Saving For Serenity: Helping You Establish Financial Freedom

Time, Money, and So Little of Either

Alan Schram — Wed, 26 Aug 2009 12:00:38 +0000

Getting married is a strange experience. It is one of those things you have no way of knowing or understanding until you're doing it, and once its over, whatever you learned is likely (and hopefully) never going to be used again. One of the weirdest phenomenon is the experience of time.

My wife (!) and I got engaged in January. We decided to get married in August. That was a full 7 months away. We started off by planning some of the bigger things, getting ideas for themes, prices, and whatnot, but then life got busy and wedding planning stopped being as important. After all, we have 7 months. Well, soon enough, we were two weeks out from the wedding, and now all of a sudden, it's been two and half weeks since we got married. Time shot by in a flash.

The last two weeks before the wedding were insanely busy. Every night after work, we would be scheming, planning, plotting, calling, arranging, picking up, and paying for things. It was crazy. At that point, you have so little time, that when there became a choice between something that was fast, or something that was less expensive, we would always choose the faster option.

For the most part, we simply ran out of time to feed ourselves. Beside the fact that we had so little energy that the thought of cooking made our stomaches turn, we just didn't have the time to plan, prepare, and cook dinner. It just wasn't happening. Or, if we were out shopping and it came close to a meal time, we would eat out so that we would be able to finish the shopping. It had to get done, so we did it.

While I don't like spending money that doesn't need to be spent, in this case, I think that the cost is justified. Sometimes, we run into life's situations where cost doesn't matter - but time does. So you pay a premium in order to enjoy food quickly, without having to make it yourself. There are tons of situations where one would trade money for time.

When do you trade your money for time? When do you regret it?

Post Honeymoon Consumerism

Alan Schram — Mon, 24 Aug 2009 13:33:40 +0000

Well, it's been a heck of a couple of weeks. On August 9th, I got married! Yay! It was a little touch and go for awhile with the weather, but it stopped raining a few minutes before the ceremony, and the sun came out for the reception. It was perfect! My wife (!) and I then traveled to Hawaii for our honeymoon, had a great time there, and then came home and lay around for a few days before we had to return to work.

Yesterday, our last day of our honeymoon, we decided to go to IKEA to start spending some of the wedding money that we had received. We needed a few things, like a bed and matress, so we ended up spending quite a bit of money. What shocks me the most is how easy it has become to spend money.

When you're planning a wedding, you end up dealing with a lot of cash. Between money that we saved, and money that was given to us for the wedding, we ended up dropping quite a bit of cash on various things. Numbers that used to seem big no longer seem quite so large when you're spending them on a regular basis. In addition, the last few weeks of wedding planning are rife with purchases. You need a few more napkins, or you found a better tie for the best man (btw, I need that tie back Jeff), and you're so tired of comparison shopping (or just shopping in general) so you just get it.

Then the wedding day happens, and suddenly nothing matters anymore. Everything works out, and you spend two weeks in honeymoon mode, where you're not worried about the bills from the wedding or whether or not you came in on budget, or if you saved up enough money to spend on the honeymoon. You just go, and do, and know that this is the only time in your life where you'll be able to do this, so you relax, and enjoy not keeping track of money.

But then you come home. Thankfully, I believe my wife and I managed to keep our wedding (and our honeymoon) under budget. We managed to save up enough, plan smart enough, and shop clever enough to fully enjoy our wedding and honeymoon without breaking the bank. Yay us!

The only problem is: we still have the mindset. We're still in shopping mode. We're still in the mentality of scouring for deals, and not caring how much things cost - just wanting to get it done. So then it shouldn't be a huge surprise that when we walk into IKEA with a bunch of wedding money, we walk out with a bunch of stuff.

I think we made good decisions on what to buy. We got a lot of what we needed for the price that we paid, and it should work out perfectly for our needs. Sadly, we're not done yet, and we still have a bunch of shopping to do. I just don't like the fact that we're continually stuck into this "shopping mode", this mindset of consumerism. I don't know how or when we're going to get out.

Serenity Now: Remove Stress, Free Yourself, and Relax

Alan Schram — Fri, 21 Aug 2009 12:00:47 +0000

We all know that money can't buy happiness. But does that mean that money and hapiness are not interconnected? Far from it. The lack of money, or financially caused stress, can be a primary factor in the loss of happiness. Does that mean that you can buy peace and well being? No. But it does mean that in order to be happy, you need to have your finances under control.

In October of 2008, About.com reported:

Financial stress is a sadly widespread experience. According to a poll on this site, roughly 7 in 10 respondents are "very stressed" about money, and only 1 in 10 report that they are not stressed about finances — and the proportion of people stressed about money is only going up.

In addition, the article goes on to explain that financial stress then impacts numerous other areas of your life, including sleep and health issues. Do you overeat? Perhaps it is because you are financially stressed. Do you have trouble sleeping? Maybe you need to get your finances under control. Do you find yourself angry, sad, or depressed? Have you considered it may be financial stress causing you this unnecessary harm?

It is time to stop being stressed about your finances.

Make More Money

How are you going to stop worrying about your financial problems? Just make some more money. All you need to do is make a few more dollars here and there, and then you'll be fine, right? Most of us are operating on a pretty tight budget. So we figure that if we just make another $500 a month, we'll have tons of room to feel less stressed.

Here's the problem with that solution. Making more money means more work. Sure you can try to work smarter, or work for a greater wage, but in the end, if you want to make more money, you need to expend more energy. You need to put in overtime hours, you need to get a part time job, or you need to start freelancing on the side. And you know what, if you're drowning in debt, this might not even be an option. You have to. But the more time you spend working, and the less time you spend with your family, friends, and yourself, the more stressed your going to be. You can't outwork your financial stress.

A second problem. Between lifestyle inflation and the need to "reward" yourself for working so hard, the extra money you make will probably just dissapear. If you spend less time with your spouse because you're working extra hours, you may have to spend some of that money making it up to them. If you are suddenly not seeing your kids very often, they might "deserve" a few more presents here and there. And if you're making an extra thousand dollars every month, then you can afford that new house/car/yacht that you've always wanted - which will reduce your stress levels on its own, right?

Micromanage Every Dollar

Ok, so maybe you can't outwork your financial stress. You just need to be smarter about your money. So instead of making more money, you're going to maximize your dollar. You sit down and work up a budget, a spending plan, and set goals for yourself. You watch your grocery shopping like a hawk, you coupon clip like a madman, and you choke the life out of your TV, internet, and cell phone bills. You negotiate your credit card interest rates down, you get a rent reduction and you limit yourself to one popsicle every six weeks. You manage to make some breathing room in your budget - but all of a sudden, you realize that you've actually been choking yourself.

While there is a huge benefit to trimming the excess fat of your monthly expenses, you can't outfrugal your way out of stress either. Restricting yourself to the tiniest of pleasures and eliminating any expense other than the absolutely necessary will slowly clamp down on you living your life as you mean to enjoy it. Not only that, but micromanaging your money takes up a lot of time. Time you could be spending watching a movie, relaxing with you kids, or pursuing your passions. Time that you shouldn't be wasting balancing checkbooks and logging receipts.

Life is meant for living, and life is meant for enjoying, and if you are so worried about every dollar that you spend that you are paralyzed, then something needs to change.

So what's the solution? What's the way out?

Embrace Serenity

Serenity is a simple word that is defined as "the absence of mental stress or anxiety". Imagine, being free from stress. Being free from anxiety. Being free from the financial strain that is currently your life. The good news is that this is not a get rich quick scheme. Even better, you can have it today.

How so?

Take these simple steps

Stop

Right now, just stop. Take a minute and stop. Stop checking your bank account balance, stop counting your change, stop rifling through your bills, receipts, and coupons. Just stop.

