Hello and Help?

[AceBarks]

Hi everyone. I stumbled upon this site today, and think I may have found a pseudo support group here.

First of all, I want to thank the community for all the great information. Second, I am hoping to get some advice.

I have a spending problem. The more I make the more I spend. I have a hard time making financial decisions with the future in mind if they aren't made for me. As an example, I have 11% of my income going into both a traditional and Roth 401k, but my savings account hovers around 0.00.

My only debt is a $200 car payment, I am 29 yrs old, and my salary will probably break the 100k mark in 2011. (yay!) But, I really really want an emergency fund, and I'd like to buy a house in the next year or two. In the past I have had bundles of credit card debt, but have climbed out of that hole twice. I can't seem to stick to a budget.

So my question is:

What budgeting methods have worked for people without the strong will power or motivation to save money?

As an example, from reading on this site today, I decided to open an account with ING. Money in my current savings account is only a few clicks away from being in my checking account (and often ends up there). With ING I will have to wait several days at least. No more instant gratification.

I've thought about taking cash out of the ATM every week and budgeting like that. Maybe give up my debit card for an ATM card so avoid impulse shopping?

Thanks in advance.

[SeanH]

What are your vices? ie. where is the money going? Is it impulsive spending or do you enter into financially unsustainable long term relationships (ie. you are living in an apartment that is more expensive than you can afford)? What is it that you want to achieve or what are you planning or saving for? Are you married/have kids?

I sort of think finances and dieting have a lot of things in common. You need goals and you need restraint, but you also have to reward yourself. Some people want to break their budgets down line by line and try to maximize every dollar. Other people perhaps feel that as long as they aren't in debt and are making positive decisions on their goals and getting results then dollar chasing isn't necessary (ie. if the 401k is funded, a deposit is made in savings and everything else is in good standing then don't fret).

As you are mostly debt free and have sufficient income the latter option might be more sustainable for you. You've already got a deposit heading to retirement. If you aren't breaking into the retirement piggy bank to finance your impulses then perhaps you just need to separate your savings from your checking.

Last thought - what budgeting methods have you already tried?

[AceBarks]

Thanks for the reply.

My biggest vice is food. Funny that you make the analogy between finances and diet. I'm single and tend to go to Whole Foods or New Seasons a few nights a week and buy their precooked meals. If I decide to get a nice micro brew, it's not hard to walk out paying $30. On top of that, I take most of my direct reports out for coffee in order to have our 1 on 1's. That's a good $50 per week. My monthly food budget tends to exceed $1,000 because of these facts.

My rent is $1200, but I plan on moving soon as I no longer need a 2/2. I will likely spend less or the same when I move.

I want to save in order to establish an emergency fund and purchase a home. As far as budget methods, I have built some pretty crazy excel spreadsheets and tried Mint. In fact, I really enjoy creating a budget. It's sticking to it that's my problem....

[kork13]

Separate and automate.

You've hit on a good idea with opening an ING (or similar) online savings account. If the money is totally separated from your normal cash-flow, it'll be safer from impulse. The whole 'out of sight, out of mind' idea...

Also, decide what you want to save, and set up automatic transfers from your checking account out to the separate savings account. That way you don't have to think about it, and again -- out of sight....

However, that's only half of the fix... You absolutely MUST learn to control your spending. It's not going to be easy, and it's going to probably take a few months (at least) to break those habits. Every time you go to buy something, ask yourself "Do I actually need this?" Slow down your swipe and step back for a second. With a little thought, you can identify when you're spending on impulse, and back off from it.

Going cash only is one option, but you still need to be cognizant of what you're spending so you don't spend all of your grocery money on coffee. Something that helps is to track every cent that you spend. In a notebook, on a smartphone, or just on a excel sheet at home with the day's receipts. Visualizing exactly where everything is going is helpful to identify where you're spending too much. That then goes back to being aware of where you spend too much, and stepping back to ask if you really need it or not.

[kv968]

Thanks for the reply.

