New Year’s Resolution Reminder!

Today is the (self imposed, entirely made up) deadline for setting up a budget tracking system! This doesn’t mean you have to decide on your whole budget today, this means you are taking the next few months to track where your money goes. Once you have a good idea about how much you spend each month in each category, then it will be a breeze to set up some budget guidelines for yourself.

There are a few ways you can do this. You can set up an account with Mint (my personal favorite. It takes a while to set up, but after that it is basically zero maintenance and they all of your long term tracking for you).

You can make your own spreadsheet (minimal effort to set up, the amount of maintenance depends on how detailed you want to get).

You can even experiment with the cash-only system just by using your best guess and seeing how the money works out. Don’t forget to write down your adjustments so that you can figure out what your trends are.

Pick a tracking system that is easy for you. This is the first step to setting up a budget, and the budget is for you and you alone (or I guess, for you and your partner if you have joint finances). So make it a system that works for you! If setting up a Mint account makes you want to vom, then try another system. Baby steps, I promise it will be worth it in the end!

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New Year’s Resolution Reminder!

Today seems like a great day to automate your bill payments!

This task will take approximately 30 minutes.

Less time than an episode of New Girl. You can even do it while you watch an episode of New Girl.

It will save you massive amounts of time, stress, stamps, late fees- and it may help improve your credit score.

Pay your set expenses through your bank, pay your variable expenses (electric bill, water bill…) through your utility company website.

While you’re at it, automate a transfer into your savings account so you can start saving up for your emergency fund and for that vacation to Europe (you can save for both at the same time, it’s totally cool).

You are officially 1/4 of the way through revolutionizing your budget! Good job you responsible adult, you!

Relationships and Money, Couple 1: Juan y Catalina

Subjects:

Juan (37) and Catalina (29)

Juan has two children from a previous marriage and makes twice what Catalina makes.

Juan pays child support and alimony directly from his paycheck. After that, Juan and Catalina put all of their money into a joint checking account. From that account, they pay their bills, save for mid-term goals and they save for retirement. They have a  budget that they have planned out together. They are aggressive savers and they are both on the same page about their long term goals of early retirement.

To deal with buying things they each want but don’t want to have to discuss, Juan and Catalina give themselves equal “allowances” each month from the joint checking account to their own private checking accounts. The amount is enough for both Juan and Catalina to feel like they can take care of their personal purchases. If Juan wants to buy one of these for every day of the week, he totally can without even talking to Catalina about it. But Catalina might pretend she doesn’t know him anymore. Such is life, Juan.

This system seems to work for them because:

  1. Juan and Catalina have agreed upon long term savings goals and both spend their money according to their shared goals. Neither of them have run out to buy a new road bike or a pair of Jimmy Choos just because they felt like it. They are committed to their goals and follow the rules they have made for themselves.
  2. Juan and Catalina have mutually decided on their “allowance” amount, and they both agree it is sufficient for their personal needs. Neither of them are forced to buy work clothes at Goodwill to stick to their allowance (although they can if they want).
  3. Juan and Catalina never have to have arguments over whether they spend too much on clothes, or haircuts, or stupid crap*
  4. Juan and Catalina pay their bills before they pay themselves their allowance. If they stray from their budget on a joint purchase or want to go on a joint vacation- they just lower their allowance and they are still on track for their savings targets.
  5. Mainly, Juan and Catalina are an example of a successful financial couple because they have taken the time to figure out a system that works for them. They have agreed on goals, budgets, and how to deal with personal purchases- but they had to sit down and have discussions about it before they could get to la felicidad financiera (financial happiness, it sounds nicer in Spanish, eh?)

* Is it worrisome that I actually own one of the items on this list of stupid crap? Maybe. But I also happen to think item #10 (baby mop outfit) and item #1 (send poop anonymously in the mail) are brilliant ideas.

It’s Textbook Buying Time!

It has come to my attention that it is that time of year again…textbook buying time.

Now for those of you who are out of school- you are lucky. You never have to go through the trauma and massive money-suck that is buying textbooks.

Buying textbooks is stressful and risky. This is because:

  • You probably aren’t certain of which classes you are taking. If you buy your books too early, you might drop the class and be stuck with the book. Too late, and you are behind in your readings!
  •  Some professors (if you are a professor and you do this, STOP IT) don’t really assign reading for their classes. They make you buy a book and then they don’t ever once reference the reading in class and you suspect they never actually read it themselves. Some professors make you buy whole books and then only assign a chapter or two. Alternatively, some professors assign “optional” reading books that aren’t actually useful at all (I’m looking at you, Greek Mythology Book Assigned to my Contemporary Art History Class). This is a massively frustrating waste of time and money.
  • You will always lose money on your textbooks. There is no textbook website in the world that is not making a huge profit off of reselling your textbooks. I’m sorry.
  • The university bookstore is the most expensive place to buy your textbooks. It is also temptingly convenient.
  • Each textbook can cost the same amount as your grocery budget for a month. Your student years are the time in your life that you are the poorest (hopefully things will only get better from here). This is a stinky fact of studenthood.
  • Buy or rent? Download the e-book? There are a lot of decisions to make in a short amount of time.

