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Entries for label: saving

Found 25 entries.

Shaving those Expenses: 10 Things to Think About Cutting Down

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After a few weeks trying to cut a number of expenses, I hereby offer you 10 things you can think about where you might be able to cut your bills or your monthly outgoings.

1) Lowering your Cable TV/Satellite Subscription

Or indeed, cutting it out completely. Think about it, how much time do you watch TV anyway. Not much? Then you don't need either Cable or Satellite. Watch it alot, then you probably need to cut down anyway.

I used to have Cable TV in a previous house which was about $60 a month, now saved.

2) Monthly Insurances

House insurance, contents insurance, life insurance, car insurance, income protection insurance, the list goes on. Every month you give money to someone else such that they can help you out if things go wrong. But how often do you check to see that you're paying the lowest price. You'd be surprised to learn you haven't reviewed your insurance in years.

I am planning an appointment with an insurance broker soon and I suspect I'll get to save somewhere between $20 and $30 each month on my insurances.

3) Utility Bills

With the shake up of most countries power over the past decade or so, it's pretty easy to find great deals on your electricity and/or gas usage. Just shop around and you'd be surprised at how much the smaller suppliers are charging compared with the old incumbents.

I've just change providers and will be saving about $25 a month.

4) Moving to a Lower Internet Plan

If you're not using your internet plan to the fullest, then you probably want to downgrade to the next plan down. This is especially true if you're not downloading lots of large files. You're probably using nowhere near what your plan allows you to.

I realised I was on a 20G plan and in only 2 months in the last 6 did I reach 8G or 9G. I've now lowered my plan to 10G and will probably look at the 5G and just pay for excess bandwidth if I use it. A saving of $25 a month right there.

5) Switching Banks

By switching banks you may be able to save various chunks of money here, there and everywhere. From service fees, withdrawal fees, other bank's ATM fees and a myriad of other fees which all add up, you might save a few bob.

I just switched banks, mainly for my mortgage, but by switching my current account and credit card too, I'll be saving $12 a month on account charges and about $15 a month on not getting credit card insurance. Also, $20 a year on the credit card fee and about the same to be in the rewards program. It all adds up.

6) Switch to Low Power Devices

Switching to low power light bulbs is an easy win, but think about switching your other devices to a low power one too. The washing machine and fridge would be two worth looking at.

Maybe it's not worth it if your current devices are still happy and working but when you have to replace them, it'll be well worth the time investigating the low power options.

7) Switch to Pre-Pay on your Mobile/Cell phone

Switching to pay only for what you use is a pretty good option in most cases. I know people who have switched to metered water and who are now saving a good chunk of money (people who would have in the past been subsidising the people who waste water unnecessarily). Why can't you do the same for your mobile? If you don't use it much switch to only pay for what you use.

I shall be switching to Pre-Pay soon and going from paying $20 a month subscription (+ calls) to paying $6 (to get a special offer) + what I actually use. I'm sure to save around $20 a month.

8) Lowering your Rent

Moving to a smaller place means you'd probably end up paying less rent. You might also have to get rid of some stuff that has been dragging you down the last few years. An increase in savings and an increase in life simplification will work wonders for your stress levels and your daily energy.

Moving from a three bedroom, to a two bedroom and now a one bedroom place has made me open my eyes as to what is important in life. Having stuff and clutter is not on that list. Also saving $220 a month isn't bad.

9) Moving to somewhere close enough to walk or bike to work

By moving somewhere where you can walk or bike to work means you get to save money and you'll probably end up saving time too (since biking is pretty quick once you get used to it). No buses or trains to wait for and no being angry at crazy and unreliable timetables.

Moving into town has meant that I not only have more money to save due to not having to bus ($100) but I also save now that I have sold my car. My fitness levels are up and my savings are bigger.

10) Anything else you regularly pay for?

Whatever you have that you pay for regularly is ripe to be analysed and figured out how much of that particular thing you actually need. Almost everything can be shaved slightly to give you those few extra dollars in your back pocket.

And as always, and for those of us who have seen the light about all of this, you know that shaving off a little of each bill here and there makes no difference to the quality of life but an enormous difference to your bank balance once added up.

So, get cracking on those regular payments and make sure you shave each of them and save a bit every month. By the end of the month, you'll be surprised at how much you're keeping instead of slipping through your hands.

