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Entries for archive: 2008

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Credit Cards are another Tool in your Financial Toolbox

Firstly, welcome to all the Master Your Card readers wandering over here to take a look round. And to all my readers, go and take a look at Jonathan and Kristy's blog, it's a great read.

Today, as a lovely Christmas present I suspect, I've been featured as a guest blogger over there with a post entitled 10 Tips on Using your Credit Card Wisely so have a read of that article there before coming back here.

As a follow up post, I'd like to just take a few words to discuss a topic I alluded to in my guest post over there, a topic I fear is usually put into the "that's bad" basket without much further thought than that.

All Credit Card Usage is Evil (or is it)?

I asked in my guest post whether I was a bad person for using a credit card. In fact, what I really said was:

I’ll admit it. I’m a credit card user. I use it a lot, not everyday, but a lot. Am I wrong? Am I a bad person? Should I be slapped with a wet haddock for my sins?

There has been some discussion as to whether credit cards are evil or just dangerous and there are definitely people sitting on the fence too. But I'd like to make an argument that your credit card is actually a valid piece of equipment in your financial life and something which has quite specific and advantageous uses.

Another Tool in your Financial Toolbox

In reality, credit cards are just another tool in your financial toolbox. They can be used just as much or as little as you like and like any tool, must be used with care and precision. When was the last time you just blindly hit a hammer against a piece of wood to knock a nail in? That's right, you never did! Instead, you position the nail carefully with one hand and precisely strike it with a blow from the hammer in the other hand. It's all lined up, you know exactly what you're doing and you know the consequences of hitting the nail with the hammer.

And that's how a credit card should be used. You should know exactly how much you're spending, what you're spending it on, when that interest-free period stops and the date by which you need to pay your balance.

By using this particular tool in the right way and knowing exactly how it should be used, then you can actually maximise many of the advantages of using a credit card.

Using the Right Tool for the Job

Sometimes you need to do something for which you don't actually have the right tool. In woodwork, this is prevalent and in a lot of cases the job can be improvised by using other tools. In your financial toolbox, you also have other options if you don't have or won't have a credit card.

However I believe that there are certain benefits you can gain by using a credit card which you can't get from any other tool in your financial toolbox. For example, that interest free period on your spending is something you don't get elsewhere, nor do you find 1% cash-back offers from your debit purchases. (P.S. I don't use interest free periods when buying large items, instead I save up for them and pay it off in full right there and then.)

You really do have to weigh up the pros and cons of getting and using a credit card and like all decisions in your (financial) life, your own investigation into this area is extremely important.

And Finally ... It's Not For Everyone

Friends of mine point-blank refuse to own - let alone use - a credit card. That's okay with me since I think it is everyone's own personal choice. I also know of friends who have used credit cards before, gotten into debt and now never touch the damn things! Again, that's fine since obviously it wasn't for them.

From my own personal experience, I have had times in the dim and distant past when I carried a balance on my credit card for almost a year! Up to £4,000 in some cases. Pretty crazy stuff when I think about it now.

However, the advantages I gain by using a credit card nowadays far outweigh the risk that I would again carry a balance for so long (if at all). I have learned from my mistakes and now use the card to my advantage and in a sensible and very restricted and restrained way. I know exactly what is going on the card and I know exactly when it needs to be paid. It is completely and utterly 100% under my control.

So for me, I'd never do without my trusty credit card and in fact my life, and my personal finance life, is better for it too.

What's your take on the matter? Do you or do you not use a credit card?

Labels: budgeting, repaying, spending

Inserted: 2008-12-25 23:20 (1 year, 8 months ago)

Why You Should Do New Year's Resolutions All Year Round (but don't call them that!)

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Are you one of those people who write down huge lists of things you're going to change about your life come 1st January? Maybe you just have a small list of things but the real question is, are you going to keep them?

Here, I'm going to tell you why you should do New Year's Resolutions all year round but instead of giving them a big official title like that, just tell yourself that you're going to change something about your life. Besides, most people don't last out January with their resolutions anyway, so what's the point?

Change a Little Something

Whenever I have changed aspects of my life on 1st January - admittedly something very rare in my life - I have usually failed at keeping up with it. But many times, I have just decided, right there and then, that I was going to change a little something. And this has been my most successful method when wanting to change direction in my life. Just start.

That's what you should do too.

Just do it spontaneously, don't think about it too hard, just do it. Yes, you might have been pondering it for a while but then suddenly you just know it is the right time to change.

Whether you are quitting doing something, doing more of something else or changing an aspect of yourself or your life, the best way to do it is to just say "To heck with it, I'm changing as of right now!"

No lead in time. No setting dates. No pre-planning and no further thinking about it.

Deciding that you will quit something on a particular day in the future just doesn't work. Then you realise that that day is going to be the last day you can ever have that particular thing means you hype it up too much. It becomes bigger than what the actual change is and maybe you even over-compensate prior to that date by having even more of the thing you're actually going to quit!

Surely this isn't the right way of doing it?

Wake Up One Morning and Just Decide

A number of major decisions in my life have happened when I've been in bed in the morning, trying to wake up and pull myself out of bed between snoozes and thinking to myself that I just don't want to get up today. When that happens, I usually know what it's about and on occasion I have decided right there and then what I was going to change.

One time, I couldn't get out of bed because I didn't want to go to work. Right then, I decided to quit my job and look for another one. After that it was easy to get up and I immediately stepped into the new wonderful world of looking for a new challenge rather than the old miserable grey world of the current job.

As a counter-example to this, I knew of a schoolteacher who said that she would quit smoking, not on the 1st January, but on the first day back at school. It seems to me that quitting smoking on what could be one of the most stressful days of the school year (teaching being quite a stressful job anyway) didn't seem to me to be the best plan. Instead, I told her to just wake up one day and to have just stopped. No date for when to quit, not ritual buying of the last packet and no 'last' cigarette. Instead, wake up and just say "As of now, I have quit smoking" and that's it!

Not just smoking but anything.

Changing My Whole Life

Back in September, I pretty much changed my entire life on the 4th of the month. It was a Thursday. I remember it well since I'd had the previous day off as my first Wednesday off of my first four day week. Prior to that Wednesday I had no idea that I would change my life so completely as I did the following day. I mean, things had been rolling around in my head prior to that day - a stewing period is always an advantage - but suddenly I woke up a new person.

I stopped buying takeaway coffee, I cut down expenses, I changed a whole myriad of aspects of my life - why, because I knew when I got paid in 12 days time it would be for a lot less than I got paid the previous month. I just had to do something about it to make sure I wouldn't end up going back to 5 days a week.

Use Any Kind of Stimulus to Make You Decide

It's not just about waking up in the morning though. You can make these decisions at any time you like but I find that the best time to make decisions is when that final straw broke the camel's back. Here are three quick examples of some aspects of my life I have changed in the last few years:

• About three years ago, I'd had a terrible week in work and went to McD's for food that evening. Instead of the usual chicken burger, I bought a large beef burger (I forget the name of it). It was disgusting, dripping fat, mixed with mayonnaise, it just didn't taste good. It put me off for life and I've never been back to McD's since.
• One day, I added up how much money I spent each year on takeaway coffees. It added up to almost $1,000 which was in my opinion, far too high a percentage of my salary - my net salary too! In fact, it wasn't this that made me stop but add it to the fact that I'd just received my 4th coffee that week which was caffeinated instead of decaf and that finally broke me. Paying extra on top of the already exorbitant prices for decaf which I never received anyway finally stopped me from going. Now I get the odd hot chocolate but usually as a treat and with friends.
• The decision to sell my car was the culmination of having to pay out $70 one Wednesday on petrol, $170 the next day and the final straw of $630 on the Friday. I was not happy. I decided it was time to get rid. Less than three months later, I was car-less.

Today's Resolution

Why didn't you get out of bed this morning? What was it about today that didn't allow you to enjoy it? Did you get annoyed by something which you realise you just don't need anyway?

When I asked myself about whether I really needed the coffee, I knew I didn't but it has also evolved from that now. It is no longer just about saving money by not having that coffee, but also about having more time in the day to enjoy myself. When I walk past the shop nowadays, I actually shake my head at the huge queue of people wasting 20 mins every day (or even more) waiting to be served the drink they ordered oh so long ago. I actually get more time in the day now to enjoy myself that little bit more.

These are the kind of questions you can ask yourself. Sometimes you decide that it's okay for the moment, that you still want something or you don't want to change something else. But eventually, one day you'll decide that you do want change. And when that day comes you'll know it immediately and your life will be changed forever.

The best part about all this is, you can do this every single day of your life. Why wait until a very inopportune date to change something of your life? Just do it and do it today. If you want to change something, you may even call it 'Today's Resolution' but either way, just change. You'll be happier tomorrow if you do.

Labels: planning, saving, living

Inserted: 2008-12-18 23:20 (1 year, 8 months ago)

89th Carnival of Money Stories

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Hi everyone and welcome to the 89th Carnival of Money Stories (replacing my usual Tuesday PF Roundup). I'm your host this week and I just wanted to start off by introducing myself quickly.

Happily, today is also my 33rd birthday so it feels good hosting my first carnival on this special day. I shall be retiring exactly 7 years from now (or hopefully before) so if you're keen on following my adventure towards financial independence, please subscribe to my RSS feed.

And now, let's get on with the carnival with thanks to Andy Oshira for letting me host it on my special day.

The 89th Carnival of Money Stories

Business

Curt @ PennyJobs.com

Christmas Trees Are Still Selling

Dan O'Connor @ beingpad

Make Money with Affiliate Programs in 10 Simple Steps

FMF @ Free Money Finance

Menard's Makes Cents

Joe Manausa @ Tallahassee Real Estate Blog

Real Estate Supply And Demand

Ryan Suenaga @ Uncommon Cents

Bailing Out Domestic Automakers–What's the Plan?

Credit

CreditAddict @ Credit Card Addict

American Express Increased Our Credit Limit

DR @ DR's Money Management Blog

How Smarter Money Management Can Make You a Cool $826.75 in 10 Minutes

Sun @ Earn More and Invest Wisely at The Sun's Financial Diary

New Credit Card Rules Coming Soon, to the Benefit of Cardholders

The Happy Rock @ The Happy Rock

Credit Card Late Fees With Chase Freedom - One Strike Down

Peter @ Bible Money Matters

When Canceling A Credit Card, Be Ready For The Emotional Appeals To Stay

Debt

Mr. CC @ Ask Mr Credit Card's Blog

Should You Pay Your Credit Card Bill Late? The Answer May Surprise You

Heather Levin @ The Greenest Dollar

The Benefits of Paying Off Your Mortgage Early

General

Andrew Chilton @ Retire at 40

Simple Steps Taken to go Car Free

Big Larry @ Out of Debt Christian

Ten Easy Ways to Save $1,000

Brian @ MonitorBankRates.com

Estimating Your Social Security Benefits

Brooke @ Dollar Frugal

People are Much More Important….

Credit Card Assist @ Credit Cards Blog | CreditCardAssist.com

How Shall I Compare Thee, Credit Card?

FFB @ Free From Broke

Is It The Right Time To Buy A House?

FIRE Finance @ FIRE Finance

From Junk to Joy

Jim @ Blueprint for Financial Prosperity

Why High Octane Doesn't Matter (Unless It Does)

One Family @ One Family's Blog

Frugal Living – Ten Great Gift Ideas for Frugal Families (Christmas Holiday Shopping Tips)

Relax @ The Wise Curve

Let's talk about money

Savings Toolbox @ Savings Toolbox

Two Things You need To Know About Online Payday Loans

The Happy Rock @ The Happy Rock

My Finances and Saving System With ING Direct

vh @ Funny about Money

Yard sale adventures

Investing

Joanne @ Beginner Investing

Beginner Investing: Learning From Mistakes

Michael Cohen @ Stock Investing

I'm Betting On Oil

Silicon Valley Blogger @ The Digerati Life

10 Signs Of A Stock Market Bottom

Tristan @ Find Financial Freedom

How buy-to-let can work for you

Net Worth

Tyrone Solee @ Millionaire Acts

Journey to My Networth Millionaire Acts

Other

Amanda @ Value For Your Life

My 25% Grocery Savings Rule In Action-Part 1-Intro

LAL @ LivingAlmostLarge

What an MBA has cost us

MoneyNing @ Personal Finance Blog by Money Ning

Let Your Children Handle Their Own Finances

SingleGuyMoney @ Single Guy Money

Stay Safe While Holiday Shopping

Finally

Next week's Carnival of Money Stories is at The Personal Financier.

Labels:

Inserted: 2008-12-17 00:24 (1 year, 8 months ago)

The Little Things that Change Your Life Really Quickly

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Every now and again, you see something and you say to yourself "That's a good idea". Sometimes it's the big things, like a different bank with a lower mortgage rate interest, a fuel efficient car, a type of insulation or even a kind of lawnmower. You just know if you were to switch to any of these it would somehow improve your life since they are such an integral part of it.

But other times, you see something really small and you think "Wow, if only I'd switched to this before." Well, this is my story of something really small, something I bought yesterday and already I know it has changed my life and changed it for the better.

Prior to My Purchase

A few weeks ago I was chatting to some friends of friends. People I had met a few times before and already knew I liked them both. They were telling me of their habit of switching every single electrical appliance off at the plug when not in use. The only thing that stays on in the house when they go out is the fridge (actually, they said everything but I presume the fridge stays on).

This includes the likes of the TV, DVD player, stereo, speakers, microwave and all those other things with the shiny clocks, the bright displays or the standby LED lights. We know these are a constant drain on power (and therefore money) so why not switch them off? I knew, but I didn't really practice it.

I'm Not That Good

There are some things I do but switching things off by the plug isn't one of my strong points, which is weird, because I always used to do it. I guess I just got out of the habit. I have always switched off the microwave but my main problem (and mainly because I'm a geek) is that my router and my computer stay switched on. I will have to change this at a future time but now I decided to concentrate on something else.

As we were talking, I curiously asked one little question which eventually brought about my purchase yesterday. I asked "What about your alarm clock?"

"Mine isn't plugged into the mains, it's on batteries, just a small travel alarm."

"Ah", I said, "That's pretty cool."

Not sure I had that 'Wow!' moment yet but it got me thinking, enough to actually go out and get myself a cheap (real cheap) battery operated alarm clock yesterday. My old one, a plugged-in one, with a bright and energy zapping red LED display was having trouble tuning in to certain radio stations anyway and the non-radio alarm was a horrible dull noise which sounded more like a jet engine trying to start but not actually going anywhere. So in reality, it was about time I got a new one anyway.

Added to the fact that I had a new reason for getting one too.

My New Alarm Clock

When I bought it in the shop, I realised that the alarm clock also had a temperature gauge on it. Cool, that's pretty neat. Still no wow factor but nice nonetheless. Then I got it home.

I duly opened up the very small packaging and pulled out a square of about 2.5"x2.5"x1". My old alarm clock was at least 6"x2"x4" so already I had made a lot more space on my side table. Seeing as I'm in the middle of decluttering my house, I started thinking out that this new alarm clock was a winner.

But that's not all. The old alarm had it's power cable running forwards of the bedside cabinet since there are no plugs behind it(it's an old house). With that taken away and the long aerial gone too, the area to the side of my bed is no longer a strewn and busy place but more a tranquil, quiet and warm place.

I started liking the alarm clock even more.

My Two Weather Stations

I bought an electronic weather station a few years ago and have been hauling it around to each place I moved. Alas, the only thing I ever looked at it for was the inside temperature since all the other readings just didn't bother me. Also, my Mum (for all her love and kindness) actually bought me a similarly duplicate weather station for Christmas last year and I've never had the heart to sell it or give it away. (We all know what I think about Christmas presents anyway.)

But enough is enough.

I decided that with my new temperature sensor in my new tiny alarm clock, I could actually get rid of both of these unnecessary weather stations. Wahoo! Another quick win for me, my house and my new simple life and another win for the small, cheap and somewhat-versatile alarm clock.

The Drawbacks

Not everything in life goes as swimmingly well as had been going thus far and I soon figured out the one minor and the one major drawbacks of the new alarm clock.

Firstly, there are only two buttons to the whole clock. This means that having to set the time, or more likely the alarm, is a complete pain. It doesn't even allow you to keep the button depressed to increment the numbers faster. Ah well, this is minor and I can live with it since I rarely change it anyway and usually just switch it off at the weekends.

The other drawback however is when I realised that this clock doesn't even have a snooze button. You know, the one you press in the morning just so you can get another nine minutes sleep. Then because that wasn't enough, you press it again for another non-satisfactory nine more minutes. This, as far as I was concerned, a terrible mark against the almost perfect new purchase.

Taking What You Want From Life

Over the course of the day though, I figured that both of these minor disadvantages could be made to work for me rather than against me. On the point of the inefficient button pressing, I have decided to set the alarm for 7:30 in the morning and to leave it at 7:30 in the morning, for every single day of the week including weekends. I am not going to bother trying to change it at the weekends or any other time unless I have special reason to.

This will make sure I get up at the same time every single day and maybe one day my body willget used to it and not actually need the alarm anymore.

But the best thing I think I figured out with this alarm clock is that, without having a snooze button, once the alarm clock went off, I would have to force myself out of bed, no matter what! As soon as I figured this out, I knew that this was now a 'Wow!' purchase, not through any fault of it's own but due to the way I shall be adapting to my new beeping friend.

The Full Story

I didn't realise originally how much or how quickly such a small purchase could provide but I'd like to recap these new advantages just in case you missed them:

• I don't have to listen to crap and over-advertised radio in the morning
• it doesn't burn through grid power all the time I'm not using it
• it takes rechargeable batteries
• it has uncluttered my bedside table
• it had removed hazardous cables stretching to the plug away from my bed
• I have removed two other unnecessary gadgets from my life
• it will set me a regular (and reasonably early) time to get up at the weekend
• it will force me out of bed at a particular time instead of snoozing around all day

... and of course, the reason why I wanted to get it in the first place, is so that it lowers my electricity bill ever so slightly. However, the thought of not having another appliance switched on all the time led me to turning off most of those other appliances too. This is where each individual gains adds up.

Take From this Story What You Will

You might think that this whole alarm clock story is silly, small and insignificant. That's fine, take from this story what you will but I'm willing to bet that there is something small you have bought, or changed in your life, from which you got enormous satisfaction. It may even have had further repercussions further down the track and you never know how much the addition of all those small but incremental changes finally make to your life.

This is also a story about how negative or disadvantageous things can be turned to your advantage. I mean, having more time in my day is something I am already looking forward to...

...all because of one small, energy efficient, compact, temperature reading, non-snoozing, hard to use, little beeping alarm clock which is now sitting happily on my bedside table next to my lamp, my notebook, a pen and nothing else.

Ah, happy days.

Let me know of any other things which at first seemed small to you but later took on a whole different meaning.

Labels: budgeting, living, consuming

Inserted: 2008-12-14 22:26 (1 year, 8 months ago)

Are You Throwing Away Money? 5 Tips to Save You Money

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Everytime you buy something with packaging, you're buying something only to throw away. Sounds crazy doesn't it but it's true. And for everything you have to throw away you also have to pay the council to come and take it away too so you're getting a double whammy against your wallet right there.

Think about it. You buy a six pack of yoghurts, or maybe a one litre container, and where does the packaging end up. That's right, in the bin. So firstly, you paid for the plastic to make the container and secondly you're having to pay to take it away again! (Unfortunately where I live, the council doesn't recycle that kind of plastic, so it has to be thrown out.)

That was just one example, but let's look at some others and some possible solutions.

1) Replacing 'Use Once' Kitchen Paper with Multi-Use Cloths

Back in October, I realised that I used a lot of kitchen paper. Usually because I use it for the cat's bowls so I don't have to use my normal tea-towel. I don't have a huge amount of space in my kitchen so I prefer to have as few things as possible in there. Then I read an article which made me wonder why I was doing this.

Two months on, I'm just about running out of kitchen paper and last weekend I bought 4 facecloths (30% off of course) of about the same size as kitchen paper to be used instead. So let's look at the maths.

Two rolls of kitchen paper lasted me around two months. At about $1.50 per roll, that'd be something like $18 over the space of a year. The 4 facecloths I bought cost me a grand total of $5.54, just a bit below four rolls of paper towels. Each paper towel roll has 80 sheets, but these cloths will keep going for years. In fact, within less than 4 months the facecloths (now multi-use-cloths) will have paid for themselves.

Let's add to the equation that paper towels add to your waste even if this is insignificant. Ok, to be fair, I will have to wash the cloths every now and again (dependent on function) but this won't add up too much either. Certainly not as much as $12 in the first year and $18 for every subsequent year. Overall I'd say this was well worth it, not just because of money but for reducing waste too. Remember the paper towels also come in plastic bags whilst the tea towels just had a small paper tag.

2) Not Accepting Plastic Shopping Bags

No matter what you think about free plastic bags, whether you use them for lining your bin or otherwise, you still have to pay for them in one way or another. Usually they are counted as overhead for the shop so it's almost like everyone has to pay a 'plastic bag tax' when shopping at that particular store.