Lucky for you, I have compiled a list of tricks to help you avoid spending all your beer money on books.

  1.  Try to buy your books off of a friend (or stranger, whatever) who took the class before you.
  2. If your roommate is in the same class as you, see if you can share a textbook, too. This may or may not work, depending on your study schedule, how useful the book is, how early you both like to get your work done and how much you like your roommate. If you both have the same exam on the same day and you need the book to make sure you are doing the examples right- don’t share a book (this applies to lots of economics, business, math and science courses). If the book is more of a reference and/or providing background information- think about it (might work for an English, history, art history, music or poly sci).
  3. Obviously, try to buy used books over new. This is an easy one.
  4. Buy your books online. This can be a double edged sword because you might end up waiting a long time for your books to come in (check where they are shipping from!) which can be stressful. However, you will probably save a lot of money buying online instead of at a bookstore. Search by ISBN to make sure you have the right edition (although this often doesn’t really matter), and buy early (especially if you know you have to take the class and there is no chance of dropping it). Some websites I have found useful for used textbooks include: textbookfinder.com, which compiles all of the deals from all of the websites. Also good are: half.combetterworldbooks.comabebooks.com.
  5. If you have a question about the book- like if it comes with a CD and the used version is half the cost but doesn’t have the CD- email your professor to see how necessary the supplemental materials are before spending the money. You will be mad if you pay for the CD and it sits in the sleeve all semester.
  6. Sell your old textbooks back. You can either do this at the bookstore (usually during finals week) or online. I haven’t really noticed much of a price difference between selling online and selling at school, but sometimes the university bookstore won’t buy back a certain book because the class isn’t being offered again, and then you can sell the books online. You have to pay a small fee for shipping (and also you have to buy mailing envelopes). I have used half.com and amazon.com to resell textbooks.
  7. If you are trying to decide whether to rent or buy, use this rule of thumb: if the rental price is 30% of the used price of the book, rent! You probably wouldn’t make more than that reselling your book anyway, and this way you won’t get stuck with the book if there are no buyers when you try to resell.
  8. If you are in a small program where everyone more or less takes the same classes, see if you can set up your own online marketplace. My small grad program (150 students) set up a googledoc where 2nd years posted the books they had available, their contact emails and the prices they wanted for the books, and then new 1st years could email with offers. The spreadsheet was updated when the books were sold.
  9.  ebooks- as a happy new kindle owner, I am beginning to love ebooks. However, I am not sold on e-textbooks (especially math and science books) because you often need to flip around in the book. Also, active reading (highlighting, taking notes in the margins) has been shown to increase comprehension. Use your best judgment on this one.
  10. Don’t forget your library! Your school library will probably have a copy of the book on reserve, and you can check it out for a few hours at a time (meaning, you can’t go too far with it. Shucks). This is great if you only need the book occasionally (check the syllabus) or if you suspect your professor is one of those inconsiderates mentioned above. Also, (I would not be posting this to a public blog if I was still in school because this is my sneaky trick) if you are in a small class, there is often one copy of the textbook in the stacks at the library. Snag it FIRST THING in the semester and you can usually check it out for the whole semester. Hopefully no one else will request it- but if they do, you usually have two weeks to return it which means you can order it online if you really need it. This is great if you aren’t sure about staying in the class.
  11. This may just be a my-college-specific thing, but my senior year of college I won a bookstore-sponsored scholarship. I got $500 worth of free books from the university bookstore for the year, which more than covered everything I needed (including notebooks!) Keep your eyes peeled for little pockets of scholarship money. $500 may not seem like a lot when applied to tuition, but not having to worry about paying for textbooks felt great!
  12. Remember that one day you will never have to buy textbooks EVER again!

Good luck this semester!

Quick update for 1/10/14: Amazon is having an 80% off sale on educational Kindle books.

Budget like a Rock Star

So you are convinced that it is a good idea to make a budget, right? Right!

But how do you start?

Let’s start with the easy part- income. Most people have a fairly steady income and should know how much money is coming in. If you have a variable income, you need to treat it like you treat your spending- use your best guess based on history/upcoming income that you know about, and be conservative. Update it as you learn more.

