A spending strategy can prevent financial disasterPeople often ask me how I got started with all of this couponing stuff, and the answer is pretty simple: I got broke.
By: Sue Stock, McClatchy Newspapers
People often ask me how I got started with all of this couponing stuff, and the answer is pretty simple: I got broke.
After I graduated from college in 2001, I received a job offer at a newspaper in Lansing, Mich. It paid the whopping salary of $30,000 a year, which at age 21, was certainly more than I'd ever made before in one year.
So I took the job, packed up my brand-new Ford Focus and moved to Michigan. Once there, I rented an apartment that was beautiful but expensive. I ran up my credit cards, buying furniture, a new TV and other items to make my very first apartment feel like home.
And then ... the credit card bill came.
And then ... my first car payment was due.
And then ... my student loan's six-month grace period was up.
And then ... I was broke. In fact, I was several thousand dollars in debt. Once I realized that my take-home pay was not really the equivalent of $30,000 divided by 52, I did what all 20-somethings would do: I asked my parents to bail me out.
And they told me no.
They told me no?!?
At the time, I thought they were being incredibly unfair. Now, a decade later, I can truly say it was one of the most important things they ever did for me. They told me to figure it out on my own and take responsibility for my spending.
To save money fast, I moved in with a roommate. I stopped eating out. I discovered coupons. And I became a much smarter shopper.
Now the debt is paid off. I live a much more frugal life, and I teach people the skills I've learned. If I had to do it again, I'd be smarter about it.
Young college graduates, some words of advice:
—A used car will be just as good as a new car, as long as you do your research and make sure you don't buy a lemon. It will save you a boatload in both payments and insurance. Personally, I don't ever plan to buy a new car again.
—Buy renter's insurance. That is one expense that is definitely worth it.
—Be careful about how much you go out with your friends. Everyone wants to be social, but $50 a night times three nights a week adds up fast, especially on an entry-level salary.
—Find out how much is taken out of your paycheck for benefits, 401(k) and other deductions. Base your budgeting on your actual take-home pay, not your gross salary.
—Learn to balance a checkbook if you don't know already. And yes, you should keep an actual checkbook, even in this day of online banking.
—And most important, pay off your credit card every single month in full. If you can't do it, you need to adjust your spending habits before things spiral out of control.
In my classes, I tell people that one of the keys to being a better grocery shopper is to take advantage of really good deals when you find them. If you find an amazing deal on pasta or your favorite brand of canned soup (anything that can be stored without going bad), stock up while the price is low.
This generally requires a shift in thinking. Too many people are used to going to the store each week and thinking about only what they need for the coming six or seven days. A lot of people are not very good at doing even that.
Instead of shopping weekly with a weekly target budget, be flexible. Recognize that some weeks — when there are a lot of deals on items you like — you may spend more to stock up. When there are fewer deals, you will spend less. Start thinking of your spending on groceries as overall spending, not weekly.
Some weeks I spend more than $100 on groceries. Some weeks I spend $50. For simplicity's sake, let's say that half the weeks I spend $100 and the other half I spend $50. The average, $75 a week, is a lot less than I would pay if I just went to the store and threw whatever I wanted into my cart each week without thinking, planning or stocking up.
You'd be surprised at how this tiny change in thinking can affect your outlook on shopping. Stock up when items are cheap and feel good about it, because you are contributing to your overall savings for the year. But this works only if you have some self-control and don't spend your savings on impulse buys.
I'm an Excel girl. I love my spreadsheets and keep several of them for tracking my coupon savings, my sale savings, rebates and my household budget. (Plus my Christmas spending, travel budget and just about everything else in my life. ... Can I get an endorsement deal, Bill Gates?)
The new year brings the opportunity to make a clean start with your finances. If you plan to make one, I strongly suggest tracking your savings. Not only will this motivate and encourage you, it will also help prove to doubtful spouses that coupons can save serious money.
