Frugal Intuition

Okay normally I would be offering up some tip or advice to you, but today what I am really interested in discussing is the issue of splitting the check.  Several times over the past couple of years, I have read things referring to situations where people split the bill at a restaurant evenly–no matter who got what.  Now, maybe it’s because I never eat out in groups larger than six, or that I’ve been a poor college/grad/post-grad/newlywed for the last decade of my life and that all my friends are in the same boat and none of us have the money for that kind of thing–but I have never in my life been asked or expected to pay for more than I ate.  As someone who always orders water to drink in restaurants, almost never gets an appetizer or dessert, this is something that is important to me.  I strive to save money when I eat out.  The idea that anyone would expect me to pay for more than my actual portion of the bill seems both ludicrous and rude.  If someone else at the table got a bunch of appetizers or dessert that I didn’t eat, why should I have to pay for any of it?  Seriously, I really don’t understand this concept.  I know that with parties of 8 or more, the restaurant will usually go ahead and add in the gratuity–fine.  But almost every place I have ever eaten will still split the check.  Maybe that’s another remnant of the fact that I live in relatively small town South.  Maybe they don’t do that in cities (though, I have to say that’s unprofessional and discourteous if they won’t take the trouble to split the check–they are providing a service, after all).

Certainly the etiquette surrounding such behavior would suggest that you never suggest splitting the check evenly if you will be paying for less than you owe–clearly that’s rude.  And it seems to me that it can all be avoided by asking for separate checks before you ever order.  But still, apparently this is a practice that some people do actually engage in, or I wouldn’t have seen so many mentions of it lately.

So how about it, y’all?  Anybody got an explanation for me as to why anybody does this?

Welcome to Frugal Intuition.  If you’re just now joining us, take a moment to go check out Part 1 , Part 2 , Part 3, Part 4 and Part 5 of the series.

Now, when last we left our friend Bob and Sue Spendthrift, they had finished totaling up their budget including all their monthly expenses, discretionary spending, credit cards, loan payments, and estimates for annual expenses.  They hadn’t factored in savings yet.  Their total for the month was $3029.  Their total monthly income combined was $3200.  Only $171 of wiggle room.  Or is there?  Let’s take a closer look at some of these expenses, in particular the discretionary section they filled out from their Part 1 homework.

• Gas for car ($200 for household)
• Groceries/household supplies ($500)
• Entertainment ($100)
• Dining out ($120)

Okay, well other than planning their errands more efficiently, the gas budget probably isn’t going to change much.  But let’s look at that dining out.  $120 for 2 people to eat out.  Bob and Sue always order tea or sodas with their meals and usually enjoy appetizers or desserts.  The smartest thing for them to do would be to cut back their dining out to once a month or not at all for a while.  So why don’t we change that budget to $30 a month for dining out–it’s a treat when they stick to their budget.  And while they’re out, they’re going to order water and save another few bucks.  So that frees up $90 a month to add to that $171.

Now what about that entertainment budget?  This is Bob and Sue’s movie habit.  Every weekend, they’re going to the night showing of some new release in the theaters.  And they buy popcorn and drinks.   One big change they can make is to start going to matinees.  There’s a $3 per ticket difference between matinees and night shows at their local theater.  So that’s easily $24 just making that change.  If they snack before going and just share a drink, they’ll also cut down on their food expenses.  That’s another $36 right there.  Even better, they can check out the selection on Netflix and watch stuff at home, cuddled up on the sofa with their own popcorn and drinks.  It’s way better for cuddling.  So maybe they take 2 weekends and do the movie thing at home.  That’s another $12 saved.  So we’ve just carved $72 out of the entertainment budget to add to our $261.  Now we’ve got $333.

Okay, what about that grocery budget?  $500 works out to $125 a week, which is a lot of money to spend on groceries for 2 people in a week.  The Spendthrifts need to do some analysis of their grocery buying habits.  I’m willing to bet a lot of name brand items wind up in their cart.  There’s also probably a lot of waste going on when they don’t eat things before they spoil or forget that they’re in the freezer or pantry.  Let’s be conservative here, and shave their weekly grocery budget to $100.  That’s $400 a month, which is more than adequate to cover groceries for 2 people.  Sue’s going to look into some thrifty recipes.  That’s another $100 we can add to our $333.   So just by making some discretionary adjustments, we’ve got $433 we can put either into savings or toward paying things off.

Let’s look back at those credit cards.   If you’ll remember, Bob and Sue had a total of $9,282 in credit card debt.