After you know how much money hits your bank each month, start by getting an idea of where your money is going now. A baseline, if you will. It will probably take a few months for you to get a full picture of your expenses, but don’t let perfection get in the way of planning. Estimate now and then you can adjust as you go. When I got my first job out of grad school, for the first four months my clothes spending was triple what it is now because I needed a full professional wardrobe. Now that I have the staples, I’ve adjusted my budget to reflect my lowered spending and my lowered need for clothes (did I really just say that?! There is no such thing as a lowered need for clothes!)

There are a few ways to go about tracking your spending. While working on this part of your finances, I would recommend relying on debit or credit cards (but don’t use this as an excuse to overspend!) just so that you don’t make yourself crazy trying to figure out where your cash went (or, if you are a diehard cash user….save those receipts!) When it comes to actually following a budget once the amounts have been set there are ways to use cash only and still stay on track- I’ll cover that later.

Method 1: The Worksheet Method

Make your own spreadsheet and fill in your expenses. Pros: You can adjust it to fit your lifestyle. This is good if you have complicated finances or if you mainly use cash, because you will have to manually enter your expenses anyway. Also, you can keep it supersecure by saving it only to your computer. Cons: Pain in the butt. High maintenance, and you really have to be committed. If you suspect this will be too much work for you, don’t do it. Make it easy on yourself to stick to a budget!

Method 2: The Automated Method

Use a personal finance tracking software. I use Mint.com, which is very secure (and pretty awesome), but there are other options out there. Mint works by linking all of your accounts into one website so you can look at your spending, your budgets, your savings goals and your investments all in one place. NICE. Mint automatically uploads your spending and files each purchase into your budget tracker, so you can see how you are doing for each category. Mint also tracks long term trends in spending. It’s pretty great. And there’s an app.

Worried about security? Mint is just as secure as online banking. But more awesome because everything you need is in one place.

Ok, now you know where your money is going. Next, set your budget!

First you need to make a list of the main expenses that come up regularly in your life. Here are examples from my own budget:

  • Rent
  • Utilities
  • Cable/Internet
  • Phone
  • Public Transportation
  • Taxis
  • Emergency fund
  • Restaurants
  • Savings
  • Gym/Fitness
  • Alcohol/Bars
  • Retirement investments
  • Groceries
  • Clothes
  • Charities
  • Haircuts
  • Travel

Next, set target amounts of what you want to spend in each category based on how much you normally spend. Be realistic-  don’t worry about “trimming the fat” just yet. If you usually spend $250 on groceries, don’t suddenly expect your spending to drop to $100 just because you wrote it in the budget. Some items won’t come up every month- I don’t travel every month, but I plan to fly every three to four months, and that is in my budget.

Now, add it up. Is your budget less than your income? Awesome! Book your flight to Vegas, baby! (Or, keep reading this blog so you can learn about some good long term plans for that spare ca$h).

Is your budget more than your income? Still awesome, because now you know where your money is going, and you can make a plan to tweak your spending so that you are living within your means. You are becoming empowered to take charge of your financial life, and that is something to be proud of.

Budgets or the line at the DMV: Which is Worse?

Budgets sound like they are NO FUN. They sound like they are as much fun as going to the DMV, except that you don’t need a budget to drive a car…so maybe you can skip that particular adult task? No. No, you cannot.
I am betting that even the word budget makes you feel guilty. And maybe a little scared. I used to feel exactly the same way. I thought that if I had a budget, then I was certainly going to go over that budget every month, and then instead of feeling vaguely guilty about something that I didn’t really know about I would have a real reason to feel guilty for mismanaging my finances. If I didn’t have a plan, I couldn’t feel bad about not following the plan, right?

Except that…without a plan, how would I be able to save for things I really want? You’ll notice that I have wanted Lasik for seven years now. If I had made a budget seven years ago, I would be staring at this screen with contact-free eyes! I wouldn’t have to keep buying contacts and glasses (goodbye, money….) But let me tell you, my left eye is a little itchy because I am wearing my contacts right now….and I will keep on wearing them for a  while longer, and it is my own fault for not having a budget. Or maybe a currently unknown rich relative’s fault for not dying and leaving me massive amounts of money.

