Everyone Needs A Rainy Day Savings Account

Even if you're in debt, you need a savings account. I'm a firm believer in that because until I had an account for unexpected expenses, I wasn't really in control of my debt.

I used to take every available penny and put it into my debt after paying for food, gas, rent, etc. The problem was, when I had unexpected car trouble (the rotors on my Jeep were warped beyond all goodness), I had to pay for the rotors, brakes, and service on my credit card for about $1000. I consistently underbudgeted things like food, and with no available savings, I would have to pay on my card. The cycle of seeing my debt go down and up, down and up, was discouraging and distressing.

One of the best things I did to get my debt, savings, and spending under control was to buy two books. One was Jean Chatzky's Pay It Down! : From Debt to Wealth on $10 a Day. The other was David Bach's Smart Women Finish Rich. These books are my financial bibles - I keep them in my bookbag.

The key thing I got out of "Pay it Down" was I needed an emergency fund. I need that money to dip into instead of credit. What I got out of David Bach's book was to automate the process. I setup my accounts to automatically deduct the money every paycheck into my savings account. I opened a Capital One Money Market Fund for my savings account (I wish I had opened with HSBC, but c'est la vie). Good interest rate, checks, and yet fairly inaccessible. I paid this money to myself first, before I paid rent, credit cards, electric bill, etc. That money was no longer in the equation. I budgeted my money on the remainder of my check.

Then a funny thing happened. Once I had that savings account and budgeted my money with the remainder, I no longer had to use my credit card for unexpected expenses. In fact, I didn't touch the money at all for almost 6 months. I switched insurance companies, and paid the 6 month advance for the cheaper rate. I had plenty of money in my account to cover it! While not an emergency, I consider this a good use of the money as it saves me money.

It was a great feeling to see the savings account grow from 1 month worth of expenses, to 3 months, to 6 months. In case of the extreme (loss of job, medical emergency), I feel better knowing I can strap down to the minimums and cover myself without growing debt for up to 6 months. That sense of security has made a huge difference in my overall life. Now when I pay my credit debt, it only goes in one direction: DOWN!

-Cathy-

Half Dozen Finances Within Your Control

Life takes unexpected twists and turns to the best of us. While there are a number of things that are beyond our control, there are at least a half dozen things that are.

1. Keep your car properly maintained. Oil changes and air pressure in your tire will keep efficiency high. Regular oil changes with inspections will alert you to problems that could be very costly down the road. My last oil change and inspection showed my serpentine belt was starting to crack. While I wasn't happy with the $115 bill, it saved me a potential $170 in towing fees to a garage during a breakdown.

2. Magazine subscriptions. The majority of us don't read the magazines we subscribe to. If you aren't reading every issue, get rid of it.

3. Cable TV. Are you watching all those channels? Probably not. Unfortunately, cable subscriptions do not make it very easy to get just the channels you like. However, a cheaper plan will probably get you most of what you want. Personally, since most of the video stores around my neighborhood carry television series box sets, I just rent the shows I like. I may get them a season later, but it suits my lifestyle better. I rarely am around when the shows first air anyway.

4. Cell phone plans. This can be a HUGE money sink without realizing get. Get an accurate assessment of how many minutes you are using. Shop around for plans/services that fit your needs. For me, this was switching my monthly plan to a pre-paid plan. I had a fabulous promotional plan of 600 minutes and unlimited nights and weekends. The problem was, I don't talk on the phone that much. Most of my cell phone usage is during the day when I draw minutes anyway. I consistently use 300 minutes per month, yet I didn't want to switch to the 300 minute plan because there are times when I exceed that. I do not want to pay the over minute charges. I've NEVER come close to using 600 minutes. Thus, pre paid was the way to go.

5. Internet subscription. Internet is more of a necessity for me than a phone or a television. However, this was still an area I could trim. I was paying Comcast $68/month for internet + TV (and they forced the TV on me). My connection speed and reliability were good for my area. The problem: the price. I don't download a ton of media, I need a reliable connection for remote work, I mostly read blogs and download an occassional game from Big Fish Games. 768 down/450 up is more than adequate for my needs. It's even good enough to play World of Warcraft. Seriously - you don't need as much as you think. So I switched to ClearWire. It's been handy for traveling purposes since it's portable too. Plus I'm saving $48/month.

6. Dining out. This is a weak spot for me. I try to mitigate the cost by taking advantage of Happy Hour prices.

-Cathy-

Budgeting Software: Budget by Snowmint Creative Solutions

I've been an avid Quicken user for many years. I keep my bank accounts up to date every other day or more. Keeping close tabs on my spending and statements allowed me to find when my debit card had been used fraudulently, and my credit card charged by a subscription service without my authorization. In both cases, I called my banks immediately and had the cards numbers canceled and reissued. Unfortunately, I will never know how my debit card number was stolen - it could have been any number of online purchases or an unscrupulous restaurant owner. I'm surprised that many of my friends never look at their bank and credit card statements. My close tabs allowed me to get my money refunded and cards secured immediately.

Quicken has worked very well for me as an electronic checkbook ledger. The budget tool has never worked to my satisfaction or helped me balance my budget. I was intrigued by envelope based budgeting, which I was first introduced to at Mvelopes.com. I like web based tools as they can be used, theoretically, by any computer (I regularly switch between several locations with different computers) and platform independence (I use both Macs and PCs). In theory because it seems mvelopes.com doesn't behave well in Safari.