Stopping will do two things. It will slow everything down for you. Life in our North American consumer society is going so fast that everything has become a blur. The corporations want it to become a blur so that they can profit on your disoreintation. So just stop. Nothing will fall, nothing will break, no disaster will come of you taking a break. So stop already. Stop searching for quick money, stop looking for the lottery, stop wondering when you will be able to live the life you always dreamed of. Stop.

Stopping will also allow you the time to focus. Stop doing what others tell you to, and think about what you really want to do. What do you want to do with your life? Who do you want to be? How are you going to get there? What do you need in life? What are the essentials? What can do you without?

Breathe

Take a breath. Breathe. Air in, air out, and repeat.

Take a few minutes to really concentrate on what you need. Food, shelter, clothes. Friends, family, love. Establish a bare minimum. The house you're living in - could you be content with less? The restauraunts you eat out at - could you go less often? What's your absolute minimum? Does it depress you? Probably. My bare minimum depresses me.

So what do you need to be happy. Really and trully happy. A bigger house? No chance. While it might increase your happiness temporarily, you will grow into it and will return to the same level of happiness as before. More money? Doubtful. The more money you have, the more stress it puts on you. Losing $10 sucks, losing $100 is worse, losing $10,000 or $10 million could cost you your life. The more you have, the more you can lose, the more stress and strain is on you. So what do you want? A fulfilling job? A short commute? A close group of friends? How much money could that really cost? You might already have enough.

So breathe. Because your financial situation - as bad as it may seem, or feel, or look - isn't as bad as you think it is. Everything is possible to overcome. So breathe.

Plan

Now you know what you want. You just have to figure out how to get it. Want an emergency fund? No problem. Want to be able to retire? Piece of cake. Every problem has a solution, it just needs a plan on how to get there. A word of warning, however. You can't plan your way to fame. You can't plan your way to unbelievable riches. That's okay though, because that's not what Serenity is about. Serenity is not on the front page of newspapers, and Serenity is not the most well known person on your block. Serenity is quiet, calm, and peaceful - and very rarely seen.

So plan to achieve Serenity by taking your large goal and breaking it into a number of smaller goals. Want to retire in 20 years? Break that down into 5 year chunks, 1 year chunks, and 1 month chunks. How much should you put aside this week in order to retire in 20 years?

Automate

Then set it and forget it. If you have your online bank account all you have to do is set up your online account to pull a set amount of money each week, or each paycheck, or each month, from your regular account into the online account.

And then, you're done. Relax. Share a pint with some friends. In 20 years you can retire, so you don't have to worry about it anymore. For each goal or dream of passion you have, just repeat the process. Stop. Breathe. Plan. Automate.

Have too many goals and not enough money? Prioritize. Pick which one (or ones) is the most important to you, and get rid of the rest. You don't need a new house, new car, new shoes, new friends, a vacation every year all while working 4 hours a week as an artist in your New Year Penthouse studio. You don't. That won't make you happy, you know it and I know it.

See Also:

Photo by Crashmaster007

A Budget Friendly Wedding: How I Got Married For Less Than $1000

Alan Schram — Wed, 19 Aug 2009 12:00:07 +0000

This is a guest post from Eric Poulin, the CEO and Co-founder of CalendarBudget, an online personal finance management solution. You can read or listen to more of his words and ideas on living within your means at his blog Budget Musings.

Marriage, debt and moving your home are ranked among the top most stressful life events. A wedding often combines all three into a well-planned panic attack. Budget trends for weddings have been steadily going up, despite the economic downturn. In fact, the average wedding in the US can cost up to $27,000. There is no short supply of suggestions to make a wedding more budget-friendly, and rightfully so! Imagine what other things can be done with $27,000 to support your new married life. Since disagreements over money is still the number one reason for divorce, a couple approaching matrimony would do well to consider using a lot of that money for their life after the wedding day. Now don't get me wrong; I'm all for marriage and weddings - its just the spend-all-your-money-in-one-day, super-extravagance that bothers me. My wedding day was everything I wanted it to be for less than $1000. Yes that's right - under a $1000, and yes, after 8.5 years, I'm still happily married, in love with my wife and share that love with 5 daughters. We were not so fortunate as to have wealthy parents who covered our costs. In fact, we covered all of our costs. How was I able to pull that off? I'm glad you asked. I'd like to share it with you.

Budget

The first thing we did was understand all of the potential costs and set a budget for ourselves. We got a bridal book which outlined all of the items we'd have to pay for. In the end we only used it as a guide, because we discarded many of the (insane) suggestions. But running any major event with a budget is key to doing it right.

Church and Hall

Our first major consideration, the rental of a church, minister (Bishop), and dance hall all cost $0. The church I belong to doesn't charge anything for building rental (it has a chapel and a large gym), and the marriage itself is a religious service, and thus clergy doesn't charge for their time. Having since served as a Bishop (for 5 years ending 1.5 years ago) I've had the opportunity to pay-it-forward some by marrying several couples and renting out our building - all for $0. Friends and family provided the necessary clean-up crew after our reception.

Music

We hired a DJ through a friend who got a great deal. Total cost, $300, but our friend paid for $150 of it as a wedding gift.

Guests

I think we paired down the invitee list to about 130 or so with just over 110 that actually came.

Limo

We skipped the limo service. It just seemed a waste and we both agreed this added nothing to the day except cost.

Food

Food at the reception was probably the most costly item. We know a friend who was really good in the kitchen for large gatherings and had some informal catering experience. We met with her and she agreed to help out - also at no charge. She enlisted her daughter to assist in the kitchen and we had a crew of about 6-8 youth friends who came along as servers. I've seen a lot of self-serve buffet meals lately which can also cut costs. We just paid for the food itself, which we got at a discount because we bought so much at once at stores that offered discounts for bulk buying. We opted for an inexpensive, but elegant chicken, roast potatoes and vegetables meal. We had leftovers for months which also helped our grocery bill as a new couple - even though we were very sick of eating that same meal almost every day for months :) We also did not serve any alcohol. We bought sparkling grape juice for toasts, and various flavors of soda and water otherwise. This not only reduced the budget, it meant no drunk relatives making scenes!

Cake

We have another friend who was looking to get into the wedding industry and was looking for an opportunity to build a portfolio. We had her do our cake, which was very beautiful, and she charged only a fraction of what she could have.

Decorations

We delegated most of this to another friend (one of the Bride's Maids). She made that gym look gorgeous with a rental archway, white decor, table centerpieces (which we gave away at the end of the night), and small white Christmas tree lights on touling. I was impressed.

Pictures

We rented some time at a nearby floral greenhouse which made for beautiful pictures with some nature (despite it being February 3 and snow was everywhere outside). We had an artsy friend be our official photographer and another friend be the videographer (all $0). We ended up with some great pictures that we were quite happy with. For more candid shots, we bought disposable cameras and put one on each table and had our MC announce that people should take pictures throughout the night.

Dress

My mother happens to be a seamstress - so she made my bride's dress and did so for under $100 material cost. A friend made an accompanying cape for about $30. When all was done, the dress could easily have sold for many hundreds of dollars in a store. We asked each brides maid and grooms man to cover the cost of their own dress and tuxedo respectively. My rental came to just over $120.

Invitations

My family and I spent about 20+ hours hand-making invitations from a kit a friend had. They turned out really nice - textured with raised surfaces and inked with some special ink. We paid only for materials and postage. I also created a web site for RSVPs, although not many used it. All in all, we ended up paying almost only for raw materials. Luckily we have a large social network and were able to find high quality service/labour provided by friends for free.

We spent more on our honeymoon to enjoy a good vacation as we started our life together, but even that was a cruise that was under $4000 all inclusive. No one complained about anything because in the end - everything looked and ran wonderfully. Judging from the average we saved ourselves about $21,000. We had a super-special day, just like anyone else who spent the national average or more, but we had money to start our life, and more especially not start it with the stress of being in debt. We were very very thankful for all the help we had and money saved. I now repay that kindness by helping at other weddings when I can - usually DJing for the ridiculously low price of $150 for the night.