This 'tax' can be easily avoided by shopping at places which charge for giving out plastic bags. Therefore, only the people who use them have to pay for them. I presuming here that you won't pay for them because you're cleverer than that and instead use re-usable bags.

I myself have two cotton bags which I try and use every time I head to the supermarket. I must admit, every so often I forget and have to unwillingly take a bag but every time it makes me feel sad so this is something I really need to fix and stop doing.

An example of a place in New Zealand which charges for plastic bags is Pak'n'Save. They even advertise the fact that they charge for them to keep prices lower for everyone. Good on you Pak'n'Save! Unfortunately I believe all the other supermarkets still give out free bags, which is crazy because they also try and sell reusable plastic ones too! Let me know if you know of other stores here in NZ which also charge.

(Side note: when I was in the UK back in 2001, one of the supermarkets, Sainsburys', used to give me money every time I used a bag of my own! Granted, it was only 1p but forward thinking such as this innovative and also proof of the plastic bag tax.)

3) Composting your Organic Material

Almost every bit of your organic material can be composted and again this helps in many different ways. Firstly, your volume of waste reduces and therefore lowers the amount of money you spend having it taken away. Secondly you can use the compost on your garden the following year to create a rich soil in which to grow your vegetables - another source of food at a lower cost to you.

Finally, composting also prevents the organic material from going to the tip, in which conditions, instead of breaking down aerobically (with oxygen) it breaks down anaerobically (without exygen) and produces methane. In some landfills this is captured and used as an energy source but in most cases it leaks out into the atmosphere and is a significant contributor to the greenhouse effect.

What not to compost also helps when deciding whether something belongs in the compost or the rubbish bin. You'll have to figure out which plants are classed as weeds in your local environment since I think that article was written for a North American audience.

Even if you don't have a compost heap, you can (and should) just throw your organic waste onto your land anyway so that it can decompose naturally. This is something I had not heard about before, though it makes perfect sense and seems to be called Passive Composting. Quite a few things to gain for not that much work.

4) Shop Around the Outside of the Store

The science of laying out a supermarket is very well known to make shoppers buy impulsive purchases. Those tempting and scrumptious chocolatey or sweety things (as well as other fast but processed food) are all laid out in the thin aisles in the middle of the store. When you're stuck in a trolley-jam in the middle, your eye gets tempted by all those processed foods.

Generally you don't need these items but sometimes you want them. That right there should stop you buying them since they are a want, not a need. That's the first reason not to shop in the middle of the store and to limit your trip to around the outside.

But think about this too. Not only do you not need many of those items, you're also not even getting value for money since most of these things come in layers and layers of packaging. Take a simple block of chocolate. It is firstly covered in metal foil, then has a paper sleeve. A packet of individually wrapped sweets has got to be one of the worse culprits (think individually wrapper foil, with a sticker on, stuck to a frilly cup, all enclosed in further plastic). Even something better like a jar of pickle means you're paying for the jar and lid.

Next, think about the items of food which are better for you, especially the fruit and veg. I rarely use any bags in that section and instead put my purchases directly into the basket and then directly into my cotton bags at the checkout. Occasionally I think the cashier is a little annoyed since individual tomatoes can be trickier to handle than a bag but in reality, that doesn't bother me too much. Bananas are cool since they come in their own packaging and one which can also be recycled!

In reality this point doesn't always hold true (milk cartons for example) but the majority of items in the middle of the supermarket have an excess of packaging you just don't need. Also remember that when you do need something, buying in bulk also helps reduce your waste per unit item if this item can't be avoided.

5) ... and Back to Those Yoghurt Pots

In September, I was buying those 6 packs of yoghurt for around $3.00 when they were on special. (I refused to pay the normal astronomical price of over $5!) One week when none of the brands were on sale, I progressed onto buying a one litre container for around $3.50. It had less plastic (by my unprovable calculation) and more yoghurt per 100g than the multipacks. In both circumstances, I was still throwing away a fair bit of plastic.

Recently, I have taken my yoghurt maker out of retirement. I bought it a few years ago ($20) and stopped using it, mainly for the fact that my supermarket (New World) was charging over $3.50 for a packet which makes one litre. Ignoring the packaging for now, that in itself didn't make financial sense to me and more especially so since I think the normal yoghurt is a little nicer.

It turns out that after speaking to a friend of mine, the other brand of make-it-yourself yoghurt can also be used in my maker - and why I didn't think about this before, I don't know. Also, the Pak'n'Save (to which I shall now be making regular bike trips) was selling that brand for around $2.50. Overall a $1 saving on sale yoghurt and probably about $3 on regular priced yoghurt. In fact, it's nicer than the other make-it-yourself brand too. I usually go through just over one of these yoghurts a week, so within year one, I'll be saving over $30 and over $50 annually after that.

And did I mention that the packets the yoghurt comes in are just thin packets which scrunch up into a small ball. They take no space at all and could probably fit 100 of them into one of the one litre containers above. Yet another saving on waste collection.

You should also try it and see how it goes. You'll find that a bit of pre-planning means that you can make that yoghurt (12 hours wait), chill it and have it on the table ready whenever you need.

The Challenge is On!

This post was inspired by a challenge I read about a few weeks ago. EnviroMom blogged about the One Can a Month Challenge which I think means, in non-US terms, one trashcan/bag a month.

As I mentioned earlier, I have already noticed that the volume of waste I produce was lowering. There have also been some recent changes (such as the yoghurt and paper towel techniques) which will also reduce my waste levels and there are still some things I want to try to reduce it even further.

In trying out this challenge I decided to start when I last put out a bag for collection. That was two weeks ago and already I can see an improvement. In fact, I haven't even put my kitchen bin into the outside bin yet and usually it takes two of those for a full bag.

So far so good. I would say wish me luck but with these techniques, I won't need it!

Why don't you trial 'One Can a Month' and see how you go. Let us know how you get on or if you're already doing it.

Labels: planning, saving, consuming, shopping, spending

Inserted: 2008-12-11 22:25 (1 year, 8 months ago)

The Tuesday PF Roundup - #2

This week's roundup comes on the back of some pretty exciting facts and figures for 'Retire at 40'. The main one is that I passed 100 subscribers. This actually happened to be one of my goals when I started this blog and I wanted to achieve it in less than 3 months - I'll be three months on Thursday, so that's good.

Anyway, on to the roundup.

The Tuesday PF Roundup - #2

KrystalAtWork wrote about No More Buying Lunch.

This is a classic article and one which a lot of PF bloggers have in their arsenal. Spending all that money on on lunch and not brown bagging it adds up to a fair amount each year, not because lunch is so expensive but because there are so many opportunities to spend money - 5 days a week in fact (usually). This also means there is plenty of opportunity to save money too.

Single Guy Money spoke about how he Helped a Friend Organise her Finances.

It's almost sad to say but I think many of us actually like doing this and in all honesty it's not about the numbers. I have had many chats with my friends over the past few months and the single overriding thing I take from any conversation I have with people wanting to sort out their finances is this:

Great, that'll be another person who I can hang out with when we all retire early!

Yes, it's about being able to help someone else and talk about a subject close to my heart but in all honesty it's about them being able to also do the same as I am. There will be lots of time to hang out and go biking in a few years time.

Pat wrote at SmartPassiveIncome about The One Thing You Must Know About Passive Income, or Else!.

Sometimes you think you're mostly there with passive income but many times you still have to do something. He's right in that, you just must not have to do anything at all. I spoke about this in a previous post about Passive Income where I said that you must take you out of any equation for making money, that way, the sky is the limit.

Retired Syd spoke about not having any more performance reviews.

This definitely seems like a good thing, not having to go through those stale and boring reviews each and every year. In fact, the reason why I like them most is not to get a pay-rise (though that helps) but to hear and make sure I am doing what is expected of me.

Trent at The Simple Dollar talked about The Best Moment of your Day.

I have always found that writing a journal (a private one, not a web-based one) helps sort through your thoughts for the day. I also found that it could sometimes take a fair amount of time (each day becoming longer and more detailed). Instead, just write about the best moment of your day - that way you also have less to read when you pick it up in a few years!

Links In

I managed a few mentions this week, including a high profile link on Smart Spending:

• How Much Money do you Really Need
• One Dollar Giving

and I was also featured on some carnivals:

• 87th Carnival of Money Stories
• Carnival of Financial Planning
• 182nd Carnival of Personal Finance

Thanks to everyone for the links and for keeping on reading.

Any other posts you think should have been highlighted from this past week? This is your chance to highlight a post that you are proud of.

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Inserted: 2008-12-09 22:30 (1 year, 8 months ago)

Turning Lifestyle Inflation into Lifestyle Deflation

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In my earlier article on Managing your Lifestyle Inflation, I mentioned something which Karen Datko at Smart Spending seemed to click with. She said:

Andrew suggests that you look at expenditures you started making after your pay went up. "If you didn't have these things before, then you can probably still do without them now," he writes.

That was just a small part of my previous post but it is an interesting one. Essentially by sticking to your same budget, even after you get a pay-rise, then you are recognising this extra income for yourself and actually paying yourself first before adding to your lifestyle expenses. By swiping the extra into your savings account and not spending any more than before then you are managing your lifestyle inflation.

Lifestyle Deflation

More importantly though, you also need to look at downsizing your lifestyle too. There's no point just starting from now and saying "When I get future pay-increases, I won't spend that", it actually needs to start before then. After all, maybe your lifestyle expenses are already too inflated ... usually this is the point at which you're spending everything you earn or even worse and spending more than you earn.

Instead, you should review your life as it is now. Look for the simple things you can remove and also go over your regular expenses to see which you can cut down or at least cut back on. I mean things like whether you increased your cable subscription to include more channels the last time you got a pay-rise. Do you even watch them? I bet not.

Expanding your Savings Range

This year I managed to get a pay-rise but instead of spending more, I actually started removing a number of (unnecessary) things from my life. The latest item I removed was my car seeing as I hardly ever used it. In total, I think I'll actually be up around $200 every single month now that all those car expenses are gone.

Both my pay-rise and my ability to cut out unnecessary things are actually expanding my savings range. I'm spending less of what I earn and therefore saving more. I'm also earning more than before and my savings increase there too. It's funny since I don't miss anything I cut out and instead I have replaced them with other more frugal activites.

When the Economy Improves

Karen also suggests something which should also be added to this list of things to do. Firstly, we're not succumbing to lifestyle inflation, in fact we're actively managing lifestyle deflation and to add another thing into the equation, especially for the current environment, Karen says:

We suggest that if you're cutting back in anticipation of the worst, you consider carrying that new budget forward when the economy improves (and it will).

With an improved economy, you may think that we are out of the woods and home-free but in reality it's still a long way to go to reach your prosperous and financially independent future-self. So instead of madly spending like others will when the economy is looking brighter, just quietly go about your usual still frugal way of life. And instead of reveling in the spend-happy new environment just take a moment to revel in the new and improved ways the new economy will help you save even more money and further reduce your lifestyle expenses.

P.S. After writing this article, I found that The Tao of Making Money previously mentioned Lifestyle Deflation in an article back in Feb 2008, though I can't find any other references to link to.

Any others articles about 'Lifestyle Deflation' you know about? What are you doing to actively manage your lifestyle expenses?

Labels: budgeting, earning, saving, consuming

Inserted: 2008-12-06 18:36 (1 year, 9 months ago)

Simple Steps Taken to go Car Free

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Over time, I have taken numerous steps to become car free. Each of these steps are small, sometimes infrequent but all of them have added up in the quest of attaining car-free status.

And now they have all now been worthwhile since yesterday, I sold my car and am now officially carless! And you know what, it feels great.

Consideration

The first thing you need to consider is whether your life would be better or worse if you went car free. This one thing is the most important part of this decision since there would be no point getting rid of the car only to have your life become miserable and annoying. Everything you do should be to make your life happier, easier and more fulfilling.

For me, this decision was easy. I've never really been a fan of cars anyway and whilst I took a liking to my car (her name was Latoya because she was a Toyota) I just became sick and tired of the expense she was costing me, especially taking into account her old age and the number of repairs I had to do recently. Poor Latoya.

But after having a few chats with various friends a while ago, I decided that getting rid of the car was something that was definitely on my todo list but I just wasn't sure when. After having that short, sharp snap of car-related expenses back in September it became the final nail in the coffin with me and car ownership.

Having also moved in to town earlier this year this also made the decision to go car-free a lot easier. Transport to both work and almost all of the other places I frequent was now not required and in fact, probably slower.

If it helps, write down a pros and cons list of having, versus not having, your car. This is a good exercise since there might be some things you'd forgotten about. For example, the convenience of being able to drive to your holiday destination might be one but maybe you're more of a flier anyway. How about the reduced ongoing cost of not having a car versus the increased stress of having to ride public transport? (Unless public transport in your area is amazing.)

Add Up your Expenses - and Include the Car Price and Depreciation too

Another way to help you make a decision, is to add up how much the car is costing you vs the cost of having to pay for other travel arrangements. I can almost assume that because you are reading this blog that this particular item on the pros and cons list has a fair bit of weight in the final decision. It certainly was for me once I fully worked out all my costs.

As mentioned in my post about Two Ways Biking Substantially Improves Your Life, I mentioned a few ongoing costs of car-ownership and I'm sure there are probably others I have left out too. (For example, I think the car will have to have new tyres soon so I'm glad I didn't have to pay for that.)

Another item I forgot include in the original cost list was the actual amount of money I'd originally paid for the car. Now that I also have the sold price I can figure out that the car, over the four years I had it, cost me about another $50 per month just for the privilege of owning it. Of course, the longer I kept it, the less this would be but that's also a risk set against any upcoming repairs that might happen and one I was not willing to take. (Rust on the back windscreen and the slightly sticky gearstick are two repairs that will definitely have to be done soon.)

It Doesn't Stop There

As if you need any more convincing, there are also other factors to take into account. In the past six months, I have probably used the car 2-3 times per month and in fact, my friends borrowed her for the majority of this time. Even out of those two or three times I used it each month, two of those were probably unnecessary if a little convenient. When not in use, she would sit on the road gathering rust or having her wing mirror broken off which was no fun at all. All of these things add up to an unhappy car...

...and an unhappy me!

I knew I was having to spend over $250 per month on something I very rarely used and that amount was never going to get cheaper either (apart from the petrol price reduction recently but that's only a fragment of the ongoing costs). No matter how much or how little I used the car, I was out of pocket by a fairly reasonable percentage of my take-home pay, pay that I'd worked hard for and therefore money which wasn't returning the favour and working hard for me.

If you did choose to go car-free, that extra money would be much better off in a savings account, paying off your mortgage or even put into shares or property. Over the year, that saved money could come to something over $3,000 (or a lot more) not including any additional interest payments and that's a quite significant amount. Even just thinking that not having a car will knock years off your mortgage is really quite exciting.

Depending on the Most Reliable Form of Transport - Your Legs

Having always been a walker and now a keen cyclist too, I am relying on my legs more and more. In fact, I've always said that those legs are the most reliable form of transport ever. They've never slowed me up in a traffic jam, never broken down, never deviated from the scheduled timetable - since I set it - and almost always do exact what I want, when I want. They also never say annoying things over a tannoy system to hoards of beleaguered commuters when the points fail or the bus breaks down.

Both walking and cycling were the forms of transport I decided to concentrate on the most to help me out in the post-car era. I could say I was lucky in that most of my destinations are within walking or cycling distance but that would be wrong, In reality they are close because I specifically moved to this exact area for exactly that reason. All part of the plan, a plan which has been brewing for a year or more, with action taken over the space of six months and a final transaction yesterday to conclusively be rid of that four-wheeled contraption.

A Plan for Post-Car Blues

As shown above, I took a few steps to make sure I put myself into a situation where I could get rid of my car but there are other things to think about too. Maybe you'll find things slightly more inconvenient because you'll have to take the bus or train instead of driving but actually you don't have to make it harder on yourself by not owning any petrol-fueled transport.

Firstly, you could do what I did and buy yourself a bike. I managed to get one in the spring sales (in this hemisphere at least) and as I've said before, it's already brought a lot of joy to my life, both for exercise and for social engagements with other bikers. Essentially I have prioritised that a bike is more important to me than a car and therefore, I'm happier because of it.

Not to mention that I have already lost some weight and can feel that my stamina is steadily increasing.

Of course, you also have the option of public transport, which admittedly requires extra planning, but it's hardly a burden. If I can plan to retire at 40 then I can certainly plan to take a bus somewhere on a Sunday morning.

It's also not a bad thought if you remember you can still take cars every now and again. A taxi for a quick trip here and there doesn't work out to be too expensive (factoring in your lack of tax, parking, maintenance, insurance, breakdown cover and all the other things) or even hiring a car on the odd weekend for that jaunt away isn't going to break the bank either. In fact, you'll still probably be saving around half to three-quarters of what you were consistently spending every month and in some months near to 100% of that stays in your bank account!

All in all, no matter what transport you take during the course of the month, you'll be much better off than you were before.

Added Advantages

After selling the car yesterday, I also figured out a couple more advantages which, even if they are only small ones, still add up to extra happiness. Firstly, I was able to get some money back from my insurance company to the tune of $240 as reimbursement of my pre-paid yearly policy. It was a lovely parting note to my insurers and one that my Emergency Fund will be very happy about.

Secondly, when signing the official papers, I had to take my car key off my keyring and hand it over. And you know what, in that simple act, I went from having two keys on my keyring down to just one key and it was an amazing feeling. Simplifying my life in a most unexpected way made me smile and actually brought a little bit of joy to my face. Realising that you've just gone down from having a set of two keys to a measly one was much more fulfilling that I'd ever thought it would be.

Almost halving the weight of the keyring already makes me happier and certainly puts me one more step on the road to a life of simplicity and financial independence.

What would you do? Can you go car-free? What stops you, your family, your location, your job or something else?

Labels: planning, insuring, saving, living, travelling, selling

Inserted: 2008-12-04 22:41 (1 year, 9 months ago)

New Series - The Tuesday PF Roundup - #1

I read a lot of PF blogs and each and every day I find new nuggets of information that I'd like to discuss but each of which wouldn't necessarily fill a whole article. I also find a lot of information that is best linked to so you can read the original.

To let you know what's happening in other areas of the PF blogosphere I shall be starting a new series called 'The Tuesday PF Roundup'. Head over to these other articles, leave a comment and say hi from me!

The Format

The format for my roundups will be a little different to a number of other weekly massive linkfests I see and instead I'll choose just a few - but good - posts. This will depend on how many I have seen in the past week but hopefully around 5 good ones rather than 20 or 30 average ones. This means you should get to see a higher quality sampling than just another long list of links. I shall be adding my own take on each post, whether I agree, disagree or have something to add.

Please get in touch if you have any opinions of the format of The Tuesday PF Roundup since I'd love to hear any improvements you can suggest. I don't want this to be just another set of links with the sole intention of getting trackbacks but instead a short list of potentially useful links.

P.S. I shall also be choosing an image which I like, for no other reason than that and not necessarily PF related either. Just for funsies.

The Tuesday PF Roundup - #1

Smart Passive Income talks about A Passive Income Mistake: Knowing and Doing Everything.

I agree mostly with Pat here but I think in his original case he didn't know how successful he was going to be and also getting to know and understand how the site (and the web) fits together is experience he wouldn't have had if he hadn't done it himself.

Of course, now he's successful, it's good to be able to get someone else to do the work for you whilst you concentrate on the aspect of creating good quality content.

Frugal Me talks about There is no Spoon.

We're always led to believe that when we want to do a job, there is one - and only one - tool for the job and it's a necessity too. Stephen mentions the use of spoons to take a tire off a bike though I have seen a couple of people do it recently without any implement at all. So, no need to spend extra buying unnecessary things, just do it with imagination and a healthier savings account.

Michael Kwan talks about Power of the Self-Fulfilling Prophecy.

When chatting to my friends about paying the house off and retiring at 40, whilst working a four day week, I sometimes add "I know it's insane but that's the plan". I do this, probably so that my friend doesn't think I'm a complete lunatic and that my grasp on real-life is still strong. However, I also know for a fact that this outcome is definitely going to happen! If I don't believe it's going to happen, I can hardly expect others to believe me! Michael finishes off with a great quote:

If you want to be happier, try smiling. Your mind will follow.

Which is exactly how I feel most of the time.

Miss M talks about Zero Based Budgeting

This seems like a great idea to me. I have my budget all sorted but that just covers my expenses, not every dollar that I earn. Sounds like a great idea and one I will be trying out soon.

Personal Finance Advice talks about The Money-Wasting Days of our Lives.

I have spoken about a number of these things before in 10 Little Sacrifices but Jeffrey goes a little further to show how many of these things, every day, really does add up. Just as a random thought: I don't think I've ever put a washing machine load on which was less than half full so I'm almost shocked people would actually do this. Just wear another shirt! :-)

Any other posts you think should have been highlighted from this past week?

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Inserted: 2008-12-02 22:28 (1 year, 9 months ago)

December Challenge - Free Yourself of Material Possessions

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Earlier, I posted about 5 Ways to De-Clutter and Simplify Your Life but in December, we're going to take this to the next level.