Labels: banking, insuring, saving

Inserted: 2009-03-24 20:57 (1 year, 5 months ago)

Guest Post on Lazy Man and Money

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Firstly, welcome to all the Lazy Man and Money readers wandering over here to take a look round. Remember to subscribe to my RSS feed so you can keep coming back. And to all my readers, go and take a look at Lazy's blog (yes, he doesn't mind being called that) - it's a great read.

Short Term Sacrifices for Long Term Gain

My post over at Lazy's blog was originally called Short Term Sacrifices for Long Term Gain but in conjunction with Lazy we changed it to Sacrificing the Little Things for Early Retirement so his readers could get more of a taste of my background, why I started all this and where I'm headed.

I wrote the post in response to a comment I had on a previous blog post of mine, called Seeing the Old Me. Concetta put the idea in my head when she commented that by doing a four day work week, I was actually treating myself, all the time! I hadn't realised this at the time (though it makes perfect sense now).

I'd mentioned that I had been buying take-away coffees and treats for myself in reward for working too hard which brought back memories of the old me again. Working hard, playing hard but spending all of my money whilst doing it. Then I mentioned that I had to sacrifice things if I wanted to do a four day work week (oh, and retire early, mustn't forget that) - and by not spending my money on those 'extras' I could also afford to drop down a day at work. It turns out though that she was right and that having the extra day off is a huge treat, week in, week out.

If other people think that by not going to the movies that often or not having the flashiest car is a sacrifice, then that's fine with me. Neither of these things are that important to me and instead I'll make some fresh pasta, go out cycling or enjoy a bit of gardening instead. Better health and less outgoings.

Therefore a few small sacrifices gets me a much bigger reward - as always, judgement is in the eye of the beholder.

And funnily enough, these are also the same people who say "...and you can afford that?" when they hear you're working a 4 day week. Pretty funny, isn't it?

Thanks

So thanks again to Lazy Man for hosting my guest post and I hope you enjoy my article over there if you haven't read it yet.

Labels: saving, retiring, working

Inserted: 2009-02-28 08:40 (1 year, 6 months ago)

Personal Finance is Not a Destination, it's a Journey

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You've heard the phrase:

Life is not a Destination, it's a Journey

And like life, the road to financial independence doesn't lead you to a destination but instead just takes you on a road leading to a place you'd rather be but never actually getting you there.

Each junction on this road can also be considered a decision making time, a time when you can re-evaluate and a time to look back and figure out what you want to do to keep moving forwards. Forwards of course means heading towards your goals because if you didn't have goals you wouldn't know which way to was the right way to go.

Re-Evaluating Your Outgoings

In this post, I'd like to just concentrate on one particular aspect of these junctions and that is about re-evaluation. In fact even more specifically, re-evaluating your monthly outgoings like bills and suchlike.

Back in one of my first posts, I mentioned in my article on budgeting that I'd been doing various things over the years such that I was spending less on various things. Some of the bigger items I had cut down on were:

• rent (by moving to a smaller flat)
• travel (by moving closer to work)
• food (by not buying as many take-aways and making my own food)
• lots of other little bits and pieces

A few months after that, I also took some steps to make my monthly outgoings even less. I ended up selling my car and instead buying a bike for travel. That action in itself saved me over $250 a month, which is about $3,000 a year.

Can't be bad.

Spring Clean your Outgoings

Even though it's coming into Autumn in this hemisphere, for most of the internet world it is now coming into spring. As well as spring cleaning your house it is as good a time as any to also spring clean your monthly outgoings. This can be done in two ways.

You may want to turn and toss every single little thing but mostly you can just give things a quick dusting to make sure you've still got what you expect. In some cases, you just need to review what kind of plan you're on whether it's electricity, phone or subscription services.

I am currently going through a bit of a spring clean and I figure that by the end of it, I'll be saving well over $1,000 a year extra. Let me go through some of the things I've done in the past couple of months and a few more things on the table in the next couple.

• stopping my DVD mail subscription service
• switching electricty/gas providers to a cheaper option
• switching banks (to one with lower mortgage interest and less charges)
• changing credit card (to one with no fees and lower interest - not that I'd pay them any)
• stepping my internet usage plan to one with a lower price
• changing my home firewall machine from one drawing 100-150W to one which draws 5W
• switching my home/contents insurance to a cheaper supplier/option
• turning off my normal phone and getting a VoIP phone number instead

By doing all of these things, I suspect I can save upwards of $1,000 every year and quite possibly closer to $2,000.