So, anyone who may be holding back getting married because of fears about the associated costs... have a talk with your future spouse and review what costs can and should be avoided and how that money can be better placed as an investment in your future rather than spent on just a one-day extravagant party. If you find your fiancee unwilling to bend at all, unwilling to make concessions, let this be a high-alert warning about your future marriage. It may be time to set some financial ground rules as a couple or perhaps even reconsider if your love is going to take you all the way to the poor house.

Fail to Plan or Plan to Fail? Why We Avoid Important Decisions

Alan Schram — Mon, 17 Aug 2009 12:00:39 +0000

This is a guest post by Tyler Tervooren, author of Frugally Green, a blog dedicated to connecting sound personal finance with environmental sustainability. Tyler writes today about acting on issues that make us uncomfortable, but save us money and stress when addressed early on.

Hi there. I'd like to introduce you to my friend Paul. Paul's one the nicest guys I've met. He'd do anything for you if you asked him to. He's also my roommate and is moving out in a month. I didn't plan for this, and now that it's reality, I sure wish I had. I've lived with Paul for two years which is, by all means, plenty of time to come up with a backup plan. I never did. In my mind, preparing for the day when Paul and I would part ways was like admitting that, somehow, someday, our friendship wouldn't work anymore. Every time the thought would cross my mind, I would begin to think, "How could I do that to such a good friend?" This probably seems illogical to most (and rightly so) but what if the relationship was changed to a spouse and I was writing about prenuptials? That might spark a bit of debate!

Either way, I did not plan for this inevitable scenario. And why didn't I? Probably for the same reason that people don't prepare a will, appoint a power of attorney, or buy insurance that they know they'll need. Thinking about the events that will make these things useful causes us serious discomfort. Unfortunately, we've been socially conditioned to fear them. As a response, we push them to the backs of our minds where action doesn't seem so urgent. We've all heard the famous warning, "If you fail to plan, you plan to fail," but what if you actually are planning to fail? That might be what it seems like in the moment, but when you consider the alternatives, it doesn't look so bad.

Be Honest with Yourself

Over the last two years living with Paul, I admit, I thought many times about the likeliness that our compelling life interests would someday send us opposite directions, but we were such good friends that planning for it felt like betrayal. Boy, was I wrong! Now that I am in the middle of it, I can see just how much it really would have helped us approach this situation, relieving a lot of tension. Don't get me wrong, I'm excited for Paul as he moves on to another chapter of his life, but when I say "congratulations," there's still that little spot in the back of my mind that thinks, "How the hell am I going to pay rent next month?" I can tell Paul is a tad off, too. He knows how he's affecting my financial situation. Now, Paul and I will always be close friends, but all this could have been avoided by simply being more honest with myself.

I never really thought of it as such, but when you become a roommate with someone, you have essentially formed a business relationship. Sure, we might be great friends and enjoy each other's company, but at the heart of this relationship is a financial synergy that we benefit from, teaming up to live somewhere that neither of us could afford on our own. When you factor that in with the reality that the overwhelming majority of roommate situations are, ultimately, only temporary, the possibility of a big financial impact is pretty obvious should the relationship end with no exit strategy. The worst part is, I've done this before! The last two times I've lost a roommate has been due to one event or another that left me searching for a new place to live. You'd think I'd have learned my lesson by now!

The Power of Emotion

Your own emotions are incredibly influential. They are constantly telling you what to do, what not to do, when to do it, how to do it. They're really important, too. It's our emotions that allow us to create deep and meaningful relationships with people, places, and things. But in this situation, it has certainly got me in a bit of trouble. When was the last time you made a purely emotional decision only to realize that you hadn't thought it all the way through?

Removing emotion from financial decisions is excellent advice that I've heard many times, but as you can see, it's simple to ignore. It's easy to get caught up in the emotion of such a decision - weighing your necessities, confronting your fears, and considering your loved ones' feelings and well being all at the same time. Yet, a simple shift in perception is all that's really necessary to call yourself to action. The truth is that I was misinterpreting my emotions. If I had taken a step back from the situation and thought about how my failure to plan could affect others, I would have seen that making a strategy that helped myself would have helped Paul too.

So what do I do now? What's done is done, but not forgotten. I now have to either find another roommate to move in, or relocate to a less expensive place (which comes with its own set of expenses). Luckily, I think I've finally learned my lesson by really reflecting on what was causing me to ignore a recurring problem. In the future, I will do these 3 things to make sure I am prepared for an inevitable separation:

Be completely honest with myself and my roommate(s) about money - It's not the most comfortable thing to do, but practice makes perfect, right? This is all part of building a strong, lasting relationship, as well. I expect that doing so compassionately will lead to more respect than it will resentment.

Inflate my emergency fund to accommodate a future problem - I have savings set aside, so I'll be ok, but it's certainly no fun watching the things I've saved for take a back seat to an event I could have planned for a long time ago.

Continue to expand my network - Since I began working full-time and spending all my free moments developing Frugally Green, I've neglected to keep up with some really cool people. These folks could potentially be looking for a place to live themselves or know someone who is. As it is, I'll likely have to put an ad on craigslist.

Now, my problem is unique, but the lesson is universal. We tend to shy away from things that cause us discomfort. But, if we realize that we may be misinterpreting our emotions and that confronting them will help someone else as well, it's a lot easier to swallow. What's happening in your life that you might be ignoring because it's uncomfortable to address? Is it a legitimate fear or could you be misinterpreting your emotions like I did? Better yet, how can we learn to stop fearing things that we know will come to pass no matter what we do?

Financial Honesty Creates Personal Freedom

Alan Schram — Wed, 12 Aug 2009 12:00:01 +0000

This is a guest post from a.b. of Modern Tightwad. Her focus is on helping you enjoy your life with friends and family, without castrating the piggybank. You can subscribe to her RSS feed here.

Financial honesty is an open look at yourself, your habits, your choices, and your numbers. This initial step of acknowledgement is often the very first step to achieving your financial freedom. But how? And who should you disclose your personal information to?

Honesty With Yourself. It is easy to delude ourselves when it comes to our finances. We don't have to open financial statements. We swipe plastic (whether credit or debit) and don't have to check our balances. I'll never forget the first day I sat down and plugged every debt account total into an Excel spreadsheet, and then I cried. Deep down, I knew what my financial situation was, and I didn't want to truly address it, so I hid from it. Once I became financially honest with myself, I was able to:

Determine my necessary expenses to create a spending guideline (my type of budget), so I could determine my necessary outgo.
Create a plan for the future. Mine included paying off debt, while yours might include planning for retirement (or a really nice vacation)
Visualize how long it would take me to pay off my debt, and see a future with savings and freedom from (most) financial anxieties.

If you don't know where you are, you can't plan for where you would like to be. Financial honesty is a necessity for creating future plans.

Honesty With Your Significant Other. According to a joint survey by Redbook Magazine and lawyers.com, 29% of adults aged 25 to 55 in a committed relationship have lied to their partner about their spending habits. The buzz phrase is "financial infidelity." It shows such disrespect for your partner* (you obviously think they're stupid), and is presently viewed in society as cheating.

Financial honesty with your significant other allows your SO to cement their trust in you, and also allows them to be helpful and supportive. Whether or not you have combined finances, your financial decisions impact them. Would you be able to buy a house? Do you think (s)he will want to retire while you still have to work for another ten years? If all cards are on the table, you can plan your future together without the concerns of "his" or "hers" financial woes.

Honesty With Your Family/Friends. You don't owe extended family and friends any information about your financial life. However, cursory information may make things easier. If they know you are in financial straits, they probably won't drag you to an expensive restaurant, or make you fly out to their destination wedding. Friends and family who are supportive in other areas of your life, could very well become a source of encouragement to continue on the journey you have chosen when it becomes most difficult. While it's not the way one would hope to weed out friends, the reality is that people who truly care about your well-being will support any changes that promote personal growth.