In my classes, I share that I saved more than $4,600 between buying things on sale and using coupons in 2007. I did not track my savings in 2008 or 2009. But I went back to the spreadsheet in 2010, and I saved more than $5,600. That's a lot of money, folks, and it could be a substantial chunk of your budget depending on your income. Even if you save only half that much, I doubt many of you would say you didn't need the $2,800.
So, if you are interested in tracking how much you save in 2011, you can download my Excel savings tracker spreadsheet on my blog, http://takingstock.newsobserver.com. Just click on "savings tracker" above my photo. There are three different versions: a basic one for those who don't like computer things, a more advanced version for those who are comfortable with Excel and a super-detailed version if you want to track everything, including sales tax and such.
Budgeting should be a top priority for most households, especially those that live paycheck to paycheck. I know that when money is tight, one unexpected expense is enough to put your finances into a tailspin, and it can take months to recover. You can't predict everything that life will throw at you. But you will be better prepared to deal with whatever is thrown your way if you have a proper budget.
So how do I do mine? Big surprise: I keep an Excel spreadsheet. If you want a lower-tech option, you could easily adapt my system into a simple notebook or binder.
Start by gathering your recurring monthly bills and get a calendar.
Then plot out the dates on which you will be paid and also the dates each monthly bill is due: phone bill on the 15th, cable bill on the 22nd, credit card bill on the 4th.
Then, in your Excel spreadsheet or notebook, make a grid (or page) for each paycheck. I generally leave about 10 to 15 lines for each one. Start by listing your expected take-home income for that payday; beneath it, list the bills you know you will have. In Excel, if you list these as negative numbers (or losses) and do a total at the bottom, you can see how much cash you have to work with as you enter the bills.
This process can get a bit complicated because you really need to think about your monthly bills and how they change throughout the year. For instance, our utility bill is higher in the cold winter months than in spring. But these are all things that you know will happen every year. And if you budget for them, then handling the bill when it comes will be a lot less stressful.
A few other notes: Be sure to account for other things that you know come each year. For instance, our dogs cost us a few hundred bucks every year in shots and a few hundred more when we buy heartworm medicine twice a year.
Plan for taxes in April (whether you generally owe or receive a refund). Plan for oil changes, car maintenance, haircuts, manicures, lawn care costs, or any expense you know you will incur. Also, plan for any other non-monthly but predictable expenses such as property taxes or county taxes on your cars.
Budget for holiday gifts, birthdays and anniversaries. Remember that those gifts need to be bought (and paid for!) before the birth date or anniversary, so budget them into the paycheck before the date.
And budget for entertainment, because even hard-core penny pinchers need a break.
Finally, please budget for savings.
I know people who don't have a lot of money feel as if they can't save. But putting away even $25 a paycheck is better than nothing. I keep my savings in a separate account (find an interest-bearing one if you can). That keeps it separate from my regular checking account and helps me resist the temptation to spend it. I cannot stress how crucial it is. Sometimes just a few hundred bucks in savings can be the difference between a financial disaster and handling an unexpected expense without breaking stride.
A final suggestion for those who are paying off debt: You might want to create a second spreadsheet that shows a running balance of each of your accounts (yes, you can also just do this on a piece of paper). This is extremely useful for planning when you are paying off multiple things at once. Down the left-hand side of the page (or in the first column), list the dates on which you will be paid. Then each column across will represent one account. You can even list your savings accounts to track the growth you expect.
Start with your current balance in the top box for each column and then plot out your (hopefully falling) balance as the year moves on. For example, if you owe $2,000 on Credit Card A, fill in all the dates for your paychecks in the first column and then make the second column for Credit Card A. If your first paycheck was Jan. 7 and you planned to make a $300 payment, you'd put $1,700 in the box under column A and next to the Jan. 7 date. If you were going to pay $200 more with your next paycheck on Jan. 21, you'd make a notation in that box and drop the balance to $1,500.
