Archive for the ‘savings’ Category

Fighting the Urge to Spend Part 2

Last post I covered how we can be tempted into spending money while trying to become financially free.  Unfortunately, the urge to spend will still be there even after you have control of your finances (take a look at my sneaker incident).  So what are some ways one can control this urge?  Here are some tips that I have gathered that have worked for me in the past:

  • For the married folks.  Don’t ever let money be an issue between the two of you.  I believe that everyone should have a hand on the household finances even if one is more knowledgeable about it than the other.  A simple yet great tip I found was to always discuss any spending over $100.  That way, at the end of the month there shouldn’t be any surprises when you are reviewing your monthly budget.
  • Use the 24-48 hour rule.  My brother is a tech geek.  He loves anything doing with technology.  Naturally, he loves going to electronics stores and seeing the latest and greatest.  So when the newest thing comes out, he gets that must have feeling.  One of the ways he fights the urge of spending money on gadgets is using the 24-48 hour rule.  If he really gets that feeling that he needs to buy an item, he waits between 24-48 hours and the feeling usually deteriorates.  He understands that what he had was a compulsive buying feeling where the satisfaction is only from buying the item right then and there, and not necessarily because he wants it for the long run.  I find myself using this technique as well.
  • Limit the amount of time in temptation hot spots.  Temptation hot spots are places that you know make you want to spend money more than usual.  For me, any sporting good store or website dealing with sneakers are my temptation hot spots.  Just remember that we are limiting the amount of visits to these places.  I can definitely afford to buy some of the things I want so I sometimes walk into these stores to take a look.  But if I was trying to get out of debt, I would not even look at these places so I wouldn’t loose focus on the bigger picture of being financially free.
  • Have a constant reminder of your goal.  If your goal is to become debt free, why not keep in your wallet or purse a piece of paper with the amount of money you still owe written down.  When you see something you want, look at that paper and say to yourself, “do I need to add to this total?”.  Maybe you are saving for a car or a new home.  Have a picture of that in your refrigerator or with you to remind you about what you are saving for.  Get creative, and look at the bigger picture.
  • It’s okay to treat yourself.  All work and no play can make you dull.  If you save cash, have no debt, and are saving for the future, why not include a category in your budget where you can have some extra cash to buy that thing you like.

We are bombarded constantly by the media with the importance of buying stuff.  Many people become almost obsessed with the idea that the more stuff we have the better we will be.  Remember that these items are not what makes you happy.  Look at that old exercise machine you bought, or that gadget you have only used twice since you bought it.  Has it really made your life any better now?  The urge of buying is more than anything an urge for immediate satisfaction and less of a long term need.  Using the previous techniques can help you, but as always your will is what will carry you to do it.

So what are some spending blunders you had?  How do you fight the urge to spend?  I would love to read the ways you control your spending habits. 


Fighting the Urge to Spend

If you are in the process of trying to get rid of debt and becoming financially stable, you have probably been tempted to spend your money on things that you don’t really need.  Even when you are already financially free, temptation can still hit you pretty hard.  I found myself in this scenario last week.

I love basketball.  Anybody who has a true passion for the sport knows that basketball sneakers and basketball itself go hand in hand.  That being said, basketball sneakers are what I call my kriptonite.  In other words, you put a pair of brand new sneakers in front of me, and the temptation to buy them becomes very irresistible.  When I was young and didn’t really think about saving or investing, a big part of my income was going into collecting shoes.  I amassed a collection of over 80 sneakers.  Many of this have gone unworn for years.  Flash forward to the present and I see the huge money error I committed.  Now that need to buy shoes has diminished, but I also make sure to stay away from stores and websites that sell or deal with the subject so I’m not tempted to go and buy another pair that I don’t need.

Now I am in the process of selling many of this shoes through eBay.  The good thing is that most of this shoes will make me a profit so I will have some extra cash to spend and save.  The bad thing is that to find out how much to charge for them I had to do some research on the very websites I’m trying to stay away from.  As I browse these websites, I found myself fighting the urge to buy more shoes!

So how can one fight temptation to spend money unnecessarily?  In the next post I will give some tips on how to do this.

Taking the First Step Into Savings

Last week, a friend and I began talking about saving for the future.  I told him about my current plans and how I’m saving about 20% of my income annually for retirement.  He told me he really has not saved anything.  Personal circumstances had put him in a situation where he thinks he can’t save for himself right now.  As the conversation progressed, he asked me for some advice.  What should I invest on?  Where do I do it?  How do I start?  His focus was more on the investing side of the equation.  I told him that right now, that is not as important as taking action.  The last question was what I thought was the most important one-How do I start?