• Card 1: Balance $2,743 @ 21% APR, current minimum payment $109
• Card 2: Balance $566 @ 30% APR, current minimum payment $23
• Card 3: Balance $1,396 @ 28% APR, current minimum payment, $56
• Card 4: Balance $4,587 @ 25% APR, current minimum payment, $184

Let’s rearrange these based on balance.

• Card 2: Balance $566 @ 30% APR, current minimum payment $23
• Card 3: Balance $1,396 @ 28% APR, current minimum payment, $56
• Card 1: Balance $2,743 @ 21% APR, current minimum payment $109
• Card 4: Balance $4,587 @ 25% APR, current minimum payment, $184

Those are some really nasty interest rates.  The current minimum payments on these cards is $372.  That’s already included in our budget of $3092.  What we have to decide is how much of that $433 is going toward paying things off and how much of it is going to go into savings.  Now, it goes without saying that Bob and Sue have made a pact to cut up these cards and not add to their balances.  They’re turning over a new leaf in 2009, remember?  There’s a temptation, of course, to put all of that $433 toward the debt.  It’s a real strain and has been very much stressing the Spendthrifts out.  But if they do that and something happens, and they’re stuck without a contingency fund, then they’re right back to where they started.  So what about putting all of that $433 into savings?  That would add up pretty quickly each month.  Well, yes, but those interest rates…the minimum payments are going to take forever to pay off even the smallest card they have.  So my advice?  40/60.  Place 40% of the leftovers into savings (that’s $173.20–we’ll round to $175 for a nice even number) and put 60% toward the debt (that’s $258).  So Bob and Sue are going to add $258 to the $23 minimum payment on Card 2.  And at that rate, they should be able to pay that card off in 2-3 months.  Once it’s gone, they’re going to take that $23 minimum and the $258 of extra and add it to the $56 minimum payment on Card 3.  You can see the pattern here.  It’s going to be a snowball effect.  And with each month that passes, they keep putting that $175 into savings.

Also into savings, they’re putting the monthly amounts for their annual expenses.  Remember those?

• Car insurance ($1200 every six months, approximately $200 a month) [there is a significant savings to paying all at once instead of monthly]
• Car tag ($600 for both vehicles)
• Car maintenance (oil changes, tire rotations, etc.) (approx. $400 a year)
• Christmas and other gifts throughout the year (approx. $600)

It’s important not to forget to save for them so that they don’t pop up and derail the budget.

And perhaps the most important thing to remember when writing a budget–nothing is set in stone.  You have to create something you can live with .  Budgets are always adjustable.  But be realistic about what your needs are vs. your wants.

Okay, sorry for the delay in posting.  I’ve been tied up with stuff for the last few days. If you’re just now joining us, take a moment to go check out Part 1 , Part 2 , Part 3, and Part 4 of the series.

Here’s the part where I write out a sample budget for Bob and Sue Spendthrift

Here’s our sample list of necessary expenditures per month:

• mortgage ($700)
• electric/water ($100)
• student loan ($118)
• car note ($281)
• phone/internet ($160)
• satellite ($45)

That’s a total of $1404 a month in recurring expenses.  Of course with the utilities, that’s an average of what things cost, so that value could go up or down, depending on time of the year. Now we begin adding in the things that don’t have a bill that comes in the mail.  Remember, we’re using our Part 1 homework to figure out how much we spent on this in the last month (again, these are sample figures)

• Gas for car ($200 for household)
• Groceries/household supplies ($500)
• Entertainment ($100)
• Dining out ($120)

That’s another $920 per month.
And then, of course the not monthly, but must be remembered expenses:

• Car insurance ($1200 every six months, approximately $200 a month) [there is a significant savings to paying all at once instead of monthly]
• Car tag ($600 for both vehicles)
• Car maintenance (oil changes, tire rotations, etc.) (approx. $400 a year)
• Christmas and other gifts throughout the year (approx. $600)

That’s another $4000 in annual expenses.  Which works out to about $333 a month, but remember that a lot of these don’t have monthly payment options, so you have to save for them.

And now for the credit cards.  Let’s say our fictional couple have 4 credit cards.  Two for Bob and two for Sue.  (I estimated the minimum payments required at 4% of the existing balance–some cards presently require less than that at closer to 2%)

• Card 1: Balance $2,743 @ 21% APR, current minimum payment $109
• Card 2: Balance $566 @ 30% APR, current minimum payment $23
• Card 3: Balance $1,396 @ 28% APR, current minimum payment, $56
• Card 4: Balance $4,587 @ 25% APR, current minimum payment, $184

The Spendthrifts have a whopping $ 9,282 in unsecured debt.  We’re not even thinking about the $83k left to pay on their house or the $ 15,732 they still owe on Sue’s car.  These cards currently require $372 in minimum payments, but with those huge interest rates, they’re not going to get them paid off any time soon.

