Saturday, February 16, 2008

Save Money this Weekend

For the most part, people are too busy to spend money during the weekday, it's the weekends where pockets empty. Presidents Day Weekend is among us and with any additional day off from work, represents an additional day to spend our hard earned money. Obviously the best way to save money is not to spend it, so how should you spend your weekends without blowing your budget? Milk Your Money came up with ten ideas to enjoy your time off while by keeping your credit cards in your wallet...

1) Invite your friends over for dinner. Rather than spend an evening out on the town. Most friends will provide some help by bringing beverages or a side-dish, and with the money already budged for food that night, the extra amount spent will be minimal.

2) Start a project at home. Have a room you have wanted painted for awhile or something that needs fixing? I know this doesn't sound like fun for some people, but I like spending my time off working on small projects around our home. Sweat equity is a great thing, pay yourself to increase the value of your investment.

3) Watch a movie. I rarely see a movie when it is in the theatre. If you think about it, the cost for two tickets will probably cost around $20 plus at least $6 of popcorn and a drink. That's $26 for two hours of entertainment which breaks down to $13/hour. Lately, we have been renting movies at Redbox machines for $1/night or watch a movie On Demand which we already pay for with our cable.

4) Get Active. To the contrary of what Gold's Gym says, staying healthy is cheap if not free. Walk your dog, play some tennis, go for a jog, work on your short game (golf), shoot some hoops, play tag with your kids - are all great ways get off the couch and save some money.

5) Plan Ahead. Do a little research before the weekend rolls around. Check to see if one of your favorite restaurants or bars is having a special, buy tickets in advance to sports events or concerts, or bring your own food or drink for a day at the beach. The more you get serious about your finances, the more you will realize that planning plays a major role.

6) Smart Shopping. Its inevitable that you will find yourself in a store that is literally full of things that you want to buy. For these times, its a good idea to follow the 2 week rule. Make a mental list of the things you want and then simply wait 2 weeks to see if you really do want it. A majority of the time, you will see that you don't really need the item. Ben does this with books, and of course golf clubs.

7) Streamlined Clutter. While this sounds boring, the long term benefits can be seen further down the road. Deep clean those storage areas that are full of things that have no other place. By taking "clutter" and either getting rid of it or putting it in the appropriate place, you gain the efficiency of the space you have available to you. Spend some time to be as thorough as possible and streamline your closets, putting clothes you haven't worn in a year in a box for long term storage. This will make your morning routine simpler and allow you to see your exact inventory of clothes. Apply this to your car, garage, storage closets, get the idea.

8) Budgetize Your Entertainment. In the event that you do end up doing something a little more expensive than usual, don't fret. Simply figure out how much you overspent and divide that by your allotted "weekend money," this will be the number of weekends you will need to lay low before you can spend for your budgeted weekend entertainment.

9) Wait for the DVD. Instead of spending $40-60 a month on cable, what if you spent $60-80 a year on TV series on DVD. If all you watched was Sopranos on HBO, you could have saved quite a bit by waiting until the season (or series) was over and watching the whole thing on DVD. Ben did this and said it was very rewarding as there was no weekly wait to see what happens. He is currently waiting for Lost to be over to do this as well.

10) Don't Cut, Just Curb. The weekends are highly coveted and far too short. We are not saying that you should stop doing certain things that make you happy, just see if there is a way to reduce some of them. Its unrealistic to assume that we can live like monks or spartans but the idea of frugality is in efficiency in the use of resources. $

Friday, February 15, 2008

Bush Administration’s Next Rescue Plan: Project Lifeline

As we all know by now, this country is in a rapidly increasing downward spiral in real estate, credit and mortgage lending. About a week after Bush released the economic stimulus plan, he and six large mortgage lenders unveiled a plan to come to the rescue of a majority of foreclosing families. The question is, how will this plan work out? Will it be effective? Will it turn our economy around? (Image credit to Rick LaForce)

