he would “challenge” himself to cook dinner for at least 2 people for $20, including alcohol. Once again, dinner for 2 people for $20 bucks? What are these people smoking? I believe my average dinner costs $5-$8 for the two of us. Yes, that includes alcohol, because we don’t drink a whole bottle at one meal. He spent most of that $20 at the Union Square green market, which partly accounts for the price, and bought fish, which also gets spendy at the green market. That’s why I don’t buy fish at the farmer’s market.
Any halfway decent frugality blogger would look at these challenges and scoff. In fact, so did most of the commenters on these posts.
Subway and Homemade Cost the Same
Then there’s Marie Claire. I normally love this magazine, but their tips for saving money on food usually miss the mark widely. Case in point, they wrote a cute little piece claiming a homemade lunch costs the same as a $6 Subway meal and call themselves prudent. In order to come up with this $6 sandwich lunch, they used prices from an online grocery store. Please. Even Zabar’s is going to have better prices than an online-only grocer. They then proceeded to buy all the fixings pre-sliced, except the tomato, which was organic. They rounded it out with a soda from a six-pack (the second most expensive way to buy soda), and an organic apple.
So, yes, if you buy everything pre-sliced and organic, then your lunch probably will cost $6, but I guarantee you that Subway is not serving organic tomatoes and apples, so it’s not a fair comparison. It’s a way of justifying a convenience you don’t want to give up. And that’s fine, but don’t claim that you’re being frugal because of it. And if you’re going to claim you’re being frugal, you might want to check in with the world outside of New York City first. Otherwise you just make us all stabby.
Summer is lazy, and hazy, but it can also start to get a little dull as it wears on. To keep you from hitting the summer doldrums too quickly, here are a few suggestions for cheap summer entertainment.
You don’t have to be in a big city to get the benefit of free or cheap summer concerts. Most medium-sized cities, and even some smaller ones, host free classical concerts, jazz trios, and other events at local parks, shopping centers, and cultural centers. Check the website for your city, the community calendar in the newspaper, or the local mall website for details.
Hang Out by the Water
If you have a beach or lake nearby, then a day hanging out by the water can be pretty cheap. Parking is usually affordable, and then you just bring a cooler of snacks, loads of sunscreen, and lots of sand toys. As a bonus, the sun will wear everyone out and you’ll get to be early, unless you stay for an evening bonfire.
Free Movies from the Library
If you’ve had enough outdoors time (too sunburned, maybe), visit the library to borrow free movies. Many libraries carry current DVDs, and rental is either free or $1 a day for the most popular titles. If your library doesn’t have movies, look for a local Redbox and then hunt down Redbox coupon codes online.
Wipeout on ABC
I’m almost ashamed to admit it, but I love this show. It’s the perfect summer entertainment, and since it’s on ABC, it arrives free. If you’re not familiar, it’s sort of like American Gladiator, but with poorer athletes, mud, and wisecracking hosts. It’s positioned as family fare, so it’s pretty clean (humor-wise).
Invite over a few families for a giant game night. Ask everyone to bring games and snacks and it will be fun for all ages with a minimal cost.
Rather than eating dinner inside during the summer, lay out a blanket and dine on the grass by candlelight. Then lay back and stare at the stars, or flashing airplane lights, depending on where you live. Bonus points for spotting a satellite or meteor.
If you’re a theater-enthusiast, then you may be able to find some free or cheap summer Shakespeare performances in your local area. Check the community calendar for upcoming events.
Most street fairs are packed with vendors, but there’s also cheap entertainment for the kids, live music, and a wide range of food. You can also pack your own lunch and find a bench or spot of grass to sit down on. The fun is in the enjoyment of the afternoon, not in browsing the vendors for stuff you don’t need.
Carnies travel the country this time of year, setting up for a weekend or two in a local school parking lot or city park. Although carnival rides aren’t the cheapest entertainment, it’s certainly a lot cheaper than visiting a full amusement park or water park.
Most communities have a free or low-cost pool. You may need to pay an annual membership, but it’s certainly cheaper than digging your own pool. Contact the local YMCA, a neighborhood cabana club, or your city’s Parks and Rec department for a list of local pools.
Free Museum Day
Many museums host a monthly free-admission day. Although these are often weekdays, they occasionally offer free weekend days during the summer. Get on your local museum’s email list to receive an announcement of the next one. If you have a Bank of America account, they often sponsor free days.
These ideas should keep you busy for several summer weekends. If you need more than that, consider camping or just laying around on the hammock reading a good book. That’s enough entertainment for me!
Otters are strange creatures, and I never knew they could pay it forward. Maybe it depends on how many oysters you give them. This week, I have just two oysters to share.
First, the Carnival of Personal Finance #205 hosted by Wise Bread. In addition to my stabby post about handbags, I also recommend Fabulously Broke in the City’s warning to factor in the cost of accessories, for example, will you need a new wallet to go with the handbag?
