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Budgeting Mistakes to Avoid

Whether you’re new to budgeting or have been budgeting for a while, there always seems to be expenses that get forgotten or overlooked. I know I’m guilty of overlooking all of the five most commonly forgotten expenses at one point or another. Unfortunately I don’t realize it until the expense comes up and I feel the pinch on our monthly cash flow.

In order to avoid the pinch, it’s a good idea to check your budget and make sure that you haven’t overlooked the most common budget expenses that get forgotten. You don’t want these sneaky budget busters ruining your month.

Special Occasion Gifts:

When looking at next month’s budget you do not want to forget any special occasions (think Halloween) or gifts that you might need to budget for. Open up your social calendar and see if you have any birthdays coming up or anniversaries that are being celebrated. Don’t make the same mistake I seem to do in October, and forget to budget a dinner out for our anniversary, and then have to make cuts elsewhere in the budget to accommodate for the “unexpected” expense.

Car Maintenance:

This is one of those categories that my husband and I overlooked early on in the budgeting process, but one that is important, especially when it’s time for any regular car maintenance. Even if you just set aside a small amount every month in an envelope or sinking fund and let it build, when you have to do an oil change or you have to replace your tires, you’ll have the money ready to go.

House Maintenance:

You also want to make sure that you’re setting aside a little bit of money each month for home maintenance. Even though you may not need this money each month, home maintenance is ongoing. There are always items around your home that will need to eventually be replaced or upgraded. Setting aside some money each month ensures that any foreseeable home repairs don’t require you to dip into your emergency savings or go into debt to cover the costs.

Quarterly or Annual Bills:

You also don’t want to forget those bills that don’t come in every month. For us, our electric bill comes in every other month and we pay our water bill quarterly. You want to familiarize yourself with the bill schedule so that you know which months you need to budget for them. Other quarterly or annual expenses might also include your insurance, licence plate renewal, or any yearly membership renewal fees.

Setting Aside Money for Taxes:

For those that are self employed or generating a side income where income tax is not deducted, you want to make sure that you’re setting aside a certain percentage of that money to keep the IRS happy come tax time. In order to know how much to set aside, you’ll need to determine your marginal tax bracket rate. By setting this money aside and being prepared, you’ll avoid the scramble with the tax bill comes in.

Your Turn!

  • What are some expenses that have busted your budget in the past?

Four Reasons Why We Stayed In Debt

Our debt story began when I was 19 years old and I got my first student loan and credit card. Fast forward 18 years, a marriage and two kids later, we had to come to terms with the four main reasons why we stayed in debt for all of that time.

 

At 37 years of age, I found myself staring at close to $59,000 worth of debt (a long way from that initial $500 student Visa card I had signed up for). Confronting the reasons why we had stayed in debt so long and changing our mindset about debt, finally gave us the motivation we needed to get it paid off.

We thought we had plenty of time:

My goal was always to be debt free by the time I retired. I understood at a young age that heading into your retirement years with debt wasn’t a wise financial decision. The problem was that in my 20’s and early 30’s, I still thought I had plenty of time to get my debt paid off.

I wasn’t in any rush, because I didn’t feel any sense of urgency. Not until I hit my mid-30’s. Once I hit that age, I realized that if we kept going the way we were, spending without a plan, and not putting a thing towards savings, my husband and I were going to be in deep financial trouble.

The other kicker came when I looked at what was being spent on debt-repayment. At the time our debt repayments totaled just over $1000 each month. Looking at the total amount paid, rather than just the individual minimum payments, forced me to see how much money we were throwing away and paying the bank each month, when if we had been smarter with our spending, could have been paying ourselves in the form of retirement investing.

We used our line of credit and credit cards as income:

Because we weren’t on a budget and had no idea where the money was going each month, we found ourselves relying debt to help us get through the month. If the bank balance was getting low, and I still needed to get some food or clothes for the kids, out would come the credit card.

After years of doing this, it really became a vicious cycle of using debt to either pay for the things that we needed, as well as the stuff we wanted. We also got into the trap where I would find that I was paying debt with debt (using Visa to pay MasterCard) if the money was tight at the end of the month and the bills were due.

In order to break out of this vicious cycle, we got on a monthly budget so that we could control our spending, account for our spending, and break the ties with the credit cards and the line of credit once and for all.

“At least we’re not as bad as…”

All of our friends had debt, so I found myself getting into the trap of thinking that debt was normal. Everyone seemed to have debt, so I wrote off the fact that we had debt as “No big deal; We’re just like everyone else”.

I also found myself playing the comparison game. One of my favorite shows on TV at the time was “‘Till Debt do us Part” hosted by Gail Vaz Oxlade. On this show, she would feature families who had gotten themselves into debt and were looking to get out of it.

Instead of being inspired to get out of debt ourselves, I found that I would compare our financial situation to the families featured on the show, and thought, “Well at least we have less debt than them”, as a way to justify and feel better about where we were financially.