So where does this leave the Spendthrifts?  Looking at monthly totals alone, not counting saving for a contingency fund, they have a total of $3029 a month.

The bad news?  Bob and Sue only make $3200 a month, combined.  That means that with their current lifestyle, they only have $171 a month left to cover unexpected expenses, savings, and paying off their debts.

What are Bob and Sue to do?  Well, you’ll have to tune back in to find out. 

If you’re just now tuning in, please check out Part 1 , Part 2 , and Part 3. 

Part 4 of writing a budget is figuring out what you’ve forgotten.  The stuff that’s recurring is pretty easy, and even the things that aren’t set in stone (like groceries and stuff) at a particular amount are fairly easy to think of.  It’s the once in a while, quarterly, or annual things that will come back to bite your budget in the fanny.  Things like car tags (this one always sneaks up on me), property taxes (irrelevant to renters and likely included in your mortgage if you are a homeowner, but still, if it’s not, you should remember it), car insurance (we pay every 6 months), holiday spending, car maintenance…  And that doesn’t even include the kinds of unexpected expenses that pop up like emergency trips to the vet.

So this is the portion of our program where you wrack your brain and try to think of EVERYTHING.  This is a lot easier if you have check registers and bills going back for a year (I find it very helpful to pick up one of those expandy files with a slot for each month and keep everything in it).

Now you think you’ve thought of everything, even money that should go in your contingency fund (that’s to cover those unexpected things so you don’t have to put them on those blasted credit cards).  What about discretionary spending?  As much as I would like to advocate living like a monk and giving up every frivolity and extravagance until you get out of debt…it’s not realistic.  I tried to make my husband do it for years and it only blew up in my face.  Sometimes you just need to do something for yourself.  You get bored at home.  So build in an entertainment budget.  This should be something small, like maybe going to a matinee and dinner a couple of times a month or bowling or whatever.  Whatever your favorite activity is, use it as incentive, as a treat for doing well the rest of the month.  Add that into your budget.  Though don’t forget to take advantage of whatever free or cheap entertainment opportunities are available in your community.  They do exist, I promise.  But I’ll come back to that later.

Anyway, then there are also things like clothing, home maintenance costs, membership fees (if you’ve got any)…

It might be helpful to make a list of major areas that require spending: home, car, kids, pets and think of everything that is associated with those areas.

Come back tomorrow and I’ll show you how were’ going to put all these piles and lists together into a workable budget.

Sorry I missed posting yesterday.  I was away at a staff retreat for work.

If you’re just tuning in, please check out Part 1 and Part 2 of my Write A Better Budget series.

So we’ve talked about the absolute necessitites.  For the most part you don’t have too much control over these.  Well, you can work to reduce your energy and water consumption to lower utility bills, and/or move to a lower rent place, but for the purposes of our discussion here, let’s leave those alone.

I’m betting that in your absolute necessty list, you forgot to write down things like groceries/household and gas.  This is where your Part 1 homework is going to come in handy.  You’ve spent a month charting all your expenses.  Add up both of those categories to see how much you spend monthly on groceries and on gas.  These are both unavoidable expenditures.  You have to eat and you have to get to work.  Have you added those into your absolutely necessary column and deducted it from your monthly income?  Okay good.

Now what’s left?   Your credit card bills and discretionary purchases.  Now in an ideal world, you would pay off your credit card balance monthly and never carry what’s called a revolving balance (that is, you balance fluctuates from month to month, based on interest rates, purchases, and payments).  The credit card companies would never get a dime off you in interest.  But as the credit card companies are sitting like fat kitties who got the canary, lots of people don’t do this.  You’re going to get to that point.  For now, we’re talking about budgeting.  You have a limited amount of income and a big chunk of it is designated to stuff you can’t avoid.  How much do you have to put toward debt?

I want you to take all your credit card bills and lay them out in order of interest rate–highest to lowest.  If you’ve got some balances that are substantially bigger than others, then it may be more beneficial to lay them out in order of lowest to highest balance.   With luck you can afford to pay minimums on all of them and put some extra toward that card with the lowest balance.  Once you get that one paid off and closed, you’re going to take the amount you were paying per month toward that card on the card with the next highest balance and so on in a snowball effect.  If you don’t have enough to cover all the minimums, check out this post about being your own credit counselor . (FYI, if you do go the route of credit counseling, be sure to pick one that is accredited by the National Federation of Credit Counselors–NFCC.org ).  Anyway, figure out what your total of minimum payments are and how much you are able to devote to payment above and beyond that.  That’s your budget for credit card payments.  This does, of course, assume that you cease to use those credit cards.