My biggest vice is food. Funny that you make the analogy between finances and diet. I'm single and tend to go to Whole Foods or New Seasons a few nights a week and buy their precooked meals. If I decide to get a nice micro brew, it's not hard to walk out paying $30. On top of that, I take most of my direct reports out for coffee in order to have our 1 on 1's. That's a good $50 per week. My monthly food budget tends to exceed $1,000 because of these facts.

Welcome Ace. My advice to you on this matter would be to start cooking and only go shopping once, maybe twice at the most, a week.

I'm single too and I like the precooked meals also when I'm running around and don't have time to cook. However, most of the time I cook my meals and if I know I'm going to be getting home late the next night I'll make more the night before so I can just heat up some leftovers. All of that helps since a cooked meal can be cheaper than the precooked ones at times, but the real savings came when I started going to the store just once a week instead of every other day.

I always went out and got food for just a couple of meals and in doing so NEVER walked out with just that. You go in to get a pack of chicken and some vegetables for dinner and the next thing you know you're picking up some cookies and some fruit that you really don't need or want. That's not bad occasionally but if you're doing it 3-4 times a week those little "extras" that you pick up and don't really need and/or want start to add up. Starting a food budget would help with overspending, but try just going shopping once a week and getting everything then and see if that helps.

[SeanH]

The general rule of thumb that you are likely to hear is that putting 20% down on a home is the smart thing to do. That does let you set a target savings goal for a home: $20,000 for $100,000 and so on. I'll play a poor devil's advocate for a moment and say - do you need to buy a house? You aren't married and don't have kids. Are you planning on staying in one place? Are you looking for the tax write-off?

I think the purpose of EFs has been covered pretty thoroughly concerning what they are for. I think the interesting thing is that until you get your spending in order your emergency fund will continue to approach a down-payment on a house.

I think everyone will agree that you probably spend too much on food (though I do wonder if the food budget you listed is all "food" items together ie. grocery, dining out, etc). Clearly there's room for improvement. You'll have to assign a level of significance to each part of your spending. For example: you indicated you spend $50 a week on coffee. While this is an easy item to nitpick because it seems so non-essential - it isn't the thing that is destroying your budget. If you want to set a yearly coffee budget of $2,000 that's your business. You are likely to be asked to indicate item by item what your monthly budget is (or at least where month by month your money goes) and I suspect there's a different, larger money outflow that is eating your cash.

In regards to methods of reducing spending, I agree with Kv above. I used to live directly across the street from a fabulous grocery store and a Costco. I went shopping way too frequently and there were always additional purchases being made. I eventually decided I would make it a point to only go there once a week and my "grocery" budget plummeted (note I was engaging in budget games and included everything I purchased from there as groceries - they were not). Long story short - its harder to spend if you aren't there.

One last thought. I make significantly less money than you - just under 1/2. After a few disappointing raises at work, it finally occurred to me that the only money I was ever going to have was money saved. After coming here I had bumped my 401k percentage from 4% to 15%. One day I asked myself - why couldn't I set this at 30%? I initially thought - there's no way I could live on that. I most definitely was able. I adjusted my spending to my new income and in a sense to my saving. As of this minute - I've put $13K in retirement accounts this year on an income of $47k. The reason I bring this up isn't about me - its that you have the ability to do this to. You can and should try to set a truly grand target of savings. What that will be is up to you. You could send 10% of your income to that ING account or you could pick a number - $10,000, $20,000, whatever. Those sound like pretty good starting numbers for an emergency fund and house fund to me.

[AceBarks]

Separate and automate.

I love this easy to understand concept.

Welcome Ace. My advice to you on this matter would be to start cooking and only go shopping once, maybe twice at the most, a week.

I'm single too and I like the precooked meals also when I'm running around and don't have time to cook. However, most of the time I cook my meals and if I know I'm going to be getting home late the next night I'll make more the night before so I can just heat up some leftovers. All of that helps since a cooked meal can be cheaper than the precooked ones at times, but the real savings came when I started going to the store just once a week instead of every other day.