The only downsides to financial honesty are delayed consequences for your actions, and the potential for embarassment. If you are afraid of the consequences, think about how much worse they may be if you let it go longer. And embarassment is a fact of life. We all did survive that horrific moment in school where everyone stared at you, laughed, and pointed. I know that my lesser moments impacted me, but they did not break me; they created opportunities for growth, some of which I took.

If you take a good hard look at your finances and you don't like what you see, you will feel ashamed, you will feel angry, you will feel dumb, you will feel hopeless, and you will feel like Superman, possibly all within a five minute time frame. You will also have a starting point for the rest of your future, which can be very hopeful.

*This does not in any way to individuals who are attempting to create financial freedom to escape an abusive relationship.

Photo by malik ml williams

Do You Need Financial Crutches?

Alan Schram — Sun, 09 Aug 2009 12:00:29 +0000

This is a guest post by Matt B at Financial Methods. Matt writes about many aspects of personal finance, and aims to promote financial intelligence to his readers. You can subscribe to Financial Methods, here.

Congratulations to Alan and his Bride are due from all of us. He has been a great help and inspiration to me since discovering this site a few months ago. Not to mention that I'm slightly jealous that he is Canadian. I'm excited and a little nervous to offer this post as only my second attempt at a guest post. I hope you enjoy.

When I was about 12, I broke my big toe. If it were any other toe, it would have been no big deal. Unfortunately, the big toe controls most of your balance, so I was forced to walk on crutches for about 2 weeks until it healed enough to walk with a severe limp. This was the only time in my life that I walked with the assistance of crutches, but thinking of that time made me think of when I was living my financial life on crutches.

Parents as a Crutch

We all live for a certain length of time with our parents acting as our financial crutch. There is nothing wrong with this, up to a point. But at some time in our lives, whether it be when we are out of school, or when we get a decent paying job, or when we get married, we need to eliminate the reliance on our parents and start to take care of ourselves. For many, determining when and how to stop receiving money from Mom and Dad is hard to do. After all, it is a nice fallback to have, but it is also counterproductive. Having the security of a wallet behind your own often promotes irresponsible spending and may stunt financial growth.

Credit Cards as a Crutch

This has to follow the parent crutch, as many in their teens and early twenties begin to rack up debt due to poor wages or even more likely, poor budgeting and money management skills. I feel as if I was taught more than enough about money before I entered the "real world", but I did not properly apply my knowledge to my own situation. During my short stint in college, I easily put together a portfolio of debt and dug a hole that would be a tall task for anyone to get out of. Living on credit cards is all too common, but such a bad way to start your financial life. Saving and earning interest early and often, easily trumps paying high interest debt for years to come.

Friends as a Crutch

Hopefully, most of your friends are the kind of people who can easily tell you like it is. If they are, you will not even be able to use them as a financial crutch. If not, you may suck them dry. Maybe you are not living with Mom and Dad anymore, and maybe you do not even have a credit card. If these are true, do not let your friends or extended family become your financial crutches. Personally, I have never been one to crash on couches or score free food, but I know plenty of people who seemingly make a living by jumping from one house to another. It takes a unique type of person to live life without the stability of a regular place to rest your head. The biggest problem with using friends as a crutch is the collapse of relationships. If I've seen it once, I've seen it a million times. The best of friends end up living together (temporarily) and the guest outstays his/her welcome. One of the two parties gets mad and alienates the other, and the relationship dissolves. Sometimes this can get nasty, so tread lightly if you are couch-crashing.
A big part of growing up is becoming financially independent and making smart decisions without having someone to rely on to dig us out of trouble. Hard times fall upon all of us, and these resources may be necessary to utilize when we are down, but they should not be used to take care of us when we are capable of doing so ourselves.

Photo by dmitri

It's Magic! Why Index Funds Come Out Above Average Every Time

Alan Schram — Fri, 07 Aug 2009 12:00:59 +0000

The following is a guest post from Mike Piper, author of Oblivious Investing: Building Wealth by Ignoring the Noise. You can also find more of his writing at his similarly titled blog.

To invest in an index fund is to accept average market returns. Yet, strangely enough, decade after decade, low cost index funds beat the majority of actively-managed funds in the same asset class.

Interesting isn't it? Shoot for average, and you come out above average time after time. It's like magic.

How the trick works:

Many articles seem to treat the superior returns of index funds as if it's a coincidence. Or as if it tells us something about the incompetence of active fund managers.

It's not a coincidence. And it's not a result of active fund managers being incompetent. (Quite in fact, from what I've seen, most active managers are quite intelligent and extremely hard working.)

It's simple arithmetic. And it works every time: Lower cost = Greater returns.

Let's say that over a given decade, the stock market earns an 8% return. That means that--before expenses are considered--the average dollar invested in the market must have earned an 8% return as well. Common sense, right?

However, if the average invested dollar incurred 1.5% of investment costs such as brokerage fees, brokerage commissions, and mutual fund expenses, then that means that the average dollar invested in the market only earned a net return of 6.5%. At the same time, any dollar invested in an index fund would have earned very close to the 8% market return. (Somewhere around 7.8%, if we assume an expense ratio of 0.20%.)

In other words: Index funds put you above average.

Three quick notes

First: It's important to recognize that this holds true regardless of which asset class we're considering--large stocks, small stocks, all stocks, municipal bonds, corporate bonds, etc.

Second: The advantage of indexing holds true regardless of how the asset class performed over the decade. For example, if the market had earned a -5% return over the decade instead of a positive 8% return, index funds would still come out ahead of the average fully-invested actively managed fund. (They would have earned -5.2% instead of -6.5%.)

Third: Not only do index funds have lower operating expenses than actively managed funds, they have lower portfolio turnover as well. And, despite it's lack of popularity as a topic of discussion, portfolio turnover leads to expenses that aren't included in the published expense ratio figures. In other words, the difference in expenses between actively managed funds and index funds is even greater than the published figures would indicate.

Are index funds unbeatable?

In short: No. But they come out above average over every extended period. And frankly, it's hard for me to think of anything that could give me more confidence than a strategy based upon (as John Bogle says) "the relentless rules of humble arithmetic."

Photo by Seth McGrath

The Harmonized Sales Tax: What It Means For Me, You, & Small Businesses

Alan Schram — Wed, 05 Aug 2009 12:00:27 +0000

On July 23rd, the government of British Columbia announced their intention to harmonize its provincal sales tax with the federal sales tax. It is intended to boost new business investment, enhance economic growth, and encourage jobs. But will it do any of those things? Large opposition has been raised over the HST, so what will actually happen July 1, 2010? Let's look a little closer

The Current Sales Tax

Currently, in British Columbia, we have two sales taxes. The first, GST (general sales tax), is a federal tax that is applicable to all transactions. Businesses are able to reclaim their spent GST on business expenses. This tax has been dropping over the last few years, from 8, to 7, to 6, and is currently at 5%. The second tax, PST (provincial sales tax) is not applicable to every sale, and is currently at 7%. The exemptions are usually necessities, things such as food, most clothing, medications, and some odds and ends like equipment for some businesses, and bicycles (source: taxtips.ca).

HST

Harmonized sales tax would simplify the tax equation by only charging one, harmonized, sales tax. Instead of paying 5% to the federal government and 7% to the provincial government, BC residents would pay one sales tax of 12%.

Why HST?

Essentially, some opponents of the HST argue that the BC Government has suddenly decided to accept the HST because the federal government will pay BC 1.6 billion dollars in order to adopt it. However, according to the press release from the BC government the HST would "remove over $2 billion in costs for B.C. businesses", partially just by reducing adminstrative costs of filing for their money back spent on PST. The rest of the 2 billion would come from small businesses who would (presumably) no longer have to pay taxes on goods that will be resold. These businesses would then (presumably) pass on the savings to their customers, lowering cost of goods, lowering overhead, allowing for more economic growth, job creation etc, etc.

What Does This Mean For Me?