Second, the Money Hacks Carnival #65 hosted by Stretchy Dollar. In addition to my post about vision insurance (mine just saved me about $350), I also recommend Ms. Smarty Pants’ analysis of whether Costco saves money. If you don’t have vision insurance, add vision care to your Costco comparison list.
In case you hadn’t heard, a New Zealand bank accidentally deposited $10 million in a couple’s business account. They promptly withdrew the money and are now on the run. What would you do if this happened to you? What would you do if it was $10?
A True Tale of a Bank Error Biting Back
I actually knew a guy in college who received a $7,000 deposit courtesy of a bank error. He chose to withdraw the money and spend a semester abroad. The bank found him and demanded the money, but he’d already spent it. A couple years later, he received an arrest warrant in the mail at his new address across the country. He was given an option: pay it back and have his record expunged, or go to prison. He chose to pay it back, but it took him the entire summer working round-the-clock to raise the money by the court-imposed deadline.
Would You Take the $10 Million?
I wouldn’t, but I’m honest. In addition, I know the bank would catch up with me pretty quickly, and I’m not that good at hiding. You’d have to sever contact with everyone you know and love. You’d have to change your identity. Both of those are worth more to me than money.
In fact, I had another friend who embezzled a large sum and is currently on the run. We expect never to hear from her again, and if we do we will turn her in. On the one hand, I understand her decision to avoid prison. On the other hand, I can’t fathom never speaking to my parents or sister again. I also can’t fathom spending the rest of my life looking over my shoulder.
Note: I really do have decent friends. Everyone knows a couple bad apples. Mine both just happened to involve theft!
Would You Take $10?
This is where it gets tricky. Most people would know not to take $10 million. That is clear theft. But what it’s a small amount? $10, $1, a dime? What do you do then?
I have had a bank make small errors like that on my behalf. Most of them time I left them alone because I knew the bank would eventually reverse it. I didn’t want to risk going into overdraft when they did.
I’ve also received an extra dollar or two in change at the grocery store and said nothing. I probably should have, but I didn’t.
The most recent error of the kind happened at the movie theater. We had a coupon for $6 tickets ($12 each normally), but this particular theater had a $2 surcharge. When the ticket seller ran our credit card, he only charged us for the surcharge, so our total was $4 rather than $16. We didn’t realize it until we got home, but we didn’t bother to go back and correct it. We probably should have, but we found a way to justify it to ourselves.
Where Do You Draw the Line?
So where do you draw the line? Do you always alert the bank to errors? Do you always return to the store to give back an overage? Would you take the $10 million and run?
Memorial Day is the official start of barbecue season. If you can’t grill year-round, this is the time to pull out the Weber and fire it up. Of course, hosting a party can be expensive, but a barbecue can be done for much less money if you follow these tips.
Shop the Manager’s Specials for Memorial Day Barbecue Meats
The meat and other grillables are the most expensive part of the barbecue. Although I’m partial to grass-fed beef, feeding more than a family can get very expensive. If your hosting a gathering, then you need to cut costs. Head to the grocery store on Sunday and look for manager’s specials on various cuts of meat. You can probably score steaks, ground beef, and chicken breasts for half the usual price. Manager’s special’s are usually close to the expiration date, so make sure to buy them close to the date of the party or toss them in the freezer until Sunday.
Stock Up at Costco
If you belong to Costco, then it’s time to stock up. Their kosher hot dogs are fantastic and come in large packs for a very low price. They also have buns to match. You’ll also want to pick up hamburger buns if you’re making burgers. This is also the place to grab soda, beer, chips, and napkins. Rather than buy water bottles, fill a few pitchers of water and set out plastic glasses.
Use Your Regular Utensils
Save your pennies and the planet by putting out baskets or cups filled with your regular metal utensils. As a bonus, your guests won’t have to attempt to saw through a steak with a plastic knife.
Use Your Regular Dishes
Again, skip the paper, which isn’t sturdy enough for Memorial Day barbecue fare anyway. If you don’t want to use your everyday china, then hit the dollar store for some sturdy plastic plates. These will last for several barbecues, as opposed to the paper ones that go straight into the trash.
Ask Friends to Bring Drinks or Sides
You can save yourself some cash by asking friends to supply side dishes like potato salad or a green salad. You could also ask them to bring drinks, which will save you the expense of buying more than a 12-pack of beer to get the party started.
Skip the Theme
Some people feel that every party must have a theme. I’m generally opposed to themes – Memorial Day is the theme! So just skip it. Then you won’t have to worry that your plates don’t go with your concept.
Keep the Décor Simple
This is a barbecue. You don’t need fancy tablecloths. Just lay an old vinyl cloth over a table to protect it and you’re good to go. Skip the balloons, streamers, and what not.
Backyard Games Are In
If you’ve got a croquet set, volleyball net, or badminton set, bring it out. It’s a great way to kill time while you’re waiting for the meat to cook.
Keep the Guest List Reasonable
You don’t need to invite everyone you know to this party. Instead focus on a nice group of 10-20 people so you can actually hang out and have fun rather than handcuff yourself to the barbecue or spend the whole time greeting new arrivals.