Being surrounded by material possessions weighs heavily on our minds. Sometimes I wonder how big the next place I move to should be just to fit all these things in. I wonder why I keep those DVDs on my shelf that I haven't watched in ages. My wardrobe, whilst not big could do with a trim. And all those other empty appliance boxes, folders of papers and books I haven't touched in a while just sit there staring at me.

And all the time, I think about doing something about these things.

Starting Out ...

Over time, people generally acquire lots of stuff. Each time they move, they shift it with them and since the new place is bigger, it's easier to acquire even more stuff and have it diffuse into the house like all the other belongings.

A spring clean every now and again removes parts of it, either to the charity shop or the rubbish dump but mostly, it just gets dusted and put back. Those things that haven't been used in a year or so but still being kept for the sake of it.

I've managed to do this with a few things since I downsized to my newer smaller flat but I still have lots of stuff, everywhere, all over the place. It'd be nice if this wasn't the case and I could actually get rid of a lot of it.

... and Finishing Off

This December, I challenge you to start filtering through all those secret cupboards you have left closed for eternity, those drawers that seem completely jammed and those cardboard boxes in the attic or garage that haven't seen the daylight since the turn of the Millennium. Just a little bit here and there will make a huge difference. How much? 15-30 minutes a day. That's not much but, as with Personal Finance, many small changes add up to a large difference over the long term.

Not only that, but once you've filtered your possessions you'll find it hard going back and acquiring more stuff. This not only helps your peace of mind but also your wallet.

The Act of Filtering

A friend told me the other day that she has three piles: Keep, Charity and Throw Out. This sounds like a good plan since then you know exactly what you're doing with every single item you find.

You might like to add a Sell pile too but this is your choice. Maybe you have a Give to Nephew pile or a Recycle pile and of course, you may have others but the best way to do it is to keep it simple. Also, as and when you look at each item from that cupboard, drawer or box, make a decision there and then as to what you're going to do with it. The worst thing you can do is decide to decide later.

Say 'No' to a Don't Know Pile

Whatever you do, do not have a pile called Don't Know since that will just assimilate back into that stuff you didn't actually know you owned. After all, the point of this exercise if to get rid of things, not just shift them to another location in the house.

As I said, pick up each item and put it into one of the definitive piles. That way, when you look at it in the future, you know exactly what you're going to do with it (assuming you haven't already done something with it already).

Do a Little Every Day

By doing just a little bit every single day, you'll be amazed at how quickly you can get through your stuff. I shall be taking this challenge and posting one or two updates throughout the month so we can compare notes on how we're doing.

You might wonder if December is a good time for doing this since it is a very busy time of year but I suspect that this will work out well for even the busiest house host. Instead of leaving all of your tidying up until a week before Christmas and New Year then just start now and see where you are in two weeks. I suspect if you did a bit every day until mid-December you'd be more ship-shape than if you left it until later.

So what are you waiting for? Get sorting through that stuff and let's have a clear, clean, stress-free and simple Christmas and New Year.

And remember to let me know how you're getting on in the comments, state that you're partaking in the challenge and blog about it so we can spread the word.

Labels: recycling, planning, living, giving, selling

Inserted: 2008-11-30 10:06 (1 year, 9 months ago)

Welcome to Visitors from Get Rich Slowly

Firstly, I'd like to thank JD for linking to my site. It's an awesome thing to be able to say I got a link off GetRichSlowly in my first three months on this journey of mine towards financial independence and early retirement.

Retire at 40 — This personal-finance blog from Andrew Chilton is based in New Zealand, and features some excellent discussions of topics like budgeting, lifestyle inflation, and financial independence.

- JD Roth

But Things "They Are a Changing"

Soon I will be switching from Blogger to my own domain so if you guys want to keep up to date with all of my posts and not miss a beat, then please Subscribe to RSS . That way, you'll get full continuity with my posts and for which, I will be truly grateful!

Labels: planning, retiring

Inserted: 2008-11-28 14:05 (1 year, 9 months ago)

Non-Cash Based Envelope System - The Bead System

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Earlier in the week I talked about the Envelope System and how it can save you money. I also mentioned in that post that I am not a cash type of person. My transactions are almost exclusively on plastic, whether that is debit or credit, or completely electronic when banking online.

In fact, the only cash transactions I seem to do at the moment are at the Sunday Market for my fruit and veg every Sunday morning. I realised that last Sunday I still had the $8 change in my wallet that I'd received the previous Sunday. No cash entered or left my wallet for a week.

The Envelope System Without Money

Instead, I have come up with an envelope system that you can use without money. It's not as accurate or as flexible but it'll do for my needs. It goes something like this.

Collect yourself a set of jars, containers or some other smallish holders. You need as many jars as you would envelopes i.e. as many jars as you have categories for your spending. I have a number of old empty spice jars which I am going to use.

The Bead System

Then get a number of counters, be it beads, tiddly-winks or any other kind of small item which you can use for counting. Each of these represents $1 each and it is these you will use instead of cash.

At the start of the month, if you're going to spend $250 on groceries each month, then you would count out $250 beads into that particular jar. Maybe you'll also count out $50 into the Entertainment jar. Trust me, this doesn't take as long as you think and it's only a once a month job. After a while, you'll probably get to know how far up the jar 250 beads go (or maybe if you had good scales, you could use them - yes, I jest).

Then, when you're entering your expenses into your accounting program at the end of the day, you can just take out the number of beads per dollars spent from the appropriate jars and put them in a special spent jar. Since you're keeping good track of your expenses, this is not much more overhead than having to remember envelopes each time you go out and buy something. It is also easier for those transactions which have expenses in two or more categories.

Rounding

When using this system, you should consider that those beads represent full dollars and that you can't actually split a bead up any more than it's whole. In which case, if you have an expense which ends in a fraction of a dollar, just round it up to the next dollar and shift those out to the spent jar. The reason to round up is so that you don't actually go over your budget.

Even though the system isn't wholly accurate, it doesn't matter. Hopefully you track all of your spending in an accounts package so this system is just for a general idea rather than for exact detail.

Advantages of Using the Bead System

The bead system is a very visual one, especially so if you have bright blue glass beads in clear jars. It also doesn't require you to either count cash or load up your accounts on the computer just as you're heading out to the shops.

Just a quick glance can tell you approximately how much you have left in any jar. It's very easy to mentally take note of what's left in your most important jars and after a while you'll know approximately how many beads it takes to quarter, half or fully fill each jar. Knowing at a glance when you go to the supermarket how much you have left in your groceries budget is very powerful.

I'm sure that there will be times when you completely forget how much is left in any jar but in reality, most of your spending wouldn't be big enough to go over by a huge amount, unless you were doing it on purpose. If you were going for your weekly shop at the end of the month, you'd be pretty likely to find out how much you have left in the grocery jar before you left, ie. only when it's important. If you ended up getting milk on the way home from work, then I suspect that's not big enough to worry about even if you did go over.

Finally, the last advantage of the bead system is that it works without actually having to store all your cash in envelopes for the most part of each month. Instead, that money would be sitting pretty in one of your accounts earning interest instead of just sitting there not working at all.

December is Trial Month

I shall be trialling this system in December and I'll let you know how it goes. I should be able to find any deficiencies in it and then change it to make it work better. Let me know if you spot any problems or have any suggestions.

Are you going to try the Bead System? Please share your experience with our readers by leaving a comment below.

Labels: planning, budgeting, spending

Inserted: 2008-11-26 21:03 (1 year, 9 months ago)

Choice Between a 4 Day Work Week or More Money

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As I have stated before, I am aiming to achieve my goal of retiring at 40 whilst at the same time working a four day work week. Yes, I know it's insane but it's good to have goals.

Besides, if I miss it at 40, then I'll probably hit 45. But that figure isn't the most interesting one. To me the most important figure above is that I'll be doing it whilst working a four day week.

Initial Thoughts

My four day work week started in September and almost as soon as I started doing it, I was blown away by how good I felt. I decided to take Wednesdays off to split the week up and just the thought of only ever working two days on the run, before having at least one day off, was probably the best decision I ever made.

I had various detractors including people saying "but then you get two Mondays" to which I counter "yes, but you also get two Fridays!" And besides, all the people I knew who took Fridays off wanted to have a long weekend so they could go away every now and again - unfortunately, they never did.

However, no-one said that a four day work week was bad and in fact, a good percentage of people started thinking whether they could do the same.

As it turns out, Wednesday, for me at least, turned out to be a magical day. Almost like going to Disneyland every week - it was a dream come true.

A Change of Lifestyle

Early on I realised that my life had changed quite dramatically. I finally had more time to do things. being able to cook more often, eat better and exercise more has been refreshing and of course, the ability to do other things I enjoy, like walking, cycling and taking photographs meant I was distinctly happier than before.

It came at a cost though and that was a financial one. My pay was instantly 20% pro-rata lower than it should have been. In reality it really didn't bother me as much as I thought it might since I had already altered my lifestyle enough such that I'd stopped spending enough money on frivolous things that it actually cover this difference. On reflection then I was no worse off than before (luckily I'd also had a pay-rise a few months earlier which also helped).

It Lasted Two Months

You might be able to guess that my four day work week is no longer - temporarily - but for the moment it is but a dim and seemingly distant memory. At the start of November, work asked me if I could go back to five days a week until the end of the year. It is only two months and I knew the question was coming anyway so I happily said yes since I like to think I'm quite agreeable in these situations...

...not that I knew what I was letting myself in for.

The first week seemed to go quite fast, the second a bit slower and now, in my fourth week back at five days, life seems to slowly grind onwards ever inching towards that singular Friday when I finally get time to myself. It's not so bad but I have already realised that my life is the worse off, in a number of different ways, for it.

I have less time, my diet isn't as healthy as it was, my exercise routine has waned and I feel a little more stressed about a number of things. I certainly have less time to do bits and pieces as you'll have noticed by the dip in the number of posts in November.

Time Deficient

Now, I'm sure that there may be some readers who'll be saying "We've all got to do a five day working week so just live with it" but here's my case as to why I need a four day work week (and not just for mental reasons).

As a single guy, I inherently get less time than couples do (and here, I mean couples with no kids - couples with kids certainly get less time to themselves than I do). Let me justify that by saying for my situation, I'm the one who has to tidy the house, I have to do the shopping, I have to cook for myself, I have to do the washing up and the washing, I have to pay the bills and talk to the bank/utility/phone companies. Oh, and I also have to earn a living. With couples, they can at least share a number of these chores.

A number of my friends go out cycling while their partners shop and cook. While they clean up afterwards, their partners can get on with other things. If both of them tidy up, it takes half the time and in some cases less.

So you see, by having that little bit more to do what sometimes feels like an infinite number of chores really helps. This way I can at least spend proportionately more time doing the more feelgood activities like recreation or hobbies.

The Extra Pay

When I started back at five days, I knew I would probably enjoy getting my increased pay-packet but in reality, what I got extra - whilst significant - doesn't really compensate for all of the negative things I have already been feeling whilst back up to five days. I'm usually a happy person, and that's still the same, I'm just not as happy as I was in September and October.

I knew that over these two months I would switch my thoughts between sticking at five days (to help my finances and retirement plans) or four days (to enjoy life a little more) and wait until the New Year to decide which I wanted to stick with, but I think I have already made up my mind.

I shall go back to a four day work week come January and not care about the extra money. It's a call between my head and my heart and unusually for me, whilst my head has invariably won in the past, this time my heart has won out by a large margin.

As one of my friends said to me a few years ago "You can always earn more money but you can't earn more time". And that is why I shall go back to just four days in the New Year.

I'm curious as to what you would do, so if you were in my situation, what would you choose? Please explain.

Labels: earning, living, exercising, working

Inserted: 2008-11-25 21:27 (1 year, 9 months ago)

How the Envelope System can Help Save you Money

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The envelope system is a well known and much practiced system in personal finance to help stick to your budget. It's a simple system and is especially suited to those people who wish to primarily deal with cash (rather than plastic debit or credit cards).

I feel that it is falling out of favour since many transactions are now electronic but I'll present a modified version in a future article which I shall be trying out in December. This will hopefully help for people like me who hardly ever take out or spend cash.

Funnily enough, even in some high tech countries, cash is still king for normal everyday purchases so it's interesting to note that this is a very common technique in Japan, even to the extent that almost everybody does it (and not just those who are careful budgeters).

The Envelope System

The first thing you need is a budget. Without it, the system won't work. Then once you have that, you need to figure out which items on your list (whether they are broad or narrow) are those ones for which you can going to use cash. This wouldn't include things like automatic rent deductions or paying your utility bills online.

As an example, let's say you have 4 categories (a very much simplified month) for which you are going to budget cash for this particular month:

• food - groceries and tops-ups like milk and bread
• household requirements - detergent, soap, shampoo, bin-bags
• clothes - socks, shoes, jeans, skirts, dresses and tops
• entertainment - cinema, CDs, eating out with friends, hobbies
• gifts and charity - presents and donations

Take yourself 4 envelopes and on the front of each, write that particular categories' name. When I tried this system, I also wrote on the front how much I had allocated to it too. e.g:

Entertainment - $75

At the start of every month (or the start of every pay-month), you take out your total alloted money for all these categories from the hole-in-the-wall and divide it into your envelopes as specified. Each and every time you want to spend money on a particular category, you should take that envelope (or a part of it) out with you when shopping. You can do this since you've planned your purchases - right?

If you didn't plan your purchase or you had to buy something then you should re-arrange the envelopes at the earliest opportunity. If you had $20 in your wallet from the Food envelope but you had to buy a pairs of socks, then shift the correct amount of money over from the Clothing envelope to the one that was compensating it.

Easy Peasy

The great thing with this system is that it is very simple to do and fantastically easy to see exactly how much you have spent and more importantly, exactly how much you have left in each of those categories at a single glance.

There would be no need to log on to your internet banking and no reason to wonder whether you're within budget for the month since you have all the information you need right there.

It is also simple because once that particular budget is gone, it's gone and there's nothing left in there to spend. If you really desired that new top you saw in the shop today but later found out that there is nothing left in the Clothing envelope for that month, then you're completely out of luck.

Re-Budget

If you find yourself in this situation, try not to siphon some cash out from any of your other envelopes since then you'd just be cheating. In the case whereby your clothing budget is dry for the rest of the month, I'd say live with it.

However, if you are consistently running dry out of your food budget then you may wish to re-budget what you think you need for that category. This might involve spending less, changing your eating habits or it would be quite normal to increase the budget you had previously considered ok (you may well have under-budgeted by accident). So don't be ashamed if you have to increase your Food budget and of course, be more weary if you want to increase your Clothing or Entertainment budgets. Remember the differences between wants and needs.

Snowflake what's Left

Another great advantage of using the envelope system is that when you arrive at the end of the month, or the time you need to replenish your envelopes, you can use it to save a little extra money. Since you have budgeted to spend a particular amount, yet you didn't spend it all, then pretend it did all disappear and snowflake off what's left into your Emergency Fund, Freedom Fund, savings or retirement scheme.

By doing this, you wipe the slate clean every month and this helps you not accumulate extra money in your envelopes which you'll probably eventually spend anyway. If that's the case, then you're doing a disservice to the time you spent putting your budget together.

The non-Cash Based System

I have briefly played with the envelope system but I almost knew before I started that it wouldn't be for me - though please note that this is a personal preference. This system is being happily used by many people to keep their spending in check.

Firstly, I am not really a cash person though I guess I could be if I wanted to be. Secondly, I wasn't that great rebalancing the envelopes if I had spent money from one envelope on something from another. I found this strange, since I'm very particular about entering every single transaction into my double entry accounting software.

In December however, I shall be experimenting with a new system I have brewing in my head. It doesn't use cash and it amounts to much the same as the envelope system. I shall write a further post detailing this system in the near future.

I have chosen December as the start date for this trial since by that time I will have my budget in place. As I described on my budget post, I have been keeping a record of all of my expenses and by that time it will have been three months. I have noticed that my knowledge of where my money goes is increasing and therefore I'll have a greater idea of what I need to budget for and how much.

It's going to be interesting whatever happens and I'm looking forward to it already.

Do you use the envelope system? Leave me a comment noting any tips and tricks you use.

Labels: planning, budgeting, saving, spending

Inserted: 2008-11-21 23:23 (1 year, 9 months ago)

Are you Managing Your Lifestyle Inflation?

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Have you ever heard the one about the graduate student who ate beans on toast for 4 years whilst completing his degree, accepted a top-class job with high prospective pay increases but even after 10 or 15 years of working never seems to have any more money in the bank than he did when he was studying as a poor lowly student?

Okay, I made this person up but the reality is that most of us know one or two people who are exactly like this. They are earning lots of money, in some cases more than you, but they never seem to actually have any. Yes, they have great cars or a big fantastic house but they always complain about owing so much on maxed out credit cards.

This could also happen to you if you're not careful. You see, these people are victims of Lifestyle Inflation.

What is it?

Lifestyle Inflation is something that happens to all of us at one time or other. It happens when we start working, it happens when we get a pay-rise and it can happen at almost any other time of our lives too if left unchecked. It's that function of our income which makes us say "Hey, I can afford that because of my new pay-rise" so you go out and spend the extra money on that new 'thing'. Because ... you know ... you're worth it!

It also has another phrase, one that is probably more well known than Lifestyle Inflation. It is also know as:

The more you earn, the more you spend.

You've definitely heard of that one.

Now, I want you to sit back, relax and have a think about what you did the last time you got a pay rise. I'll wait right here until you come back. Think of a few things. To help you out, you might want to consider whether you:

• treated yourself to a nice meal out
• splurged on new clothes, make-up or shoes
• subscribed to another magazine
• raised your cable subscription to the next level up
• increased the amount you set aside for socialising
• went out and bought a new car

If you can tick a few of these or maybe you have some of your own, then you are inflating your lifestyle.

So what? I deserve it

Of course you deserve it, you work hard for that money. That increase didn't come without having put those extra hours in, being good at what you do and finding a good position within your company. All that extra work you put in for that pay rise was worth it in the end and therefore you feel you deserve to spend it on whatever you like.

By all means treat yourself but do something low-key as a one off rather than expensive and continuous. That way, at least it is somewhat contained (and also, you need to treat yourself every now and again, otherwise you'd probably go a bit mad).

The Paradox

But here's the crunch. Yes, you put all that extra work in, your skills have increased and you're worth much more in your field of expertise but how does that benefit you if you spend all of that extra? Especially all that extra on something you have to pay every month for a very long time.

Think about it. Your employer is paying you more as recognition that you have improved both yourself and the company. But you're not recognising yourself. If you go out and spend that extra money in your paypacket every month, then you're not actually giving yourself a pay-rise.

Those extra car payments per month might come from your pay-rise but it's basically wiping that pay-rise out. What you end up with in your pocket is the same - or possibly less - than what you were getting before!

This doesn't make any sense. It means you're more valuable, you're earning more and you're being recognised but the end result is that you come out the same at the end of the month.

That doesn't make sense to me (and yes, I've been guilty of doing this in the past).

How to Stop It

Essentially you need to stop it by not allowing yourself to spend that increased pay-packet. Much like the old phrase PF bloggers like - Spend Less than You Earn - another one can be added to that list:

Don't Increase your Spending at the Same Rate as your Pay

There may be one or two things you want to spend extra on, possibly those things you've been holding out for for years but be careful not to spend every single extra penny you take home. If your expenses increase at a lower rate than your pay-rises, then you'll be doing well.

Of course, if your expenses don't increase at all when your pay increases, then you're doing even better. This is easily done by not altering any of your expenses budget but instead adding that pay-rise straight onto your savings budget.

Lifestyle Deflation

Recently, I have been a victim of a lifestyle change but happily for me, it is in the other direction. I have no idea if there is such as thing as Lifestyle Deflation but I think this is what I have been doing recently.

I recently chose to stop, cut out or cut down a number of my expenses and hence, even though I didn't get a pay-rise at the time, it sure has felt like one. It was a random time to do it but after almost three months I am already feeling the benefit of it.

To finish off, you might also want to consider what areas of your life you can downsize, cut out, do without, sacrifice or even just spend less on. You'll be surprised at how just a few things here and there add up to a fair amount of saving each month.

Oh, and by the way, the first places to look are those things you recognised earlier as contributions to your Lifestyle Inflation. If you didn't have these things before then you can probably still do without them now.

What is on your 'Lifestyle Inflation' list? What can you cut out to help with 'Lifestyle Deflation'?

Labels: planning, budgeting, earning, saving, spending

Inserted: 2008-11-19 22:57 (1 year, 9 months ago)

Does your Bank have a Broken Business Model?

It seems that everything is moving online these days. Your communication moved online quite a few years ago, morphing from your old letter writing days into your emailing days. Commerce came online quite quickly too and instead of flicking through books at your local store, you went and looked online for them. Music has gone that way too, your news articles and your TV programmes are now online and your banks have been there for a while.

In a lot of these cases, those commercial entities have also retained a bricks and mortar presence on the high street too, for those people who want to walk into a branch, speak to a real person and see and feel cash in the hand.

Personally, I'm not one of these people. Back in 2001 I changed my bank from a traditional high street bank to a totally virtual one. That's right, it had no branches.

Reasons for Change

When I look back on that now, I think I was a bit of a pioneer. I know that every single bank in the world has an online facility but back then, doing it solely online was a bit unique.