For the majority of consumers - actually not a whole lot. There are a couple of large changes that you should be aware of, but for the most part, you were paying 12% tax before, you'll be paying 12% tax after.

Previously, PST was exempted from certain goods. The HST will also offer a few "point of sale rebates" (where essentially you are only charged the 5% tax instead of the 12%). This will continue on things such as basic groceries, gasoline, and children's clothing. (Note: These tax exemptions are currently only "proposed" tax exemptions.. they could end up still being charged the full 12% tax) However, you will be charged the full 12% on numerous items that you were not previously.

Currently, if you got to a restauraunt, you're only paying 5% tax on your meal. After July 1, 2010, you'll be paying a full 12%. Adult clothes, some of which were tax exempt, are no longer. For some reason, "it is not possible to duplicate the exemption with respect to the adult sized clothing" (source: fin.gov.bc.ca).

Oh, and most importantly, if you're plannning on buying a house in 2010, do it before July 1. The new HST will apply to the sale of houses over $400,000. In order to help "ease" the burden on the buyer, the government will cut you a nice cheque for $20k. Yay! Except that 20k won't even be half the amount of tax that you will pay ($48,000), and the extra $28,000 in taxes you pay is higher than what you were paying before (5% = an even $20,000, plus you'd get a rebate which would lower the tax percentage down to 3.5%, meaning it is only about $14,000). For every dollar above $400,000, you're paying even more. For the sale of a million dollar home (which is pretty normal around the Vancouver area) you're paying $100,000 just in taxes.

This is just one more reason why the rules have changed, and we're in a new era of personal finance.

Photo by 427.

50+ Things Everyone Ought to Know About Their Money (And Hundreds of Questions to Ask Along the Way)

Alan Schram — Mon, 03 Aug 2009 12:00:56 +0000

How well do you know your money situation? Here are 50+ things everyone ought to know about their money.

Net Worth

1. Total Assets

What are your total assets? What is the approximate value for your home? Your vehicle?

2. Total Debts

What are your total debts? Car loan, mortgage, personal loan, line of credit, credit cards, etc.

See Also:

Bank Account

3. Monthly Fees

What is the monthly fee for your bank account? Do you even have one? Is there a minimum deposited amount required to negate the fee?

4. Account Fees

What additional fees does your bank charge? Are there ATM limits, withdrawal limits, overdraft fees, etc?

5. Savings Interest Rate

What interest are you earning with your bank account? What's your savings account interest rate? What's your checking account interest rate?

6. Transfer Limit

Do you have a maximum withdrawal limit on your bank account? What is it? When does it reset (daily, weekly, monthly?)

See Also:

How to Set Up An Online Bank Account

Budget

9. Total Monthly Income

What is your total monthly income? What is your family's total monthly income? How much does it fluctuate? What is the minimum you will make in a month?

10. Total Monthly Expenses

What are your total monthly expenses? How much do they fluctuate? What is your minimum budget? What is your dream budget? Are there any monthly expenses you can reduce?

11. Percentage of Housing Costs

How much of your monthly budget is spent on housing? Are you comfortable with that percentage? Over the next 5 years, will that percentage go up or down?

12. Percentage of Transportation Costs

How much of your monthly budget is going towards transportation costs? Are you comfortable with that percentage? Over the next 5 years, will that percentage go up or down? What can you do to reduce that percentage today?

See Also:

Cash

7. How Much Cash You Have In Your Wallet

Do you carry cash in your wallet? Count the cash in your wallet, in your pocket, in your change drawer/jar/purse. Do you have other cash stored around your house? Do you know where it is? Do other people know where it is? Is there a piece of paper with locations & amounts in case of emergencies?

8. How Much Cash You Can Get Your Hands on in an Emergency

If something were to happen, how much cash can you get your hands on? Do you have an easily accessible bank account with cash you can withdraw? Do you have actual cash stored around your house?

See Also:

The Inconvenience of Cash

Automation/Bills

13. When Your Credit Card Bill Is Due

On what day do you receive your credit card statement? On what day is your credit card bill due? How long is between those two days? Are your credit cards paid off automatically or do you have to do a manual transfer? Do you do it through an online bank, by phone, by mail?

14. When Your Phone Bills Are Due

When do you receive your phone bill? When is your phone bill due? Are your phone bills paid automatically? Are they tied to a credit card, or a bank account?

15. When Your Rent/Mortgage Payment is Due

When do you pay rent? When is your mortgage payment due? Is the process automated?

16. When Your Utility Bills Are Due

When are your gas, electricity, or water bills due? Are they paid automatically? Are they paid through money transfer, credit card, or cheque?

See Also:

Emergency Fund

17. How Much You Need For Your Emergency Fund

What's the worst case scenario? If you lost your job, how much money will you need to cover your expenses while you look for work? If you were to break your leg, how much cash do you need while you recover?

18. How Much You Have For Your Emergency Fund

Do you have an emergency fund? How big is it? How long will that last you?

19. How You are Going to Save For Your Emergency Fund

Do you have a plan to fund your emergency fund? Is it automatic?

20. When You Will Use Your Emergency Fund

During which circumstances will you allow yourself to touch your emergency fund? Loss of job? Loss of life? Medical emergency? Are these situations written down (and agreed upon)?

21. When You Will Not Use Your Emergency Fund

What does not qualify as an emergency? Car breakdown? Superbowl? Are they written down (and agreed upon)?

22. How You Will Replenish Your Emergency Fund Should It Be Used

If you are forced to use your emergency fund, how quickly can you replenish it?

See Also:

How to Start an Emergency Fund

Credit Card

23. Interest Rate

What interest rate are you paying on your credit card balance? Is it currently a promotional rate? When will it change? What will it change to?

24. Grace Period Length

How long is your grace period (where you aren't charged interest)? What will eliminate the grace period (missing a payment? holding a balance)? How long before you get the grace period back?

25. Terms & Conditions of Rewards

What type of rewards program do you have? Do they expire? How can you cash them in? Is there a minimum? A maximum?

26. Requirements for Additional Insurance

To take advantage of the additional insurance that your card may offer, what must you do? Pay for the entire purchase by credit card? What are the exceptions? What does it cover? What won't it cover?

27. Requirements for Extended Warranty

What is required to benefit from an extended warranty that your card may off? Full purchase price? Must you hold a balance? Does it double the manufactures, or add a year?

Debt

28. How Much Credit Card Debt You Have

How many credit cards do you have? What balance do they have? What are their interest rates? When will they be paid off?

29. How Much Student Loan Debt You Have

Are they private or government assisted loans? What interest rate are they charging? What is the minimum payment? When will it be paid off?

30. How Much in Personal Loans You Have

Do you owe your parents any money? Friends? Relatives? Are they charging interest? How much? When are you expected to repay?

31. How Much in Credit Lines You Have

Do you have a line of credit through your bank? What interest rate is being charged? Is it secured against anything? What are the terms of repayment?

32. How Big Your Mortgage Is

Do you have a mortgage? How large is it? When will it be paid off? Are you able to make additional payments? What fees are associated with the mortgage? Is your home worth more or less than the value of the mortgage? What interest rate is your mortgage at? What does it cost to refinance your mortgage?

33. How Big Your Car Loan Is

Do you have a car loan? What are the terms of repayment? When will it be paid off? Is your car worth more or less than the value of the loan?

See Also:

Career

34. How Much You Are Getting Paid

What is your pay calculated on (salary, hourly, commission, etc)? Are your paychecks accurate?

35. What Your Benefits Are

What benefits does your company offer? What are their requirements? How much are you allowed to claim? What percentage are you allowed to claim?

36. What Your Pension/401k Options Are

What pension or 401k plan do they offer? What is it invested in? What transfer options are available if you are to leave the company?

See Also:

What's Your Time Worth?

Taxes

37. What Tax Bracket You Are In

How much of your income do you actually get to keep? How close are you to the surrounding tax brackets?

