financial zen

So nickel had an interesting article, comparing the definitions of frugal and cheap. Unfortunately, the examples are rather lacking.

So let’s take it up a notch - instead of HotOrNot why not “frugal or not?”

Take for instance, store brands. We know Del Monte, Chiquita, Pepsi, Coke (once Ohio State’s savior, now a harsh reality check), Jif (the choice of choosy moms) and a number of other brands. Can you taste the difference?

Honestly, there are a few choices that I have “gone frugal” on, and never will again. One of them is Peanut Butter. I bought generic once - and never again. It still amazes me that the taste can be so different. Vegetables, however, I can’t tell the difference - as with canned fruit. If it’s not fresh from the farmer (I’m working on it!) - it all tastes the same. I buy cheap.

Another recognition that “image from purchase” problem - I was once told that low-income families would be envious of the family that fed their children formula. Breast feeding is better, and recommended. Why do they go the more expensive route?

For the appeal of being seen buying and using formula. It doesn’t matter that it isn’t better, but to be seen spending that extra cash makes you look “rich.”

The point is - we’re presented with options all the time. Name brand this vs. generic that. The “appeal” of being seen wearing (or buying) that name-brand item or hottest fashion, instead of the functional, or the old or the worn. C’mon - sometimes, it’s okay to splurge. Sometimes, that endorphin boost is worth the price tag for those new shoes, that new shirt, whatever. Moderation is key!

It’s important to recognize that you don’t need to give up everything in difficult times - but recognize where your money is going, and why you’re buying it.

Jan (@ Queercents) wrote a great post that I think most people involved with personal finance forget about - those expensive decisions that are worth making - and they do exist! Sometimes you have to spend money to make money, and theses are where I feel it’s most true. I’m not necessarily duplicating her choices - but trying to keep them in the same line.

1. College - this is a no brainer. Some people can get by on their good looks, their luck, their parents, or their natural talents. Some of us need that piece of paper to get our foot in the door. I was lucky to know some people, and impress them with my skills, but I know that if I ever want to be where I want to be, I’ll need that piece of paper.
2. Living out of our comfort zone - This seems to be the story of my life. I moved out of my dad’s house before I was settled, I moved to the big city with just a job and a possible apartment room mate. From their I made it work - until I met a good friend that landed me an entry position at a good company. Then a guy I met there offered me a position at a great company - and here I am, working my butt off, trying to be father, husband, worker, student.
3. Lunch - I do business lunches. I eat with managers when I can, and co-workers, and people from other departments and businesses. I *never* say no to lunch with someone, unless I know the person isn’t worth my time (or if I’m extremely busy - I’ve never met someone that isn’t worth having lunch with at least once!). I don’t order the most expensive thing on the menu - I try to keep it cheap and healthy (even when we’re eating at Chipotle).
4. Traveling - Growing up, I’ve been to Canada, Disney World (with a friend), Florida (also with said friend), Virginia (family lived there), Tennessee (camping!), Washington (youth group), California (family again), Chicago (school), New York (friends), Colorado (family), Missouri (side trip) and the Bahamas (Honey moon). This year we’re planning on going to Niagara Falls (just because we’ve never been), New York City (to visit friends and celebrate a wedding) and Colorado (another wedding and vacation). All this, in budget!
5. Our Wedding - Okay, I can’t come up with a correlation here, but where our funds were involved, we didn’t skimp - but my wife found the best deals to be had. A local woman “who just happened to have gone to culinary school and loved making cakes” made us this gorgeous, three tier chocolate (with white icing) cake. UN-believable.

Let’s keep this going - what expenses have you made that are worth it?

Seeing Debt Hater’s post reminded me to check my tax refund - and behold - it’s there! State and federal taxes, in my bank account. What shall we do with this cash?

Pay down debt, of course! But what else?

The Wife and I are taking a much needed vacation to Niagara Falls, for a weekend of relaxation the end of this month. We’ve not had a vacation since after we found out about our son’s coming (back in November of 2006) and this year we decided Niagara was the place to see (I’ve never been). This year, I’ll have to mind my finances closely, as I’ve got three weddings to attend - one in Denver, Colorado, one in Brooklyn, New York, and one in Columbus, Ohio. A lot of travel, mostly in the middle to end of the year time frame, so we’re going to try and have “mini-vacations” all year long.

But at what expense?

We thought about how much money we’d have to spend on these trips, and since we picked up a new car, we’ve decided to drive - at least for Niagara - since it’s a six hour drive. We’ve landed a decent deal on a room (could’ve done without all the bells and whistles, but do to a strong vacation fund, we’re letting that slide). I recognize I need to update my networth - a lot of things have changed!

I’ve read across a few finance blogs that have been talking about prepaying mortgages or not - a lot of people seem against it, saying that the money would be better spent putting into various investment vehicles for “in theory” greater returns on the investment.

In researching this idea, I’ve gotten a good grasp on what seems to be the going concern - what debts are being paid off first?

In thinking about prepaying the mortgage, we’re laying out the debt that takes interest - i.e. credit card debt, which we will have paid off this month (as we do every month).

Our debt consists of:

• 0% credit cards (used for appliances, setup to be paid off one month before they expire)
• Student loans (for me, still in school).
• Mortgage

That’s the extent of the debt - Mortgage, Student Loans, and credit cards. What is charging the most? Our mortgage!