But the thing is, I didn't switch banks because I wanted to be online but because my old bank was most annoying. They did things I didn't want them too, they annoyed me whenever I spoke to them and they charged me through the nose for all kinds of minuscule actions.

To me, it seemed like they thought I was the privileged one to be banking with them. Of course, I begged to differ and when the time was right (I'd paid my Graduate Loan off) I changed banks.

The Advantages of Living in the Virtual World

When I started looking for a new place to bank, I was immediately surprised at how little the purely on-line banks charged for their services. I was also happy to see that my normal, everyday current account, would be earning interest at a massive 5%! In comparison to other bricks and mortar banks, this seemed like lunacy (for them) but since it was loaded to my advantage I took the opportunity without so much of a second's thinking time.

By this stage, I'd realised that by doing everything online, or via phone, they were able to run their business at a lower cost to them and therefore at a lower cost to their customers. It was also very refreshing that whenever I spoke to anyone on the phone, I was made to feel good about being a customer, good about myself and they knew who the most important person in that relationship was.

Fast Forward Six Years

After a change of country, I also had to change bank. This wasn't something I wanted since I was very happy with my virtual bank but obviously it was a necessity due to my change of location.

I went with a traditional bank but that didn't last long. Whenever I wanted to transfer money from NZ to the UK it ended up being a labour intensive and very stressful time. It seemed like it would have been easier to organise a trip to the moon (for me and my cat) than for the tellers to fill in the form correctly.

I also felt like the staff were a little too inquisitive to the tune of being intrusive rather than helpful. I guess I just wanted a personal account manager and not a friend. I want my relationship with my bank to be warm but not too personal. Don't ask me why - I guess I just see that business is business.

After two years, I switched to what seemed like a more clued up and modern bank. So far I have been really happy with the service I have received from them but times-they-are-a-changin'.

The Broken Business Model

Recently, I have had to speak to my account manager on a number of occasions, mostly because my fixed mortgage is up at the end of November and I will need to renew at some stage. Of course, this means I have been doing my homework and looking online to see what the current mortgage rates are from all the banks in NZ.

It turns out that my bank's mortgage rate was quite a bit higher than one of the other banks and I told my account manager this. It wasn't just a small bit lower but at the time almost a percentage point lower!

It is no surprise that this other bank, the one with the lower mortgage rates, is mostly online too (and leverages the NZ Post Shops for any physical transactions).

As soon as I had told me current account manager that I was thinking of moving my mortgage to the online bank, my first thought was that he would say something along the lines of "Well, we can't compete with that" since it was completely obvious that was the case. Instead, he proceeded to tell me how they looked after their customers more and that they gave out better advice than those on-line type banks. That they had more personal contact (which I don't necessarily see as an advantage). Also the fact that running a branch costs them $100,000 a year!

Whoa there. Say that again! I felt like saying "Actually, it doesn't cost you $100,000 a year, it actually costs ME lots of MY money each year." And with that statement I decided there and then to leave my current bank.

Unfortunately for him (and me) my old account manager left his bank and went to work for what will eventually be my new one. Add to this the fact that my new account manager is one of the most annoying people in the world ... let's just say that I shall be moving due to many different reasons.

But one reason stands head and shoulders above everything else.

Saving Me More Money

At my new bank, I shall be saving more of my own money that I work very hard for. Here's a very quick list of advantages and I'm sure it's not a complete one:

• the interest on my mortgage will be much lower
• I have no 'relationship' fees
• there will be no transaction fees (same with the old one)
• no charges for having a credit card
• the interest on my credit card (not that this concerns me) is lower - just in case
• any savings accounts I have will earn extra interest

Due to these reasons, I shall be changing from the broken business model that is the high street bank to a purely online one. The cost of running a virtual bank is much less than a traditional one and therefore, I get to see more of those savings in my own account. My baseline will be increased due to this one decision and each and every month, I will get to keep more of my money.

It is considered difficult to change bank but in all honesty, it's no worse than changing job or even buying a car. It is important to me that I get a good and honest relationship with my bank, I want it geared towards me rather than them and I want to enjoy whomever it is I talk to about my finances. I have found that my relationship with any new bank is immediately successful since they're just happy I'm switching over, especially so because I came to them.

In conclusion, I shall be changing banks for the fourth time in 10 years during the next few months and I know that this one will be better for me in many more ways than each of the last two banks.

Are you happy with your current bank or are you thinking of switching? What would stop you from changing even if you weren't happy?

Labels: planning, banking, saving

Inserted: 2008-11-15 23:03 (1 year, 9 months ago)

Prioritising so You Can Have Your Chosen Way of Life

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Life is all about compromise. In almost everyday situation we come across, we have to trade one item off for another. For example, when I buy cream cheese, I usually go for the lower priced version rather than the much more well known Philadelphia. Why? Because I think the taste is identical and I get to save money at the same time too.

However, if I'm buying that delicious yeast spread for my toast, I always, always, always get the real Marmite. All of the others I've tried, especially in this part of the world, aren't quite the same.

I'm trading off the price of the goods for the taste. Usually I'll go for the cheaper option but in this case, there is no comparison, it has to be the original. I consider this to be a trade-off I am willing to take.

It's a Trade Off

Every single day, we're forced to trade something off against something else. Yes, you can go out for lunch with your co-workers every day but then you wouldn't be saving as much as if you'd brown-bagged your sandwiches before you left in the morning. Of course, you don't want to cut it out completely either since there wouldn't be any fun in that at all. It's a compromise.

It's the same with anything. You can take that expensive holiday abroad and enjoy it for 10-14 days, or you can choose to invest that money and spend 3-6 months there in 20 years time. By that stage in your life, you're probably more financially sound and more importantly you also have more time too (you're not still working in 20 years are you?).

Of course, you never know if you'll still be able to do that in 20 years time but that's not a big worry since you've already decided in your own mind what is important to you now. What is important to me now is my future lifestyle in 7 years time when I can semi-retire. If by then I want to go travelling, eat out every day or buy those large squidgy Marmite jars, then I'll do that - I'll do whatever is important to me then.

Choose Your Way of Life

Your future therefore is determined by the choices you make now. By deciding that your future is the most important thing for you, you should do everything you possibly can to make that turn out for the best.

If you have children, you might decide that they're the most important things to you, so again you should do everything you possibly can to make that turn out for the best too. You may decide the environment is your thing, in which case, give it a high priority in your life.

No matter what you decide, by channeling a lot of your energy into that area of your life, you'll be handsomely rewarded further down the line.

Prioritising for Retirement

As you all know, I have recently decided that my retirement is something which is very important to me and I am channeling a lot of effort into making it happen. Almost everything I do these days is somewhat influenced by my recent decision to both pay off my mortgage and retire from the daily grind by the time I reach my forties.

When I get up in the morning, I have my breakfast at home and wait until I'm in work for my coffee. I head home for lunch and I don't snack in the mornings or afternoons. My tea is usually planned - except when it's not - but I have reserves in the freezer for those times. I exercise plenty and am now biking. My car is about to be put on sale (just two more things to do) and my house is the smallest place I have lived in for almost 10 years.

The interesting point to note is this. Even though I have recently changed almost every aspect of my life - sometimes radically so - nothing seems overbearing. In fact, almost every decision I make now is influenced by my ultimate dream and in a lot of cases makes these decisions easier (it's almost obvious which of the choices I should take).

A Happy Life

And this brings me back to my chosen way of life. Even though my ultimate decision is to retire at 40, it has actually made the rest of my life, as it is now, a much happier and meaningful one. I prioritise time over TV, I choose exercise over going to the pub and I choose the great outdoors on a bike instead of a supermarket car-park in a car.

It just so happens that not only do these decisions make me happier, healthier and fitter, they're also making me wealthier and therefore one step closer to my ultimate goal.

What are you prioritising to get you closer to your goal?

Labels: planning, living, retiring

Inserted: 2008-11-13 22:08 (1 year, 9 months ago)

Two Ways Biking Substantially Improves Your Life

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I mentioned before that I would be getting rid of my car and instead buying a bike. It turns out that I couldn't wait before selling my car and I got the bike anyway. (Don't worry, I shan't be keeping the car, she'll still be sold when I planned, I just so happened to buy the bike a bit earlier.)

So far, the bike has been a revelation to me. I have been out on numerous occasions, done some things I have never done before and even taken part in some crazy shenanigans. After only a month of having the bike, I am completely devoted to it, the lifestyle it creates for me and the way it makes me feel.

But let me tell you about the two ways I think it has already brought me a lot of joy and happiness and how getting a bike can do the same for you.

Saving Money

I wondered whether this was too obvious but then I figured out the something which was not quite as obvious. It is all about how much money you'll actually save rather than the fact that you'll be saving something.

You'd be surprised at the amount of money you do actually save by not having a car (or should I say how much you spend by having one). The outlay required to just own a car seems to keep getting larger and though petrol prices are not as high as they once were, it is still a huge outlay even for someone like me who hardly ever drives anywhere.

Taking a look at my approximate outgoings for the car on a monthly basis:

• $20.00 - insurance
• $6.00 - breakdown cover
• $17.50 - road licensing
• $12.50 - Warrant of Fitness
• $80.00 - repairs (from the last two bills)
• $7.50 - residential parking charges
• $70.00 - petrol (one tank)

I'm sure some of these figures (apart from the repair bills) are quite low in comparison to other peoples' cars but you can see that it's over $200 per month just to keep her ticking over. I haven't included things like covered parking charges either. Even if I were to give my car away, I would still be better off after only 4.5 months! I am hoping however that selling the car will actually cover the cost of the bike even though it is crazy to think how low it has deprecated to (though I did buy it 4th or 5th hand).

By not having the car, that's an almost automatic saving of over $200 a month. Of course, this savings figure would depend on whether I need to hail a cab or hire a car during the month but I suspect those jaunts will be few and far between. Averaged out over the year, I expect to save well over $1500 if not closer to $2000. It could also be much higher if you take into account that I would probably fill up way on average more than one tank a month.

Go ahead and make a list of your own monthly expeses. It doesn't even have to be that detailed. Write down all the charges you pay for over the space of a month or a year. Divide it all out to a month and take a note of what you'd be saving. Sometimes even doing it in small steps helps.

Another aspect you should also look at is the lifestyle saving not having a car gives you. You wouldn't have to remember such things as paying road licensing, insuring yourself, obtaining breakdown cover, getting the car checked and having any repairs done. Even paying for or washing the damn thing seems like too much hassle to me so I'd rather not do it.

All in all, removing the car simplifies your life further and for me, that's one of my current goals.

Getting Fitter

There's no doubt that I have already noticed my fitness and health is improving. Whilst I used to run around on an indoor soccer pitch and get worn out, I can already run around for pretty much the entire game without getting as tired. The longer bike rides have given me more stamina which is also improving my other exercise activities.

We all know that exercising is good for us but in many cases, we don't listen to the advice our internal mind is telling us. By not having a car, it almost forces us to play by different rules. Walking, running or biking to your destinations becomes a part of your life rather than a part of your exercise regime and is therefore easier to keep up. For example, last week I rode to my friends' house to play Ultimate Frisbee and rode back again afterwards. It didn't take much longer than it would have in the car yet that was an extra 30 mins of exercise (around other exercise) that I wouldn't have otherwise had.

By making exercise a part of your life, forcing you to do it by not having a car, improves your fitness, health and wellbeing without even thinking about it.

Of course, public transport is also an option but if you're trying to spend less and save more like me, then the bike wins for those closer destinations.

Other Advantages

Owning a bike has other advantages too. It uses up less raw materials, it's greener to run, the more people have bikes means that the drivers are more aware of them and plenty of other reasons too.

Anything to add to either of these ways biking improves your life? Any other reasons you can think of how that you'd like to share, please comment below?

Labels: saving, living, exercising, selling

Inserted: 2008-11-10 23:33 (1 year, 9 months ago)

Why I Must Become Financially Independent

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I have just read a short but fantastic article over on Breaking Free. It's called Why I Must and it tells us why Brian must become financially independent.

As you know, my blog is also about becoming financially independent and his idea of keeping a list of reasons of why this must be so is really appealing to me. In fact, I think it's such a good idea, I'm going to start the list right now, copy this list to a file on my computer and add to it every time I think of a new one.

Reasons "Why I Must" Become Financially Independent

I must become financially independent so that I can:

• devote more time to developing free software
• do some volunteer work
• devote more time to organisations I am already involved in
• work for myself instead of for someone else
• enjoy my time off doing whatever it is I like
• spend more time on my hobbies
• excercise more
• get out and see more of the countryside
• spend more time with my friends
• spend more time with my family

That list is in no particular order and I guess it is only the start of what might become a fairly long list. Maybe you should try it too so that you can also see what you'll be able to do when you become financially independent. The endless possibilities may convince you to start on your journey to a prosperous and productive future.

Any others you think I should add to my list, or any that you would have on yours?

Labels: planning, living

Inserted: 2008-11-07 22:24 (1 year, 9 months ago)

Ideas and Actioning Them

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Ideas are great things. They come at you all day, every day, from all angles. Sometimes you're tying your shoelace and an idea hits you. You're daydreaming on the bus and suddenly your eyes light up with a new idea.

Occasionally you're just walking along the street when suddenly maybe you've just figured out the secret to renewable and everlasting energy.

You know what, that's just GREAT!

Invariably, 99% of those great ideas you have during the day you have completely forgotten about by the time you get home.

Write Them Down

A number of people carry a notepad with them at all times and I'm starting to come around to this idea too (hmm, maybe I should write it down on Page 1 so I don't forget). Being able to capture those ideas whilst still fresh in the memory is of huge importance. As I said earlier, if you don't write them down now, you'll forget about it completely before the day is out.

All you need is a few notes on the page. If you have a few minutes, just let the creative juices flow. Write down anything you think is applicable, even if you also think it is silly. It's easier to scratch the silly things than it is to re-visit this massive flow of creativity.

For example, let's say you decided to write an eBook to sell online and increase your passive income, you might go through a few things like this:

• yeah, I'll write an eBook
• maybe charge $15, okay maybe $10; $20 would be nice though
• oh, get a proper cover from elance
• maybe I should write a smaller one to give out free to subscribers
• or even make it viral and tell people to read it and share
• get some references from some well known bloggers
• hmm, now I need to think about what I want to write about
• how about Personal Finance :-) (too obvious, be more specific)
• 100 great, simple and frugal recipes for crockpots ...
• ... ok, how about saving money when grocery shopping
• I do enjoy going to the market though, maybe something about that

What you'll find after a brainstorming session like that is that you began with a wishy-washy idea (an eBook with no subject) and ended up with about 3 different eBook ideas and plenty of other ideas on how to market it. Within the space of just 2 minutes, you have not one but a number of fully-fledged ideas and many more smaller ones.

An Idea Which Isn't Actioned, is the Same As No Idea at All

However, no amount of ideas are good if they are never actioned. Once you have that notepad, you need to go over it more thoroughly when you have more time. Tick off or circle the things you're going to action or move them over to your wiki or other action list. After all, if you don't do anything about the idea itself, it's just the same as not having had it at all.

Whilst we're still at the start of whatever idea it is you might just want to put a few more minutes or hours effort into figuring out whether the idea is a good one or not. Tell your family or friends and see whether it is something they would be interested in. But remember, many people are negative to your ambitions or ideas so don't let them talk you out of a good idea (but it's okay if they talk you out of a bad one). Use this information to decide for yourself whether going ahead with it makes sense.

Good Luck

As with all new ideas, you need to be a little brazen and a little bold when going ahead with it. You might not see immediate results but keep at it, keep plugging away with it and hopefully the reward you deserve will eventually come.

And if that reward doesn't come, the best thing you can do is learn from your failures and keep moving. Just turn that page of your notepad to your next great idea and give that a go too.

No matter how many times you try, one of them may succeed. If you don't try at all, you're guaranteed to fail.

Tell us what you do to remember, develop and action your best ideas? Any war stories you can tell us about where you failed, succeeded or maybe even both.

Labels: planning, selling

Inserted: 2008-11-06 21:20 (1 year, 10 months ago)

'Living it Down Small' instead of 'Living it Up Large'

Have you ever seen the lights in Las Vegas? How about the skyscrapers of Hong Kong or New York? Ever been through the suburbs of Los Angeles or seen the sprawling mass of London?

To me, these cities typify places in which you can Live it up Large. Large living, large entertainment, large houses (ok, except for Hong Kong). Over the last few years however, I have been downsizing my living spaces each time I have moved and have really enjoyed moving into smaller and smaller places. Before that I had constantly moved into bigger and bigger places. Each time I moved, I ended up getting more stuff to fill it, in a lot of cases sometimes stuff that I didn't even want.

Going Smaller

Five years ago I moved into a small two bedroom house and only had two bags and a box. Over time, I bought stuff. Then I moved into a larger two bedroom house and filled that too. I then graduated to three bedrooms (and two bathrooms) and whilst I didn't fill that space, it had plenty of stuff spread throughout. Then I started going smaller. I squeezed all my stuff into a two bedroom unit and finally, I am now in a one bedroom flat.

Over that time, none of these moves have been related to my current financial plan though I guess my last move was a pre-cursor to it. I realised that I could live in town for less money than living in the burbs for more. That also generates a saving on transport too.

When I first moved in, it was physically impossible to move since I had so much stuff in such a small place. However, over the past few months I have been amazed at how well I have been getting rid of stuff. The floor is now something I see every day but I know I can clear all this stuff by a lot more.

It's been very liberating to be free of the shackles of extra stuff and I can already see some benefits of living in less space. Also, all that extra floor space you fill with junk, actually costs rather a large amount of money.

Interesting how spending money on extra stuff you don't need actually ends up costing you even more money!

The Simple Life

Over the past few years which have included my downsizing moves, I have hankered for the simple life. Mostly I did nothing about it but this year my breakthrough came. Not only did I move into a one bedroom and start to de-clutter, I have of course, started this blog and becoming more financially aware with a view to becoming financially independent.

There are so many benefits to heading in this direction, most notably having to pay less rent/mortgage for my accommodation but also because there is less space to put extra (and unnecessary) things. Things I wouldn't be able to buy since there wouldn't actually be any place to put them. If it was something that was desperately needed, it would have to be space-exchanged for something no longer needed.

So think about where you live and whether you actually need all that space. After all, most of that area is space you probably don't even use on a day to day basis, yet you're paying for it in rent/mortgage and you're buying things to fill it up!

I shall be continuing my plan on annexing a lot of my stuff and hopefully when the time comes to move again, I shall be able to find a place of a reasonable size, for a reasonable price and it still be like a castle to me.

What are your thoughts on the size of your house? Do you need more or less? Would you be able to survive in a smaller place?

Labels: planning, living, consuming

Inserted: 2008-11-03 23:08 (1 year, 10 months ago)

Sorting Out your Finances in Stages

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When was the last time you jumped from your house to work, and then at the end of the day, jumped right back in one massive leap back to your front door.

What? You've never done that before?

Maybe if you work from home you have managed to do that but for the rest of us, work is usually further away than just a large leap. Usually, to get to work we do something like the following: walk, wait, step up, sit down, step down, walk and finally rest when we get in the lift. We do it in stages, one after the other, each building on what went before.

The Journey to Financial Independence is also like that. We do it in stages and each one builds on the one before.

"I'm Not Ready to Switch Over Right Now"

Over the past couple of months, I have had many conversations with many of my friends about finances. I'm not sure why they come and talk to me (ok, I can guess a little) but mostly it works out for both sides in which we each learn something more. Some conversations have been small and to the point, others larger and covering many bases.

I have, however, figured out a slight pattern to what a lot of people are telling me. They say things like "Maybe I don't do it now but I'll do it later" or "I'm not quite there yet but soon, I promise" or "I'm not ready to switch over right now, I have a few things I want to sort out first".

So it seems that people want to change things but don't really want to commit to it yet. It is definitely a recurring theme.

My advice to any and all of you thinking about doing something about your finances, whether it's opening a freedom fund, starting your savings or even planning your retirement:

... JUST START NOW!

Sorry I screamed but take my advice, if you don't start today, you probably won't start tomorrow either and as we all know, tomorrow never comes. You'll wake up one day and say "I wish I started saving 10 years ago".

It turns out that I wish I'd started sorting out my financial future about 5 years ago but I'm just happy that I'm now on the right road. To those younger than I am, just go and re-read your high-school maths books about compound interest and you'll be glad you started when you did (and I wouldn't mind some credit when you're old and rich). If you still don't believe me and you didn't click that previous link, go and do it now since it has already said everything I could have said (and more).

Do It In Stages

The other thing you have to remember is that this particular area of your life, your financial matters, are pretty complex. There are strategies to make it simpler but in all honesty no matter how you look at it, it's fairly complex. Because of which, it also means there are a number of different ways you can do things. There are also a number of different things you can do and a number of different things you can consider.

All this adds up to an extremely rich set of paths you can take from here (now) to there (retirement or any other goal of yours).

With all those paths open to you, you can choose which direction you want to go, hopefully choosing one which takes you forward and therefore you can choose exactly what you want to do.