How Bad Is It?
It seems difficult to fathom the severity of this drop in value across the board. Some refer to it as nothing but a “slump” or a “correction,” while others think of it as a “free fall” and a recession. Both have arguments have valid points. One the one hand, we can say that we have seen this sort of behavior before. It happened in the 70s as well as the 90s. In the early 2000s we saw a major rush into real estate that some say we are paying for now. The other side of this coin however is much more negative. Depending on who you talk to, we are headed straight for a recession (which is defined in macroeconomics as a decline in the nations Gross Domestic Product or negative economic growth for more that two quarters, or six month). Basically it means that we, as Americans, are not spending as much as we should be and demand dwindles, regardless of whether prices move up or down. A famous news paper columnist, Sydney J. Harris, is quoted as saying “A recession is when your neighbor loses his job; a depression is where you lose yours.” Personally, I have not noticed any reports, at the time of this writing, of an over all, wide spread loss in jobs. If you find differently, feel free to leave a comment and weigh in.

Little Help?
So what is the government’s reaction to this? Initially we saw the Federal Reserve lower the prime rate. Then they lowered it again. And again. They have continued to do this until the global markets began to take notice and start to fall. Then they cut it some more. The rate that it is at now has not been this low in a number of years. Not as low as what Alan Greenspan had in 2001, but still pretty darn low. What does this percentage rate mean? Basically it boils down to the interest rate at which one bank can borrow money from another. A lower rate means that more money is easier to borrow, but when it raises, the lending bank will make more money. Easy enough right? Right. But what does this mean for you?

What Does That Rate Mean, Anyway?
It means that the banks are getting cheaper money in order to turn around and lend it you, the home buyer. The theory behind this is that you will then go out and buy a house and that bank will make more money in the long run, if at all, since you might have kept right on renting. You will hear a good number of people saying that there are going to refinance now, since rates are lower. There are pros and cons to this that we will get into later, but for now, lets move forward with the big picture.

With this background we are better able to understand what the governments actions are attempting to do: pump life back into the country’s economy. After the rate cuts, Bush decided that best way to move more cash would be to directly inject it by putting it squarely in the wallet of the common citizen. We discuss elsewhere as to what we think you should do with it. As a side note, the tally for the amount of money being milked out was just about $150 billion dollars and there was a motion to add a another measly $40 billion so that the elderly and military vets could also participate. This barely passed at the 11th hour. How nice of them.

Beginning of the End or Just the Beginning?
Now we are the latest step in the governments’ intervention. Project Lifleline. This turns out to be a simple freeze on the time required to allow those families who are facing foreclosure, to renegotiate with their lender and get some time to get their finances in order. Those homeowners that are late by 90 days or more are the main targets of this resolution; however, homeowners in bankruptcy will not be eligible. Investment properties and vacant homes are also not included. The focus is valiantly centered on those that actually live in the troubled home. It makes more sense to save these first, as they are more able to pay, not to mention the money is much more guaranteed. Members of this program are Countrywide, JP Morgan, Washington Mutual and Wells Fargo.

There are naysayers (of course!) that believe that this is simply the beginning and this is a fruitless effort. Will the changes that these lenders are proposing be enough to put the brakes on this drop? It will be interesting to see where we can go from here. It also leads to a whole other discussion on investing. Have you taken a good look at the financial market lately? $

Thursday, February 14, 2008

Take Your Lunch to Work

We estimate the average cost to go out to lunch in most major cities costs anywhere from $9-$13. In contrast, the cost to bring a lunch to work will most likely cost you around $2-$4. This simple decision if turned into a habit has the potential to save you $11/day (cost of a haircut) $55/week (cost to take your wife to dinner) $220/month (cost of your electricity bill) or $2,640/year (down payment on a car), I will stop there but you get the point. If you want to start changing your daily spending habits for the better, this is a great place to start...

