Frugal economy. . . .

The more I read about our collapsing economy (I'm an internet news addict, these days), the more I thank my lucky stars that I began paying off debt and saving money almost 12 months ago. One of my bank accounts (no longer used for anything other than ATM withdrawals) is at Washington Mutual, which, as I'm sure you've heard, 'failed', was taken over by the government, and is subsequently being sold to J.P. Morgan Chase. Incidentally, I heard this news late last week; by today, my ING Account showed not 'WAMU' as a linked account, but in fact 'J.P. Morgan'! They certainly didn't waste any time!

Last week (or, geez, was it only a few days ago?), I wrote about my upcoming lump sum payment for a retroactive pay increase. I intend to send this money to my credit card, paying off about $1,000 in debt in one fell swoop! I also contemplated using some of my emergency fund (of which I have $1,600) to pay off the rest of my credit balance. Several commenters thought I should keep the emergency fund as it is, 'just in case'.

I'm definitely leaning in that direction, folks, not only because of the points my commenters brought up, but also because of this financial article, reminding readers what to do in an economy like ours. Basically, the author suggests that we should act as if we were preparing to lose our jobs! In short, this means:

• Decreasing contributions to a 401(k) or 403(b). I already did this last spring, when I became determined to pad my emergency fund (something the author recommends) and pay down my credit when a labor strike seemed imminent.
  
• Eliminate unnecessary payroll deductions. The author uses charitable donations as an example, which seems sad. However, I suppose in the long run a strategy like this would work better for charities anyway; keeping oneself healthy financially in the short term would allow one to increase donations in the future.
• Reduce income tax withholdings. Or, put another way, decrease the money that you'll receive as a refund later and increase take-home pay now.
• If you're still brave enough to be investing in the stock market, diversify. Personally, I don't have the stomach to even look at my tax deferred investment account, let alone play with the contributions.
• Pay off any 401(k) loans. Hopefully none of us have taken a loan on our retirement!
  
• Research life and health insurance options, in the event of a layoff. Find out how long you're covered and for how much; if you're lucky enough to have a spouse or partner who has coverage, consider switching to their plan.

So there you have it. Luckily, I'm already doing all of these things and more, although I'm still nervous, of course. My job is secure---for now. But it's nice to have even a smallish emergency fund to back me up in the event of a financial meltdown.

In other news, Dave Ramsey's coming to town on November 1st, and I can't decide if I want to shell out the $36 it would cost to see him in person. I know it would be a great motivator and reminder---Dave's book, The Total Money Makeover, is one of the first financial books I read that catapulted me into my frugal lifestyle. I'll have to see how much money is left in my checking account after I've sent my mega-payment to the credit card company later this week!

Another reason to minimize credit card use. . .

So, I came across this article based on an interview with two women who worked for a large bank, as customer service representatives (you know, the people we call when we want a balance transfer, or a lower interest rate, or a late fee removed). Apparently, these employees were encouraged to "sell" credit to people----especially people who sounded as if they were already in financial dire straits.

For example, they were trained to listen for phrases like "I can't pay my bills", "My son is going to college", or "My car isn't running". These consumers were considered 'marks', and were then sold credit at "the highest rate possible".

Now that it's clear Americans have been financially overextended for a very long time (and I include myself in that group), we can see that part of the reason for this has been what I consider to be unethical selling practices by American banks and lenders. 'Selling' credit to a person who has a very good chance of repaying that debt is good for the economy and the country; pushing credit on people who are already stretched to the limit and who will probably miss their payments (thereby allowing the bank to increase interest rates) is immoral and dangerous.

I'm not saying that people don't have a responsibility to determine whether they are able to repay their debt before borrowing money. But I think at least part of the horrendous economic problems we're facing have to do with lenders threw money at people they knew would be unable to pay on time. Just one more reason to keep the credit cards safely stashed in a drawer at home, unless a true emergency presents itself.

A frugal increase. . . . .

My union negotiated a small increase for us in July, and we are now seeing our retroactive pay (the raise was negotiated to start as of January 2008). I received my electronic paystub yesterday, and it appears that my January-August pay increase amounts to about $1,000, after taxes!! Although my monthly income will increase by less than $130, anything is better than nothing in this precarious economy.

As for that $1,000, what do you think I'll be doing with it? Buying new clothes? Downpayment on a new car? A trip to California? Nope, nope and nope. I'm going to send all of it straight to my credit card debt, meaning that by the end of next week, my credit card balance will finally amount to less than $1,000---in fact, it will be just over $500!!! This means that by the end of November at the latest, I should finally have my credit card paid off.

Now, here's my dilemma: remember when my union was considering a strike, and I decided to send more money to my emergency fund, "just in case"? Well, I now have a bit over $1,600 in my EF. Dave Ramsey says I should have $1,000 stashed away for emergencies, until my debt is paid off. I'm considering using $300-$400 of the funds in my EF to pay my credit card debt down even further, which would allow me to be credit card debt-free by the end of October!