If you ever wanted to loose weight, change jobs, or any type of situation that might require some deep thinking, the most important thing you can do is to take action.  Taking that first step is what will help lay the road for the future.  This concept is no different when talking about personal finance.  Don’t worry about the schematics of investing.  Worry about doing something to get you started.

The first step you should take should be taking a closer look into what you spend your money on.  I had asked my friend if he new what his income was after expenses.  He didn’t know.  I told him to just take a look at where his money is actually going.  Then, he will notice  that either A) He needs to find a way to increase his income B) Decrease his expenses C) Both.

It does not matter how large or how small the amount of savings you put aside is.  The important thing is to do it.  When I first started saving for retirement, I could only save about 50 dollars a month, sometimes even less.  But that didn’t discourage me.  In fact, it motivated me into saving even more.  When you start to see your savings grow, you want to keep feeding it more and more.  You start to notice that you can maybe save a little bit more this month.  As the next month rolls around, you noticed that you can save a little bit more.  Soon, saving will become a habit.

As the saying goes “the journey of a thousand miles starts with the first step”.  So open a high yield savings accountlive more frugally, read about personal finance, do whatever it takes to get the ball rolling in savings. 


What is a Money Market Account?

As I created this blog, one of my main goals was to make this a place where people can find simple and to the point answers on personal finance.  In previous posts, I have covered things such as compound interest, high yield savings account, 401k’s, and more.  The next topic I would like to talk about would be money market accounts.

Money market accounts are similar to a savings account.  The money is usually invested in  short term securities.  What makes them different from a savings account is that they usually have higher interest rates and your are limited to the transactions you can do per month.  Warning:  Money Market Accounts are different from Money Market Funds.  MMFs are not insured by the Federal Deposit Insurance Company (FDIC).  For more info on MMFs check this article in Market Funds-Risks and Benefits.

Who/Why should one have a money market account?  I would recommend a money market account to those who are going to do some long term saving.  This is money that you would not be touching for a long time (3+ years).  Many people suggest using an mma for your emergency fund.

I don’t have an mma.  The interest rate that you can earn is higher than most regular savings accounts but the limited transactions is something I don’t like about them.  I prefer using a high yield savings account as a place to store your emergency fund.

If you would like to compare mma’s check out Bankrate for side by side comparisons.


High Yield Savings Account

If you are a regular to any blog dealing with personal finance you will surely run into the great use of high yield savings account instead of your regular savings account at your brick and mortar bank. The term high yield savings account are just like a regular savings account but with some perks to it. These types of accounts usually offer a higher APY (Annual Percentage Yield) which are their most attractive aspect of using one.

The most popular place to obtain one of these accounts has become through internet banking. Online Banks such as HSBC Direct and ING Direct have become very popular due to their higher yield, great customer service, and ease of set up.

If you prefer using a traditional brick and mortar bank rather than an online bank, most national banks offer a high yield savings account. Check with your current bank and ask if they have any higher rate accounts. More than likely they should offer this type account. The most common criteria to open the account would be:

  • A suffeciently large initial deposit
  • Keep a certain balance over time
  • Limit transactions in and out of the account
  • Maintain other banking relationships

For years, I had a savings account with Washington Mutual earning a whoping .25%. When I found out about higher yield savings account, I decided to do some research on them. Washington Mutual did offer an account with a great rate. I believe it was aroung 5.50% at the time (As of May 15 it is 3.30%). The problem was that they did have to many restrictions to open and maintain one of these accounts. As mentioned earlier in the criteria section of this post, they asked for a large initial deposit, you had to keep a certain balance at all times or suffer penalties and fees, and other things that steered me away from opening an account with them.

I decided instead to go with an online bank and chose HSBC Direct. The setup progress is very easy. It takes you about 20 minutes to apply and if you need any help, they have great customer service that can answer any questions you have via phone or email. The initial deposit is $1 and there is no minimum amount you need to keep. There is no monthly maintenance fees and you are not required to have a checking account with HSBC. In all, I have been more than happy with their services. So much that I have multiple accounts setup with them for differenct uses.

With so many options and the ease of opening a high yield savings, there shouldn’t be a reason why one should continue using a crummy traditional savings account. While you are not earning a tremendous amount of money from the interest earned from the account it sure beats what you where earning before. I’m earning more than $200 a year which is much better than the $10-12 I was earning before.

If you are interested in opening a high yield savings account, do some research and find customer reviews for them. I recommend going over to Bankrate to compare rates and their different options. Lets stop letting our money go to waste and lets start watching our money grow.

Hand Washing vs Dishwashers

When we first moved to the United States, I remembered asking my mother why she wouldn’t use the dishwasher. She would tell me that while it did save some time, it was expensive to use. The water and electricity that it consume was not worth the 15 to 20 minutes it might save you in time. But dishwashers have come along way since I had that conversation with my mother over ten years ago. So are you better off using a new dishwasher than washing the dishes by hand?

