Save Money, Get Out of Debt, and Live a Frugal Life
What happens when you mix mad money skills and hardcore street rap talent with a video pro? This:
A very talented friend and I made this video for FNBO DIRECT’s Pay Yourself First Challenge. We ended up winning $500 and I interview today to see if I make it in the top 5. The top 5 will all have a chance at $5,000. Wish me luck, yo. Oh, and check out my friend’s video portfolio where you can see the PT Money rap in high resolution.
If you’ve been following Prime Time Money for some time you know I like to share a couple of personal specifics here on the blog: savings goals and debt reduction goals. I do this as a way to motivate myself to stay on top of things and eventually reach my goals, but also to provide you with some insight into how you might want to be thinking about these types of goals for yourself.
Here are my goals and update posts from the past:
After doing our own Mid-Year Financial Check-Up, Mrs. PT and I discussed the next 6 to 12 months. We came up with these new and/or updated savings and debt reduction goals. Most are specific, measurable, attainable, realistic, and timely (S.M.A.R.T.). Yay for acronyms.
Emergency Savings - We’d like to fully fund our emergency fund by the end of this month (August). At that point we’ll have around 4 months expenses build up, which is a comfortable level for us. It’s good to have this almost complete as we’ll be moving to one income soon. More reason to have an emergency stash.
Save Up For Our Property Tax Payment - I don’t escrow my property taxes. I save up and pay them myself. I shared a few months ago that my Employee Stock Purchase Plan (ESPP) had become my new property tax savings fund. This is still the case. I’ve been making automatic contributions to the ESPP for a few weeks now. I plan to sell the stock upon purchase come November, transfer the money to ING DIRECT savings, and make my payment in January of 2009. The ESPP is set up to provide a guaranteed 15% return. So it’s a great place to put my short-term savings.
Save Up For Baby Expenses - That’s right…we’re expecting a baby! :) We found out a few weeks ago that we’ll be having a baby next March. I don’t have an exact savings goal for this, but I’m sure it’s not cheap. I guess I’m assuming medical deductibles will be high, as well as furniture and equipment purchases (some things you just need new, right?). This opens up a whole list of post ideas for me, or severely limits my future posting abilities. Who knows?
Max Out 2008 401(k) Contributions - We’re on track with this goal. In fact we may get there sooner than we thought. At the beginning of the year I set my contribution percentage to achieve the maximum you can contribute to your 401(k) this year, $15,500. Since that time, my company has offered an annual increase in my pay, as well as a few extra bonus dollars kicked in. I’ll be watching my contributions close in the 4th quarter to ensure I don’t go over my limit.
Max Out 2008 Roth IRA Contributions - This is somewhat of a reach goal for Mrs. PT and I. We haven’t started this yet, but hope to get it going by next January. Since we’ll have till next April to contribute, we can take our time getting the $5,000 max (each) contributed.
Aggressively pay off any auto loan with interest higher than 5% - We’ve done well here this year. We paid off one car loan already (a car that I love and would love to keep a long time) and we’re getting closer with the other (my old two-door SUV). The issue now is do we pay off this loan and keep the SUV, OR sell it and get a new SUV (with 4 doors) which we’ll need next year for the new baby? I’ll be sharing a guest post from loyal reader J in the coming days that may help us make this decision. We almost purchased a new SUV last month…with all the 0% financing deals available it’s hard to pass this up.
Continue paying off credit card expenses monthly - We’ve been blessed to not have to go to the credit cards out of necessity much this year. When we did, we were disciplined enough to pay them off within a month. By the way, if you can do this, this is how you should treat high-interest debt…get rid of it monthly.
Pay off student loan and mortgage debt using the minimum payments - Smooth sailing here. We’re not at a point where we’re ready to tackle these debts. The student loans (my all-time, favorite debt) would come first, but right now we just have too many other financial goals that take precedence. My debt philosophy has us in an extremely comfortable place before we take these on.
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Okay, so that wraps up the goal review. Did I leave anything off? I’ll likely revisit things at the first of the year. Thanks for following along. I’d love to hear what your goals are. Feel free to leave them in the comments below.