Tune in tomorrow for the other things you should remember to budget for.

For those of you just tuning in to this portion of our program, please review Part 1 of our series on writing a better budget.  It’s all about doing your homework and analyzing your current spending patterns.  You have to know where you’re spending to figure out where you have to spend and where you can cut back.

Have you done your homework?  Good.  Now I want you to sit down with that month’s worth of bills, your ledger detailing where you spent every penny, a calculator, and a good notepad and pen.

Now I want you to take those bills and make two piles.  The first pile is absolutely necessary things.  This includes things like mortgage/rent (if you’re a renter, you probably don’t have a bill, but write out your monthly rent on a slip of paper and add it to the pile), utilities, car insurance (this may or may not be a monthly bill–if it’s quarterly or every six months, don’t forget to add it), health insurance (if it isn’t already deducted from your paycheck), and monthly statements for any other loans such as auto loans or student loans.  What’s left should be credit card bills and any other form of unsecured debt (that is debt that isn’t tied to an asset like your car–which if absolutely necessary they could repossess or you could sell to help satisfy the debt).  Now add up your monthly expenses in the absolutely necessary pile (for utilities, it might be beneficial to have several months’ worth of bills to add and average to determine an appropriate value).  Whatever your total is in this column, this is how much you have to spend, minimum.  Now take your monthly income and deduct that pile one total.  The remainder is what’s going to have to be split between your remaining debts, savings, and discretionary purchases (that is, stuff you choose to spend money on, not stuff you have to have).

Tomorrow I’m going to talk about how you’re going to decide how much goes where.  Please stay tuned.

Sorry I didn’t get around to posting yesterday.  I was taking a much needed day off from–well, everything.  I posted my resolutions in various places where they were relevant.  It’s a popular thing to do–make resolutions…even though most of us don’t keep them.  I don’t want you to make resolutions this year.  Why?  Well, resolutions are these grand things that are often difficult to measure and attain.  I’m more interested in seeing you set goals.  What’s the difference?  Well, a goal is something that is specific and measurable.  A goal is something you can build a plan around, and I’m really big on plans.  If 2008 was a Year of Debt for you, then go ahead and mentally think of 2009 as the Year of Change.  Because getting out of debt calls for changing behaviors and changing attitudes.

One of the number one reasons that most of America is in debt is that we have this massive sense of entitlement.  We’re brainwashed by advertising and peer pressure and keeping up with the Joneses (who the heck are the Joneses anyway?) that we all have a God-given right to the American dream and everything that goes along with it–whether we can afford it or not.  Instead of focusing on the things that we have to be grateful for, we focus on what we lack, what we want.  And sooner or later, we give in to those wants (notice I said wants, not needs) and go into debt to get them.  This is not the way to live, people.

So here we are at the beginning of a brand new year.  Think of this as your clean slate.  Whatever crappy money habits you’ve had in the past, this is the year you are going to change them.  This is the time to think about what your financial goals are for 2009.  Here are mine:

• Pay off the last of DH’s stupid debt. One card left.
• Continue to put away $25 per paycheck into savings, plus 10% of any bonuses or windfalls.
• Revise and stick to a new budget.
• On a weekly basis, use my money management program to track expenses (this helps with that whole budget thing).  Quicken and Microsoft Money are good, but of course they cost money.  On a freeware side, I like AceMoney Lite .  It’s just a basic, straightforward accounting program that allows you to enter stuff just like you do in your check ledger (you’re keeping one of those, right?), as well as categorizing expenses to track where your money is going.
• Put $5 a check away toward the 2009 Christmas budget.

See?  All of these are very measurable goals.

What are your financial goals for 2009?  If budgeting is on your horizon, check back here.  I’m going to continue my Build a Better Budget series next week.

Today is December 2nd.  That means we have T-minus 22 days to get our Christmas shopping and gift preparation completed before the big day.  If you’ve already finished your shopping, good for you (and go away–you make the rest of us feel inferior).  If you’re like me and only have a couple of gifts picked up or haven’t even started, well, I’m here to help you make it through sane and no further in debt.  The key to not going into debt at Christmas is planning.  From a long term standpoint, come January you ought to be starting a Christmas contingency fund and add $5 or $10 per paycheck to it all year so that you’ve already got your little Christmas nest egg ready.  I plan to do that for next year.  But for this year, I’m keenly interested in making sure no one is forgotten while not stressing myself out further over how much money I have to spend.

