Tuesday, November 30, 2010

Funky Credit Card Action

Last week Wednesday, I received a recorded voice message advising that I call Capital One because fraud had been detected on my account. When I checked the message, I was getting ready to take a nap, but nothing makes your mind wander -and interrupt your ability to rest peacefully- more than a financial woe. So I postponed nap time and called back. It's still not clear to me how and why my account was flagged, but as a precaution, I was asked to verify several recent purchases and to agree to a new account number and card. Fine. What wasn't so fine was that Thanksgiving was a day away, I was at the very end of a pay period and I was asked to make some unexpected purchases (bundt cake pan, anyone?)

Ordinarily, I would have made such purchases using my credit card, but that sucker was out of business. With just over nine bucks in my checking account, I transferred $50 from my savings account so I could go shopping. Luckily, the total of the items I purchased came under $50, so I transferred the remainder back to my savings account (after my direct deposit cleared, of course).

These events made me wonder....should I keep a buffer of $100 in my checking account (or some other amount; frankly, $100 is an arbitrary amount). In doing so, I wouldn't have to use my credit card to make purchases [and dip into funds set aside in subsequent pay periods/spending plans].

Do you have a cushion or buffer amount in your checking account? Or do you access funds from your savings account as needed? Have you ever experienced fraud on a credit card account?

Thursday, November 25, 2010

Happy Thanksgiving!

It's short and sweet today, folks!

Tuesday, November 23, 2010

Set it Right or Else...

The title of this post refers to your perspective. Two posts ago, I shared that my money fear boiled down to being financially unstable and restricted by debt. Well here's a quick update about my "mini-dilemma." The car repair wasn't some irrational amount of money. After my coupon, I paid $231.66. No more "service engine light" and no more "gettin' jiggy with it" action from my engine.

Now about my perspective...
I'm not the type of person to spend my resources recklessly then look to someone else come to my rescue. But I do know, for sure, that if I legitimately faced an issue that cost me more than I have in all of my bank and investment accounts and more than my credit card limit, I still have somewhere to turn: family and friends. I know they would come to the rescue because they have in the past. For example:
  • I'd worked through most of my undergraduate studies to pay for rent and tuition (whatever scholarships and loans didn't cover). It wasn't until my senior year that I focused my efforts on saving up to purchase a car. What I'd saved wasn't enough to purchase a reliable car on my own. And heading into grad school with a $1300 monthly stipend spoke volumes about my capacity to re-pay a car loan (that is to say, it wasn't in the budget!). You might argue that I didn't "have" to purchase a car, but I was headed to a place where I had no networks and there was little (read: absent) public transportation. In short, I was forced to purchase a car. Who dropped some stacks to fill the gap? Dad.
  • After opening a Maaco credit card and spending $2500 of my own money to repair my car after an accident, my mom fronted me several thousand dollars to use for a down payment on another car. Unfortunately, when I retrieved my car from the body shop, the engine seized. Estimated replacement cost: $5600 for a rebuilt engine. I paid about that much for the car. And considering that I had JUST gotten out of the repair shop, it didn't seem prudent to drop that kind of money on it. So I got another car, with the help of Mom.
  • The car I purchased (with help from mom) was stolen. Everyone knows that when you file an insurance claim, you have to pay a deductible for services rendered by/through your insurer. At the time, my deductible was $1000 (it was this high because I wanted to pay lower premiums). However, stupid me didn't have the full $1000 in liquid savings. I would've been forced to pull funds from my investment accounts (which would suck: fees and penalties and crap) had it not been for my boyfriend. He surprised me and put a check in the mail. As it turns out, I didn't have to pay the deductible because of the way my appraisal turned out, but he was there for me nonetheless.

Going forward, I should be reminded of these instances - and many more- of support around me and not freak out (as much :>) when I'm faced with a financial "dilemma."

Who would you turn to if you exhausted your resources in case of emergency/major unexpected expense?

Friday, November 19, 2010

My Bad!

Hey there! I'm sorry I didn't post on time (i.e. yesterday). I came across a really neat concept to encourage people to save money and thought you might like it. Too bad it's illegal in 49 states...

Check out this Public Radio Marketplace interview, "Savings security with gambling thrills."

Tuesday, November 16, 2010

Money Fears

I struggled a bit with what to discuss today. I sought a little inspiration from the Financial Planning Association's blog and a few of my favorites. Then I got distracted....I stared thinking (again) about how much my car is gonna cost me. If you've read my previous posts, you know that I am working diligently to pay off my car note. I've got just over $8400 more to go. Not bad, considering that I've owned the car for 15 months and the original balance was $13,275. Nevertheless, my "service engine soon" light came on Friday. Wistfully, I hoped that it would turn off just as quick as it came on. Not so much. Instead, on Saturday and Sunday, my engine has been "getting jiggy with it" and shaking a bit.