What do you think? Unless a huge emergency occurs in the next two or three months, I should be covered---I'll be able to start building my EF up even higher after the credit card is paid off, and have no credit debt would be phenomenal!

Saving for the future. . . .

The fall term is upon me, and with the changing leaves, classes starting, and chillier weather, so arrives my tuition bill. Since I work at the university, I'm eligible for tuition benefits, which amount to roughly $2,700 a term (not a bad chunk of change). However, I'm responsible for approximately $300 for university and department fees, plus book costs. In years past, these costs normally ended up on my credit card---I never had $300 in my checking account at any one time, let alone the $150 additional for textbooks and other school supplies!

These days, however, I have my ING Direct savings sub-account entitled 'Tuition and books', to which $133 is sent every payday. Right now there is more than enough to pay my fees, and on October 1st, there will be an additional $133 added to it, which will help cover my book costs.

A simple change in my budgeting system has allowed me to pay for these items outright, rather than putting them on credit and paying 8 or 9 or 12 or 15% interest over many, many months. I'm actually amazed at how simple it is, and the best part is the decrease in stress when the term begins---I have the money. It's in the bank. I can pay with cash! Well, with 'debit', but you get the point.

And it was so simple! All I did was:

1. estimate the amount I would need for tuition and fees, plus books, each term. This is admittedly the most difficult part; it's basically a 'guesstimate'. However, once I'd come up with this estimate, I:

2. multiplied that number by four. Why four? Because the Oregon university system runs on quarters---four terms per year (as compared to the semester system, which I prefer, by the way). So if I know that I'll be taking courses every term during a year, then I'll need to know my yearly tuition, fees, and related school costs. Then I:

3. divided by 12. This gives me the rough monthly 'cost' of attending school, which is around $133. Finally, I:

4. created an ING sub-account (I LOVE sub-accounts!) into which I deposit $133 each month. I had to begin the sub-account at the beginning of a term, so the money in the account had time to grow large enough to cover the following term's bills.

It works like a charm! I know it sounds like an exercise for a kindergartner, and I probably shouldn't be so delighted by it, but for someone who used to regularly put piddly amounts on credit---even items that I had known well in advance I would have to purchase, it's nothing short of a miracle.

What we've given up. . . .

As the economic news continues to worsen, I'm thanking my lucky stars I started living more frugally almost a year ago (!!!), and am used to the 'loss' of certain luxuries. What have I given up, over the past ten months?

• Cable TV (with all the 'extra' time I have I read more, see my friends more, and write this blog)
• My gym membership
• A warm(er) house in the winter
• A cool(er) house in the summer
• My overly expensive Verizon wireless plan (I'm now a pay-as-I-go wireless customer, and it's working out brilliantly, thank you very much!)
• My car (I'm now a public transportation junkie)
• Buying books left and right (have I mentioned that the local library has FREE books and movies, AND has heating and air conditioning for those extra cold/hot days?)

What's interesting (and yes, disturbing) to me is reading about families who are just beginning to cut out their own luxuries, whatever they are. CNN has a section on its website called 'iReport', and this week quite a few American families detailed how their lives have changed since the economy started heading south. After reading some of these stories, I, for one, feel incredibly lucky to have not one, but TWO jobs, considering there are highly-educated and experienced folks out there who cannot even find one job.

Even in the midst of paying off debt and trying to live more frugally, I think this new economic downturn can result in positive changes, both politically and personally. The fear and anxiety that Americans are feeling just serves to emphasize to me that living below my means is the way to go: in healthy economic conditions I can save for the future while enjoying my life; in horrific conditions like we're witnessing now, my frugal ways will help me stay afloat until the economy improves, as it always does!

A really small house. . .

As I was searching for a home to purchase in the Portland area over two years ago, I remember thinking that I absolutely, positively, needed a certain amount of square footage in order to be happy. I ruled out anything that had less than 900 square feet, and although there were 'tiny' houses at about 750 square feet in my price range (and in attractive locations), I didn't even deign to look at them. "Much too small", I thought. "I need something that is at least as big as my house in California" (which, you may be surprised to learn, was just 1,000 square feet).

So, I ended up with a lovely 980 square foot house in a nice neighborhood that is unfortunately far, far away from where I work, in downtown Portland. Now I find myself considering selling my house in order to move 'closer in' to downtown, which means that I'll probably forfeit some space, whether I buy or rent. Now, however, a 750 square foot house sounds just fine! Since I've become more frugal, more committed to simple living, my attitude has changed. I no longer need a certain number of square feet to fit all of my stuff---instead, my stuff will just need to fit into the space I find! Now, this is assuming I make the decision to sell my house, which is by no means an easy one, in this market.

It was heartening to see, however, there there are others who feel that they can live in spaces far, far smaller than those that even I am contemplating! One of the homeowners interviewed for this article lives in a 100 square foot "wee house", located on a friend's property! In fact, a 'green builder' in Arizona has this to say:

"I'm not the Gallup poll, but I hear the same story over and over: 'We got rid of that big house, and now I have time to see my husband. Before, we used to work all week and then we'd spend the weekend on the house."

