Live Real, Now

The no-pants guide to spending, saving, and thriving in the real world.

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Automatic Everything

Finance

In an effort to simplify my finances, I’ve automated every bill I have.  For years, I resisted, fearing a lack of control over my money.   A few months ago, I re-examined the bill paying options on my bank’s website and changed my mind.  This is one thing that USBank has done right.

The first thing I did was set a budget. Without a budget, it’s not possible to let your money take care of itself.   I did this months before I decided to automate.

All of the bills that offer a budget plan–a plan that averages your payments to avoid fluctuation–went on the plan.    It means I do overpay some months, but it also means I get to underpay some months.  Most important, I always know what will be due.   These bills were scheduled in the bank’s online bill paying system as is, along with the rest of the bills that do not fluctuate.

All of the bills that do fluctuate went in to the bill paying system at their highest level.  For example, I don’t pay for text messaging on my cell phone.  Some months, I send and receive text messages.  I pay my cell phone bill assuming that there will be a few messages.  This is slowly building a credit on my account.  If I don’t use all of the credit, I will get to skip a month of payments sometime next year.

I keep track of all of this using Quicken.  Every one of these bill is in the calendar.  They are all scheduled to be entered into the register on the first of the month, to post of the actual day of payment.   This lets me see, at a glance,  my cash flow for the entire month.

But wait!  What about the non-monthly payments, you ask? They are also in Quicken, broken into monthly line items.   There’s a “Set aside for property taxes” item, a “Set aside for web host” item, and a few other items.

My time to maintain this has been reduced to comparing the bills to the bill-paying system every other week.  At the same time, I consolidate all of the “set asides” so I don’t have 10 property tax entries when one will do.

I know this is an inefficient method of saving money, but my goal isn’t to save money, it’s automating money and removing one layer of stress from my life.  It has transformed bill-paying from an hour or two per week to 20 minutes, twice per month and very little stress.

How to Save

Finance

Saving is hard.  For years, we would either not save at all, or we’d save a bit, then rush to spend it.   That didn’t get us very far.  Years of pretending to save like this left us with nothing in reserve.   Finally, we’ve figured out the strategy to save money.

Save your money

 

First and foremost, make more than you spend. This holds true at any level of income.  If you don’t make much money, then you need to not spend much, either.   Sometimes, this isn’t possible under current circumstances.  In those cases, you need to either increase your income or decrease your expenses.  Cut the luxuries and pick up a side hustle.  The wider the gap between your bottom line and your top line, the easier it is to save.

Next, make a budget and stick to it.   There is no better way to track both your income and your expenses.  I’ve discussed budgets before, so I won’t address that in detail today.  Short version:  Make a budget.  Use any software you like.  Use paper if you want.  Make it and use it.

Pay yourself first.  The first expense listed on your budget should be you.   Save first. If you can’t afford to save, you can’t afford some of the other items in your budget.   Cut the cable or take the bus, but save your money.   Without an emergency fund, your budget is just a empty dream when something unexpected comes up.   And something unexpected always comes up.

Automate that payment to yourself.    Don’t leave yourself any excuse not to make that payment.   Set up an automated transfer to another bank and forget about it.    Schedule the transfer to happen on payday, every payday.

Now comes the hard part:  Forget about the money. Don’t check your balance.   Don’t think about it in any way.   Just ignore it.   For the first month or two, this will be difficult.  After that, you’ll forget it exists for a few months and come back amazed at how much you’ve saved.

If you don’t forget about it, and you decide to dip into the account, you are undoing everything you’ve worked so hard to save.   Do yourself a favor and leave the money alone.

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Credit Cards: How to Pick a Winner

Finance

Image via Wikipedia

We live in a decidedly credit-centric culture.   Whip out cash to pay for $200 in groceries and watch the funny looks from the other customers and the disgust from the clerk.    It’s almost like they are upset they have to know how to count to run a cash register.