I’m contributing to my company’s 401k to the match, so I’m not losing any money, and with my wife working that gives us over a grand extra disposable income per month! The plan is to take this money and apply it towards our debts AND the mortgage principal - paying the principal (by sending a direct check notated that it’s for the principal) will cut down on insurance, as well! I do not look at it as “a return on investment” with our prepayments do to the recent volatility of the housing market. If we prepay the mortgage and sell the house in - say five years - we’ll have paid down $30,000 on the mortgage, plus the built up equity, meaning we could potentially have a huge down payment for the next home - all from the money gained from our home!

It’s still something I’m looking into, but I will be paying some extra down on our mortgage while paying down all other debt - while reaping the tax benefits of interest paid on student loans and our mortgage…

This upcoming Christmas season, take a moment and reflect on the meaning of the holidays.

I bring this up for more than one reason - not just for the financial impact, but more importantly for the impact of gathering for the family. Make your holidays about your families first - the gathering, the food, the festivities - and not the gifts, the giving, the receiving. Drop the holiday hassle, boycott the consumerist angle of the holiday season.

Still want to “give” something?

Why do you have to buy something? Do you ever feel like you’re buying meager offerings because you feel you “have” to? Instead of giving gifts - make something. Make them a Christmas card, make food, make cookies. Why does it have to be material goods? Donate money to charities in their name. Make the money do something instead of spending money on random items that they may/may not want or even NEED.

It’s one thing when you know someone needs something - a heater, an electric blanket, firewood, food, or even company - compared to buying some $20 gadget because you think they’d like it when they’d rather have the pleasure of your company. This Christmas/Holiday season, how about we step back from the consumer rush and just enjoy some time together?

“A failure to plan is a plan for failure”

I don’t know about you, but I fell into the interest of personal finance from getting into reading blogs. The more I read, the more it intrigued me. It reminded me of the past experiences and money mistakes. Perhaps most people are put off by their lack of understanding terms - meaning they need to improve their financial literacy (the knowledge of facts, concepts, principles, and technological tools that are fundamental to being smart about money). This leads to most people learning about personal financial planning and developing and implementing a coordinated and integrated long-range plans to achieve financial success.

In planning, we hold ourselves responsible for our own success, happiness, and establishment of our security and standard of living (in the present and the future). It’s a huge part of our life that many people ignore until it’s too late - and then they learn from their mistakes, but it costs them (potentially) thousands of dollars, or wrecks their credit rating (which can potentially effect your employment, your mortgage, your car purchase… every financial aspect of your life). It’s my goal as I continue my education to get a better understanding and establish a better budget and mind set - I don’t mean miserly, I don’t mean “living like no other today so you can live like no other tomorrow” - I mean being able to save up for vacations without putting it all on credit, buying a car with cash, and using credit card arbitrage to its full potential. It’s a difficult premise, but then again, life isn’t easy.

The Six Steps to Personal Finance Success

1. Financial planning, focusing on establishing and achieving long-term goals through planning and budgeting,
2. Money management, centering on minimizing income taxes and efficient utilization of cash and credit,
3. Managing expenditures, especially for “big ticket” items such as vehicles and housing,
4. Income and asset protection through insurance, so that hard-earned resources and assets are not placed at undue risk,
5. Investment planning, with its focus on selecting the appropriate investment vehicles based on the objectives at hand and the relative levels of investment risk, and
6. Retirement and estate planning, with the ultimate goal of being able to live off of one’s financial nest egg and plan for transfer of assets to heirs.

It’s never just a simple process - fortunately we have trained professionals to assist. Certified Financial Planners can help you plan with these six steps, and Certified Public Accountants can help you get your finances together and straightened out. Over the next few months I’m planning on elaborating on these six points - from an educational stand point, as I am not a CFP, CPA, or any other TLA.

I’m taking that “oh-so-forbidden” (I kid, I kid) route to personal finance shame - I’m buying a house.

Guess what? Interest-only mortgages are making a comeback. Guess what? On houses people can’t afford. Because, in theory, you’re going to take the difference (i.e. “savings”) and hope to get a return on it higher than what you’ll be paying down the line - or maybe you’ll pay more than you owe and have your house paid off in less than twenty years. Maybe sixteen, maybe ten - who knows? The point is to not buy a house you can’t afford - but then would Interest Only loans on a house you can afford work in your favor?

Free Money Finance has five tips to get the best deal in buying and selling (from parade magazine) - buying is what I am doing (did?) and we (Wife and I) hit it pretty much on the head. We’ve got great credit ratings, our debt is almost extinguished (I promise to update my networth this week! And my NCN Network!). Overall, we’re doing incredible - on top of our finances, enough cash to cover emergencies, and we landed a great deal in a great neighborhood - a house that was on the market for 180+ days, passed inspection with flying colors.

But why housing? Why not investing?

We want a house. We, being my wife and I, want a place to call home, where our neighbors are not against our walls, their dogs aren’t scratching at our door, and they aren’t blaring their polka music at full blast at 3am. We’re wanting stability, and a place where we can have space to grow a family, a backyard to throw Barbecues in, and a place we can decorate and design the way we want it, how we want it, without the landlord complaining.

Yes, it’s an emotional thing. But you have to weigh the cost (financially) with what we will get out of it (utility). Trust me, it’s something we’ve debated, gone over, checked our selves on renting vs. buying many times (and we’re not the only one) - we came to this decision after a lot of thought. We won’t have to deal with misinterpretations of our lease, or poor maintenance (I get to be poor maintenance!).

It’s a hefty decision - but like many bloggers have pointed out, sometimes you save too much for retirement that you miss out on life. I’m not saying they aren’t right about investing or renting, I’m saying that a person who buys a house has more in mind than just making money.