The financial benefits of bringing a lunch to work for most is common sense, but the reality is that most people just simply don't do it. For many the issue is time, but with a little planning time should not be a factor. I have found that buying groceries at the beginning of each week puts me in a position to plan all of my lunches for the week. I try to make a few dinners at night each week that will produce leftovers that can easily be heated in the microwave, the next day. The remainder of the days I usually bring a couple sandwiches (that can be made the night before) pre-made salads, fruit, yogurt etc. All of these are very simple easy to make lunches that will put more money in your pockets. Fortunately, for me, my wife packs my lunch every morning as long as I do the grocery shopping, a deal that allows me to sleep in and ensure I'm getting the best deals at the store!


Mix it up. We have found the best way to mix up your lunches for the week is to start shopping the sales. This is a great way to make your lunches even cheaper while avoiding the same old thing everyday. Every Sunday when I make my weekly trip to Safeway, I browse the specials and base my meals off them. If ham is $2 off than ham sandwiches it is, if tuna is buy one get one free then I'm going fishing. You may be thinking, "saving a couple dollars here and there will not add up to much.” I can say through experience that shopping with a savers mentality can not only lower your expenses but also change the way you approach spending in all aspects of
your life.

Leave the Office
If you are like many in the office I work in, people go out to eat because they want to leave the office for a while. This is very understandable, as I leave the office everyday for lunch to workout. I just eat at my desk when I'm finished. It's healthy to leave the office and get away for a while, most employers encourage it. You have to figure out a way to work in your lunch and get into a routine. Once you fall into a routine you won’t think twice about going out to eat instead of bring your own lunch. In fact, now when I occasionally go out to eat for work related reasons, I enjoy it even more.

Pressure from Coworkers
Everyone works with a coworker that tries to get everyone in the office to go out to lunch with them. I feel like these people not only want the company but the company helps justify their spending. Let’s face it, eating is traditionally a social event and will always be. For many, it’s hard to tell coworkers that you will pass on their offer of Subway and eat your peanut butter and jelly sandwich. We have found that a good way of dealing with these over spenders (or perhaps bosses that make more money than you do) is to continually say, "No thanks." After a couple days they will understand that you bring your lunch and trust me, they will be ok with it. Often times you will inspire your coworkers to bring their own lunch as well and you can start trading items like you did in elementary school.

Wednesday, February 13, 2008

Milk Your Economic Stimulus Rebates

The U.S. House of Representatives and the Senate have finally passed H.R. 5140, an economic stimulus measure that will put money into taxpayer’s hands. President Bush is expected to sign the bill into law in the coming days. The IRS thinks they should get the checks in the mail sometime in May, which leaves us plenty of time time start thinking about how we should spend this unexpected income.

How Big Will My Refund Be
Most families should expect to receive a $600 rebate for each individuals in the family that filed taxes last year that made at least $3,000 and less than $75,000 a person. An additional $300 will be included for each child in the family. Low-income people, including retirees on Social Security and disabled veterans who pay no income taxes, would also receive checks of $300. For those making over $75,000 a year, your rebate will be phased out as appropriate. In other words, we are not sure how much you will get; let us know when you get it.

It’s Patriotic to Splurge
When the checks are mailed in May, I'm sure it will be considered patriotic to splurge in order to burst our struggling economy. As fun and tempting as this may sound, it's probably not the best idea for most of us. So how should your family spend your extra $1,500? The answer for many depends.

Credit Card Debt
Are you one, like many, that has accumulated credit card debt that you can’t shake? Perhaps this refund will be a good place to plop your money. If you haven’t already done so, you should call your credit card company and request a smaller interest rate. I just recently did this and saw my rate drop from 21%to 9%, for just simply asking! Place your refund on the card with the highest interest rate, even if this amount does not pay off the balance, it will save you hundreds if not thousands in long-term interest payments. To become wealthy you have to stop paying interest and start making it, this is a great place to start.

No Savings?
Having a savings of at least two months of living expenses is recommended for everyone. It's ideal to have this money in something you can access very easily like a money market fund and not in assests such as individual stocks or a mutual funds. Even if you have built up debt to pay off, it may be best for you to put your rebate in savings. It's better to have a back up in case something unfortunate happens, although less debt is nice, you will not be able to make payments on anything if you lose your source main of income and have not built up a solid savings.