I did a little research and I found this:

The Bonn study proves that the dishwasher uses only half the energy and one-sixth of the water, less soap too. Even the most sparing and careful washers could not beat the modern dishwasher. The study also rated the cleanliness achieved, again in favor of the washing machine (sorry mom). There have been studies before, but this is one of the few that stands (wo)man against machine and it sets itself apart by including a thorough analysis of the effect of half-loads and the whole demand range from your cake plate to the grimiest pots. Surf to research under household technology at U. Bonn’s site for more. :: U. Bonn Household Technology.

Even with the study done, I still don’t know what side of the fence I am in. Here are some thoughts I had after reading this:

  • The study was done by dishwasher manufacturers. How much did they invest on this study? Is it really unbiased?
  • Remember that it is talking about newer dishwashers. Specifically energy star approved models. If you have an older model dishwasher, you are probably better off washing by hand.
  • Everyone has a different method to wash dishes by hand. I know that some people keep the water running while washing while others fill the sink and many other ways. Not all methods where used to compare with the study.

So what do you guys think about dishwashers? Take a look at the study and let me know what you think.

The Simplest Guide to a 401K Part 1

One very important vehicle of investing that people can use is the 401k. But what exactly is it? How does it work?

A 401k is an employer sponsored retirement program. The name for it comes from the section in the U.S. Internal Revenue Code. Employees contribute a portion of their income (taken from their paychecks) pre-tax. Pre-tax means that you will not be taxed for it until you withdraw it.

The actual work of administration and monotoring the retirement accounts is done by an independent bank, mutual fund company, financial service and more. The types of investments that are offered are stocks, bonds, money market instruments, and my personal favorite-mutual funds.

So why should we invest money in a 401k? Companies are moving away from pensions and into 401ks. If you are looking into starting investing long term, they are a great place to start. The most important reason would be if a matching contribution is involved. That is free money! For example, my current employer offers a match of up to the first 3% of my income. Therefore, if I invest a minimum of 3%, the company will match 3% every time as well. It’s free money so take advantage of it.

When investing in a 401k one should study and understand the risks involved with investing. Most financial experts would suggest to have a well diversified portofolio to help minimize risk. As with any long term investing, this is not ment to make you rich overnight. This is ment to grow steady and slowly with compound interest working its magic.

In Part 2, I will talk about the details in a 401K.

Frugality:Dating and Money

As one tries to start to embrace the frugal lifestyle, one of the questions that I get is “how can I go out in a date and not look cheap?”. At a glance, it can be hard finding places and activities that won’t hurt your pocket book. A movie and a dinner date can be somewhat expensive. On average, going to the cinema for two in the afternoon will cost you about $19. If you want popcorn and a couple of drinks that would be another $15. Later that night you go out to a restaurant. I’m not talking a five start restaurant-just a regular chain restaurant. That will be a minimum of another $25 dollars. Total=$59.

Now, if you are doing well financially, this wouldn’t be too much of a problem. But remember that if the date goes well, you will probably go out on a second, and maybe a third. Little by little, it will start adding up to a higher cost. If you are starting to pay of your debt, this could really tighten your pocket book and might cause a possible set back with your financial plans. Here are some ideas one should use when dating:

  • Budget. Look at how much you can actually spend when you go out on a date, and make sure you stick to the figure you came up with. I suggest adding a little more than what you think you are going to spend. This will give you some wiggle room for unexpected expenses.
  • Customize your date with her interests. If you know some of the things he/she likes before you go out on a date, make it tailored to her. Maybe he/she likes reading-take her to a book fair. Likes to travel-check to see if there is a cultural festival going on. Think outside the box when planning. Also, make sure to check that pricing is reasonable.
  • Have a dinner at home. We know that eating at home will always be cheaper than eating at a restaurant. Plus, you can show her your culinary skills. If this is a first date, she might not feel comfortable coming over to your home. Tell her to bring a friend over. Just make sure not to burn the food.
  • Discover your city or town. Here at Houston, we have many different festivals going on all the time. Reading your local newspaper will give you great places to go without breaking the bank to do so. My fiancee Crystal and l do this all the time. We get to go to new places, meet interesting people, eat cheep but good food, and best of all the entrance is usually free
  • Know your museums and zoo. If both of you like animals and/or museums, why not go on a date to one of these places? Usually these institutions run specials throughout the week. Learn when they are and take advantage of them.
  • Be honest. At some point, let the person know your financial plans. They don’t need to know the details. Just that at this point in your life you are trying to take control of your finances.

Dating can be awkward at times, specially in the beginning. Money can be a touchy subject to talk about. During the time that you get to know that person, the subject will probably come up. As I mentioned before, be honest with them. If you two are becoming more and more in sync, she will most likely understand your opinion. This does not mean that you should try and convince her that your way of thinking is right. Her opinion about handling money could be way different than yours. Just remember that dating is the time when you get to learn more about a person. Don’t let money get in the way.