Keeping up with the Jones’s:

american dreamThe last reason we stayed in debt as long as we did was our desire to keep up with the Jones’s. I would look at the lifestyles of those making a similar income to my husband and I and felt that we should be able to afford the same types of things.

Where we went wrong was that we didn’t plan or save for major purchases or vacations, we just went ahead and charged them. The down payment for the mini-van, new furniture, and our family vacation to Disney World were all courtesy of MasterCard.

What we have since learned is that we can have all of the things that the Jones’s have, we just need to plan ahead and save up for them first by budgeting and setting aside money into our sinking funds.

Your Turn!

  • What are some money mistakes that you’ve made that kept you in debt?
  • What mindsets did you have to change to pay off any debt you had?

Talking to Your Family About Money

Growing up, there were three topics that I was told never to discuss with other people: politics, religion, and money.  As a result, finances were never discussed in my family. I never heard the word “budget” or had a good understanding of what a budget was. Nor did we discuss money management or the importance of saving.

My husband and I don’t want to repeat that same mistake, and discuss our budget and financial situation openly with not only our children, but our parents as well. Approaching the topic of finances can be tricky, but if you know what to focus on, hopefully the awkwardness will quickly fade and this once taboo topic can be openly discussed.

Talking With Your Spouse or Significant Other

When talking about your money with your spouse, you want to set aside time where  you can find some common goals that will require you to be on the same page financially and work together as a team. Perhaps you want a certain amount set aside for retirement, or would like to rid yourself of all of your debt. Set a common goal and then come up with a plan to start working towards that goal.

The next step is to sit down with your spouse and develop a spending plan or a budget. Both parties have to be in agreement, so be prepared to compromise. Don’t forget to include personal spending money for each of you. This will allow you to spend freely, up to a certain amount, so you don’t feel constricted by the budget.

Talking With Your Children

Teaching your children the value of money early on will set them up for success later in life. Understanding the importance of spending wisely and saving will provide the foundation that they will need as they get older and start to earn their own income.

We follow the 10% rule for saving with our children. Each week they receive $5 for chores completed. We set them up with both a checking account and saving account at our local bank, so each week, the girls will deposit their $5 dollars into their checking account and then immediately transfer 10% into their savings account. This also goes for any money that they receive for Christmas or their birthdays.

If you’re comfortable, it’s also helpful if you are honest about your money mistakes as they get older and talk about how some of those mistakes impacted your ability to save or give. You can also make them part of the budget meetings and have their input about family goals that are important to them and show them that in order to achieve those goals, other line items might need to be scaled back or sacrificed.

More than anything though, it’s important that you lead by example. What children see happening in the home has a far greater impact on their future behavior than just discussing what they should be doing with their money.

Talking With Your Parents

Although discussing money with your parents as a grown child might be the most awkward money conversation you’ll have, it’s important to have these conversations as early as you can. It’s important to be informed about their estate plan, whether they have planned for retirement, and what arrangements, if any, have they made for long-term care.

Before beginning the conversation, you want to make sure that you also talk with siblings or other family members on the best way to bring up the topic and plan for a time when the family is together. The time when you decide to approach the topic will depend on your family dynamic.

Deciding when to approach the topic is one thing, figuring out how you’re going to start is the tricky part. If you don’t know where to start, try starting with your own experiences first. You could start off by sharing that you’re thinking of purchasing long-term care insurance or looking at how much is enough to set aside for retirement and ask for advice. Their responses could then be used to get into the conversation around how prepared they are and what measures, if any, they have in place for their long-term care should they get ill and be unable to care for themselves.

The most important information you want to gather from your parents is information about their will, health care arrangements, and power of attorney. Your parents should have in place a will outlining who they have named to make any medical or financial decisions should they become unable to. Ask your parents to assemble a list of accounts, and contact information for their advisers, lawyer, and accountant if they have one. Getting organized while everyone is healthy is key. There is nothing worse than trying to scramble to gather all of the necessary documents in the face of a medical emergency or when dealing with grief.

Your Turn!

 

 

  • What conversations have you had with your family about money?

Frugal Living Tips that Save Money

When we were looking at our budget and ways to cut costs to get our debt paid off, we realized that we had to go back to “Grandma’s way of doing things” and live more frugally. I quickly adopted these 10 frugal living tips and continue to use them to this day as we save for our future.

saving money

Use Coupons Wisely

Instead of clipping coupons for everything, I now only clip coupons for items that I use and redeem them when the item is on sale to maximize my savings. I’ve also started using many rebate apps that are available online or on your smartphone. My favorite include Checkout 51 and Ibotta.

Plan Your Meals Before you Shop

Every week I’ll sit with the store ads and look at what’s on sale. I’ll then plan a week’s worth of dinners based on what’s on sale and what I already have on hand in my pantry, fridge, and freezer.