If someone doesn’t have a credit card, everyone wonders what’s wrong, and assumes they have terrible credit.  That’s a lousy assumption to make, but it happens.   For most of the last two years, I shunned credit cards as much as possible, preferring cash for my daily spending.   Spending two years changing my spending habits has made me comfortable enough to use my cards again, both for the convenience and the rewards.

Having a decent card brings some advantages.

Credit cards legally provide fraud protection to consumers.  Under U.S. federal law, you are not responsible for more than $50 of fraudulent charges.  many card issuers have extended this to $0 liability, meaning you don’t pay a cent if your card is stolen.  Trying getting that protection with a wallet full of cash.

The fraud protection makes it easier to shop online, which more people are doing every day.   At this point, there is no product you can buy in person that you can’t get online, often cheaper.   How would you order something without a credit card?  Even the prepaid cards you can buy and fill at a store will often fail during an online transaction because there is no actual person or account associated with the card.  The “name as it appears on the card” is a protective feature for the credit card processors and they dislike accepting cards without it.

If you’re going to use a credit card, you need to make a good choice on which credit card to get.  There are a few things to check before you apply for a card.

Annual fee. Generally, I am opposed to getting any card with an annual fee, but sometimes, it’s worth it.    If, for example, a card provides travel discounts and roadside assistance with its $65 annual fee, you can cancel AAA and save $75 per year.     A good rewards plan can balance out the fee, too.   I’m using a travel rewards card that has a 2% rewards plan.  That’s 2% on every dollar spent, plus discounts on some travel purchases.    In a few months, I’ve accumulated $500 of travel rewards for the $65 fee that was waived for the first year.  The math works.  A card that charges an annual fee without providing services worth several times that fee isn’t worth getting.

Interest rate. This should be a non-issue.   You should be paying off you card completely every month.  In a perfect world.   In the real world, sometimes things come up.   In my case, I was surprised with a medical bill for my son that was 4 times larger than my emergency fund.   It went on the card.  So far, I’ve only had to pay one month’s interest, and I don’t see the balance surviving another month, but it’s nice that I’m not paying a 20% interest rate.  Unfortunately, as a response the CARD Act, the days of fixed rate 9.9% cards seems to be over.

Grace period. This is the amount of time you have when the credit card company isn’t charging you interest.  Most cards offer a 20-25 day grace period, but still bill monthly.  That means that you’ll be paying interest, even if you pay your bill on time.  To be safe, you’ll need to either find a card that has a 30 day grace period, or pay your balance off every 15-20 days.  Some of the horrible cards don’t offer a grace period of any length.  Avoid those.

Activation fees. Avoid these.  Always.  There’s no card that charges an activation fee that’s worth getting.  An activation fee is an early warning sign that you’ll be paying a $200 annual fee and 30% interest in addition to the $150 activation fee.

Other fees. What else does the card charge for?  International transactions?  ATM fees?  Know what you’ll be paying.

Service. Some cards provide some stellar services, include concierge service, roadside assistance, and free travel services.   Some of that can more than balance out the fees they charge.   My card adds a year to the warranty of any electronics I buy with it, which is great.

Credit cards aren’t always evil, if you use them responsibly.   Just be sure you know what you’re paying and what you’re getting.

What’s in your wallet?

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Winning the Mortgage Game

Finance

There’s a game that’s often mistakenly called “The American Dream”.   This game is expensive to play and fraught with risk.   It single-handedly ties up more resources for most people than anything else they ever do.

Conway's Game of Life
Image via Wikipedia

The game is called Home Ownership.

At some point, most people consider buying a house.   On the traditional, idealized life-path, this step comes somewhere between marriage and kids.   That’s usually the easiest way to organize it.   If you have kids first, you’re much less likely to buy a home.  This is a game with handicaps.

Once you get to the point where you are emotionally ready to invest in the 30-year commitment that is a house, your first impulse tends to be to rush to the bank to find out how much money you can borrow.

That’s a mistake.  If you take as much as the bank will qualify you for, you’re most likely to overextend yourself and end up losing your house.   That’s the quick way to lose the home ownership game.