I always went out and got food for just a couple of meals and in doing so NEVER walked out with just that. You go in to get a pack of chicken and some vegetables for dinner and the next thing you know you're picking up some cookies and some fruit that you really don't need or want. That's not bad occasionally but if you're doing it 3-4 times a week those little "extras" that you pick up and don't really need and/or want start to add up. Starting a food budget would help with overspending, but try just going shopping once a week and getting everything then and see if that helps.

Thank you.

Clearly going to the store every day isn't an option anymore. Part of my issue is that I associate financial freedom to food. I think this goes all the way back to my childhood where I didn't get to each as much as I would have liked. I remember waking up in the middle of the night, sneaking to the cupboard and eating dry oatmeal. I still like dry oatmeal today. Crazy! I know.

The general rule of thumb that you are likely to hear is that putting 20% down on a home is the smart thing to do. That does let you set a target savings goal for a home: $20,000 for $100,000 and so on. I'll play a poor devil's advocate for a moment and say - do you need to buy a house? You aren't married and don't have kids. Are you planning on staying in one place? Are you looking for the tax write-off?

This is a great question. I work for a mortgage loan servicer. The main reason I want to buy is because I think it's a buyers market. Buying "appears" to be close to the same cost as renting a similar home or condo. That, and I have always felt like renting was just throwing money away.

One last thought. I make significantly less money than you - just under 1/2. After a few disappointing raises at work, it finally occurred to me that the only money I was ever going to have was money saved. After coming here I had bumped my 401k percentage from 4% to 15%. One day I asked myself - why couldn't I set this at 30%? I initially thought - there's no way I could live on that. I most definitely was able. I adjusted my spending to my new income and in a sense to my saving. As of this minute - I've put $13K in retirement accounts this year on an income of $47k. The reason I bring this up isn't about me - its that you have the ability to do this to. You can and should try to set a truly grand target of savings. What that will be is up to you. You could send 10% of your income to that ING account or you could pick a number - $10,000, $20,000, whatever. Those sound like pretty good starting numbers for an emergency fund and house fund to me.

That's really impressive and something I'll think about. I definitely like the idea of sending 10% to my EF automatically.

[disneysteve]

The main reason I want to buy is because I think it's a buyers market. Buying "appears" to be close to the same cost as renting a similar home or condo. That, and I have always felt like renting was just throwing money away.

I'm going to paste in the answer I just gave in another thread:

Your decision to buy a house should not be based on market conditions or a prediction of future market conditions.

You should buy when you have the need and the means to do so.

Do you plan to stay in one location for 5-10 years or more?
Do you have a 20% down payment?
Do you have at least a 6-month emergency fund?
What other debts do you have?
Do you earn enough so that the monthly payment will not exceed 28% of your monthly income?

[AceBarks]

Thanks Dsteve (as folks around here call you =)

Looks like I'm not buying anything soon.

[disneysteve]

I have always felt like renting was just throwing money away.

I wanted to also comment on this as it is a common thought.

Renting a home when that is the most appropriate course of action for your situation is not throwing money away. It would be a far bigger waste of money to buy when buying isn't the best course of action for your situation.

If you don't know how long you will be in a location, why would you buy?
If you can't afford a down payment and/or don't have adequate savings, why would you buy?
If housing prices are such that buying would mean getting into a payment that is too high relative to your income, why would you buy?
If your housing needs will be changing in the near future, why would you buy?

There are many reasons why renting might be best - maybe not forever but for now. Maybe for a year or two or even more. It all depends. There are times when buying makes sense. There are times when renting makes sense.

[kork13]

I wanted to also comment on this as it is a common thought.

Renting a home when that is the most appropriate course of action for your situation is not throwing money away. It would be a far bigger waste of money to buy when buying isn't the best course of action for your situation.

If you don't know how long you will be in a location, why would you buy?
If you can't afford a down payment and/or don't have adequate savings, why would you buy?
If housing prices are such that buying would mean getting into a payment that is too high relative to your income, why would you buy?
If your housing needs will be changing in the near future, why would you buy?