38. How Much You Owe In Taxes

How much do you owe for taxes? Per paycheck? Per month? Per quarter? Per year? Are your taxes taken off automatically, or do you have to save to pay taxes?

39. How Much You Will Receive Back In Taxes

How much of your taxes will you get back in April? Should you change your withholdings to optimize your tax withholdings? Are you using taxes as a savings plan? What will you do with your tax return? Debt repayment? Invest in retirement?

40. When Taxes Are Due

Do you pay taxes yearly? Quarterly? Per paycheck?

41. How Much Tax Credit You Already Have

How much of a tax credit do you already have? What was it from? How much of a tax benefit do you already have from previous years? How many years will that tax credit last you? When will you start having to pay taxes (and not get them back)?

Retirement

42. Retirement Account Savings Percentage

What percentage of your income is going towards retirement? Are you comfortable with that percentage? Over the next 5 years, is that percentage going to go up or down? Are your retirement savings automated?

43. Retirement Investment Portfolio

What are your retirement savings invested in? Do you know? Are they invested in bonds, stocks, index funds, mutual funds, real estate, etc? Are you comfortable with your investment portfolio? Is it more or less risky than you need? Than you desire?

44. Retirement Investment Fees

What is it costing you to invest? Are there monthly, annual, or per transaction fees? Are you investing yourself or through a broker? What are your broker's fees?

45. When You Can Retire

When are you going to be able to retire? Do you want to retire? What does retirement look like? How much money will you need?

See Also:

Insurance

46. Medical Insurance

Do you have medical insurance? How much does it cost? Do you pay monthly, quarterly, or yearly? What does it cover? What doesn't it cover? Is payment automated?

47. Life Insurance

Do you have life insurance? How much does it cost? Who is the beneficerary? Do you pay monthly, quarterly, or yearly? What does it cover? What doesn't it cover? Is payment automated?

48. House Insurance

Do you have home insurance? What is the deductible? How much does it cost? Are there cheaper options available? What does it cover? What doesn't it cover? Do you pay monthly, quarterly, or yearly? Is payment automated?

49. Car Insurance

Do you have car insurance? What is the deductible? What does it cover? What doesn't it cover? How much does it cost? Do you pay monthly, quarterly, or yearly? Is payment automated?

Future/Planned Spending

50. Children

Are you going to have children? How much will it cost?How many children are you going to have? Will it affect your transporation needs? Housing needs?

51. College Fund

Are you going to college? How much will it cost? Are you children going to go to college? Are you going to help them pay for college? Are you going to invest in a college fund, or set money aside for them?

52. Large Purchases

What additional large purchases are you going to need to tackle in the next few years? How are you planning on paying for them? Are you going to buy a house? Are you going to renovate? Are you going to buy a vehicle?

See Also:

Are You Ready For Christmas?

What'd I miss? Anything else everyone ought to know about their money?

Want to learn more about what you ought to know about your money? Subscribe to Saving For Serenity (via RSS or Email) to get free updates to financial serenity.

Need somewhere to store all of this information? Here is a spreadsheet (.xlsx) you can use.

Photos by mzacha, deedoucette, lyon photography, Andres Rudea, & Aaron Landry.

The Serenity Prayer, and How It Applies to Your Finances

Alan Schram — Fri, 31 Jul 2009 12:00:57 +0000

Shortly after I started Saving For Serenity, as I was narcissistically googling myself, I stumbled across something called "The Serenity Prayer". Employed by groups such as Alcoholics Anonymous, the Serenity Prayer reads:

God grant me the serenity
to accept the things I cannot change;
courage to change the things I can;
and wisdom to know the difference.

Obviously, this struck a chord with me, as I love the word Serenity. There's a beautiful association that I have with the word, that includes thoughts of peace, calm, absence of stress or strain, zen, beaches, and contentment. So naturally, I got to think about how this might apply to our financial lives, regardless of whether or not you believe in a higher power. So how might this be applicable to our financial lives? Well, all we have to do is attempt to figure out what we cannot change, what we can.

I Cannot Change

The Market
My (Current) Bank Account Balance
(Some) Interest Rates
Tax Percentages
Financial History
Financial Genes

I Can Change

My skills, assets, relationships
My future bank account
My spending habits
My earning potential
My rate of pay
Other interest rates (bank fees, account fees, debt interest rates, etc)

So now what?

Accept What You Cannot Change

You can't change the market. You can't change your financial history. You can't change what's currently in your bank account, and you can't change how you grew up learning about money. So don't worry about them. There is absolutely nothing good that will come of your worry. Do you check your investments on a daily basis? Stop. What good will it do? You know the math, you know that buying and holding is a good, viable, long term strategy for investing, so stop looking. Accept that the market will fluctuate. Accept that you cannot control the market. Accept that your index fund, the stocks that you did due research into, or your broker will do their job properly, and eventually everything will level out and work. Or it won't - but you can't do anything about that anyways. You are making the best decision you know how to, so accept that the market will do whatever it will do.

What about your financial history? How often do you look back over your life and beat yourself up about it? Forget about it already! Its done - so move on. Do you still curse the day you signed up for your first credit card? Stop. There's no point. Accept that your history is your history - you cannot change it. You can, however, change how you are going to approach that same problem in the future. You can get yourself out of debt. You can get yourself to make better and smarter decisions. Did you slip up and charge some chocolate bars or a couple DVDs that you shouldn't have? Its in the past. You can't change it - so move on.

Have Courage in What You Can Change

The bad news is that there are a bunch of large factors that are beyond your control. The good news is that you have the ability to change almost everything else. You don't earn enough money? You can change that. Your bank account not full enough? You can change that. Not saving enough? Spending too much? Not marketable or skilled or personable enough? You can change that. Take heart in the simple fact that it can be changed. It is not impossible. And most likely, there is someone that has been there before you, already done it, and willing to help you. Are you in debt? Who isn't. You can get out, tons of people have. Are you not earning enough? Learn from those who have gained new skills, or learned how to market those they already have. Stuck in a dead end job? You can get you. You can even start living and working for yourself if you want to. Not that any of these things are easy, but they are possible. You CAN change them! You can double your rate of pay, your bank account, your circle of friends. Find encouragement in the pureness of possibility.

Thankfully, in the world of personal finance, having the wisdom to figure out what you can or cannot change is pretty easy. It is either in your hands, or it isn't. If it isn't possible to change, then don't sweat it. If a service provider won't change for you - you can always remove them from your list of service providers. If your bank account isn't providing you with the interest rates you desire, then you can change banks. We live in a world of options and possibilities, and there are only a few things in our financial lives that we cannot change.

Take Action

Are you searching for Serenity? You can have it. Now that we've determined what we can and cannot change, feel free to go ahead and make any changes you feel necessary. Need to save more? Increase your automatic savings plan. Need to spend less? Cut up the credit cards, use an envelope budgeting system, shop once a week. As each action falls into place, you'll slowly come to the realization that you've done everything that you can to improve your financial situation. Beyond that, there is nothing you can do, so just sit back and wait while your hard work slowly pays off.

Want More Serenity? Subscribe to Saving For Serenity via RSS or Email.

Photo by Darren Wang.

Are Budgets Dead? [Ask The Reader]

Alan Schram — Wed, 29 Jul 2009 12:00:15 +0000

Is it time that we kill our budgets? Shall we put them to rest alongside our abacuses and Charga-Plates as irrelevant relics in personal finance history? Or are they still an integral and essential part of one's financial world?

Just yesterday, the first personal finance blogger showdown went up at Budgets Are Sexy. In the article, the author asked two of the biggest names in personal finance blogging a series of questions. The answers they given were put into a table so that we could compare the results between the two. In the comments, Matt Jabs pointed out what I and a number of other readers noticed - neither JD nor Trent use a budget.

JD, from Get Rich Slowly, wrote:

I do not use a budget. I've tried, but it just doesn't work for me. The closest I come is for my personal spending. I withdraw $200 at the start of each month, and that's my play money.