The best thing you could do is figure out how much you can afford before you visit a bank.   Conventional wisdom says that your mortgage payment should be no more than 28% of your gross income, but that’s absurd.   Who builds their budget on their gross income?  I like 28%, but only of your net income.    To make the numbers easier to remember, I’d round it to 30%.   If you take home $3000 per month, your mortgage payment should be no more than $900 per month.

From there, it pretty easy to figure out how much house you can afford.  Using this e mortgage calculator, you’d be able to afford a mortgage of $175,000 if we assume an interest rate of 4.5%.  Throughout most of the United States, that will buy you a reasonably sized home, though certainly nothing ostentatious.    Clydesdale Bank also has an excellent loan calculator.

Some people like to start out with an interest-only loan.   That same emortgage calculator shows that an income of $3000 per month would be able to afford a $240,000 with almost the same payment.  That seems like a good plan, but eventually, you’ll have to pay more than just the interest.   Taking out a loan that will one day be more than you can afford on the assumption that you’ll be making more money by then is not sound financial planning.    That’s the same logic that helped me bury myself in debt.

When you buy a house, make sure to base your payments and your mortgage on what you can realistically afford.  Anything else, and you’ll only end up poorer and less happy than when you started.

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Carnivals This Week

Finance

I seem to be failing frugal parenting.  My son spent the entire week telling me how happy he’d be if we could go to the game store so he could spend some of his money.  Tying emotions to shopping is badbadbad.

Live Real, Now was included in four carnivals last week:

Carnival of Financial Planning – Edition #224 at AaronHung.com

Yakezie Carnival – Mardi Gras Edition at Young Adult Finances

Canadian Finance Carnival #76 at Canadian Finance Blog

Carnival of Financial Camaraderie – Rain Man Edition at Thirty Six Months

Thanks to all of the hosts for including my posts.

Get More Out of Live Real, Now

There are so many ways you can read and interact with this site.

You can subscribe by RSS and get the posts in your favorite news reader.  I prefer Google Reader.

You can subscribe by email and get, not only the posts delivered to your inbox, but occasional giveaways and tidbits not available elsewhere.

You can ‘Like’ LRN on Facebook.   Facebook gets more use than Google.  It can’t hurt to see what you want where you want.

You can follow LRN on Twitter.   This comes with some nearly-instant interaction.

You can send me an email, telling me what you liked, what you didn’t like, or what you’d like to see more(or less) of.   I promise to reply to any email that isn’t purely spam.

Have a great week!

Carnival Roundup

Misc

Sorry for the missing “real” post today.   My mother-in-law’s funeral is later and the day’s a bit hectic.

Live Real, Now was included in the following carnivals recently:

Yakezie Carnival – Earth Day Edition hosted by The Frugal Toad

Festival of Frugality #334 hosted by This, That and the MBA

Carnival of Money Pros hosted by Money Cone

Carnival of Financial Camaraderie #31 hosted by 101 Centavos

Carnival of Personal Finance #358 hosted by Musings of an Abstract Aucklander

Yakezie Carnival – 4.22 Edition hosted by Faithful with a Few

Financial Carnival for Young Adults #9 hosted by 20’s Finances

Carnival of Money Pros hosted by My Journey to Millions

Thanks for including my posts.

Get More Out of Live Real, Now

There are so many ways you can read and interact with this site.

You can subscribe by RSS and get the posts in your favorite news reader.  I prefer Google Reader.

You can subscribe by email and get, not only the posts delivered to your inbox, but occasional giveaways and tidbits not available elsewhere.

You can ‘Like’ LRN on Facebook.   Facebook gets more use than Google.  It can’t hurt to see what you want where you want.

You can follow LRN on Twitter.   This comes with some nearly-instant interaction.

You can send me an email, telling me what you liked, what you didn’t like, or what you’d like to see more(or less) of.   I promise to reply to any email that isn’t purely spam.

Have a great weekend!