There are many reasons why renting might be best - maybe not forever but for now. Maybe for a year or two or even more. It all depends. There are times when buying makes sense. There are times when renting makes sense.

Couldn't agree more... I'll never understand the idea that renting is a waste of money... When you're renting, you have the flexibility to move anytime you want/need to without having to worry about a house to sell or if you know that you're not in a stable situation at present. You aren't responsible to pay for repairs, upgrades, and homeowner's insurance, or taxes. There's less risk involved with renting, and by far less capital required.

Bottom line, it's just like DS said: sometimes buying makes sense, sometimes renting makes sense. It depends significantly on your personal situation.

[riverwed070707]

Good responses so far. I just want to throw out there one last tip. Since it sounds like most of your overspending is impulse purchases and not saving up and then splurging on big things, it's important you learn to pay yourself first. In your budget you need to decide exactly how much you plan to save each month and then each time you get paid (or monthly or whatever works for you), put that money in savings. Don't just have the mentality of saving whatever is left over -- it won't work and you'll save less. It's OK to have a plan for your excess, but don't base your savings by betting on what's left. You could even have it set up as a direct deposit to a separate account just like retirement so you never even have that money pass through your hands.

[disneysteve]

Since it sounds like most of your overspending is impulse purchases and not saving up and then splurging on big things, it's important you learn to pay yourself first. In your budget you need to decide exactly how much you plan to save each month and then each time you get paid (or monthly or whatever works for you), put that money in savings. Don't just have the mentality of saving whatever is left over -- it won't work and you'll save less. It's OK to have a plan for your excess, but don't base your savings by betting on what's left.

Excellent advice. As I've shared many times, my wife and I do not budget our spending. We do, however, budget our savings. A set percentage goes to savings FIRST from each paycheck before any money gets spent. How the remainder gets spent really doesn't matter. I don't care if it goes for groceries or dining out or travel or clothing or gambling or video games. As long as the savings are taken care of and all bills are being paid in full and on time each month, I'm good.

[snshijuptr]

As a comment on going to all cash, you should decide the length of time you are going to give yourself cash. In college, I tracked my spending and gave myself more money every day. Now I track my spending by the month. I still give out cash on a weekly basis though. Use whatever you can handle. Do you put $5 a day in your wallet or $35 a week? Obviously your exact number depend on how much disposable income you have after savings and bills.

[bjl584]

Hi everyone. I stumbled upon this site today, and think I may have found a pseudo support group here.

First of all, I want to thank the community for all the great information. Second, I am hoping to get some advice.

I have a spending problem. The more I make the more I spend. I have a hard time making financial decisions with the future in mind if they aren't made for me. As an example, I have 11% of my income going into both a traditional and Roth 401k, but my savings account hovers around 0.00.

My only debt is a $200 car payment, I am 29 yrs old, and my salary will probably break the 100k mark in 2011. (yay!) But, I really really want an emergency fund, and I'd like to buy a house in the next year or two. In the past I have had bundles of credit card debt, but have climbed out of that hole twice. I can't seem to stick to a budget.

So my question is:

What budgeting methods have worked for people without the strong will power or motivation to save money?

As an example, from reading on this site today, I decided to open an account with ING. Money in my current savings account is only a few clicks away from being in my checking account (and often ends up there). With ING I will have to wait several days at least. No more instant gratification.

I've thought about taking cash out of the ATM every week and budgeting like that. Maybe give up my debit card for an ATM card so avoid impulse shopping?

Thanks in advance.

No real magic formula. Just discipline and learning to pay yourself first.

I would shoot for saving 20% of your gross, so 20K a year. It's easy enough to get that set up. Between the automatic withdrawl from your 401K, and setting up an automatic withdrawl in a personal savings account, you should be able to do it easily. Then just learn to live on the rest. Essentially, "pretend" that you only gross 80K.

A $200 dollar car payment means you financed, 10 or 11K maybe? I'd work to get that paid off ASAP. Then you can start building your savings for a house. 20% as was already stated. And build up your EF.