As you would get to work in the morning, you don't just take a big leap at the start of your journey and arrive there, you do it in stages. At first you might start off your emergency fund, you might decide to spend less or you might decide to earn more. You can of course choose everything at the same time but it's much easier to break it down into little steps and just start wherever you feel comfortable.

And that is the key, that you have to start somewhere! Starting earlier rather than later is better so why not choose to start today? Something, anything, whatever you like. Start today and maybe tomorrow, do something more. You surely won't regret it.

Call for you to pledge below to start RIGHT NOW. It doesn't have to be much but just start. Leave a comment and we'll all cheer you on your merry way to financial independence.

Labels: planning, earning, saving, living

Inserted: 2008-10-30 21:37 (1 year, 10 months ago)

The Key to the Future: Zero Dollar Days

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Here's a simple question for you. Can you get through a normal day without spending any money at all?

How about 2 days on the run, or even 3 or 4 days a week without spending anything? If you baulked at the first question, I'm sure the answer for the second is just laughter.

Does it seem too hard to do? Maybe it even seems alien. No matter what you think of these questions, I'm here to tell you that Zero Dollar Days are the key to your future.

A Day Without Spending

When I first wrote in 10 Little Sacrifices that I'd had three Zero Dollar Days, I was absolutely shocked and stunned that I had even had one. For me, my previous daily routine was to spend money, maybe a little, maybe a lot, but essentially I would spend something every day. Now I try to have three Zero Dollar Days every week.

You should try the same. You mightn't think you can do it, like I couldn't, but it's actually easier than what you think. Your habits will have to change, but if you follow those 10 Little Sacrifices (and maybe some of your own), you'll find that you've already eliminated most of your daily spending - which at the end of the day are non-essentials anyway.

It's harder to create those Zero Dollar Days when you have essentials to buy; like breakfast, lunch and tea, or maybe journeying to and from work. In those cases, giving up isn't feasible so you have to do it another way. Yet again though, it is relatively easy since all it takes is planning.

For travel, all you need to do is pre-pay your train or bus ticket or fill up the car at the start of the week. Of course, if you walk or bicycle to work, you're already on to a winner.

For food, you just need to figure out what you're having and when. Breakfast is usually at home so that's already been paid for when you last went grocery shopping. Evening meal is also similar and as usual lunch is the hardest thing to figure out. Being able to get home for lunch (like I do) is a little privilege but brown-bagging it surely is the cheapest option though it requires the most planning.

Other than those two things, you can probably get through a work day without spending anything. Weekends are hardest but even they can be Zero Dollar days too. Work on the weekdays first and move onto the weekends later.

For the Future

All of those savings you're making to get those spend-free days should be whipped straight out of your account and put into your debt repayment or into your savings. Just get it out of your current account so you can't spend it on anything else.

You'll find that these savings really start to add up and once you start earning interest on the amount saved, you'll be happy with the results.

My Progress

In the past two months, I haven't kept a complete check of my Zero Dollar Days but I will do from now on. Sometimes it's hard to figure out if you had a Zero Dollar Day - for example what if your utility bill came out of your bank account but you didn't spend anything else. I'd still consider that a Zero Dollar Day since that payment was pre-planned and didn't come out of your wallet (either cash, debit or credit). I'd also say the same for a grocery shop of essentials, especially if it's pre-planning all your food for the next while (but not if it contains any of the non-essentials you promised to give up)!

At a guess though, I think I've been doing either 3 or 4 Zero Dollar Days a week during the past two months. I definitely think it has made a big difference to how much I'm spending. I'm going to the supermarket a lot more but that's because I'm making and eating much more of my food at home. The cost of the supermarket (or Sunday Market) is still much cheaper than paying for someone's labour making it when you buy those take-aways, deli sandwiches or cafe food.

As I mentioned at the start, if the idea of going through a day without spending doesn't fit with you, then just try it for one day and one day only. Once you've done that, you'll be able to do it again and again and again. Good luck with your new spending habit and enjoy your new increasing balance in your savings account.

Do you have any tips on how to attain more Zero Dollar Days? What do you call them? Let me know below.

Labels: planning, saving, spending

Inserted: 2008-10-29 22:57 (1 year, 10 months ago)

The Power of Snowflaking

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Let me tell you the story about a snowflake. Jimmy was it's name and it was very small. One day it decided to snow and Jimmy came into existence along with many other snowflakes formed around the same time. They looked at one another and thought "My, aren't you a nice snowflake" however some of them looked at each other and thought "Wow, you're bigger than I am". Jimmy looked at everyone and thought that they were all bigger than him.

The larger snowflakes tended to keep to themselves, since they were bigger than the others. They weren't very nice either. So in the end, the smaller snowflakes - including Jimmy - decided to gather together so they could become larger and more powerful than the bigger ones.

After a short while, they all fell to the floor only to be gathered up together by the children playing. Jimmy got swept off his feet by a young child with huge mittens. Firstly, they were gathered into a snowball, then rolled into a head and finally into a huge torso. Right in the middle, next to the middle button, Jimmy lay looking out and feeling safe. This snowman was eventually so big, the relative size of all the individual snowflakes didn't matter and the snowman itself was greater than it's individual parts. Jimmy knew that those bigger snowflakes wouldn't worry him now., safe in the knowledge of being with all the other snowflakes.

And that is what the power of snowflaking is.

So, yes, thanks, but what is it?

Snowflaking is a term used in the personal finance field. It is pretty easy to understand and also very powerful. It's also very easy to do.

It is a technique to help you pay down debt or increase your savings. Essentially what you do is, at every opportunity you have for scraping aside money into a separate savings account or a current debt, you do it. It doesn't matter how big or small the snowflake is, it all adds up to that snowball effect and before you know it, you're looking at a whole heap of snowflakes. Once these start adding up, these snowflakes become snowballs and by then the momentum has started.

You can start in a variety of ways but as always, the most important thing is to start. That's the hardest step. Once you've started you'll find more reasons to snowflake.

Many people clip coupons to save money at the supermarket. If they receive $1 off a tube of toothpaste, then they will snowflake that dollar into whichever debt or fund they choose. Others will see that cycling to work one day a week is a bus fare saving which also gets siphoned off somewhere else (not into other expenses of course). If you manage to get a bonus from work, that gets scraped elsewhere and yet others see a pay-rise as a permanent snowflake (but then you're more into savings schemes).

Any Excuse Will Do

I have noticed something about snowflaking and it is this. If you practice the technique then no matter what you do throughout each month, you'll find any excuse to snowflake that money off elsewhere. Take these examples as interesting reasons to snowflake rather than as a guide. Yes, I have actually seen people use these so you can see, it really is for whatever reason you decide:

• shift over the cost of that coffee you didn't have
• move aside what you saved in the supermarket
• was your lunch ultimately frugal, siphon off what you didn't spend
• did you find a dollar in the street, put it in your savings
• pay off some more debt with that money you were given in your garage sale
• transfer the extra you received in your paycheck this month
• cast aside what you used to spend before you gave up your bad habits!

My example this month is that I have been online selling some of my old DVDs that I no longer watch. Every time I get a sale, I've been shifting that money over into my emergency fund. The thing is, instead of moving the sale amount minus the commission, I have moved the whole thing and considered the commission an expense for the month.

And I have another confession. Over the years I have gathered a number of booklets of stamps which I always lose and then end up buying another booklet, only to lose that and never use the all. Whilst simplifying my life I have found all of these booklets again and stashed them in an envelope near to where my jiffy bags are. So instead of taking off the cost of postage (which is added on at each auction) I have also been moving that over to my Emergency Fund.

And finally, just so it didn't feel left out, I have done the same for the jiffy bags I had to buy and consider that a monthly expense too.

It turns out that within a month, I am now about $118 richer in my Emergency Fund due to the addition of those four things (DVD, commission, stamp, packaging) all being siphoned off. If I had only shifted the profit, I'd be looking at a much lower $90 (but still better than just spending it).

Compound Interest Strikes Again

And that is when the magic happens. Okay, that $118 isn't going to make a big difference now but in the future, with all the other snowflakes I cast aside from my expenses, that'll start to begin growing exponentially making my money work even harder for me. Once you start, you won't be able to stop and your debt or savings will move in the right directions faster than you thought possible.

So come on. Help Jimmy out and make sure he finds his rightful home amongst all the other snowflakes. After all, if you don't, he'll just end up melting and then you won't know where he's gone. Put him aside safely and watch as he helps build your snowflakes into your snowballs.

Why not give it a go and let me know how you get on. What other things will you snowflake?

Labels: banking, saving, repaying, selling

Inserted: 2008-10-27 23:28 (1 year, 10 months ago)

The Search for Happiness

When you're walking down the street, have you ever played that game where each foot has to take it in turns to step over a 'line'? Whether that line is a flagstone, a drain, a curb or even where the pavement has been dug up and re-laid in a different coloured tarmac.

Occasionally one foot gets stronger since it manages adjacent wins but the other soon catches up - either you alter your stride so it steps over the next two lines, or you change the rules in your head so that the next line the losing foot crosses is worth twice the points.

If you've never played that game then I wholeheartedly recommend you try it. It's kinda silly I know. I still do it to be honest and as an adult it usually happens due to the habit of doing it as a child rather than because I think it actually means anything. The best thing about it however is that it reminds me of being a kid. A big kid, yes, but a kid all the same.

Harking Back

Looking back on me as a child, I remember many things but one thought seems to stick out more than any other. It is that of fun, enjoyment and happiness. We would spend the whole of the weekends on our bikes, pedaling around country lanes. We'd while away summer evenings on the local school field playing football until it was so dark, we couldn't see what was happening. Climbing trees at the height of the conker season was always fun and getting into trouble with some security guards here and there was always a possibility. Arriving home late for tea was a regular occurrence and was enough to be expected.

But that was a long time ago. Since then, I have grown up, become all responsible and ... yes, you guessed it ... finally became an adult.

Sometimes I wonder where those heady days went. When time didn't mean much, pocket money was never enough (so what's changed?) and responsibility wasn't a word in our vocabularies.

Amazingly however, my recent start on the journey towards financial independence has helped me renew and revisit a number of those happy thoughts and experiences from childhood. I am currently happier and more fulfilled in life than I have been for a good while and I know this to be true because a number of people I have spoken to recently have told me that I sound happier, look fitter and healthier and I am smiling more. (I think people who already know me would probably say is actually hard to do already.)

Recent Changes Leading to a Better Lifestyle

One recent change I made was that I finally bought myself a bicycle. The last bike I had was when I was 12 so that's a good 20 years ago and therefore 20 years in the meantime without having one at all. (Interesting fact: I still consider that old bike to be the world's first mountain bike but that's a story for another time.) Back then, we'd cycle all the country lanes and the old railway by my house but this newer one of mine has two other uses. Firstly as a means to get from A to B (and will eventually help me get rid of my car). The other use is to get a thrill by doing some off-road mountain biking. Up until a couple weeks ago, I'd never tried it before and I can tell you, it was an exhilarating experience. I suspect I'll be doing it twice a week from now on.

Over the past few years I have also started to go swimming again. Playing indoor football is always fun and I even pulled my old roller blades out the other week. My body feels fitter, my diet is healthier and my mind is happier for all of it.

My diet is an interesting subject since it has vastly improved in the past two months yet during the same time, the cost of my food has substantially gone down. Add in the fact that I am going to the market on Sundays, buying fresh produce and not buying take-aways and you can see how one thing goes up (nutrition) and another goes down (cost). Isn't it amazing when you think about it?

And the final thing I'd like to touch on is the one that this blog is all about - taking my financial situation into my own hands, molding it into what I want it to be and determining my own future based on cold hard facts about my income, my expenditure, my savings and my retirement. Just the mere fact of having more control over my future leads me to worry less about money and gain infinitely more peace of mind.

Oh, and did I mention that a 4-day working week was just the best thing ever! Yes, I thought I said that before so I don't need to mention it again now. Well okay, a 4-day working week is just the best thing ever!

You Should Try it Too

Now it's over to you. I have painted a couple of pictures above. One of my former self, either in or out of school, enjoying pastimes which didn't cost the earth, not a care in the world and basically being able to do whatever I liked (within the confines of the law of course). The next picture I painted was of my current self, a picture which has moved on over time, which had lost some of those previous experiences but also now isn't too different from the one I had before. Yes, I have to work, pay taxes, pay mortgage/rent, bills and a myriad of other things but in reality, I have managed to confine those things to a part of my mind which doesn't interfere with the rest of it.

Instead, I have been filling the other parts of my brain up with good things, enjoyable experiences, miscellaneous thoughts and sometimes random games just for the sake of it. Take control of your finances, work less, worry less, live more, play more, spend less, eat better, experiment with recipes, watch less TV, learn a new skill, take up a hobby, save willingly, exercise longer, exercise more often, read things, chill out for a while but most of all, be happy.

And the next time you're walking down the street, keep a count (an inexact one is okay) of the number of lines your left foot crosses compared to your right foot. Smile to yourself when you have to change your stride when one foot is becoming too strong and look up to see if anyone is looking at you in a funny way. Hark back to your youth, gain back some of your time and go out and enjoy yourself for the sake of it and for no other reason.

You'll be amazed at how free you feel and hopefully you'll be one step closer in the search for happiness.

I'd love to hear your experiences, your ways of de-stressing, chilling out, exercising, enjoying yourself and generally becoming a big kid all over again.

Labels: living

Inserted: 2008-10-26 22:29 (1 year, 10 months ago)

Who do you Consider Rich?

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When you were a child, who did you think was rich? Was it those movie or pop stars who had earned millions and had their own private planes? Was it those people who'd inherited their wealth, owned a mansion and had their own swimming pools? Or was it those people who could afford to go abroad for their holidays every year?

For me, it was all of the above. I used to look at a lot of people and figure that they were rich. And for some reason, I wanted to be rich too. At that stage of my life, it all equated to material wealth, personal possessions and the ability to spend money on whatever I pleased.

Nowadays though, my view of people who are rich is not exclusively based on money. I view people as rich if they are financially independent, keeping as busy as they like (maybe even working for themselves of course) and are happy in their lives. I also rate very highly those people who can spend time doing the things they love, whether it's volunteer work, a hobby or two, being with their families or even making a little money doing something of their own choosing.

The funny thing is most of the people I now consider rich, defined by the categories above, are either semi-retired or fully retired.

Who are these People?

It is mainly understood, but mistaken, that the people who retire early are wealthy. However, there are a number of factors which goes against this viewpoint. For a start, to be retired doesn't mean you have to have a whole heap of money in your account. Nor does it mean you have earned millions and millions over a long and prosperous career.

All it means is that you can live on the amount of money you passively earn.

Or put it another way, you have reached that crossover point whereby your expenses are lower than your passive income. This means that, without lifting a finger and being careful with your expenditure, you no longer have to work.

Of course if you are only semi-retired and you still work a little, that income also adds up to offset your expenses so you can probably reach this point earlier than complete retirement. Yes, you might have quit working for someone else but at least you get to work on your own terms.

Getting There Faster

When you look at what I said earlier - live on the amount of money you passively earn - you can see that it is an easy equation.

Passive Income > Expenses

Whilst it is fairly simple to understand it is a lot harder to put into practice. Writing this blog, for example, helps me to put more things into place so that it becomes easier and easier and hopefully, I can reach that crossover point sooner rather than later.

As you can see, you can attain this point by increasing your passive income. But you can also attain this point earlier if you reduce your expenses. You'll start to realise that this is also exactly what you should be doing now and not just in retirement. You life should be organised so that your lifestyle in retirement is similar to your lifestyle now. There's no point scrimping and saving now to then splurge in retirement.

Similarly, there's no point spending like crazy now hoping that you'll be more frugal in your retirement.

By actively setting out your stand, how much you earn, how much you spend, you'll also be setting up what you need to get past that crossover point and into retirement. In fact, you might even be able to plan it years in advance, like me!

Everyday People

You mightn't have realised, that many people who are already retired, look exactly the same as you. They never had a hit record, they didn't inherit large amounts of money nor did they win the lottery. Instead, they seem to go for the bargains, don't buy designer clothes and clip coupons when they can.

They don't buy new cars, they don't need a huge house nor do they try and keep up with the Jones. In fact, they look just like regular people next door. You might even think that they don't have a whole lot of money at all, after all, their car isn't as big nor shiny as all the others in the local driveways.

But the truth of the matter is that they are richer than many of the people living in the same street. Probably richer in monetary value yes, but even more importantly, they are also richer in time too.

The reason?

Because they are retired.

They have been through the cost-cutting exercises, paid off their debts, own their houses outright, saved up an emergency fund, invested in the stock market or property and increased their income. Because they've done all of this previously, they now have the time to do whatever it is they please.

It is these people I now consider rich. They have the time to enjoy a great many things in life. After all, time is the one thing we can't earn more of.

Let me know who you consider to be rich?

Labels: planning, living, retiring

Inserted: 2008-10-24 22:18 (1 year, 10 months ago)

The Satisfaction of Paying off Debt

Everyone has had debts at one time or other in their lives. Some more than others, others less so. Whether it was for a high interest credit card, a low interest student loan, a friend lending you some change or the bank lending you enough to buy a house.

No matter what the amount, what the interest charge and however long it took to pay back, there's nothing better to put a smile on your face than finally repaying that last amount back.

Help with My Mortgage

A few years ago when I bought my house, my Mum lent me just over 5% of the total house price. I had just over 5% myself so I topped over 10% for the deposit. Luckily for me, she said I didn't have to pay interest on it. Even though I got it at what was probably the worst GBP->NZD exchange rate there had been for years and ever since then I've been paying it back on a pretty bad NZD->GBP rate too (today being the worst since I first visited here in 1998) it still means that I have come out on top by not having to pay 7.85% on it for the duration of the home loan.

Over 25 years, that would work out at a lot of money, so even though I lost out in the exchange rates, I'm still up at the end of the day.

The Facts and Figures vs the Emotion

Many people say that you should pay back the highest interest debt first. Others say that you should pay back the smallest. Of course, it's never as black and white as either of those tactics and you have to choose which one (or a combination of both) is right for you.

For example, if I paid back the highest interest loan first, it means my Mum would be waiting a very long time before she sees that money back. Of course, I don't want her to wait that long so in the end, even though it's interest free, I wanted to pay her back first. Not only does she need it more than my bank does but I never like being in debt to people I know (hehe, yes, the bank is a faceless company).

I know a few people with 4 or 5 different loans and in each of those cases, there are reasons for picking neither the highest interest debt nor the smallest loan as the one to pay back first. Everybody's situation is different and you need to figure out what tactic is right for you.

The Emotional Tactic

There is another way you can pay back debt which isn't as technical as either of the above two but gleans you the most satisfaction. It's all about goals and what makes you happy. Yes, by employing one technique over another you may pay back a loan one month quicker but there's nothing better than a happy state of mind to help pay things back faster and create an even happier outlook.

Now that I've paid my Mum back, one chunk per year for the past three years, I can now get a real start on my revolving mortgage. Once that's done, the fixed-term mortgage will be in my sights.

It makes me so happy to have now removed that additional debt (no matter how small or how low the interest rate) that I'm on something of a natural high at the moment. And if you bump into me in the next few days and see that I'm grinning like a Cheshire Cat, you'll understand why.

Tell us about your debt repayment stories below.

Labels: repaying

Inserted: 2008-10-21 23:06 (1 year, 10 months ago)

New Meme: Paying Yourself Last

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There has been a bit of a flurry in the PF blogosphere about a new phrase: Paying Yourself Last.

Recently, I described how Paying Yourself First was a good thing to do and that I had started practicing this to make sure I can get ahead on my retirement plan. The funny thing is though I had been Paying Myself Last for a number of years though I guess it never really had a name back then.

"Pay Yourself Last" and What It Means

As stated in the earlier article, paying yourself first is a fully automated process. You get paid, you siphon off some money, maybe a percentage of your salary, and you forget about it. Nice and simple, easy to do and low levels of mental investment needed.

Paying yourself last however requires a bit more effort. It also relies of having a few things in place so that you can actually keep a track of how much you should pay yourself at the end of the month.

Tutorial for Mars Colonists

You get your pay on the 1st of every earth month. Let's say for the sake of argument, you get 1,000 Klicks (imaginary space money) take-home. Your split scheme kicks in and those automatic transfers you've set up take action. You send 100 Klicks to your Emergency Fund sitting in a high interest savings account on Earth, 50 Klicks to your Freedom Fund on Mars and you have to pay rent of $450 Klicks for your bedsit on the space station above the Red Planet's surface. Luckily for you, all your bills are included in your rent (solar power is extraordinarily cheap here anyway).

Budget Required Before you Can Pay Yourself

You have 400 Klicks left for which you need to budget. You've budgeted for food, clothes, TV (or the high-tech equivalent) and you also have some 'fun' money to play with. Unfortunately for you, that's your 400 Klicks accounted for for this month, as it is every month.

You know this since you've been keeping a budget for an Earth year or so and you know about how much you spend on each of these categories. Very rarely do you go over.

But sometimes you come under. Unfortunately, in the past you decided to spend what was left on the last day of the month - mainly because it would make you feel happy - but also just because you could.