Pay More on Student Loans or Mortgage?
Although it sounds like a good idea to post an extra $1,000 on your mortgage payment or on your student loans, in reality this will not do much for you. Most mortgages and student loans have interest rates are around 5-9% (the lowest APR loans you can really get), although a lump sum extra payment on these accounts will be beneficial, the benefit is very minimal. If you are going to pay more on these loans, do it monthly with a goal of paying off the loans in x amount of years sooner than your current loan requires.

Max Out an IRA
We realize your rebates will not be in your hands before April 15, 2008 (the last day you can contribute to your 2007 IRA), but consider putting some of your rebate in your IRA for 2008. Sound boring, well it is, but consider this, $2,000 invested today growing at 8% annually would give you $21,871.46 in 30 years. Ah yes, the power of compound interest.

Treat Yourself
Making smart financial decisions everyday should be a top priority for you, but every once in awhile we deserve a treat! We would suggest taking about 20% of your rebate if this is reasonable for you, and buy something you have wanted for a while, perhaps a small flat screen for your bedroom or piece of art. I recently put a small LCD TV in our bedroom and I consider it the best art hanging in our place!

Like any unexpected windfall of money, what to do with it depends on our current situation. You'll have to take a step back and look at where the money can work best for you. Have some good ideas we didn't mention? Let us know about them! $

Tuesday, February 12, 2008


While the discussion of what car to actually purchase will be discussed in a later post, I would like to point out a few things to keep in mind with the car you already have. I recently had the lovely opportunity to have my car run into an issue where the transmission was stuck in four wheel drive. Naturally my girlfriend was driving and I was no where nearby. So after having her turn the car off and back on, the issue seemed to have been resolved, I came to a bit of a cross road. I knew that there was a problem but it seemed to have been "healed" all by itself. Should I let it go and see if it happened again or have it immediately taken to the dealership to have it at least looked at.

As much of a pain as it was, I elected for the latter. I ended up having the sensor replaced, as well as an over haul of the entire four wheel drive system (Consider getting a second opinion on your vehicle when it has problems, until you are comfortable and trust a mechanic you may end up spending more than necessary). It might seem as though that was slightly fool hardy but I look at my car as an investment. Not an investment where it will gain equity, but as an investment to stave off another vehicle purchase. The absolute best way to save money in the long run is to not have a car payment. Some might argue that "Well, I am always going to have a car payment so I might as well get the nicest car I can." This is simply not true! This happens because some are not in tune with getting regular preventative maintenance. Ever hear the phrase "An ounce of prevention is worth a pound of cure"? It's definitely true. Cars should last at least 10 years in our opinion here at Milk Your Money and by keeping your car going for at least double the amount of time on your loan, you can justify that your payment is being cut in half in the long run.
My vehicle purchase was out of necessity and my selection process was somewhat biased as I had just moved and gotten a new job and the payment was/is manageable. Don't get me wrong, I love my car, but if I knew then, what I know now, I would have chosen differently. Again, that type of discussion is for another post.

I want to make the point that my thought process was geared towards not having a massive payment later down the road. (Any puns found in the previous sentence were completely intentional.)

SmartMoney has an excellent article that talks about the 10 best ways to keep your car out of the shop. These are really simple ways to make sure you get the absolute most out of your car. Some are well known while others are not. Here is a quick summary:
  1. Start it up properly: "Make sure that any extra accessories, such as headlights or climate control, aren't on when you turn on the ignition."

  2. Come to a complete stop: "By shifting into drive while the car is still in reverse, you're asking the transmission to do the work of the brakes — and that will wear down your gears [...]"

  3. Don't Run the needle down to empty: "You can stir up sediment by driving with less than a quarter of a tank of gas. Prolonged abuse could wreck your fuel injector, which costs about $80 to $100."

  4. Turn gently: "By turning the wheel to the point where it can move no further, you're putting 50 times more wear and tear on your steering pump than normal [...]"