And Trent, from The Simple Dollar, answered:

I used a budget for quite a while, but I stopped using one a year or so ago. I realized that it had become a dead document - I wasn't actively using it any more. I do keep track of my spending using Excel and I'm planning on giving Quicken a fair shot when it's released for the Mac later this year.

When asked to elaborate, Trent commented:

I view a budget as being something like training wheels. They're great for teaching you how to manage your money, but you eventually reach a point where it's all either automated or an ingrained part of your behavior, at which point the time investment in a manual budget is misplaced.

So two of the biggest names in personal finance, the guys that half of us have been reading for years, the ones teaching us how they have achieved financial success, don't use a budget. So why should we? Are budgets dead? Here are some initial thoughts on the subject.

Budgets Are Dead

Using a budget is simply a waste of time. As long as you are spending within your means, there is no need to track every single dollar that comes in and goes out. Life is short, using a budget is an inefficient use of time.

Furthermore, we now have automated machines that do that work for us. Mint.com, Rudder.com, Wesabe.com, Quicken Online, all track your money to the penny for you. Why bother spending the time figuring it out when you can have a machine do it for you? Don't fight the age of the computer, learn how to out source tasks.

Regardless, our financial skills (should have) evolved beyond the primitive budget. While it may be good as a learning tool, eventually you'll grow up and abandon the budget. Using a budget is like tee ball. Someday the ball will be moving, and you're going to have to hit it anyways.

Budgets Are Alive

There's a reason multi-million dollar corporations use a budget - they work. When you start to track your spending, budget for anticipated expenditures, you are better able to anticipate trends and adjust accordingly. You can see what computers can't - goals, desires, dreams. Budgets help by giving possibility a concrete series of steps towards progress, something that should never be overlooked.

A budget will maximize the spending power of your dollar. It does this by ensuring that every dollar is spent wisely. Budgets allow for audits, which allow for inefficiencies in your spending record to disappear, giving you more spending power and potential in the future.

A budget is useful to keep spending in check. They've been at the forefront of personal finance advice for years because it offers a basis for the rest of your financial life.

Ask The Reader: Are Budgets Dead?

So what do you think? Do you budget? Are budgets on their way out? Are budgets here to stay? Sound off.

See Also:

Don't forget to subscribe (for free) to Saving For Serenity via RSS or Email.

Photo by Matito

Frugal vs Cheap: The Final Showdown

Alan Schram — Mon, 27 Jul 2009 12:00:10 +0000

Frugal is in. The current global economic recession has started a shift in the trend of North American consumerism, resulting in frugality showing up in a big way. While just two years ago everyone was lauding and applauding bigger, better, and best, the downturn has shifted from "how big can you get" to "what is enough?" Our gas guzzling SUVs have been traded in for hybrids or gas efficient passenger cars, our trips to the mall have been replaced with trips to thrift stores, and our $28,000 weddings have been downsized. Our nation is slowly shifting its attitudes and values from "spend spend spend" to "maybe this is enough".

But what is frugal, really? Is frugal just a nice way of saying "cheap"? Is there a difference?

Frugal Is As Frugal Does

Frugal, as defined by definr, is "avoiding waste". Frugality, then, is the practice of avoiding waste. How does one avoid waste?

Not Buying Too Much

Whether it is steaks at the grocery store or a sound system at BestBuy, frugality rejects the option of buying too much. Corporations are designed to remove you from your money. They will try their best to convince you not only to buy their product, but to buy as much of their product as possible. What size TV do you need? At least a 42", if not a 46 or 50. How much cereal do you need? Definitely the JUMBO size - its a bargain! What type of shirt do you need to wear? Buy two of these shirts, get this one free! Frugality is the practice of rejecting corporate marketing. Frugality says "No thanks, I have more than enough".

This is something that everybody is going to have to learn in their lifetime. Our generation grew up without knowing the limit, and slowly as the earth and our financial systems crumble, we're having to learn what is enough. Define enough for yourself, and once you're there - stop.

Buying Green

Waste can be defined environmentally as well. For example, some argue that it is a "waste" to use paper towel when a washable cloth can be used. Therefore, frugality would embrace the higher initial cost - but lower environmental and long-term cost of buying reusable materials. This might go for things such as cloth diapers, tupperware, or a more fuel efficient vehicle.

Buying Green can also look at the manufacturing process to determine whether or not a purchase is, indeed, frugal. Is the item made from recyclable materials? Can it biodegrade? How much of an environmental impact is there when the item is being made? A person may choose to purchase a higher priced object if it avoids more waste. Frugality is not constrained by price, it has elements of long term, environmentalism, & consumer responsibility.

Only Buying When Necessary

Frugality is the practice of making do with what you already have. Frugality rejects the practice of "trading up" or "temporary" purchases. Instead of getting something just to "make do" until you get what you actually need, frugality waits, and makes the correct purchase when it is possible. For example, if you have an old car that is on its way out, frugality waits and saves instead of buying a new vehicle. Only once the car was no longer drivable would a frugal person purchase a new one.

Defining Cheap

On the other hand, we have cheap, often used as a synonym for frugal. Definr defines cheap in four ways.

1. relatively low in price or charging low prices

The classic definition of cheap, directly tied to the cost of an object. This is the first departure from frugal, because buying frugal does not necessarily mean that you are buying a low priced item. Buying a cheap item, on the other hand, definitely does.

2. tastelessly showy

This is incredibly ironic to me. All those people who bought Hummers out of the desire to prove to their uncaring friends just how rich they were may have actually been quite "cheap" in their purchase.

3. of very poor quality

Again, this is a huge departure from frugal. There's nothing frugal about buying the same $20 bookshelf from IKEA ever 6 months, to replace the broken and degrading one you already have at home. You would actually spend less money, over time, investing $100 or $200 into that bookshelf and having it last you the rest of your life. Cheap, while offering nice low prices, often has to offer low quality as well in order to meet those prices. Whether it is shortcuts during the processing stage, or just using cheaper quality materials, cheap means less money - and less product for your money.

4. embarrassingly stingy

I think this is one of the most popular definitions of cheap. Also see: cheapskate. This is definitely primarily used in the derogatory sense, as in our culture it is a social sin to be embarrassingly stingy. This might be the closest to "frugal" we have, however, as many people who are actually cheap claim to be frugal. There is, however, a huge difference. Frugal is spending money when it is needed and required - for experiences, for quality, for the long term. Cheap is the rejection of quality goods and the abandoning of social responsibility.

Frugal vs Cheap

So what does this look like in real life? Cheap is tipping poorly. Frugal is using a coupon. Cheap is buying the least expensive cutting knife. Frugal is investing in a quality knife that you take care of so it will cut better and last you years. Cheap is buying cheap lettuce, frugal is growing your own. Cheap is always asking, never giving, while frugality embraces equality.

In the end, frugality takes more work. It isn't always the least expensive choice, and it isn't always an easy choice. Frugality can have more than one right answer.

So what are you - cheap or frugal?

See Also:

Photos thanks to washed up & gothopotam

The Inconvenience of Cash

Alan Schram — Fri, 24 Jul 2009 11:35:08 +0000

Cash is king. Not only does paying with cash help you get out of debt, it can also help you in negotiating, and bargaining situations. Cash is cool. There is nothing more sweet than a Scrooge McDuckian bath in cold hard cash. Cash is transportable, theft worthy, and generally untraceable, making it the stolen target of choice for robbers and their ilk.

Unfortunately, using cash is just plain inconvenient.

Cash Can Be Stolen or Lost

The other day, in preparation for our trip to Hawaii for our honeymoon, I made the lengthy journey to MoneyWay, a currency exchange depot. I swipped my debit card, paid in Canadian, and got some good old Benajamins in return. Then I had to put them in my wallet and bring them home.