For a start there's a $250/yr saving with switching energy suppliers and a $300/yr reduction by switching to a lower internet plan.

If I get rid of my phone, that's a $420/yr difference, minus about $120/yr for a VoIP phone, that's still a $300/yr saving.

I suspect I'll also save about $360/yr on home/contents insurance and realistically my bank fees/credit card fees will be lower by about $100/yr or more.

Just totting that up, that's a yearly saving of $1,300 without even lifting a finger (ok, I have to phone a few people but not much more than that).

See What You Can Do

If you've been living frugally for a while you might have already done all of these things and more, especially if you've been settled into one house for a while. In which case, maybe you don't need to review your situation.

However, it doesn't hurt to go through each of these things every so often just to see if something can be done. Let's say a new competitor is now supplying energy to your vicinity, it would be a shame to miss that opportunity.

Even just shaving off a little at the top of each and every bill you get can save you a significant amount of money per year. Add 10, 20 or even 30 years worth of compound interest on top and those small insignificant amounts start to add up to some serious money in the future.

So far my increase in savings have been well worth the effort I have had to put in and there are still more of those things on the list for me to go through and switch around or reduce. Overall, I'm pretty pleased already.

What other bills can you think of which can be easily reduced by either cutting back on a plan or switching supplier?

Labels: banking, insuring, saving

Inserted: 2009-02-25 01:15 (1 year, 6 months ago)

Are you a spender or a Saver? Can you Change?

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Jonathan at Master your Card wrote a guest entry over at Four Pillars. It was titled How to Change Your Financial Personality. I found it an intriguing article and got me thinking.

Here's part of the comment I left over there:

I used to be a spender (with a few savings) but now I’m a saver (with a few spendings). I think you’re right, we do flit and flirt between them but I now know I’m on the right track and probably won’t ever become a 'spender' again.

As I've mentioned before, since September last year many things about my life has changed and pretty much all of those have been for the better. I really don't spend as much as I used to which has afforded me the freedom to work a four day week and spend more time doing the things I enjoy.

My Changes

Therefore change for me was actually surprisingly easy. Of course, my change was enforced since I wouldn't have been able to sustain my previous spender lifestyle and be able to only work four days.

I bumped into an ex-boss the other day and we got chatting how things were. I told him that I was working a four day week and he immediately asked: "And you can afford that?"

I replied: "Well, you make yourself afford it." I'm not sure whether he actually liked the answer since I'm sure there are many people who would say that they couldn't but the truth of the matter is, many people can, if they only curb their lifestyle slightly.

I'm not going to make this a long blog entry since Johnathan wrote a great article. Also because there are a few other things I want to touch on before I go. However, one thing that stuck in my head about all this is whether each of us has the ability to change.

What do you think? Can you change? Let me know whether you have, you can or you will.

Changes in the 'Andy @ Retire at 40' World

As you can see, I have a brand new blog with my own domain now. It is all very exciting and I even managed to migrate all my old entries and comments over to the new one.

I know this is a lot to ask but if you have a link to Retire at 40 in your blogroll, can you please update the link so that any of your readers coming here won't have to go through BlogSpot to be redirected. Many, many thanks to each of you, I owe you one big time.

Hopefully, you good people who have already subscribed to the blog will automatically come here from now on since my feed now points to the right place. You're also in luck since there are quite a few interesting features planned for this site over the next few months so if you're not already subscribed, do so now so you don't miss out (that big orange RSS icon in the corner is what you're after).

By the way, thank you to everyone who has subscribed to 'Retire at 40' recently. I thought getting to 100 subscribers by month 3 was pretty exciting but I seem to have gained about another 50 in the past month (pending what happens with the blog move). Welcome to all of you.

Also, be sure to contact me to say hi, talk about PF, point me to an article, ask me a question or just to chat about anything at all. It's great hearing from you guys.

Finally, I hope you all had a great Christmas and New Year and keep enjoying the blog now that I am back.

Labels: planning, saving, spending

Inserted: 2009-01-07 23:18 (1 year, 7 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)

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)

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)

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)

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)

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)

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)

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)

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)

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)