Change Your Ways - Pay Yourself Last

This month however, you decide to give yourself a break from that end of month splurge. You've come in about 75 Kicks under budget this month, mainly because you didn't buy any clothes but also because you got some bargains at the Light-Speed grocery store and didn't go out as much as other months (the Inter-Galactic Olympics were on so you sat in and watched a lot of TV).

You decide that, instead of heading to the shops to spend it and make yourself feel good, you Pay Yourself Last and make yourself feel even better. You duly transfer your 75 Klicks into your retirement/savings fund. After all, a Klick saved is a Klick-and-a-half earned before tax. Also, a Klick saved now is worth quite a few Klicks in your retirement fund by the time you want to head to Europa and settle down 20 Earth Years from now.

The Present and Not the Future

Yes, I know, that story is set a little in the future but the funny thing is, that's where you need to be looking when you decide what you're going to do with that left-over money at the end of the month.

If you only take one sentence away from this post, let this be it. "... a Klick saved now is worth quite a few Klicks in your retirement fund ...". Substitute Klicks for your own currency and away you go to a more prosperous future, whatever planet you decide to retire on.

Please comment and let us know some of your other tactics for saving more before each month is out.

Labels: saving, retiring

Inserted: 2008-10-18 09:51 (1 year, 10 months ago)

What is Passive Income and Why You Need It?

Passive income is the holy grail of personal finance. Passive income gives you more freedom than ever before. Passive income is what you should be striving for.

But what is it and where do you find it?

First thing's first. Let's look at some history.

'Swapping Hours for Money'

Whether you're in a full-time job, part-time job, temping or contracting you're essentially doing one thing and that one thing is what has been happening for centuries. You're swapping hours worked for money. Yes, call it 'compensation' or something else fancy but essentially you're swapping one for the other and that's it. It's that simple.

Income = Hours worked * Your rate per hour

Of course, what you get in return - your rate - is generally based on your skills and experience. The more skill and the more experience you have, the more you're likely to be paid per hour worked. Hopefully over the years, we get better at what we do and we are rewarded with a pay-rise.

The Problem with this System

Even though the majority of people go through their entire working lives doing this exact thing there is one huge drawback to this system. Consider the fact that the market conditions mean that what you can charge per hour is limited by what someone will pay. Even if you're lucky and you get into the top 10% or even the top 1% of earners the amount you can charge per hour is limited.

Therefore, if you want to increase the left hand side you have to increase the time component. No! I didn't think so either, you already work enough. This essentially means we've got a problem. You can't change your rate (much) and there are only so many hours in the day.

24 to be exact.

And you don't even want to be working a third of those either (if you include the weekends).

Can you see the problem now? Yes, you might get lucky and earn $1,000/hour which would be pretty sweet but in reality that's not going to happen. So what can you do to ensure you can get an increased income?

Change the Equation!

As stated earlier, both of the elements on the right-hand side of the equation are problematic. Your rate is a problem and the amount of time is a problem. What's the lowest common denominator of both of these elements? That's right. You.

Your time and your skills and experience.

The answer therefore is to remove yourself from the equation. This leaves the equation we stated earlier in tatters so we have to look at it through a fresh pair of eyes and change the equation. We're starting from scratch and what we have now is something like this:

Income = ?

So what we really want is something whereby we (most probably) have to do a little work up front but we can reap the rewards for that work for a long time to come. At regular intervals.

Essentially what we're doing here is making sure that this new income - Passive Income - is money given to you but for which you're not a part of it. i.e. you don't even have to lift a finger and if you do, it's only very slight.

How Can I Get My Hands on Passive Income?

There are a number of options. The main ones you'd traditionally see are:

• interest earned from your bank accounts
• rental money from real estate
• stocks and shares which pay dividends
• royalties from music, a book or other published work

Of course, we also live in an electronic world now and one in which there are many more ways to generate passive income. Think about some of these (usually placed onto a site you own):

• selling your photos
• affiliate programs, like AdSense, Amazon
• creating and selling eBooks
• selling user-generated works, like CafePress
• having 3rd party adverts on your site
• selling adverts directly

The list goes on and as you can see, there are some things which look a little complicated. Rest assured though, once you start generating this income without having to do much work towards it, you'll start to see how it can really help.

My Plan

Currently I own a house and am renting it out. This generates passive income for me though I must admit to having to do bits and pieces here and there. Another advantage is that I can also claim tax back on various aspects of owning it but renting it out.

At the moment, the house is definitely something which gives me an advantage, though I will certainly be playing with some of the new electronic ways of generating passive income. At the moment, I have a job so as well as swapping my time, skills and experience for money I can also go to bed safe in the knowledge that whilst I am sleeping, I am still earning money.

What are your Passive Income strategies? Are you looking at starting, or expanding, what you currently get?

Labels: earning

Inserted: 2008-10-15 22:36 (1 year, 10 months ago)

3 Simple Schemes to Split up Your Paycheck

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How much should you use to pay off debt? How much should you save? What other categories should you consider?

As with everything related to Personal Finance, there are many ways of doing it and many much more complicated than any of these three. We're going for simple maths here, simple life, simple savings. And the best thing is, they're all likely to work for you, you just need to decide how complicated you want to get.

In my previous article I mentioned that you should Pay Yourself First. I'm currently putting away 10% of my paycheck into my Emergency Fund. Luckily for me, I have no other debt other than my mortgage so my plan is to increase this 10% over the coming years to 20% or more ... and that's exactly what this first scheme is.

The Simplest of Them All

Put 20% of your take-home pay in Savings

That's it, it's pretty simple. Savings in this case, means anything from an Emergency Fund, your retirement fund, maybe stocks or even an added payment on your house. Of course, if you have any debt (other than your mortgage) you should put this against your debt first. Savings can come later once those high interest debts are gone.

The Next Level

Spend 50% on Needs, 30% on Wants and put 20% into Savings

Not much different to the one above is it? It's just splitting up the rest of your pay a little bit. Of course, everyone's circumstances differ so it would just be a case of fine-tuning the percentage amount for each category until you find the one that's right for you. I personally think that 30% Wants is a bit too high but again, it's all dependent on your other categories.

The Final Simple Scheme

60% Needs, 10% Retirement, 10% Irregular Expenses, 10% Savings, 10% Fun

Yet again, we're splitting up the categories but if you look closely, you're not too far off either of the previous two anyway. For example 10% Retirement + 10% Savings is almost equivalent to the 20% from the first scheme. Currently I'm putting 5% into my Freedom Fund (Irregular Expenses) but I hope to increase that. I will also soon start socking away more cash into my house too. I hope that in 2 months time when I make my first real budget that my Needs are lower than 60%.

Which One is Right for Me?

All of them are right and they'll all do the job to one degree or another. Doing your sums makes all the difference and luckily the maths are fairly straightforward here. I'd say if your savings scheme is remotely like any of these then you're doing okay.

On the other hand, if your savings scheme is a lot less than these, or is even non-existent, then you'll have to start seriously looking at paying yourself first and starting those savings.

Anyone have any other schemes they are using? Any that they are planning to try?

Labels: budgeting, saving

Inserted: 2008-10-13 23:25 (1 year, 10 months ago)

"Pay Yourself First" and other Ideals we have Recently Lost

Over the years, we have forgotten a number of things that our parents did, more things our grandparents did and even more so what our great-grandparents did. One of my favourite phrases of recent times is "It's the way of the future" but in a lot of circumstances, we really can learn from the past on how to best to get along in life.

Here I'll name a few ideals we seem to have lost over the years and hopefully we can start to bring back into life to make it better, easier, more fruitful and also make us financially better off.

"Pay Yourself First"

When was the last time you heard that phrase? A while ago maybe. Certainly for me, it's not something that has crossed my mind since I first heard it when I was in school. My parents didn't use it a lot though I fully expect my grandparents did.

In Personal Finance circles, it's a very well known phrase and one which seems to be the staple of better financial management from which all other tips and techniques arise from. Obviously paying off high-interest debt is the first thing that should be done but that gets you into the swing of paying yourself first. Then it's just a case of switching from paying off someone else to paying yourself.

I'm sure there are many different ways to do this but siphoning off 10% of your salary is the first place to start. Currently, that's exactly what I'm doing but I plan to increase it to 15% and finally 20% at a later date. If you add that to my KiwiSaver contributions (plus my employers on top), in a few years time I hope to be shifting the equivalent of 28% of my salary aside. This is in addition to making extra payments on my mortgage.

Growing your own Veggies, Get a Vegetable Plot

A few years ago, I had a vegetable plot. I lived next door to an old couple of 80ish years old. Once my garden was in harvest I had far too many carrots, beetroot and onions for me to make use of. I wanted to can some things - especially the beetroot - but at the time I didn't have the equipment. Instead, I gave some to my next door neighbours.

Without asking, something magical happened. They came around the next day with a 'harvest' of their very own. Silverbeet, lettuce, potatoes and parsnips! I was shocked but at the same time, very happy and very thankful.

It got me thinking that, in their day and age, that swapping would have been commonplace. They were originally British so I suspect in the years after WWII, having a part of a communal vegetable plot (something still very British) would have been commonplace.

Currently I don't have land I can (or want) to grow veggies on but my yearning to get back to the good old days is growing ever larger. Being able to pick a fresh carrot for breakfast, some tomatoes for lunch and maybe an apple at tea creates a very satisfying moment. I can't wait to get a veggie friendly place again so I can again reap the rewards - both nutritionally and monetary - by growing my own veggies.

Building to Last and Fixing the Things that Break

In our throwaway society, two things have changed. The first is that consumables are now built to be thrown away and replaced. "No user serviceable parts inside". Not only that but we have also lost our ability to fix other things too, things which are user serviceable.

Take my car for instance. It's not very complex but at the same time, I have no idea, none whatsoever, how to fix it if something goes wrong. Yes, I can learn about it - and I should - but hopefully I'll be getting rid of the thing soon anyway (heh, that's one way to remove a problem). Then again, knowing how to darn a sock or patch a pair of jeans is something we can and should all do.

Obviously you can't keep repairing things forever but you can sustain them for a while. Also consider giving them to charity to be given or sold on since there may still be some use in them yet.

Creating our Own Entertainment

Long before the days of games consoles, kids used to keep themselves entertained. The amount of time I used to spend in the street kicking a footy against the kerb was huge in relation to kids nowadays. TV, computers, games consoles, music players, portable entertainment all seem to keep kids occupied but whether their imaginations are getting a run-out is speculative.

When was the last time you saw kids on the street playing for hours with a spinning top or hitting marbles against each other? Me neither. Whilst I don't expect that form of entertainment will go down these days I do think they still have a place especially to encourage imagination which is something which will certainly help in later life.

Having recently bought a pedal bike, I'm already yearning back to my younger days when we would ride around for hours, getting in to all sorts of situations but thoroughly enjoying it too. Not only that, but it also gives me more exercise and is yet another activity that doesn't have an ongoing cost once the initial payment is made.

Going back further, when we were hunter-gatherers, our bodies expected a certain amount of exercise and they still do. Whilst we are still evolving, we're not nearly evolving as much as the technology we introduce into our lives and they just can't keep up. Give our bodies what they deserve and get out there running, biking, roller-blading, swimming or playing games. It's also great for the mind.

The Way Things Were

Looking even further back into history reminds us of even more things we no longer think about. On a recent TV program I saw it reminded us that the more basic an activity is, the more our bodies and our minds respond to it. Exercise and cooking our own meals - as opposed to watching TV and eating take-outs - not only make our bodies and minds feel better but are also helping save money at the same time.

It's no coincidence that the things that make us happier and feel better, are the things that actually cost us less.

Any other activities you can think of that our ancestors did, we don't but should still consider to make a part of our lives? Leave your comments below.

Labels: living

Inserted: 2008-10-12 11:58 (1 year, 10 months ago)

5 ways to De-Clutter and Simplify Your Life

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Stuff, junk, clutter, mess. Call it what you will but it's all the same. It is those things you've had lying around the house for ages and ages. Things you really should get rid of but haven't done anything about, sitting there idly like a cat in the sun. It's about the stuff you think to yourself "... but I might need it later".

Well, here's a bit of truth for you.

You won't need it later. You won't need it next week or next month, or even next year! In fact, you just won't need it at all! Ever. Full stop.

The Idea of Having

So what is it that stops you from getting rid of it all. It's the Idea of Having. All those things that you've carried around with you for years you somehow have an attachment to are just baggage. You think that because it was something that defined who you were at one stage of your life you feel the need to keep it to remind yourself of this long forgotten time. But the problem is, every other aspect of your life has moved on and you're no longer defined by the things you had. You're now defined by who you are and the use of these ancient items is nil. In which case, get rid!

I should know about this since I have been a master at slavishly shifting my stuff around - house after house has seen boxes come and go without so much as an unpacking. I think there might be some dinosaur bones at the bottom of one box, I've had it that long. Consequently I have completely forgotten what's even in there. How sad.

also, I still have things that I had at university! I left university 14 years ago for goodness sake. Occasionally I look at it and smile to myself, remembering some of those happy times but times that are now from a bygone era of young adulthood far removed from the person I am now.

My Achilles Heal

For ages (and ages and ages), through a number of moves, including one half way around the world, I have always just packed up my stuff and shifted it to the next place. I think my tendency to hoard things stems from my Mother since she's always got a houseful of stuff though I can hardly blame her for my failings now. Hoarding is certainly something that was inbuilt into me at an early age and a problem I'm only just tackling now - yes, I'm imagining I'm lying down talking to a softly spoken person sitting on the couch next to me.

But finally I can feel the recovery process is starting and my Achilles heal is getting better and not holding me back. One step was to just stop buying more things and the beginnings of a budget meant that I was already on the right track, spending less and refraining from adding to the problem. (Not that I'd spent much on 'stuff' recently anyhow but it all helps.)

And finally, over the past year or so, I have been tidying, de-cluttering and organising all of the things I shall be annexing from my life. Usually I have done this ad-hoc and so far it's been working. There are plenty of other ways to do it too, but here are five to help you on your way.

5 Ways to De-Clutter and Simplify Your Life

There are a number of different ways you can get rid of your stuff. Over the past year, I have done four of these and am about to start on the fifth.

1) Give It

Giving it to a friend is a great way to get rid of stuff but also give to someone who'll use it. I've had a number of conversations recently whereby a friend of mine said "I wish I had ..." and I told them they can have mine. Sometimes I see it as a long term loan though I suspect in some cases I'll never see it back. That's okay with me though, better someone is using it than not at all.

2) Donate It

There have been a number of occasions in the past year when I have filled up a plastic bag or two and put them out for collection by one of the charities. Over the years I have also donated my fair share of goods to the Salvation Army, sometimes to re-sell things I'd originally bought from them!

This gives you two great feelings. The first of helping others and the second of removing your bond to some of your material possessions. Win-win for all concerned.

3) Pass It

FreeCycle is something I haven't yet tried but am planning on sending a few emails to the Wellington FreeCycle group this week. I have a number of fiction books that I'm sure are quite popular and therefore, I wouldn't get much for them anywhere else, so giving them away seems like a good idea to me.

Also, wouldn't it make you feel good that some random stranger will get some happiness from that book you really enjoyed too.

4) Sell It

Selling your stuff via a garage sale, taking to a second hand shop or selling on-line is something which can actually give you a slight return for your sunk cost. Yes, I know it can be hard to get only a few dollars for something you paid so much more for but if it's something you never use yet can net you an increase in your balance then why not.

I took some books to the second-hand bookstore last week and the (small) amount of dollars I received, I put straight into my Emergency Fund. It's money I've never seen before so instead of spending it on something else I don't need, I pretended it didn't exist. Now I'm also helping my future self if something goes horribly badly wrong, something you probably can't do with an old book or DVD.

5) Dump It

Obviously, this should be your last port of call since it's better to keep things out of landfill. Re-use via any of the above means should be considered first, especially if the thing is still functioning for it's intended purpose.

If not, dump it and be free in the knowledge that you have a tidier and neater house.

Reasons to be Cheerful

As in my use of my Credit Card, de-cluttering actually makes my life simpler. I have less things to worry about. I always seem to have something going through my brain, whether it's my latest idea, a website or two which needs doing or some volunteer work I have on. To help concentrate on some of these things a bit better, the less I have to worry about money, possessions and other such things, the better it is for me.

Why don't you try it and let us know in the comments below how it's going.

I suspect that you'll then have more reasons to be cheerful and less reasons to be worried. After all, it's just stuff and you ain't going to need it anyway.

Labels: living, selling

Inserted: 2008-10-11 23:27 (1 year, 10 months ago)

The Freedom Fund - How it Can Work for You

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Do you know what a Freedom Fund is? Have you heard of it before? Any ideas what it might be?

No.

Well, you're not alone. I hadn't heard of one either until the other day. After a bit of poking around, I present a short article on what a Freedom Fund is and how you can use one.

Covering your Backside

Every month you get paid (maybe every two weeks, but just go with me for a while). Every month you have regular expenses. Your mortgage/rent, your electricity, your phone and maybe you pay your insurance and a few other things monthly too.

Then you have some of those irregular expenses. Maybe your car tax is a once or twice a year thing. How about other insurance which is once a year. What about a magazine subscription or even an on-line service you use which is due this month.

These irregular payments are a complete pain in the backside. I know this. You know this. Everybody knows this but not everybody knows how to deal with them.

This technique enables you to deal with these expenses effortlessly and hopefully in the future, you won't think twice about an extra large outlay in any particular month.

Fund your Freedom

What you need is a Freedom Fund and it's no more complicated than just another bank account. I used to have a bills account but in all honesty, I don't have a need for it now since I know (roughly) what goes out of my main account each month. It's those payments that are irregular which hurt me, usually more than I expect.

All you need to do is stash away a certain amount of money each month so that when those irregular payments come in, you already have the money to pay them. Immediate access to enough dosh to get them paid and not worry about it. No searching for extra money in any of your other accounts, no shifting money around to make it happen, just immediate knowledge that you're already covered.

Worrying stops. Mental freedom starts here.

How Much is Enough?

Only you can tell. You have a good idea of what comes in every so often so you need to decide how much to move aside. It's worth over-estimating so that if your car needs extra repairs this year, your Freedom Fund covers it. I suspect you should roughly tot up the totals you expect to come in over the whole year, divide by 12 months and maybe add 20-25%.

For example, and these are very rough figures (off the top of my head), I have:

• car registration - 1/yr @ ~$200
• car insurance - 1/yr @ ~$350
• car Warrant of Fitness - 2/yr @ ~$50 (not including repairs)
• council rates - 4/yr @ ~$350
• on-line subscription fees (Flickr etc) - 1/yr @ ~$40
• ... and others

So my initial stab at the cherry says I'll be taking out about $250 per month to cover all of these irregular items (I'm sure I've missed some off the list though) and give me a bit of leeway into the bargain. Of course, after a short while, you should review where you're at and see how much you are under or over the amount you expected.

Again, the best way to build this up is exactly the same as for your Emergency Fund and yank this money straight out of your account on the day you get paid.

What about my Emergency Fund, isn't that for stuff like this?

Yes and No.

Generally you don't want to touch your Emergency Fund but every now and again it makes sense. You noticed in my list above that I ignored the fact that I might have to make repairs to my car after it had been for inspection. In that case, it would be considered an expense that I wasn't expecting ... whereas all of the other things I've mentioned are expenses that are expected but just happen to be irregular.

In general then, leave your Emergency Fund alone and just plan that little bit ahead with your new and fresh Freedom Fund. Dip into it if you have to but at least think twice about doing it.

The Leftover Stash

Once you've been putting into your Freedom Fund for a while, you'll be able to determine if your original monthly amount was about right. If you're lucky that you have been doing double-entry accounting for years then you already have good figures to base this fund on. The rest of us however, will have to guestimate what we expect and re-adjust when necessary.

If you're really lucky, you overestimated and your Freedom Fund is now growing a surplus. If I were you, I wouldn't be too worried - just keep topping it up each month - after all, it's in a high interest savings account. Isn't it?

What are your thoughts on a Freedom Fund?

Labels: budgeting, saving

Inserted: 2008-10-09 21:47 (1 year, 10 months ago)

One Technique on How to Start Saving

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The hardest part of any road, is starting it. Do you think to yourself that you're not the saving type of person? If I told you I'd be retired in just a matter of years, would you think it was impossible?

Then I challenge you to challenge yourself.

If you took some time out to re-assess an area of your life then you will find something which you can change to help in the art of saving. There's no point saying "I can't do it" and not doing anything about it - that's obviously not going to work. But if you say "I can do something" and actually do it, I'm sure you'll find subsequent changes much easier.

The Type of People We Are

I've always said that I'm not a morning person. I tend to stay up late. I sleep in. Does that mean I'm not a morning person? No, of course not. It just means I'm someone who stays up later and therefore gets up later. My day is shifted, I just prefer staying up later at night.

But I'm going to change that. I want to get up earlier. So how do I change? Easy. I simply go to bed earlier. There's no magical process to change from an evening person to a morning person, you just change one simple part of your life. How hard can it possibly be?

That's exactly how it is for saving money too. By just changing one small part of your life, you can start along that Long, Slow Road to Financial Independence.