Without a plan, you are much more likely to overspend and get yourself into debt that you could have avoided in the first place.Without a plan, how do you know if you can afford to do the things you want to do? I wanted to join a pretty swanky gym when I moved to my neighborhood. I had never joined a gym before because I thought it would be too expensive, but because I had a budget, I figured out that I could afford the membership (hellooooo sauna!)Do you have any habits that you only do occasionally, like take taxis instead of buses? How much is it costing you? How do you know, unless you track where your money is going? I don’t have a car, and before I had a budget I felt guilty every single time I took a cab instead of waiting for the bus. EVERY TIME. But you know what? Now I have budgeted cab money into my monthly plan. I can take as many cabs as fit in my budget, and I never have to feel bad about it! Once I have used up my monthly cab budget, then it is bus stopville for me….but until then, I have given myself permission to stop feeling guilty about spending on luxuries because I know exactly how much I am spending and I also know that I can afford it. It is an amazingly liberating feeling.

Also, I know that if I do badly on following my budget one month…well, it is a guide for myself and only for myself. I’m not getting graded. So there is always next month, and I can always reassess and adjust my budget as need be.

Budgets sound terrible, but they are really freeing. They free you from feelings of guilt. When you budget for everything you HAVE to pay for (stupid electricity bill) and everything you SHOULD pay for (emergency fund, investments) then everything you have left over is yours to do WHATEVER YOU WANT WITH.
ANYTHING AT ALL (within the budget, of course).
Want to spend the remainder of your budget playing penny slots after flying first class to Vegas on a whim? You are being totally responsible! That is a legitimate way to spend your money because you already took care of all of your responsibilities! WOOHOO!
Don’t you feel better? Don’t you want to make a budget? Aren’t budgets fun? Isn’t Vegas fun?
Don’t worry, I’ll discuss exactly how to make a budget soon. Stay tuned!

The Basics of Banks

I once had a (lovely) boyfriend who didn’t believe in banks. And by he didn’t believe in banks, I mean that one day I came over and found him sitting on the bed surrounded by $30,000 in cash like Scrooge McDuck*. I almost had a heart attack.

You have to really have a massive distrust in the government and the economy in general to make a safe in your closet even a reasonable place to store $30,000. (And if you distrust the government and economy that much then if something terrible happens then your money will be worthless anyway, so either way you’re screwed and you would have been better off investing in a zombie apocalypse survival kit.)

How do banks work?

Have you seen “It’s a Wonderful Life?” when George and Mary have to spend their honeymoon money to keep the town afloat when the banks crash? They had to do that because banks don’t physically have all of the cash that has been invested in them on hand.

Banks take their client’s money and they invest it. Clients get security (you don’t even have to buy your own closet safe!), access to cash (ATMs, bank tellers), checking services, and advice from real live bankers. Banks do a lot of other things too, like notarize forms and help with loans. Really good banks will pay you some interest for putting your money into their system, and really crappy banks will charge you fees so that they can make more money even though they already make money off of your money.

Banks are making money off of you, and you get some things back in return. If you have faith in the government and/or the economy, the scene from “It’s a Wonderful Life” should never happen again, because almost all banks (any bank that you should feel good about using) are FDIC insured.

This sounds complicated but it really just means that if your bank crashes the Federal government will reimburse you up to $250,000. If you have more money than that sitting around in the bank, I appreciate you reading my blog, but this is probably not the most useful site for you.

So, the conclusion of this post is:

You have to use banks if you want to excel at personal finance (unless you truly don’t believe in society, in which case…why are you on the internet?)

*He used all that cash to invest in his own small business. That is a good investment. A better investment than leaving that cash in your safe in the closet.

Getting started

I am a 28-year old who used to feel:

  1. bewildered
  2. guilty
  3. insecure and
  4. not interested

about personal finance. I didn’t have much money, I wasn’t sure how to use the money I had, and I wasn’t interested in reading a boring book about investing when I didn’t have any money to invest, anyway.

My parents set great examples when it came to spending and avoiding debt, but when it came to practical advice and long term planning, I didn’t know what I was doing. My eyes glazed over every time I thought of whatever the heck a 401k is, and I didn’t have much motivation to change it up.

All of that changed when my brilliant and successful friend Becky introduced me to personal finance. When I started taking control of my finances, I began to feel:

  1. smart
  2. capable
  3. interested
  4. proud

of my money managing skills. Do I have more money? Not really. Do I feel a heck of a lot better about the money that I do have and my long term plans for the day that I will have money? Yep.

This blog is about personal finance, yes, but it is also about changing your feelings about money. I want you to have good, happy, proud feelings associated with money instead of guilty, worried and confused feelings about money. It doesn’t mean you will have more money, but it means that your attitude will change, and going into your money making years with a good attitude towards money may mean that you can eventually buy a Caribbean island to retire on (if that happens, please remember where your success all started and build me a guesthouse in the back).

Kate

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