Make It an Open House
The other option is to set a start time in the early afternoon and then make it an open house so people will come and go. Not all of them will expect to be fed, or be disappointed if they missed the fresh burgers. They’ll also bring a fresh supply of snacks and drinks, which prevent you from sending anyone to the store.
The first big grilling holiday of the season is almost upon us. I command you to go forth and barbecue this Memorial Day. And keep a cold one in the cooler for me.
Once again, the banking lobbyists are coming out against the new credit card rules passed by the Senate yesterday and likely to become law next week. These are only slight modifications of the new rules set to go into effect next year, but the banks and credit card issuers are once again trotting out their threats to try to scare Congress into not passing the bill. Silly banks – your greed is showing.
The Same Old, Same Old Threats
First, they said, “Well, if you make us be responsible, we’ll just have to reduce the amount of credit available to consumers.” Here’s the funny thing about that threat: they’re already doing it. They started slashing credit limits before the new rules were announced, and continue to do so. Continuing an activity isn’t much of a threat.
New Threats against “Deadbeats”
This is a new one. The lobby group is now threatening to start charging interest from the date of purchase, in order to make money off of us “deadbeats” who pay our bills on time. I guess the 1-4% they make from merchant fees isn’t enough now that there are new rules prohibiting predatory behavior. They’re also threatening to reintroduce annual fees and reduce rewards programs.
They may be modeling their behavior on the airlines, but there’s a key difference: the airlines have a captive audience. If you need to fly somewhere, you can’t do it without getting on a plane. I don’t have to use a credit card to buy something. I can use cash, debit cards, or even checks (assuming I can find my checkbook.)
So, if they want to charge me an annual fee, I can cancel the card. If they want to charge interest from day one, I don’t have to use the card at all. If they slash rewards programs, then my motivation to use the card is pretty limited. Right now I charge most recurring bills and regular purchases to one card out of convenience and to accrue miles, but I could easily add the recurring bills to the online bill payment and use a debit card at the grocery store or gas station. It doesn’t much matter to me.
Competition Always Wins
It happened with the airlines – some airlines didn’t charged for bags and attracted more passengers. It will happen with the credit cards – at least one bank will realize they can reap all those merchant fees if they allow a grace period and don’t charge an annual fee. The deadbeats will flock there. The other banks will be jealous and decide to play nice again.
The whole situation is ironic. Greedy banks issued too much credit to unworthy customers so they could rake in interest and penalties. As a result, the banks are losing money because those bad customers couldn’t afford to pay the interest or the penalties and defaulted. Meanwhile, the government finally decided enough was enough and cracked down on the banks. Their response? Drive away the good customers. And these people are supposed to be business geniuses?
Once again, stupid banks make me stabby.
Rebranding is not a new trick. You may recall that Philip Morris tried to rebrand itself as Altria because of all the bad press associated with cigarettes. Now GMAC bank is trying to rebrand itself as Ally Bank, an honest bank with no ties to the shiftiness of the economic collapse.
Why Ally Bank?
It’s simple: the word “ally” gives the impression that the bank is your partner, working with you to achieve your common goal of protecting your money. By using this as their name, they’re sending the message that you can trust them.
GMAC is only mentioned once on the site, then the rest is about their strong values and dedication to honesty.
New Ally Bank Features
With the launch comes a host of new offerings, including a no-penalty CD that you can withdraw from anytime, a traditional CD, a savings accounts, and a money market account. The interest rates are above the rate you’d find for a traditional brick-and-mortar bank, and about even with other online banks.
The biggest difference they tout is that they have no fees, and no minimum balances. And, in big capital letters “NO SNEAKY DISCLAIMERS.” Hmmm, why do they have to stress that so hard? Could it be because as an auto loan and mortgage corporation, they were pretty synonymous with sneakiness and miles of disclaimers?
GMAC Financial Services only became a bank in late December of 2008, when they were on the verge of collapse and applied to become a bank so they could accept bailout funds. Following the stress tests last week, GMAC was informed that it needed $11.5 billion in additional capital, most likely from the government.
They’re now rebranding to distance themselves from the taint of both General Motors (which established GMAC as its auto financing arm, before expanding into mortgages, and from there into financial ruin) and the banking system collapse and bail-out. This is a way for GMAC to get a fresh start.
Like most banks, I found mixed reviews of their customer service, interest rates, and general practices online. I don’t think the rebranding was an attempt to hide poor customer service, but rather a response to poor public sentiment. Unlike GMAC, Ally Bank doesn’t automatically create negative impressions of bad cars and shady practices.
On the other hand, a rebrand is just a new name for an existing company. This doesn’t change their need for capital, it doesn’t change the people behind the bank, and it doesn’t change the corporate culture that resulted in financial ruin. They don’t issue mortgages, though, so at least it’s a start.
Only time will tell whether or not people buy into the brand. It really doesn’t affect your decision about whether or not to use the bank. It’s just interesting to see how a bank attempts to change its brand during one of the worst financial crises in history.