If you do this correctly, you should be able to watch your balance fall as you move down the column. If you're a stickler for accuracy, calculate in the monthly interest your account will incur. Take a rough guess or use the free calculators at Bankrate.com to tabulate what it will be.
Repeat with a new column for each account you have. This is a really useful tool for getting an idea of how long it will take to pay off your various accounts.
If you are single, this section does not apply to you. In finances, you control your own destiny. But if you are married or in a dedicated relationship, take note.
If you are half of a couple and you are dedicated to both your relationship and your finances, you must work with your spouse or partner. You two must be a team. There is no other way to achieve true financial freedom.
Talking about money is hard — that's one of the reasons that financial issues are one of the top reasons for divorce. But talk you must, for the health of your finances and your relationship. I believe you cannot communicate enough with your spouse or partner when it comes to your money, especially when you reach a point in your relationship when it is "our money" and not "my money" and "his money."
You need to be upfront about the extent of your assets — and your debt. When your relationship is just reaching that very serious place, this is a tough conversation to have, because it sometimes means you have to admit to some previous behaviors you may not be very proud of. But it's an important conversation.
My advice is to tally up how much you both owe and to whom. Leave nothing out. Just knowing that much can help you start an honest dialogue about money.
Then you need to talk about how you're going to move forward. If you have debt, come up with a plan and a budget for paying it off. If you have no debt (lucky you!) come up with a plan for savings, investments and achieving your financial goals. For instance, if you want to buy a house one day, talk about how much you want to spend, how much of a down payment you think you will need, how you are going to save that money — and a time frame.
As you move forward, keep talking. Even if one partner is "in charge" of the finances, the other should keep that partner accountable.
I have seen many relationships in which one partner knows what the bank balance is down to the penny and the other has no idea whatsoever. That becomes unhealthy, because typically the person responsible for the finances begins to feel like the bad cop: He or she is constantly saying no to expenditures or questioning expenses. That can lead to all kinds of tension and resentment.
The person who is not in charge of the day-to-day money should check on the budget, make sure all the bills get paid and ask questions like, "Are we still on track to have saved $10,000 this year?" and "Where did we get the money to pay for the car repair?"
Most important, the two of you need to talk when things change. If an unexpected expense comes up or you need to shift some cash from bill A to bill B, make sure you tell your partner what is going on and why. Sometimes after talking things out, you'll decide on a different course of action. And even if you agree, it's important for both of you to know what's happening to your (plural) money.
In talking about money, surprises are bad. Keeping both partners on the same page will help you tremendously in your finances and in avoiding the stress that financial discussions can put on a relationship.
By this point, I know, some of you probably think I'm crazy. To be sure, all of this budgeting, planning, projecting and record-keeping is a lot of work. But I really think these are important things that more households should be doing.
In my classes, I talk about how a lot of people don't actually know what they pay for things. When I'm teaching about coupons, this principle applies to things like milk and bread. Lots of people just throw them in the cart and don't pay attention to the price. But it also applies on a larger scale. Keeping track of your finances will help you see how much you're paying other people in, say, interest. Or it will give you a clear idea how much debt you are carrying. You'd be amazed at the number of people who don't know.
I know that debt and money can be scary topics; many people simply stick their head in the sand and try to hide from the numbers. But I'd encourage you to face them head-on. The only way to get a good handle on your money is to become an informed consumer. Take control. Be vigilant.
Staying on top of it all does not take much time day by day once you adopt a system that works. Setting your budget can take time; put aside an afternoon or evening to work on it. Talking about your finances with your significant other or spouse should be ongoing.
Information is the key to your financial savvy. It's like smart grocery shopping — knowing about coupons, sales cycles and the prices you pay. In household finances, you must know what you owe, when your payments are due, what your long-term plans are and — most important — how you're going to make them happen.
So here's a New Year's resolution for you. Instead of saying something vague like, "I'd like to save more money in 2011" or "I'd like to learn how to be a better shopper," resolve to create a working budget. Sit down and calculate how much you're paying and to whom. It will help you in more ways than you know.