While my money was in the bank, it was safe. Unless someone stole my identity, or debit card & pin, it was untouchable. As soon as my money moves to my wallet, it becomes prone to theft or loss. I actually forgot that my money was in my wallet, and carried it around with me instead of leaving it at home where it would be safer until we left for our trip.

Unfortunately, if you are subject to a mugging or a forgetful mind, you lose your money. There is no "undo" function for being foolish and leaving your wallet somewhere your cash can be stolen, and there is no magic "find" for misplaced cash. Once cash is gone, it is gone.

Cash Is Slow

How many times have you gotten into what you thought was the short checkout line, only to find out that the grandma in front of you wanted to empty her purse of her pennies and nickles. 15 minutes later, she has counted out the necessary amount of change in order to pay for her apples and bannanas, and you realize that the cashier is obligated to double count it just to make sure. It is utter agony.

Credit or debit, for better or worse, is much faster. You swipe, you press a few buttons, and presto, you're outta there. My new credit card even lets me "tap and go", which sort of makes me feel a little dirty on the inside, but it definitely means that it takes even less time to pay for things. Granted, this means that the connection between you and your money is growing ever slimer, but for those that are able to keep their spending in check, speed is more important than "feeling the pain" of paying with cash.

Cash Is Cumersome

When I was a young boy, I remember sneaking around, finding a mini screw driver, and breaking into my piggy bank. As a wee little boy, I didn't realize that filling my two tiny pockets with an excessive number of dimes would be less than stealthy. I jingled out of my room, down the hall, while putting on my shoes, and all the way to my friend's lemonaid stand.

Even today, when I have the rare opportunity to use cash, I practically dread the change. Unlike Americans, we Canadians actually have some coins worth a fairly significant amount of money, like the loonie and the twoonie. While I'm fine with dumping a few quarters and nickles into a jar at home, if I did that with the larger change I wouldn't have any lunch money to carry around. So I'm stuck with a bouncing pocketful of change wherever I go.

I prefer to walk as unencumbered as possible, and cash destroys my ability to do so.

Cash Divides Your Accounts

Most of us already have a number of bank accounts. Perhaps we have one chequing account, one savings account, one credit card, one line of credit, a loan or two, and that's not even counting the cash we have on hand. For me, when I want to know how I am doing financially, the first thing that I do is I check my bank account balance. That is where my money is, that is how much money I have. If I have a little bit of cash at home, or in my wallet, I don't count the cash because it has already been removed from my main account.

Psychologically, it is as if it has already been spent, meaning that it is just that much easier to spend it.

Cash Is Easy To Spend

I completely understand the argument behind "don't use credit cards because it makes paying for things easier". They argue that you should pay with cash because as it leaves your hand you "feel" the pain of payment more. I totally know where they are coming from, and would often agree with them. However, for me, cash on hand is almost useless.

It gets a lot better the larger the bills I have. If I have a $100 bill, I don't want to use it, I don't want to break it. Even a $20 takes a bit more effort to part with than a $5 or a $10, but once it is broken down, it hardly matters that I spend it. It is already out of my bank account, so I know that I don't need it for bills, or rent, or anything that I'm saving up for. Cash in my pocket is money made to be spent.

Cash Can't Be Tracked

Have you ever watched the show 'Til Debt Do Us Part with Gail Vaz-Oxlade? During the first segment of the show, she will sit down with the couple that she is helping and go over their last few months expenditures. There is almost always a hefty amount of money going to "cash", which can't be traced. Unless you are a receipt hoarder, you won't be able to look back and see what you spent your cash on. Seeing as it is so easy to spend, as it is divided from the rest of your account, the money is practically spent already.

There are plenty of arguments to use cash, but I'm not going to start. It might help me budget better, or spend less, but the benefit of paying with cash is not worth the risks and inconveniences.

Like this post? Maybe check out 8 Reasons You Should Spend More Than You Earn, or 7 Reasons to Stop Tracking Your Finances. Or, consider subscribing to Saving For Serenity to get everything as soon as it is posted.

Photos by Darren Hester, Xtina Lam, DCE.

Saving Money on Prescriptions, Glasses, & Contacts

Alan Schram — Wed, 22 Jul 2009 13:09:50 +0000

I clearly remember the day that I finally got to have glasses. My whole family had glasses, and being the youngest, I desparately wanted to fit in. I liked how they got to go to a big store of all different shapes and styles, try on a bunch of cool frames, and then get to bring them home and wear them all the time. I was super excited about getting my glasses - even though I was told that they were "a pain" and "annoying" more than cool and sophisticated.

16 years and about a dozen frames later, wearing glasses is more than just physically annoying - it is downright expensive. Being a young twenty something living without benefits, going to an optician and buying new frames and lenses can add up quickly. It is not like I have an extra $500 lying around to get new lenses - even if my frames are out of date and my lenses don't match my prescription. So here is how I've been affording my prescriptions, glasses, and contact lenses on a student's budget.

Prescriptions

Seeing as I have moved at least once a year over the last 5 or so years, I haven't gone to a regular optician for awhile. I've been to a couple different places, and to be frank, they all seem to cost the same. For me, it's been around $70 for an eye exam, where they test my vision, and check my eyes for diseases and injuries. The biggest difference here has been the thoroughness of the exam, and the relationship with the optician. When I was younger, I always went to the same optician, and looking back, I don't think that he was as extensive as my most recent visit. I've never had someone flip up my eyelids and check underneath them before. Uncomfortable, but comforting to know that they haven't missed anything.

Glasses

Glasses are one of those things that always seem to cost way more than it should. Granted, there is something insanely magical about taking someone's distorted vision and making everything appear crisp and clear. What's also insane about glasses is their markup. A few years ago, I ran across a blog called Glassy Eyes. It first served as a chronicle for one man as he sought out a cheaper way of buying glasses - by getting them online. It avoids the retail markup that is present in brick and mortar stores, meaning that you can get your glasses for cheaper - much much cheaper.

There is a lot of debate surrounding the question of buying glasses online. Glassy Eyes tackles most of the questions that you might have.

For me, all I'm going to say is that I tried it, and it worked. Instead of spending $200 on new frames, and $200 on new glasses, I spent $50. I got new frames, which look good on me, in my exact prescription (just had them checked, and they were perfect), shipped to my door. It was nerve racking, I was worried they would look bad or would be the wrong prescription. I ended up deciding to try it, as I figured that the potential positives (cheaper glasses) would outweigh the negatives (out $50).

If you're afraid to try buying glasses online - just think of the pair that you order as being a "backup" pair. I got mine from Zenni Optical. I paid $50, but depending on the frames you like and your prescription, you can get them as cheap as $10.

Contacts

One year ago, my girlfriend and I went on a trip to Hawaii. Just before the trip, I decided that I needed to get some new contacts, as I was almost out and wanted to wear them while on vacation. I went to a local brick & mortar store, gave them my prescription, and order some contacts - the same ones I had before.

About a month ago, I realized I was in the same situation. I'm going on my honeymoon soon, and I'm almost out of contacts. I should get another 6 months worth before I go - so that I'm covered for our vacation. This time, I went to Costco. Costco's optometry department is surprisingly good. I actually got my prescription done there, as they have a third party optician come in three days a week to do eye exams. So she recommended I try a certain new brand of contacts - AirOptix or something like that.

A week later, I tried on the new lenses, and wow, are they ever good. I've just worn them for one day, but I can already tell the difference. I was told that they were going to be "a little more expensive" than the ones I was using (which were apparently absolute crap) - but because Costco doesn't mark stuff up very much, I'll probably end up paying the exact same as I did at the local store.

Another possibility goes along the same line as buying your glasses online. You can order contacts online, throgh retailers like ClearlyContacts.ca. While I was at Costco, however, it seemed that buying contacts is a little more complicated than glasses, as you have to "size down" on your prescription or something. I haven't tried ClearlyContacts, so I can't recommend them, but I am intrigued enough to consider using it 6 or 12 months from now when it come time to get new contacts - hopefully because I'm going on vacation!

Photo by kogakure