I drove my sister's car to work yesterday and today to reduce the likelihood of me getting stranded somewhere along the 40 miles between our home and my job, yet I'm still reluctant to take it in for servicing. Well, I'm not SO crazy, and I realize that machines are machines and they often need fixing. I'll drop my car off tonight so it can get serviced some time tomorrow (based on my conversation with the car shop dude, it may need a tune up). It doesn't tickle my fancy to drop another hundred (or two hundred) dollars on the car. Especially considering that since September, I've spent just over $780 on maintenance and repairs. 

I've decided that the real root of my concern is not having enough money to pay for subsequent emergencies. I've got just over ten hundred bucks in my emergency savings account and I worry that [yet] another car repair (or some other unexpected expense) will place me closer to being financial unstable. It's frightening. In fact, I get ill at the thought of using my credit card to pay for unexpected expenses (I've been there and done that; trust me, digging out of debt is no fun). I think of the restrictive feelings associated with being obligated to paying off a loan, rather than using the money to do what I want (like, treating my friends to an occasional lunch, or buying a nice outfit).

At any rate, this is one of the costs of being an adult. I know that I have to TCB because no one else will. 
Do you have any money fears? What are they?

Thursday, November 11, 2010

Life Expectancy & Retirement Savings Goals

Many people are challenged by the question "how much should I save for retirement?" One of the primary obstacles to answering this question is being able to predict how long one might live. Also, who wants to face the fact of their own mortality? Nevertheless, I came across a handy-dandy life expectancy calculator at MSN.com. According to the quiz, I should prepare to live to 102 years old (or more). That means I have 76 more years of living...woo hoo!! It also means that - assuming I retire at 67 years old (perhaps the new normal for retirement age for my generation?) - I will need to prepare for at least 35 years of income. That's quite a bit of time...

Naturally, my next step was to use a retirement calculator to get an idea of how much money I should aspire to have (at a minimum) for retirement. Here are the results from CNN/Money's Retirement Calculator:
In retirement, you will need $36,400 a year in income. (Because of inflation, in 2051, that will be equivalent to $122,300.) 

Part of that income will come from your Social Security and/or pensions. To produce the rest, you should build up your nest egg (including your 401k, IRA and other savings accounts) to $306,084 by the time you retire. (In 2051, that will be equivalent to $1,028,413). 

To save $306,084, your investments need to gain an average of 3.04% from now until retirement. We estimate that there is a 100.00% chance of this happening."

Sadly, I think the idea of Social Security benefits being paid out to me is laughable, so I should prepare to pick up the $21,825 in expected yearly benefits. Currently, my only retirement contributions are $100 per pay period (i.e. 2800/year) to my 403(b) (luckily, I receive a partial match from my employer). I am not actively contributing to my Roth nor my regular brokerage account because I'm focusing my funds on debt elimination (well, my car note; I also have a massive student loan). That said, the idea of living past a century and having to save and invest early to be prepared for it is a bit daunting to me. Suffice it to say, I am well aware that I have to get a 'move on' with significantly increasing my contributions (to the employer-sponsored plan, IRA and regular brokerage account).

How do YOU take the intimidation out of retirement planning?

Tuesday, November 9, 2010

Too Soon?

Lately, I've been obsessing over what my budget will look like once I pay off my car. Assuming that I remain on track, this new budget will take effect May 2011. Nevertheless, I've plotted out what to do with the $1055 I would NOT be spending on a car note. So far, I've come up with a combination of the following expenses:
  • Increase the amount I pay on my student loan from $230 to $350 (the standard repayment amount; currently, I am on a graduated payment plan) .
    • Increase my student loan payment to $400
    • Increase my student loan payment to $500
  • Set aside $810 in my ING Direct account. In addition to the $25 I set aside in my Bank of America savings account, a total of $835 towards savings accounts will yield  $6680 by the end of 2011, and $10,020 over the course of 12 months. One of the goals I've set for myself includes having $10,000 in emergency savings.
  • Set aside $625/month (from May to December) to max out Roth.
    • Set aside $200/month for Roth.
  • Set aside$200/month to travel.
    • Set aside $100/month to travel
  • Set aside $258/month for miscellaneous expenses which may include Roth, fun stuff, additional savings, additional principal payments for student loans, and who knows what else.
I'm sure it would be helpful to see the variety of scenarios I've plotted out, but I assure you that that's an exercise in futility. You see, I've drafted more than 15 of the various budget scenarios, some in my handy-dandy composition notebook, others on index cards, backs of envelopes, and other random pieces of paper. The recurring themes, however, are that I set aside a hefty chunk for savings (especially since I haven't been doing so while eliminating this car note) and paying more than the $230 currently requested of me to pay my student loan. By the way, I my current payoff amount is $30,801.65. Yikes!

What would you do with the "new" budget?