  5. Check your tires: "If you drive with too little air, your tires will get quite hot; excessive heat will wear out the tread much faster than normal driving. If you drive with too much air, less rubber will hit the road than necessary. Next thing you know, the outside portion of your tire will be doing all the work and wearing out faster than the inside."

  6. Don't ride the clutch: "Pop the car into neutral and take your foot off the clutch while sitting in traffic."

  7. Listen to your car: "The most common sound people ignore is squeaky brakes. As soon as you hear the sound, you probably need new brake pads [...]"

  8. Heed those warning lights: "By waiting even a few days, you can turn a simple problem into a disaster [...]"

  9. Drive more: "Many people don't realize it, but not driving your car can be as damaging as driving it too hard."

  10. Neglect will cost you: "The single most important thing you can do for your car is take it in for regular maintenance."

Monday, February 11, 2008

Creating a Budget

Anybody - no matter what point in your life you are at - should create a monthly budget. A budget is the one big step you can take, to take control of your financial future. Until you realize where your money is going, (or isn’t going), will you be able to start paying down your debts, putting money into savings, or planning for your retirement. Try this budget and regain control sooner rather than later. There are many different programs available, i.e. Microsoft Money and Quicken that can also be used. Let’s get started...

Monthly Bills
At the beginning of each month, enter in the cost of all your monthly bills (cable TV, internet, mortgage, property tax etc). Because most of your bills are not the same month to month, our budget template has a column for your projected costs as well as the actual costs. This way you can give yourself a realistic look at your monthly expenses at the beginning of the month and enter in the actual amounts when the bills start arriving. Remember, it is better to over estimate the cost of bills then to come up short.

We find it is best to view your savings as a monthly bill. Currently, the United States Personal Savings Rate is staggering around 1%, which makes it apparent, how Americans view saving needs to change. Remember it is recommended to have at least two months of living expenses in a liquid savings account (like a money market fund), so you have easy access to the money in a time of need.
Necessary Expenses
Necessary expenses include groceries, toilet paper, gas etc. Just like your bills, enter your best estimate for each category. For a starting point, consider that in our household, my wife and I budget $300.00/month for food, $115.00/month for gas, and $75.00/month for toiletries etc. It is important to be realistic when setting your projected expenses, think of everything you need month to month. Remember your budget when you’re shopping as well, just because something is on sale, does not mean you should buy it. Many times the best bargain is keeping your money.

Here, simply enter in your after-tax household income, including any supplemental income like rental income. Hopefully by sticking to this budget you will start to see more of this money! After all of your bills, expenses, and income is entered, Excel will calculate a total amount of money left after paying your bills. Assuming you entered your savings as a bill, this amount can be easily divided by four to give you a sense of what you can spend on a weekly basis. We find its helpful to think of your disposable money in week increments, this way you have a better mindset as to what you can afford to do for fun, and not feel guilty about what you do spend, because remember, if it's in your budget, your on the right track!

Actual Costs
To really get a sense if you are sticking to your budget or not, pick a few nights a week to enter in your purchases in the actual costs categories. By taking the time to enter in these figures, you get a chance to examine your spending habits. Perhaps you will recognize Starbucks showing up more frequently then you care to admit, this is a good thing that will hopefully get you to start making conscientious purchases.

How Did You Do?
At the end of the month, after you have finished entering all of your purchases and the correct billing amounts, you will find out if you stayed within your budget or not. Take a few minutes to really examine your month. Ask yourself things like, where did I go wrong? Are there any negative patterns? Where can I make cutbacks? Until you see your finances broken down in front of you, it’s hard to start making postive financial changes in your life.

If you are lucky enough to continually have money left over each month, start playing with the numbers, put more money in savings or pay more money on credit cards with higher interest rates. Both are great ways to reduce debt and accumulate wealth!

It doesn't matter which program or method you use for budgeting your money, it is just important you do it. It does require a little bit of your time, but remember, you work an estimated 160 hours a week to earn your money, you owe it to yourself to spend a few minutes to determine how best to spend it! $