Dealing With The High Cost of Food

It feels like Murphy’s Law is kicking in full effect and the cost of food has taking it’s beating. Basic food products such as rice and pasta have almost doubled in the past year. Corn and sugar have also seeing substantial increases. Most of our food has seen some type of upward price change and it is starting to affect our pocket books. What is the cause of this? Well, a little of everything. According to Katherine Corcoran with the Boston Globe the rise in the cost of food is a combination of things.

“Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves, and growing consumer demand in China and India.”

Kimberly Palmer with U.S. News offers 6 great tips to eat better for less:

  1. Plan ahead. Planning your meals for the week can make it easier when grocery shopping. Remember that some of the ingredients you buy can be used for tons of different recipes. The more you cook from scratch the more money you will usually save.
  2. Do it yourself. Instead of buying things that are pre-made, start making them yourself. The best example would be buying grated cheese. Why not buy a block a cheese which will be cheaper and grated at home. How about making your own mayonnaise. Not only will you save a little cash, but you can add some flavor of your own to some of your creations that you can’t do if it’s already made.
  3. Rediscover eggs and beans. Eggs and beans are extremely versatile food staples. Not only that, they are still relatively cheap compared with meat. How about a quiche, or some beans and rice. A dinner for two of this will run you about $5 to make.
  4. Go meatless. Not spending money on meat can substantially save you money while helping promote a healthier lifestyle. Just remember to include protein in your diet in some other form. I don’t think I could do this 100% but I could trim down my meat intake.
  5. Leftovers. I love them. Remember that you can take them to work, eat them the next night, or use them to create a new meal. Left over ground meat from hamburger night-use it for spaghetti night.
  6. Use what’s on the fridge. How many times do we look in the fridge and say “there’s nothing in here”. Look again. Get creative with your ingredients. Look in the Internet for ideas and you will find that you have way more dish choices than you thought. I recommend using FoodNetwork or AllRecipes for ideas on what to make with the ingredients you have at home.

Food prices are expecteted to stabilize in the future. Unfortunately the prices will not go down. Adjusting our budget and our lifestyles will help us combat the rising food prices. What are some ways that you save on food?

To Commute or Not Commute

Last year, I took a position with a company where I had to drive 55 miles one way from home to work. Many people had suggested to me that I should move or look for a job closer to where I’m living. I didn’t want to do that because it would take me away from my family and fiancee, which are the most important things to me. Plus, I was excited about the job so I wasn’t even putting attention to the negatives that the position had. More importantly… the drive.

The first couple of weeks, everything was fine. The traffic and long drive was not bothering me, but I did notice that I would get home late every night, and wouldn’t have time to do anything else because I had to get some sleep, to wake up early, to get to work on time the next day. And so the cycle began.

After the first month, I noticed my energy level being less and less. I wasn’t eating healthy and I started to loose weight. I have always been thin, but I had a healthy body weight. My face looked thinner and in general, I just looked skinnier. I have always been into sports. The moment I took this job, I basically said goodbye to them. I didn’t have the energy to go and work out or to play a pickup game of basketball. I started to see my friends less and less and my overall happyness began to go down.

My relationship with my fiancee was starting to strain. Before I took this position, I was seeing her and spending some qualitiy time, 3-4 days of the week. After taking this position, I was lucky to see her more than once a week. When I did see her, I was always tired and not up to doing anything. It almost felt like the commute was sucking the energy out of me.

By the third month, I really felt unhappy. No matter what, I was working a minimum of 12 hours (9 at work and 3 commuting). I didn’t have time to exercise, see my family, or even to sit down and read a book. I felt zombie like. Finally, I couldn’t take it anymore so I decided to let my boss know that the moment a position opened up closer to home, I would be interested it in taking in it. I knew that there was a possibility that I would have to take a paycut but I was willing to do it in exchange for more social time, more energy, and less stress.

Luckily, on February a positioned opened up about 4 miles from my house and I was given the offer to take it. I think I didn’t even let my boss finish the sentence with me already saying yes. The good thing, was that I kept my salary so the loss of income was not something I had to worry about. In the end, it was the best decision I could of made. I’m saving over $200 on gas a month, spending 10-12 hours extra a week at home, I’m starting to work out again, and more importantly, my fiancee and I are spending much more time together (yest that’s a good thing).

While writing this post, I found an article in The Washington Post talking about the consequences long commutes can cause to your body and mind. I highly suggest taking a look at it specially if you are thinking about doing a commute longer than an hour.

So what are your thoughts on commuting to work? I’m specially interested in hearing your experiences with it and how you dealt with it or are currently dealing with it .