Thursday, November 4, 2010

This is What I Do

For as long as I can remember, PF geeks/fans/experts have encouraged the use of a budget. In helping people understand how to create a budget, much of their advice directs folks to track their expenses (i.e. categorize and write down everything you spend) for a month, and then use such numbers as a basis for your budget (i.e. the month to month plan for spending your money). My major beef with this technique is that one month of expenses (and income) doesn't look like every other month of the year. Sure, I have fixed expenses and variable expenses to look forward to every month, but how do I accurately plan for the miscellaneous expenses? And how do I remind myself of my progress (i.e. spending within my income and setting aside funds for goals)? 

I track ALL the time. Yup. That's what I do. Moreover, I take a summary of my expenses and average it with previous pay periods (that's how I break down my expense tracking; as per my regular paycheck). Next year, I look forward to tracking on a monthly basis. To give you an idea of how this budget/tracker tool works, I've included a blank copy here. I encourage you to use it if 1) you're not currently tracking your expenses/budget or 2) what you're using isn't working for you. I'd love to hear your feedback. But before we get started, here are a few assumptions:
  • You have a bank checking account that you regularly use for transactions.
  • You have stable income (i.e. you know how much you get paid for each month)
Okay, here's your guide:

1st Tab, Annual Budget: In general, this is what your month-to-month expenses look like. Simply insert the monthly expense and the spreadsheet will calculate your annual expense for said category. Your total annual expense should be equal to or less than your regular annual income. For the folks who work on commission and have widely varying income, you could estimate the lower end of your anticipated income...or use a tool that's better suited for you.

2nd Tab, "Insert Month Here": This is where you will track your expenses. Feel free to change the name of the tab for the month that you will be tracking expenses. Enter your regular monthly income in cell M3 (it has a little orange ticker in the cell for a comment box). The reason this is here is so your expenses can be deducted from it to show you what you have available to spend. I often check this number against my bank statements. If you have additional income during a specific month, you can add it to your regular income; remember to add a note about the amount and source of those extra funds (ex: tax refund, $3269.11; overtime, $563.97).

For the "date" column, type in the date that you make a purchase (ex: 11/04). For the "Description" column, type in what you purchased and any details you'd like (ex: Publix (groceries), PetSmart (toys), TGIFs (+$10 tip). If you run out of space for the details you deem critical, simply "insert a comment" to add additional notes. Now, enter the amount that you spent at the respective store/on the respective item in the appropriate column. For example, if I spent $56.93 at Publix, I would enter that dollar amount in the food column. Likewise, if I spent $46.36 at TGIF, I would enter that dollar amount in the food column. Now, if I used my credit card to make a purchase at TGIF, I would not enter it into the food column, I'd enter the amount spent in the "CC Transactions" column. Similarly, if you use cash, track all of your cash transactions in the appropriate columns. If my categories of spending don't work for you, change them!

3rd Tab, Summary of Expenses: This is pretty straightforward. Enter the total spending per category per month in the appropriate line. Put another way, copy the amounts from row 4 of your "Month" sheet to the corresponding month in the summary sheet. This last sheet will average out what you spend per category of spending (ex. food, entertainment, bills, etc.). You can then compare these amounts to your annual budget to explore opportunities for improvement.

Since using this budget tracker - about 2 years, now - I've gained an incredible sense of control over my finances. I can project where I will pull money from to make up for other expenses, keep an eye on how much I'm spending, and remain mindful about credit card transactions. I hope it is equally helpful for you!

Tuesday, November 2, 2010

Dumb Marketers or Dumber Consumers?

Since when did spending money equate to saving money? After plopping down on the couch for some good ole tube watching time, I couldn't help but realize how many companies were trying to appeal to my desire to save money. Here's the thing: they got it all wrong. Instead of asking me to change my car insurance provider to "save" hundreds of dollars, how about you offer coverage at no cost so I can use the money for an upcoming vacation? Rather than tell me I can get a ton of features from your cable/telephone/internet service for only $99/month - a "bargain" compared to competitors - cut me a check to deposit into my emergency savings account.

I've always believed that saving money was about setting money aside for future use, whether it was for a vacation, unexpected expenses or having 'enough' to comfortably use for investing (i.e. secure an amount of money I wouldn't mind "losing"; not that that's the intention, but I digress). Some may argue that saving is about, or also includes, reducing one's expenditures. Well, help me understand this...what good is the amount of money you didn't spend if you don't set it aside (i.e. save it)? Most folks spend their "savings" on other expenses. Here's a great example: you go to the grocery store and when you check out, you learn that because a number of items were discounted and you used coupons, you "saved" $25. What do you do with that $25? Do you think, "Gee, I was intending to spend $75 to purchase these items, but only spent $50, let me set aside the remainder of what I budgeted" or do you say "great, now I can go to happy hour!"?

I could care less about what you do with the money you did not spend because of reduced prices, but I am encouraging you to be clear about what saving money is. And if you're not setting the bucks aside for future use, whatever that use may be, and particularly in a savings vehicle (piggy bank, anyone?), then I'm afraid to tell you that you're simply spending less. Kudos for finding a bargain ;)