The Little Things

I have spoken before about 10 Little Sacrifices which make a Big Difference and also in that post, I floated the idea of Zero Dollar Days. These are days when you literally spend no money. No cash purchases, no debit card use and no credit card use. Of course, you might have an automatic bill payment coming out that day, but you'd already planned for that!

It might take a while to get to the point where you can have one, two or many consecutive days in which you don't spend any money but you need to start somewhere and day 1 is always the best place to start.

Once you've done one day, the next becomes easier, then you'll have a few together and once that starts happening, you'll notice a huge drop in your monthly expenses.

One Technique on How to Start Saving

You've tried before to start saving but failed. You've tried again, stuck at it for a while but then completely lost interest. Well, here's a really easy and small way to start you off saving again but actually keep you saving.

1) Identify Something to Give Up

We've seen before that giving up your daily takeaway coffee can make a big difference, but it's not just coffee. Cigarettes and alcohol are also on this list. How about chewing gum, snacks or a daily scratch card.

Everyone has something in their life that they don't need. Sometimes it is also something they don't want but can't give it up. Either way, you need to do something about it and I hope this process will help stop you from buying it but also start you on the road to saving.

2) Budget for it

Let's take the old favourite, that daily takeaway coffee. Let's also say it costs NZ$4. For weekdays, that's $20 a week and over $1000 a year. That'd be nice if it was in your savings account earning 8% interest.

The only way to get it into your savings account, is to budget for it. Give yourself a budget of $4 per weekday (or every day to make things even better) of $4 for that takeaway coffee. Whether you spend it or not is irrelevant at the moment. At the end of the day, you have either spent it or you haven't. Just make sure you can remember! Note it down. Get into the habit of knowing where your money is going.

3) Snowflake the Difference

At the end of the day, log on to your online banking. Here, you do one of two things. Either (i) you spent the coffee budget on your unnecessary coffee, or (ii) you didn't spend it and saved yourself $4. If you spent it, do nothing, it's gone. If you're in the latter category though, transfer your allotted budget of $4 from your current account into your savings account.

If you don't log on every day, keep 7 fridge magnets in a column and each day move one into either the 'Spent' or 'Saved' group. At the end of the week, transfer the 'Saved' x $4 from your current account into your savings account.

By doing this, you've budgeted for a $4 coffee every single day. On the days you didn't buy one, you've essentially still spent it but instead of going into someone else's pocket you put it into another one of yours.

I feel that with this system by the time you've noticed how much you're saving, you won't want that non-essential item again. It not only helps you give it up but helps you on the road to saving too. Best of all, it's quite painless.

4) Never Decrease the Snowflake

Now that's you've budgeted for that coffee, keep it that way. Yes, you might have to odd one here or there but you'll probably be snowflaking well over 90% of your coffee budget. One trick though is to never decrease this budget and keep on going.

If you could survive by spending it before you can certainly survive by saving it now.

5) Repeat all Steps Again for Something Else

Of course, not everyone drinks coffee. And some people drink coffee, chew gum, smoke something, drink alcohol, buy magazines, snack on chocolate, get takeaways and a myriad of other things designed to take your money away from you. If that's the case, start on one and then move onto the next non-essential item.

After a short while, you'll be amazed at how quickly your savings are building up. All from money you used to spend you now save. Yes, you're allowed to buy some bits and bobs infrequently since you don't want to cut everything out of your life but soon you'll prefer saving it to spending it which will keep you on the straight and narrow.

Finally

Now that your savings have started you'll also start to notice something else too. That particular account will start growing of it's own accord and you don't even have to lift a finger. Once that interest starts coming in, you'll then start to realise that the money itself is making money for you too! It's like a double bonus.

What other tips do you have for other people who want to start saving but can't?

Labels: budgeting, saving

Inserted: 2008-10-08 10:54 (1 year, 10 months ago)

The Long Slow Road to Financial Independence

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As I've stated before, "it seems more likely that you can become financially independent by literally spending less than you earn than you can by winning the lottery".

And that is exactly how I'd like to introduce myself.

About Me

As it says in my footer: Retire-at-40 is a personal finance journey of a regular guy, with a regular job doing regular things. I earn well though I've never been a saver. Then I started getting serious at the start of September 2008 and in just over a month I know my life has drastically changed.

I can see myself spending less. I can see myself saving more. I can see myself working less. And I can see myself enjoying my life more. In fact, all of these things are already happening. Why? Because they lead me to my goals and they make me worry less.

The Long Slow Road to Financial Independence

It didn't take me long to figure out that it was a long road from starting work to stopping it completely. My initial problem though was that I never did anything about it. Until now. My journey on the road to Financial Independence has well and truly started with a bang. The changes in my life are already great and I have a nice shiny new blog to boot.

You'll notice along the way that I use certain phrases over others. Take for example the phrase "The Road to Financial Independence". I like it, it makes sense to me so I use it. Now consider the phrase "The Road to Wealth" or "The Road to Riches". I don't use these because I don't like them. They promise too much and deliver almost nothing. "The Long Slow Road to Financial Independence" may seem a lot less razzmatazz (almost boring) than those other phrases but then, if you know me, you'll understand that I like to be realistic and I like to understate things. And I also like to be sensible too.

Which leads me on to another phrase "sensible spending and saving". I like it. It makes me happy.

Both of these phrase describe how I'm undertaking this journey. There are no quick solutions. There is no point hanging out for a lottery win. Just a plain and simple way of life, of decluttering, of making things last, of creating things and of being sensible.

Promise less, deliver more!

Even though I'm still new to this game, I've already realised that anyone can do what I'm doing. I know this because I used to spend up every month. I wasn't living paycheck to paycheck but I would usually spend what I earnt.

By promising myself that I can be a saver, I can be frugal and I can invest wisely, I have realised that my future looks a lot more rosy now than it did just a month ago.

I've always been sensible with my money and sometimes clever but now I'm learning even more tricks of the trade. For example, the way the Simple Dollar is creating a Savings Ladder (with fixed term investments) is pretty intelligent. It's almost one of the best posts I've read since reading a number of Personal Finance blogs.

I just wish I were that clever. Except, I don't have to be. You see, I'm just a regular guy. Instead, I just inform myself of the things other people are doing and in doing so I hope that I can make my money work for me rather than me having to work for my money. Makes sense doesn't it?

Signing Off

I realise this post has been a slightly roundabout way of an introduction but I wanted to give you illustrations rather than just plain facts. Illustrations how you can also do the same as I am. Even today, I was told by a friend that they "were not that type of person" to do what I shall be doing.

I just asked "Well, have you tried?"

The answer was "No".

All I can say to that is to take your first step on the long slow road to financial independence. I promise you, it will interesting, fulfilling, happy and hopefully rewarding.

Labels: saving, living, spending

Inserted: 2008-10-06 13:19 (1 year, 11 months ago)

Employer Contributions to Retirement - Like Free Money

Would you throw away free money? Would you decline if someone said "Here, have this" and shoved a whole wad of cash into your hand? Would you say no if your employer decided "to hell with it, we're giving extra money to all our employees"?

Of course you wouldn't. Saying no to free money isn't something many of us would do.

But that's what a lot of people are doing if they are not using Employer Contributions in one of their retirement plans.

Tossing Away Free Money

MighyBargainHunter says it better than I could: these people are Tossing Away Free Money. Granted, it's not money you will see for a long time but that's probably why people don't think of it as real. I'll tell you what though, when I reach retirement age, it'll definitely feel real in comparison to people who did say no.

After all, you're working anyway so why wouldn't you want to make the most of it.

Should I Join?

As always, that depends, and as always, you need to look into it yourself. You need to figure out (along with your financial planner) what kind of money you need for retirement, what age you want to retire and what standard of living you want to have. All of these choices must be factored in. Of course, you don't know what the future brings but you can only plan on what you know rather than what you think might happen.

One thing you do know is that if you're saving 4% of your salary and your employer is giving you 4% of your salary on top of that, you're basically doubling your chances of coming out on top in the long run, if not more.

Regarding KiwiSaver

Note: New Zealand specific section.

I have heard a number of detractors of KiwiSaver and I'm sure they are all valid concerns. Yes, I know it's not guaranteed by the Government but then what is? Your house? No. Your shares? No. Your savings? No. How is this any different? (Yes I know that certain bank accounts in the States are insured by FDIC but that doesn't affect us in New Zealand.) 2008-10-07 Interesting Update: There are now calls for a bank insurance.

Call me simple if you like but the way I see it is:

• you give 4% or 8%
• your employer gives (currently) 1%, rising to 4% by 2011
• you get an initial $1,000 from the Government
• you get tax-breaks paid in as well

That's a lot of free money any way you look at it.

Of course, if your KiwiSaver plan invests in stocks and property, you may end up losing a lot of money. However even before you've chosen your plan, you've more than doubled-your-money so hopefully the plan won't go down as much as that.

Looking at it like that, you're still ahead and you also have the option of more conservative funds which also takes out a lot of the risks (though for a possibly lower return). Overall, the fact that your employer takes out your contributions before your salary has hit your bank account, makes it the easiest and simplest ways to save for retirement in New Zealand.

Let me put it another way. I joined KiwiSaver a year ago and already I have a few thousand dollars more than I would otherwise have. All I did was fill in the form and that took about 10 minutes. Not a bad return already.

Have you started a retirement plan yet? Are you getting free contributions from your employer? Do you get any tax breaks from your Government (please state your country)? Or are you doing none of these things and why? Let us know.

Labels: saving, retiring

Inserted: 2008-10-05 18:44 (1 year, 11 months ago)

Five Ways the Internet Saves You Money

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Having just read 5 Ways the Internet Saves Me Money, I decided to do my own list since mine would be very different from hers. Hers predominantly focused on shopping, either online or acquiring vouchers for use in real life. I'll not be talking about shopping at all (though I might mention something about selling) :-)

By doing just one of these things, you can save some money. By doing all of them, your savings really start to add up.

Five Ways the Internet Saves You Money

1) Reading News Online - In the past, I have bought either newspapers or magazines for my news. Daily newspapers were a staple of my house when growing up but since university I haven't regularly bought a newspaper. In the past, I also used to buy technical magazines (computing, photography, woodwork) but now I find that there are many more articles online and you just have to search for the quality ones. Also, especially in computing, the news in the magazines is about 2 months late compared to reading it on the web.

2) Online Banking - I had a meeting with my bank the other day and he tried to explain why their mortgages were at a higher rate than the online banks (a subject of another post). Predominantly it came down to the fact that they had branches and the other bank didn't. By using the internet themselves, the bank saves money and therefore passes those savings on to you. You'd also be using the internet in that arrangement too.

3) Keeping up with Friends and Family - Using email, instant messaging, VOIP phones and other forms of communication online, you'll save on postage, phone calls and all those other forms of communication which cost money.

4) Not Buying Books - Think of a hobby you do and think how much money you have spent on books for it. Unless you started the hobby in recent years, you've probably spent a fair bit. Now, try searching for information on that hobby on the internet. I'm sure you already have and I'm sure you found a lot of information. In some cases, enough that you wouldn't have needed to buy those books in the first place.

5) Selling Your Stuff Online - Whilst this seems a little bit of a cheat, selling stuff really can save you money (as well as gain some too). Just one example is the charges you have for throwing things away; save by selling stuff instead. Not to mention the fact that you'll also be getting money in return for those things.

Compromise

Before I finish, I'd just like to say that using the internet can be a bit of a compromise. I use it a lot, therefore, I want it to be fast. I pay for a medium internet plan with my cable company so whilst I do pay more than I could for a lower end plan the savings via all these other avenues trade off what I pay extra.

I decided to focus on just five ways the internet can save you money and I will write a follow-up post with more ideas later on. Let me know in the comments any other ways the internet can save you money too.

Labels: banking, selling

Inserted: 2008-10-03 23:09 (1 year, 11 months ago)

Fatso, MovieShack and DVD Unlimited Merging

News in today (thanks Chris), Fatso, MovieShack and DVD Unlimited are merging. He's at Fatso and has already been notified of it but us guys who use MovieShack haven't been told anything yet.

Once I read about it all, I sent a message to the MovieShack guys asking a few questions. One thing I wanted to know was whether they were going to keep the price points the same since, in my eyes, there was now a lack of competition in the all you can eat DVD market in New Zealand.

A few hours later, I received a reply.

What does this mean for us?

Of course, they said that "it wasn't a monopoly since you can rent DVDs, buy them, watch TV or go to the movies". Absolutely, I agree. But ... there is now a complete lack of competition in the send to my home as many DVDs as I can consume in a month type companies. Before this announcement there were three companies that did this, now there is just one (and please let me know in the comments if there are any others in NZ I don't know about).

The good news is that they said "the price points will be lowering." By how much, I don't know but hopefully they'll stick to their word. I'm sure that whatever they lower the prices too, it won't be as low as the special offer they gave me earlier this year.

I was a member last year for the 3 DVDs for $40 thing. I decided to stop since that's a lot of money. Earlier this year they then sent me a "come back" offer of 3 DVDs for $24 which is an absolute bargain. I suspect the regular prices won't go as low as that though I also expect mine not to go up. If it does, I shall complain and if that doesn't work, I'll quit. Not to be difficult but it'd be hard to justify anything more than that per month. I couldn't justify it last year, I wouldn't be able to justify it this year either. $24 is about okay though and I know I'm getting my money's worth.

Will it be really any better?

Who's to know and it's up to the future to tell us as it happens. There are a few things to consider here though:

• Price - which would be better if they stick to what they told me today.
• Service - hopefully synergies between the companies can help
• Selection - the catalog will grow bigger I'm sure
• Website - luckily for me, they'll be using the MovieShack system (I didn't like Fatso that much and the DVD Unlimited site is basically unusable since there is flash everywhere)

So yes some things will improve but I now consider it a monopoly so I'll be watching with keen eyes over the next few months when it all comes together.

Why I use a DVD-at-home system

There's no doubt that the level of service from MovieShack has been fantastic both times I have been in it. I love the convenience of just popping the DVDs back in the envelopes. It also works out reasonably priced in comparison to some video stores. Granted, you can get 5 DVDs for $5 for a week from a shop but I'd never watch them all, have a smaller selection and would have to take them back before I knew what day it was. With postal DVDs, you can take your time as well as getting documentaries, TV series as well as films.

It's no wonder my TV hasn't been plugged in to the aerial since April.

Before I go, I should say thanks to James at MovieShack who answered my email earlier on today. It was very much appreciated to learn a little more about the whole thing. I hope it all goes well (I know how data migrations can be painful) but I also hope it does end up being a better deal for us consumers :-)

Edit: It would happen, just as I posted this, I got an email from MovieShack telling us about it. I guess this post is more about the merger than the announcement anyway.

Labels: consuming

Inserted: 2008-10-02 22:50 (1 year, 11 months ago)

The Gift of Giving

Over the years, I have somehow reached the stage that no matter who gave me what, for Christmas or Birthday, I either already had it, didn't need it or didn't want it. In the past 3 years or so it has become ridiculous in that people are still buying things, sending them over large distances, and almost immediately after opening they are unwanted.

Yes, this sounds like I'm ungrateful of these gifts but it's not true. What I would prefer is that someone who actually needs something should get something. I have told my family and friends that, instead of buying me anything (anything at all) that they should give something to charity. This could be food gifts, old clothes, spare time volunteering and of course, cash will work too. All I ask is that I am told which charity they gave to - I don't care about the amount - just my curiosity at work wondering who people enjoy giving to.

I also be happy if they just kept the money for themselves too. That's a personal choice. What I'm saying is, I'm doing okay, don't worry about me.

Lately, I have also been giving charity gifts to family (with one exception). The past couple of Christmases, I have bought a number of gifts from World Vision and sent the family the card saying so. It's a charity that I like and I feel the cause is good. There have been chickens, school uniform, school desks, garden equipment and other things given to families on my behalf to those that need it. I'm not sure my family approved but they shall be getting a similar gift card this year too.

I mentioned an exception and that is for children in my close family group. Birthdays and Christmas is for children so I shall probably get them something until they are 18.

I also sponsor a child in Malawi and each month a certain amount of money is taken from my account. Again, I'm sure a number of you would wonder if that is the right thing to do, especially since I have plans to Retire at 40. Well, that's just something I see as an actual expense and it is (and has been) a part of the budget that I just can't see myself stopping it. Granted, it does add up over the space of a year, but remember, charity donations are tax deductible (in New Zealand) and at the end of the year you can claim back the tax you'd have originally paid on the donations. In fact, I got a healthy figure back from the government just last week.

In conclusion, I prefer not receiving anything to receiving something that is unwanted. I also prefer giving charitable donations as gifts to those that are not in need themselves. I make an exception for kids.

And yes, all my gifts are now accounted for in GnuCash so I know exactly how much I've given to family, friends or charities over the space of a year.

What do you do? What do you like giving, what would you like to receive? Any exceptions?

(This post was inspired by Frugal Dad's talk of Why Cash Offers More Flexibilty Than Gift Cards.)

Labels: giving, spending

Inserted: 2008-10-01 21:19 (1 year, 11 months ago)

Why You Should Tell the People Around You

One of the best ways of sticking to your goal is to tell the people around you what you are doing. In my case, my goal is to Retire at 40. In your case, you might want to be Frugal, blog away debt or get money smart.

There are a myriad of reasons why telling people about your goal helps. For now though, I'm going to talk about just three.

1. Encouragement

Most of the time you tell people about something you're doing, they are generally encouraging. Many times they probably think you're a bit weird but wish you happy thoughts anyway. Sometimes you will be berated, knocked and told you're completely mad. Luckily, this last set of people is pretty rare though it does happen. As Peter Jones (the highly successful entrepreneur) says in 'Tycoon':

Find people who are passionate about your idea. If your idea is in the musical-instrument market, go and speak to people who are passionate about playing the guitar. [snip]

And the same goes for you and your goal, whatever it is. Find other people who are also passionate about what you are doing, that way, you can lean on each other and help each other out. I've already spoken to a number of people who seem very enthralled to my idea of retiring at 40 and from those people I have already had good luck wishes and smiles.

2. Having a Similar Situation

I had two examples today of where this either helps or it doesn't. In the first case where I hadn't told my friends what my goal was, I ended up buying lunch when in fact, I already had stuff for lunch at home. The suggestion was made to go out for food but for some reason I figured it was easier to say yes than to start the whole explanation of why my lunch at home will help me reach my goal.

In the second example, my friend asked if I would like to join them at a nice restaurant for food in the evening. I replied "I've already got my tea at home" (Teriyaki Chicken, and very nice it was too). He knows my goals the aim to mainly eat at home (especially if it's already planned) and he asked no questions of it. It was both easier and it saved me money - even though I would have loved to have gone.

So hanging around with people who have similar goals and ideas to yours means you probably end up getting long better and saving money in the process. I reckon that works very well indeed.

3. Sharing Ideas

Again, after telling people of my new goal, the first or second thing people would say is something along the lines of "You should try my recipe" or "You can re-use to do " or "You can save money when buying by doing it ".

Almost immediately, you have a number of new tips you can work on or just store for future reference. And again, that person may be a source for new information at any time. Of course, it's reciprocal whereby you can tell your tips to your network of family and friends and that way, everyone gets something out of it.

Just Try It and Tell People

You never know, you might unearth a stronger relationship, a bucketload of money saving tips or even just the odd "Keep Going" comments every now and again. Remember, it's like running a marathon, you need as much encouragement as you can get since you're in it for the long haul. Even better if you're in it with someone else too.

Labels: planning, budgeting

Inserted: 2008-09-28 00:28 (1 year, 11 months ago)

10 Little Sacrifices which make a Big Difference

By just cutting out those little things here and there, you can make a big difference to your future savings or your past debt. Either way you'll be much better off. Also, by starting now you can help reduce both the time you'll need to pay off your mortgage and the time you have to wait to retire. Sounds good doesn't it and in all honesty, it almost sounds too good to be true.

ECRD - Or "Little Sacrifice" to You and Me

So what's an "ECRD?" I hear you say. Well, it stands for Expensive Coffee-Related Drink. What it means is those habits for which there are easy but cheap substitutes or which you can cut out entirely. You know what I mean, that takeaway coffee you get from the cafe mid-morning. That chocolate bar you buy on the way home from work. That magazine you really just don't need (and contains no redeemable information in it anyway). It turns out for each of these things, you are paying exorbitant amounts of money for something you can conjure up yourself for pennies.

As for the acronym, ECRD, I think it's a terrible phrase so instead I shall call these new habits "Little Sacrifices". Why? Because it fully describes what you're doing, rather than what they are. It also keeps them in perspective a bit more in your head; they are both a sacrifice but in reality they are only little.

My 10 Little Sacrifices

This is a copy of my list which I drew up a couple of weeks ago. It might be a good starting point for yours:

• Takeaway Coffees: at $4 or $5 a time, these babies can add up to something over $1,000 a year
• Fast/Takeaway Food: at $6-12 a pop the cumulative amount adds up real soon
• Magazines/Newspapers: which you can probably read on-line anyway
• Chocolate Treats: already expensive at $1.50-$2.00 a go, a snack each workday afternoon adds up to over $400 a year
• Breakfast on the Go: buying on the go eats into your paycheck

And possibly some more controversial ones:

• Going to the Cinema: adds up over time, especially with added snacks
• CDs/DVDs: think about renting rather than buying
• Books: these too can be gotten at the library
• Satellite/Cable TV: think about how many channels you actually watch and then how many you actually need
• The Car: I'm not (yet) saying do without but consider walking or riding for those little journeys

All For the Win

I'm sure you don't agree with my list above, after all it is quite specific to my circumstances but this is what I recently came up with to stop me spending all those extra dollars every day.