If you can, be sure to plan meals where you can use one main ingredient two or three different ways. One of my favorite frugal meals is picking up a whole chicken and making roasted chicken one night, using the leftover meat to make Chicken Fried Rice the next night, and then using the carcass to create my own chicken broth which I then turn into homemade Chicken Noodle Soup.

Try a “Meatless Monday”

Speaking of planning your weekly meals, try going meatless at least once a week. One of the most expensive ingredients we buy on a weekly basis is meat. By trying different meatless meals, we have been able to slash at least $25 a month from our grocery budget.

Prepare Lunch the Night Before

pack your lunchIf you’re like me, you probably will hit snooze one or two times in the morning, making getting up and getting ready to go to work a little more stressful and busy. Many mornings I didn’t have time to put together a lunch, so I’d often find myself heading out to pick up a sandwich or some soup.

I quickly changed my ways after looking at our spending, and I’ll now pack my lunch the night before. Packing your own lunch could save you up to $1800 a year if you are used to grabbing something on the go every day.

Buy Clothes on Consignment or at the Thrift Store

When buying clothing gently used or second hand, you want to be on the lookout for quality pieces that are in great shape and will last. Look for quality name brand clothing that is well made or clothes that look as if they haven’t been worn or still have the original tag attached. Thrift stores will also have monthly or weekly specials, so be sure to get familiar with the sales schedule and visit during their discount days so you’re getting the best deals that you can.

Plan Nights In with Friends

No need to go out and spend a ton of money in order to enjoy an evening with friends. Plan a games night and invite everyone over. One of our favorite things to do is to host a dinner club with a group of close friends. Every month we select a theme and each family will bring over a dish making for a cheap and easy night in with friends.

Cook From Scratch

Some of our favorite things to make from scratch include bread, pancakes, pasta sauce, hot chocolate mix, and chocolate chip cookies that replaced the prepackaged lunch snacks that we used to buy. Not only has my food bill gone down, but so has the household waste that our family produces since we’re not throwing out all of that extra food packaging that comes with the prepackaged foods.

Group Errands Together

Saturday is errand day, and I’ll map out my route making sure that I can get all of my stops made in one trip. This has helped to save us a lot of money on gas each week.

DIY Car Maintenance

There are a lot of quick fixes and maintenance items that you can do yourself, even if you don’t consider yourself to be that handy. Checking the oil, changing the air filters and windshield wipers, and checking the air pressure in your tires are simple things that can be done with minimal effort, but can save you money in the long run.

Dump the Gym Membership

This was one of the first things that we did when it was time to tighten up the budget. Instead of paying for our monthly gym membership, we’ll go for a walk or a jog. There is also a huge variety of exercise videos that you can stream on YouTube for free.

Your Turn

  • What’s your favorite money savings tip?
  • How do you save money?

Time for a Financial Check-Up

In order to make sure that we’re in good health, many of us will be sure to check in with our doctor for a yearly once-over. The same is true for your finances. If you want to make sure that all is well on the money front, it’s equally important to complete a yearly financial check-up.

I always do my financial check-up at the beginning of a new year, but any time of year will work. It doesn’t take long, and is relatively painless, but checking in with your financial big-picture once a year will give you a great reference point as to where you are now and how far you’ve come when you check in this time next year.

Step 1: Check your Credit Report

It’s important to check in with your credit report once a year just to make sure that everything that is listed there are debts that you yourself have signed up for. This will help to make sure that there hasn’t been any fraudulent activity under your name.

It will also give you a sense of where your debts lie. Listed you’ll see any loans that you’ve taken out and have paid off or in the process of paying off. You’ll also see the last reported balances on any rotating debts like credit cards or lines of credit.

Checking your credit report is fast, easy, and more importantly free. Equifax and TransUnion are two of the most popular websites that you can use. Just simply enter in your name, address, and social security number, and within seconds you’ll have access to your credit report.

Step 2: Calculate your Net Worth

When calculating your net worth, I always start with listing down what we own. I start off with the liquid assets which includes our checking account, savings accounts, and our emergency fund. I also list the current balances on any investments such as our retirement funds and education funds, as well as the current worth of my pension. The last thing I list are the major assets that we own including the resale value of our home and two vehicles.

Once you’ve figured out what you own, the next step is to add up what you owe. Included in this list should be any outstanding debts such as credit cards, student loans, lines of credit, or medical debt. The other debts to include here would be the outstanding balance that is left on the mortgage and car loans.

To calculate your current net worth you simply take the amount you own and subtract the amount you owe. Whatever is remaining is your net worth. I like to compare our net worth year over to year to see the progress that we’re making.

One thing I did notice this year was the substantial increase we saw in our net worth once we finished paying off all of our consumer debt. It’s amazing to see just how much your net worth grows when you can keep your money for yourself, rather than giving it to the bank in the form of payments.

Your Turn!

  • How often do you check in with your finances?
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