However, the reason why I don't use mvelopes is the subscription pricing. $94.80 per year with a 2 year subscription is much too expensive. My copy of Quicken 2005 has averaged out to $25 per year, and gets cheaper by the day. I don't see why I should upgrade to the newer copy of Quicken as I don't use any of the other features except for transaction downloads and the ledger. So I haven't experimented with envelope based budgeting as I couldn't find one that was stand alone.

I just found Budget from Snowmint Creative Solutions. I was thrilled by an envelope based budget system that was standalone and on the Mac! It also has a PC version, but sadly, the data formats are binary rather than open data based, like a xml format or the like. Nevertheless, I tend to do my productivity stuff on my Mac anyway, and the game fun stuff on my PC. Getting the copy for my Mac seemed the best choice.

I downloaded the trial version. I have to admit - as a Quicken user I was a bit lost about how to get my money allocated into envelopes the way I want. Unfortunately, by the time I got it figured out, my trial transactions limit had been reached! For $29, I thought it would be worth giving a try. I really wanted the ability to pre-allocate my money in each of my accounts.

After about a day of fiddling, I finally got my envelopes and accounts setup the way that I want. That is not to say the software is hard to use - quite the contrary. I just had to get used to the difference in budgeting. Instead of "categories", you have envelopes as a visual representation. Each of your accounts has an "available" pool where you can move money into each of the envelopes. Every time you make a transaction, such as buying lunch, you make a "debit" transaction on the "Food" envelope. If you budgeted $60 per pay period for food and paid $5 for lunch, the envelope would show you have $55 for the pay period left. Simple and intuitive.

I created 2 envelopes and 1 envelope group for my Ebay and Amazon.com sales. I put my earnings in the "Sales" envelope and my shipping charges into the "Expenses" envelope. The higher level group envelope showed my total profit. I could then move my earnings into the "travel" envelope. I split my money market balance into "Debt Payment" and "Vacation" allocations. I bought groceries and deducted the cost from my groceries envelope. I can select the overview of all my accounts and see where I've allocated all of my money for this pay period. I pay for my car insurance in a 6 month lump sum, so I created an "Insurance" envelope, figured out my monthly cost, and budgeted it. It's great being able to see that I have $80 allocated to Insurance and $37 to car registration in my savings account rather than just the account total.

So far Budget fits my needs for being able to separate out the money in my accounts in advance, rather than just a big total unallocated amount. I don't think I'll be replacing Quicken with it completely, as it still fits my needs for an electronic checkbook ledger.

You can setup an envelope based budget in Quicken. I've used split transactions in Quicken similarly. I'm liking Snowmint's Budget software better because it was designed for this type of budgeting. Although, I *do* prefer to use one tool. I'll have to see how Budget works out in the long haul.

-Cathy-

Eliminating Debt and Saving Pennies for Jamaica

It's a strange thing. I started off with much better financial sense then most. I started working my first job at 16. I saved every dollar that I made (which at $5.25/hr part time wasn't much!). By the time I started college, I had $6000 in savings. I didn't spend a dime, and my parents paid my room, board, and tuition.

But life and poor decisions happened, and I ended up with a credit card debt totaling about $34,000. I moved to Seattle to start over, and ended up burning what little savings I had left to get settled. It's been 3 years later, and my debt has been reduced to $13,000. I thought I would have it fully paid by now. I made some rather poor choices that delayed my debt payment. For the first couple of years, I was only keeping things about the same, not reducing or increasing by much.

This past year, I've decided - Enough is ENOUGH! I want this paid now. There's no reason I can't. I make enough money. I started my life with really solid skills. There's no reason why a financially responsible person like myself shouldn't be SAVING that money and investing in myself.

Despite having a large debt looming over me, I have amazing credit. It's immaculate. I went and talked to a home mortgage lender who was surprised that I had such a good credit score acquired ONLY on credit debt. How was I able to accomplish this? I've never been late on a payment. Never. Not once in my 15 year credit history. Even during times when I was unemployed and financially strapped, I always budgeted enough money to pay for at least the minimum on my cards so I would not incur penalties. Taking advantage of my great credit, I switched balanced between credit card companies to keep my interest and payments low until I got on stable work terms.

I should have been able to pay off more in the past 3 years after getting stable work, however, I made some poor decisions by going out too much, getting unnecessary subscriptions and expenses. I was able to make some progress. Just not enough in my eyes. I also got hit a couple of times with unexpected expenses that caused me to use the card because I didn't have enough savings.

Now I've taken charge. I have money automatically withdrawn from my check into a savings account. I've budgeted how much money I need to pay for bills and vacations for this year. If an unexpected expense occurs, I withdraw from my savings fund. Everything else gets funneled into the credit debt, which I transfered the balance to a 1.99% rate until January 2008. I plan on having this paid off by November 2007, while still going on vacation to Jamaica in July, visiting parents in Colorado in Thanksgiving, and Europe to meet the boyfriend's parents in December.

I'm just trimming off expenses I don't need, finding inexpensive entertainment and activities, and watching every penny.

-Cathy-