My typical day used to go something like this...

Get up late and grab breakfast on the way into work ($3). Takeaway coffee mid-morning ($4.50). Eat out lunch ($8-15). Chocolate in the afternoon ($1.60). Supermarket or take-out for evening meal ($5-$15). That's about $30 spent, every single day, excluding anything else. How does $7,500 a year sound?

And add in the odd purchase of a DVD, CD or book on the way home, watching a film on TV in the evening and maybe a beer or two at night (oh right, I didn't mention alcohol!) and it all adds up.

Zero Dollar Days

The best thing about all of these Little Sacrifices is that none of them are too big to say that you can't do them. Since I started my plan to Retire at 40 I have gone without (or substituted) a number of these things for other, cheaper options.

I always eat a healthy and filling breakfast at home. I have Milo or coffee in the office mid-morning. I've been walking home to have lunch (double benefit of exercise too), no afternoon snack and instead of paying lots for cable, I have joined an all you can eat DVD service to get films sent to my house. I've also been making healthier - and cheaper - evening meals.

This leads me on to my next plan, which is to have more Zero Dollar Days. So far, I have had three of them and the first time I had one I couldn't believe that I had gone through the entire day without spending any money whatsoever. It didn't feel real. Now that I've had three, I want more. It feels a lot more real now.

Your List

My challenge to you is to go and make your own list of Little Sacrifices and see how many you can stick to over the next two weeks. You'll probably realise as I have, how much you've already saved in just two weeks. It shall be my two week anniversary tomorrow and already I can see a healthier me and a healthier bank balance.

Let us know some of those "Little Sacrifices" you have also made in your life.

Labels: saving, consuming, spending

Inserted: 2008-09-23 20:26 (1 year, 11 months ago)

Guest Post on SingleGuyMoney

A few days ago, SingleGuyMoney asked if anyone would like to do a guest post. I duly responded and today my guest post has appeared.

It's called Being Green and How it Saves You Money. I hope you guys enjoy it and be sure to leave a comment either over there or over here with other tips on how being green can save you money.

Thanks SingleGuyMoney!

Labels: recycling, saving

Inserted: 2008-09-23 00:09 (1 year, 11 months ago)

Income Protection: Do you need it?

You have read about your Emergency Fund, you started it or you might already have enough stashed away for those times in need. "Surely that's enough" you might think, but why not think further down the line.

Further Ahead

What if you're unable to work for much longer than 3 months? What if you're stuck at home for 6 months, a year perhaps. If it was longer than this, would you be able to cope?

As always, it depends on your circumstances. I know a lot of people where this wouldn't be a problem. Granted, they would have to live on one salary and would obviously have to make adjustments to their expenditure but it's definitely possible.

Income Protection

Notice in the above paragraph that I was referring to 'them'. In the majority of couples I know, both of them work. But I don't have that privilege since I am single. Therefore, I have to take out extra insurance. For that, I have Income Protection.

Have you heard of it? Me neither until a few years ago. Only when I bought the house did getting this type of protection made sense but in reality it's important no matter what your circumstance.

Asking the Family for Help

It turns out that you pay extra for Income Protection to kick in immediately but you pay less if it only kicks in after a certain amount of time, say three months. The bank asked if I had family that could support me in the case of not being able to work until the Income Protection kicked in. I said "Yes" but actually, I wouldn't want ask them for help since they do enough for me already. Of course I will ask for help in extreme circumstances but not if I don't have to.

Overall Protection

If you do as I have, you should be covered no matter what the circumstance. If for example I was diagnosed with a long term illness - one in which I couldn't work anymore - three things would kick in:

• my emergency fund would keep me going for the first three months
• I would be paid a lump sum from my insurance, to help with medical bills
• my Income Protection would pay me a percentage of my salary from 3 months ongoing until the illness cleared up

As you can see, my plan should work out okay and let's face it, if something were to happen to you, organising and figuring out your finances will probably be the least of your worries. Income Protection is not necessarily for everyone but for me it is pretty much essential, so yes, I do need it.

Do you have Income Protection? Do you have another form of insurance which can help you out in the case of illness? Let us know.

Labels: insuring, saving

Inserted: 2008-09-21 13:47 (1 year, 11 months ago)

If you lost your job, would you be okay?

If the answer is yes, then this post is probably not for you. If the answer is no, then you probably want to continue reading. If the mere thought of losing your job (whether being sacked, made redundant, becoming ill or something else entirely) makes you a little queasy, then this is the first step on the road to being able to answer "Yes, I'll be fine."

But who is it, I can hear you cry, who can answer yes to such a question? The answer is simply those who have already thought about this question and taken steps to prepare for such an event. It is those who have foreseen that sometimes life doesn't quite go according to plan. It is those who have made plans in the recent past to help out if such an event occurs.

The Answer

Emergency Fund.

It's as simple as that. No fanfare, no trumpets, no ticker-tape parade, no nothing. It's not a very exciting answer I'll give you that but it is an important one. Have you ever heard of such a thing? Maybe, maybe not but you have now. Here's a quick run down of what an emergency fund is.

Essentially, it's a savings account. An account from which you can draw money relatively easily since if something were to go wrong, you'd want to be able to get your hands on such an asset as quickly as possible. It's liquid and it's close to hand. Not too close mind, otherwise you might be tempted to spend it but far enough away to be an inconvenience to get your hands on it. Certainly not something you can draw from with a plastic card of any description.

And this is where I own up. I don't actually have an emergency fund. Well, at least I didn't until last week. I opened an online savings account last week and actually started it off by putting in the minimum amount required to open it. That's the first step in the ladder to having an all-singing, all-dancing (but still tearfully dull) emergency fund. Granted, I'd never thought much about this before but as part of my recent monetary review I decided that this kind of fund was something of utmost importance.

Starting Off

As always with saving, the hardest part is actually starting off. Once you've gotten over that hurdle, the rest comes easy. Siphoning off some of your paycheck just as soon as it enters your main account is probably the best way to do it and making it automatic makes it 100 times easier. That way, you just don't think about it and then learn to live and survive with whatever you have left in your account until the next paycheck.

My plan started well with opening the account. I put the required minimum in to the account and then a few days later received all the information I needed to log on. A day or so after that, I received my paycheck this month and immediately transferred 10% of my net salary straight into my emergency fund.

How much is enough?

This question is in two parts:

• how much should I transfer each paycheck?
• how much should I save up in my fund?

As always with such questions, the answer very much depends on your own circumstances. Also, different people have different opinions so you should (as always) sit down and have a think about what is important to you, both in everyday life and in the situation whereby you find yourself without a job. Some people may be able to scrimp and save more if they are not earning an income whereas others may not want to save as much in normal circumstances.

For example, my plan is to siphon off just over 10% of my net pay each month and I shall keep going until I have 3 months worth of net pay in my account. Yes, I know this will take a while and I might try for more than 10% but that is my initial aim.

Other figures to consider range from saving 5% to 20% net pay each paycheck. Or maybe a percentage of your gross pay. In some cases, people recommend 3 months of expenses, others 6 to 9 months of gross pay. Whatever you decide, the important thing is to do something. Figure out what you can afford, figure out what you will need in such emergency situations and go from there. You can always adjust these figures as you learn more about your finances.

Let me just re-iterate that again. No matter how much you siphon off, no matter how much you save you'll be in a massively better position than you were before if you had answered no (or worse) to the earlier question. Until you can say "Yes" to "If you lost your job, would you be okay?" then you probably need to save a little more.

I have my fund, what now?

If you've been saving little by little to get your emergency fund, don't stop there. Don't then start leaving that in your normal account for it to sit there saying "Spend Me". That would be like starting a hobby and giving it up the next day. Instead, keep on shaving off that percentage of your income and keep building up your savings with it. Since you've taken that amount of money out of your regular lifestyle there is no need to put it back in. You can survive without it so keep taking it out just as soon as your paycheck hits your account.

What you do with it then is, of course, up to you. Once you are at this stage, you'll be able to answer - with one hand on your heart and the other on your wallet - a wholehearted and resounding "Yes, I'll be completely fine."

Labels: insuring, saving

Inserted: 2008-09-20 23:20 (1 year, 11 months ago)

Tired of Expensive, Depreciating and Wasteful Cars?

Would you just love to get rid of yours?

Well, that's pretty much what I'm going to be doing later this year. I am living in town now, I walk everywhere (and I mean, pretty much everywhere) and have used the car just a handful of times in the past four months or so. Could I do without the car completely?

Absolutely, yes. I might still have to hire one every now and again but let's look at the list of things I won't be paying for:

• the car itself
• road tax
• Warrant of Fitness
• insurance
• petrol
• repair and maintenance
• breakdown cover
• Christmas Tree air-fresheners

(Okay, I've never bought one of those Christmas Tree air-fresheners but you get my gist.)

That's a lot of things to be paying for when you really don't use the car much. As I said, I've been thinking about getting rid of it for a while but the past three days have pretty much confirmed to me that I'm done with cars. I never really liked them in the first place (I only learnt to drive when I was 28) and I'm pretty convinced I'll be better off without one. Here's why.

Three days ago, I got my car back off a friend of mine who had been borrowing it (better someone's using it than no-one). It was probably about time I filled it up so I whacked a full tank of petrol in.

BANG! $71.67

Not much compared to some people, but it is a small car after all.

The back brake had been rubbing slightly and of course, since I now live in a narrow street in town, someone had knocked and shattered the driver's wing mirror (why do people do this and not leave a note). So I took it in to the garage yesterday. "Nothing wrong with the brake " I was told, "But we got the wing mirror done."

BANG! $168.19

Lovely.

I had a quick chat with the guy. I wondered how he liked Japanese cars compared to European. Then he came out with it "I took it for a test drive, the brake was fine as I said, but you need a new clutch."

Woah there. What? Right, well you better keep the key then. "Just do it" I muttered. About $400 he reckons.

Got there tonight to pick my wonderful Latoya up. Straight away, took him longer than expected, blah blah, I'm a mechanic (actually, he's a pretty nice guy and I like to think I trust him) this, that and the other.

BANG! $634.27

"I'm sorry. Baking powder. Come again! Just once more for me. I'm not sure I heard you right. I'm afraid I have poor hearing these days, you know, being almost 33."

In just three short days I have spent almost $900 on a car I hardly ever use. My friends who tell me I might need the car in the future are wrong. She's getting sold. I shall keep her a little while longer but really I no longer need a car and I hope that whatever I do in the future, that will still hold true. Once sold I shall be buying a pedal bike and the accessories I need to go with it. At least if something goes wrong with the bike, the most you're ever going to pay to fix it is to buy a whole new bike (which in itself is unrealistic in the short term).

And when I need to hire a car those few times a year, it won't bother me that I'll have to pay slightly more to get all the above things included since I know I'll still be saving money over the space of a year compared to owning one.

Could you do without your car? On what occasions would you need to hire one?

Labels: insuring, spending

Inserted: 2008-09-19 22:09 (1 year, 11 months ago)

What Do They Take Us For?

I've never figured this out in all of the 6 years I've been in New Zealand. This is the latest in the craziness of pricing in supermarkets.

In the UK, if you bought more of something it would cost less per item. New Zealand has a different take on this. In a hell of a lot of cases, if you buy more of something, it actually costs proportionately more! I've seen this happen on cereal quite a lot such that the larger box is pro-rata more expensive than the smaller one.

I saw another example of this earlier today. A sachet of cat food is 59c. A box of 6 sachets is $4.03! Not just a little over $3 which you might expect but 49c more than six individual sachets! But wait, it gets worse. A box of 12 sachets is not a little under twice the price of the box of six but actually $8.10! Which is not only worse than buying two boxes of six but even worse still than buying a load of singles.

This makes no sense to me. Can anyone please explain to me the logic here? The only thing I can come up with in the case of the cat food is that the extra box around the sachets mean more manufacturing cost. However, this wouldn't be the case with cereal.

Of course, the other alternative is that people in general don't check which size is cheaper. If that is the case then that's very bad since it's forcing all of us to pay over the odds for larger items.

Labels: eating, shopping

Inserted: 2008-09-17 23:37 (1 year, 11 months ago)

What's Your Dream?

At the start and at the end of the movie Pretty Woman, there's a guy who walks along the street and shouts "Hey, what's your dream?" Similarly, when I used to walk down the street, I used to look at the people passing me and wonder what their story was. You know, the history that got that particular person into that very spot on that very day.

I still find things like that interesting but I guess I now look to the future more than I do the past. I too wonder what people's dreams are. The past is interesting but what is done is done. I now think it's more exciting thinking about the future and how you can influence it.

Which is why I have a goal; a dream even. I didn't know this before I started (and named) this blog but a number of things I have read about Personal Finance revolve around having a goal to head towards. Here's a list of a few things which crop up in people's PF blogs again and again:

• getting out of debt
• paying for a wedding
• saving for a house deposit
• paying through education
• becoming better with money
• attaining financial independence
• paying off a house
• retiring early

I'm lucky in the fact that I have no debt - apart from the mortgage - and currently I am not planning a wedding :-) However, I am interested in the last 4 items from the above list. Especially the last two which are my current goals - to pay off the house and become financially independent.

It turns out that having a goal is the best way to keep on track. If you don't have a goal then I'd suggest that you have less inclination to go through with the things you need to do. These are the things that everyone who practices sensible spending and saving should be doing and happily the things I am currently learning about.

So if you're thinking of spending less and saving more, figure out a goal you can head towards to help that dream come true. If you don't have a dream then you're less inclined to make it that far.

So what's your dream?

P.S. I think I'm going to coin the acronym 'Sx3' which stands for "Sensible Spending and Saving". I like that much better than phrases like "Become a Millionaire", "I'll make you Rich" or even "Get Wealthy with my 10 Step Plan"! Ahh, it's nice being down-to-earth :-)

Labels: planning

Inserted: 2008-09-16 22:33 (1 year, 11 months ago)

Credit Cards

I'd like to tackle the subject of credit cards and tell you why I think they are a good thing. I read a lot of articles which say things like "You don't need credit cards at all". Whilst I agree that a lot of people don't want credit cards, I also tend to believe that they can be used to your advantage.

Let me give you the example of how I use my credit card. Please note, I'm not saying everyone should use theirs this way, I'm not even saying that everyone should have one, I'm just relating how I use mine. But first, here's a little background information.

Part of my mortgage is in one of those 'revolving' type mortgages, the ones where you have a fairly large negative balance on which you pay interest. This can put some people off, but it means you get the chance of paying off more of your mortgage each month and you're not locked in to any particular amount. You pay back what you can afford. It's good for those of us who are on top of our spending.

When my income goes into my revolving account my balance goes up (as is normal) and every time I spend money from my current account, the balance (as usual) goes down. However since the account is largely in the negative, it seems slightly strange. As is usual on a debt, I am of course paying interest on it for the privilege. The aim of the game is that the longer you keep your paycheck in there the less interest you pay which is definitely is a good move. And, like all the other savers out there, the less I spend from this account the better off I am. To put it another way the more and longer I can keep money in my account the less interest I'll have to pay on it.

This is where my credit card comes into play.

Each month I use my card for a number of purchases. Purchases that I shall be doing anyway and also purchases for which I know I will be able to pay off - in full - next month. Examples of these standard purchases are: my electricity bill, my phone bill and my mobile bill. No matter what I do every month, I shall be living in a house and I shall need to pay these things. Therefore I choose to get them automatically deducted from my credit card. This helps in three ways:

1) I need to do nothing to pay the bills. No matter what I do, they'll be paid. I never forget to pay, therefore I get a prompt payment discount for paying on time and I'll never have late fees.

2) The money I would anyway have given to the utility bills stays in my revolving account for around about an extra 4-6 weeks. This means that I pay less interest in my revolving account since my balance is less in the negative.

3) Each and every year I manage to rack up around $120 on my 'Reward Points' which I can spend, as cash, in a number of shops. For the privilege of owning the card, I pay around $44 a year. That seems like a good bargain to me. In the past I have bought myself pairs of trainers with the balance but since my current ones are still going I haven't needed another pair. Currently I have $192.29 dollars sitting on it (if only I could exchange it for cash). My last pair of trainers lasted me four years so that could be almost twelve years where I don't have to purchase any footware. (I did have a pair of Doc Martens once which lasted me 9 years.)

So the upshot of all this is that my credit card is not only saving me money but actually giving me money too. I never pay interest and I don't have to lift a finger to do any of it. The balance comes out of my revolving account automatically too.

That's what I call a bargain and you can see why I think Credit Cards can have their place.

Final note: I appreciate that Credit Cards aren't for everyone, either because they'll overspend or they don't believe in going into debt. This is just how I use mine. You should decide for yourself what the best way to use them (or not use them) is.

Labels: repaying

Inserted: 2008-09-15 22:32 (1 year, 11 months ago)

Budgeting

Over the past few years, I've been taking more and more steps to spending less money, though I realise now I can do a lot more. It all started when I bought the house, I guess my spending naturally declined on certain things. Having to pay my mortgage, rates and all the other expenses that go along with that made me think about what I'd been spending my money on.

Whilst I stopped spending on some things, I didn't actually take a step back and take stock of my entire spending habit. As I said earlier, buying the house made me think a lot more even though I didn't action it as much as I could. My plan back then was to pay the house off by the time I was 40 which I now see as step 1 on the road to financial independence.

My ideas have changed somewhat recently in that I've decided that I actually want to both pay the house off by the time I'm 40 and not have to work either. I've recently made this harder on myself by going down to a four day work week instead of the usual five (a story for another time). The funny thing is, it is this decision that has finally made me start to really do something about my spending. Don't get me wrong, my spending isn't out of control ... I am currently debt-free (apart from the obvious mortgage) ... but I'd just like to spend less.

The more I read various Personal Finance blogs, it seems more likely that you can become financially independent by literally spending less. Let's put it this way, it is many times more likely to happen that way than it is to invent a new product, win the lottery or create a massively successful business. And therefore, the most important thing to spending less is to create a budget.

Currently however, I'm not in the position to create a budget since you can't make one if you don't know what your expenses are. Recently I started to use GnuCash to track my expenses. I had spoken to a few people about this and have even played with it in the past. As Stephen says "Gnucash is a very sophisticated double-entry accounting package" which is perfect for this exact cause. The best thing about GnuCash though is that it's free and there's nothing better than free. Not only do I track all my accounts but I also track my cash expenses too however small they are. (Luckily in NZ I rarely have to carry cash.)

That's the expenses sorted so what about the budget? Well, I'm going to give myself about three months before I actually make myself a budget so that I have something to compare it to. I'll then be able to figure out which expenses should be decreased or even cut. By then I'll have at least a little history to make and back up my decisions.

I'd just like to note that already something weird has started to happen. Even though I don't have that budget yet I've already noticed my spending has gone down. I think the act of carefully recording every expense has meant two things: (1) that I think more about it and whether I actually need it, and (2) the more I spend, the more admin I have to do inside GnuCash each evening. I know you can automate some things but the act of balancing the books is quite a relaxing and happy one. Thanks to Donovan for suggesting that one to me.

Note: in my first few posts I'm going to be giving background on why I'm doing all this. In future posts I shall be giving information on how I'm doing it. I'm sure my tactics will change over the years after learning more things about PF and about how other people do it but that's no different to all areas of life.

To help me along (and other reading this blog), tell me in the comments some good PF blogs that you read and that we can all learn from.

Labels: budgeting, spending

Inserted: 2008-09-13 11:02 (1 year, 11 months ago)

Introduction

As stated in the description to this blog:

My plan is to retire at 40. That doesn't mean to stop working, it means to stop working for other people. I want to financially secure so I can do whatever it is that interests me ... which of course may still be to try and earn a decent amount of money at the same time! At least I'll be enjoying whatever it is I choose to do :-) This blog is about my journey towards that goal. Wish me luck!

I wanted to the above description this in the first item since I expect it will change over time and this helps remember what this blog is all about. Not only that but it will keep reminding me why I'm doing what I'm doing ... saving money, being frugal though still enjoying myself ... since in the future I hope to be doing a lot more of that.

This blog also lets other people know what I'm doing, not because they're interested in me but because they're interested in doing the same thing themselves. I mean, who wouldn't want to retire at 40?

Finally, let me just define what I mean by retire since it's probably not what a lot of people think. My plan is to be able to quit my day job by the time I'm 40 and go and do my own thing. I won't be able to live on my savings since it won't be enough but I want to be in a good finacial position whereby I don't need as much income. Whatever I do (future postings to define some possibilites) it'll be a hobby of some sort and something that I entirely enjoy. Also I'll be my own boss which will make a big difference.

I hope you enjoy taking this journey with me and maybe you can let me know how you're getting on too.

Labels: retiring

Inserted: 2008-09-11 23:40 (1 year, 11 months ago)