First up, sit down and make your list of people to give gifts to.  Start with your immediate family, closest friends, and work your way out to those you aren’t as close to but whom you may need to give something to (such as coworkers).  Okay now check your list again and prioritize everybody on there.  Put a star by everyone you absolutely cannot forget.  Keep that number in your head.

Now go check out your finances.  How much can you afford to spend this year without going into further debt?  In our case, we have about $100 that isn’t already earmarked to pay bills, go into savings, etc.  So that’s my budget this year, which is actually down to about $80, if I take out the 2 gifts I’ve already bought.   I’ve got two more gifts covered from the gift closet (here’s where I pick stuff up throughout the year for an absolute steal). But that still leaves 10 immediate family members to give to, as well as at least a dozen friends to whom I want to give a little something.  All that on $80 you say?  How?

Well, first off, it’s important to get your brain off of the idea that you have to give expensive gifts for people to appreciate it.  This is so not true.  The thing about it is, anybody can go out and buy something.  That doesn’t take effort, and it really doesn’t take a lot of thought.  But making your gifts takes effort and some time and says “Hey, I love you, you’re special.”  And best of all, they’re inexpensive and you don’t have to pay for shipping.  I’ve already talked elsewhere about inexpensive ways to packages such homemade goodies, so I’ll not belabor that point.  Instead I’d like to offer some suggestions.

Think consumable.  I’m talking cookies, candies, homemade breads, mixes.  They don’t have to be stored for long, are much enjoyed by all, and you can get them all done in a day or two.  The holidays are so often about decadence, so you can easily find recipes that will satisfy someone’s sweet tooth.  I’m leaning heavily myself toward making truffles this year.   Talk about decadent, and they only have 3 ingredients!  This would make a great small gift for anyone.  Package a few up prettily (they’re uber rich, think fancy chocolates) and you’ve made a gift out of half a dozen pieces of homemade candy.  Another annual standard in my house is sourdough bread .  I make it every year and it’s always raved about, and let me tell you, there is little better than the scent of freshly baking homemade bread.  Totally droolworthy.  A loaf of this wrapped nicely in foil with a pretty ribbon, possibly with a jar of homemade jam (if you know how to make it–I don’t) would make a marvelous and thoughtful gift.  If you’re not a jam maker, the bread itself is perfectly lovely by itself.  For those folks you would rather give more to, think of themes.  You could make some homemade hot chocolate mix in a pretty jar and make up a batch of brownies or cookies to go with it (either more gifts in jars or freshly made ones from your kitchen).  You could also make up a hot beverage basket with the hot chocolate mix , spiced cider mix , coffee beans, and some pretty tea.  Throw in a few pretty mugs (available on the cheap from places like The Dollar Tree) and you’ve got a lovely theme gift for cheap!

If you’re of a crafty nature (and particularly if you have kids), one fabulous idea for holiday gifts are homemade Christmas ornaments.  This is a gift that keeps on giving and will provide memories each and every year it’s put on the tree.  This is what I make every year for my numerous friends.  It started out because I took pity on some newlywed friends of mine who decided (I have no idea why) to only get one new ornament each year they got married.  So I started making ornaments for everyone every year.  Last year I managed gifts for 20 people made and shipped for $40 (and most of the cost was in the shipping).  The ornament making is something worthy of its own post, so check back in with me later this week for a collection of links to my favorite projects!

A lot of people will tell you about how to write a budget all in one big long post.  I’m going to break it down because writing a budget–a realistic, good budget, takes some homework and effort.  If you’re one of those people who doesn’t write any of your purchases down, you’re really probably going to struggle with this.  But I promise you, the effort is going to pay off in lots of ways when you’re finished.

Your homework:

For the next 30 days (yep, that’s what I said, a full month–they say you need to repeat something for 3 weeks before it starts to become a habit), I want you to do these things:

1. Keep a small notebook with you at all times.  Any time you spend anything, be it cash, credit, debit, or check, I want you to write it down.  Write down how much you spent, on what, and make a notation of how you paid for it (cash, credit, etc.).
2. Keep all your receipts, no matter how small.  Have an envelope in your purse or wherever is convenient for you.   When you get a receipt for something, stuff it in therefor the 30 days.
3. Keep all your bills.  A lot of people habitually pay a bill, then toss the statement.  This is a bad habit.  We want to break that.  So save all of your bills for those 30 days.

At the end of the 30 days, I want you to come back here, and I’m going to tell you what to do with all this paperwork.  We’re going to analyze your spending habits and talk about where you can make some adjustments.

I guarantee you, you’re going to be surprised where a lot of your money goes. Writing everything down is one of the things that separate savers from spenders.  Savers are much more aware of where ever penny they spend goes.  The goal of this exercise is to turn you from a spender into a saver!