Here in the personal finance blog-o-sphere there’s a ton of talk everyday about how to “save money”. In fact, I doubt a day goes by without a post with those words in the title. I get in on the action too. One of my categories is actually “How To Save Money.” But often times, if not a majority of the time, the term “save money” is used to mean “spending less” on something you purchase (i.e. “I saved a ton of money on that new hybrid car I just bought.”).
I’ve got nothing wrong with this use of the term. I love spending less. I just think spending less and calling it savings is a bit overused, especially by clever marketing departments. And using it this way dilutes the true, full meaning of the term.
Here at Prime Time Money I *try* not to use it in this way because it sends the wrong message…that all you have to do is spend less on something you’re buying and you’ll have more savings. Instead, I try to actually say “spending less” when that’s what I mean. I’m not trying to insult your intelligence here…don’t get me wrong. I’m just trying to emphasize the point that:
That’s all that it is. If you’re not doing that then you’re not truly saving in the full sense of the word. You’re just spending less.
The best way I’ve found to truly save money is to have a portion of your pay check direct deposited into a separate account. By separate, I mean, not your normal checking and savings account that you currently have that you access everyday; a completely new account. This could be a 401(k) account, an IRA, or a plain ole savings account, to name a few. Either way, the money is going from your employer directly into a separate account that you plan to access at a later time.
Some advantages of this type of setup:
1. Spend the Remaining Balance - Since you’ve got your retirement savings (401(k) and IRA) and short-term savings taken care of first, you get to spend all the money that makes it to you’re spending (i.e. checking) account without worrying about saving after you’ve done all your spending.
2. It’s Automatic and Works Without Discipline - If you’re depending on yourself to take money from your regular checking account and put it in your savings account, then you’ve got a tough road ahead of you. I sure can’t do it.
3. Your Saved Money is Not Easily Accessible - I don’t know about you but when I used to try saving my money into a regular savings account, the money would not stay there very long. Because the money could instantly be transferred to my checking account, I ended up spending most of my accumulated savings shortly after I built it up. By putting your money in a separate, less accessible account, you’re more likely to leave it there where it belongs until you REALLY need it.
4. Earn Some Extra Money - By having a larger portion of your cash in a separate account (401k, IRA, Online Savings) versus a regular savings account, you’re more likely to earn better interest on your money. For online savings account, I like to put my money directly into a high-interest online savings account with ING Direct.
How hard is this to arrange? Most human resource departments will gladly split your check into multiple direct deposits, as long as you can provide the routing and account numbers. Figure out what percentage you need to go towards spending, then tell them to put the remaining percentage to your separate savings account. Start off conservatively. For more on how I have my direct deposits currently set up, see “How I Set Up My Bank Accounts.” You’ll be surprised by how quickly you learn to live with this, and how easy it is to watch your savings grow.
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Are you already doing this? Share your advice for truly saving more money in the comments below…
Over the last two weeks I’ve challenged you to conduct a mid-year financial check-up. How did it go? Here are the posts from that series:
I’ve enjoyed putting this together partly because it’s helped me to take a closer look at my own financial status. Keep in mind, this is by no means a complete list of areas for you to examine at this point in the year.
Still, this list should be able to give most people a good starting point. After all, most people could use to lower their spending, save a little more, and get rid of some debt (which just happens to be what this blog is all about).
Every one’s situation is unique though. Other areas you might want to consider:
Do you have an area to add? Leave it in the comments below.
Here at Prime Time Money we’ve been focusing on how the mid-point in the year is a good time to revisit your financial situation and see where you stand. To help get you started, I’ve put together a series of ideas to help you conduct your own mid-year financial check-up. So far we’ve covered:
#3 - Got Bad Debt?
Last in the series is a review of the annual contribution limits on your retirement accounts. There are several ways for you to save money pre-tax OR after-tax without tax on your earnings. While I’m not going to get too specific on the different types of account, I will focus on the limits and how you can maximize.