This mirrors the quote that lives in the far right corner of my blog, by Ellen Goodman, in which she laments that the new 'normal' is spending all day working in order to afford the house we don't get to spend any time in!

Now, I truly don't (at this point in my life) see myself in a 100 square foot 'wee house'. But the mere thought of it truly does help me to see that the only limitations I face are the ones I place on myself!

Surprising savings. . . .

I returned from the phenomenally sunny and warm Oregon coast on Saturday, and bid goodbye to my parents on Sunday. Now I'm attempting to catch up to my budget and finances after a week of walks on the beach, wonderful meals, and cable TV (I must admit, one of the real 'luxuries' for me was being able to watch HGTV).

I budgeted $200 for the past week, expecting to pay for part of the hotel bills as well as some of the food costs. The beauty of having family visit, however, is that paying one's own way becomes somewhat difficult. I asked---and was politely turned down---to pay for the first hotel we stayed in. At no time was I asked to pay for any meals or gas costs!

As for shopping, I spent roughly $45 on a sweater-jacket (in a style I have been searching for), but the rest of our shopping revolved around helping my mom find a gift for a friend who was watching their house and feeding their cat in my parents' absence. To be entirely honest, the boutiques we visited on the trip were so expensive I couldn't have purchased anything had I wanted to, unless I used my credit card. Which I did NOT do, of course!

So, I think I spent about $60 for the whole week on the coast, including my new sweater and some coffee and muffin purchases I made. We ate out a LOT, and I found myself wishing that we could just go to a grocery store, buy some apples, cheese and bread, and have a frugal picnic. However, it was my parents' vacation more than mine (I can go back to the coast any time I want), so I suppressed my frugal instincts, and ate much more richly than I have in a long time.

In retrospect, I'm glad I didn't spend my entire beach budget; I realized when I returned that I gave up an entire week of night work (meaning I also gave up an entire week of pay), so my budget is going to be somewhat tight for the rest of the month.

A frugal vacation. . . .

Hey there! I'm on the beautiful Oregon coast, without access to a computer (gasp!) so I'll be back next week!

Have a frugal week!

A frugal sale. . . .

Well, that was more work than I've ever done for $60! My yard sale, that is. The day (Saturday) dawned overcast and chilly, so my visitors were few and far between. Interestingly, I had my 'rushes' early on and then at the very end, as I was packing up. Although I didn't 'make a killing' as they say, there was at least one benefit to the hours and hours I spent going through boxes and decluttering my house and garage: I took everything that remained straight to the Goodwill. Meaning that my house and closets look much cleaner and emptier! So, all in all, it was definitely worth the work.

On a side note, as I was checking Craigslist to check out my 'yard sale competition', I noticed a posting that was titled: "The Dave Ramsey Sale". This guy was taking Dave's advice and getting out of debt by selling extraneous items (he had lots of sports equipment listed for sale). I thought that was wonderful! I hope he made tons of cash, and sent it all to his creditors. By the way, if you're new to getting out of debt, be sure to read The Total Money Makeover, by Dave Ramsey. This book, along with Your Money or Your Life, jump-started my motivation level and almost a year later, I'm still committed to getting out of debt (and I'm almost there---in terms of my credit card debt, that is!) Note: borrow them from the library first, before deciding to buy.

Now, if you've made it this far, I just have a little 'vacation' announcement to make. My family is here visiting from California, and we're off to the Oregon coast for a little rest and relaxation---and it's supposed to be beautiful weather there this week! So, I won't be posting until next week! We're hitting Cannon Beach (note to Marci: we unfortunately won't make it as far south as your town), and my goal is to try not to get back into my old shopping habits while with my mom, with whom I used to shop when I lived in California. In fact, the first thing she said when I announced I was moving to Oregon was "But who will I go shopping with"? Cannon Beach is a cute little town with loads of shops and boutiques, so it will be a bit of a challenge. I'll check in a week from today to let you know how it went!

Have a wonderful week, everyone!

On becoming a nag. . . . .

I had my hair cut today, at one of those cheap places where you never see the same stylist twice. It's always sort of a crapshoot: "Will my bangs be too short? Will the layers be short enough? Look at all that hair on the floor! I swear I asked for just an inch off the bottom!" Quite the adventure! I've still not been home to 'style' it the way I like it, so while I have a good feeling about this $15 haircut, the jury's still out.

Anyway, as I was chatting with the young stylist, she mentioned that she had just recently opened a savings account, with which she is going to save up for a trip to Europe next year. Excited, I immediately started asking questions: "What kind of savings account? Were there fees? Is she saving automatically?" Then I realized that I was asking very personal questions of a relative stranger, and shut my trap. I truly wanted to ask her about how she is saving for retirement, which probably hasn't even entered her mind at this point, but I successfully reined in my curiosity. Based on some other comments she made, however, I gathered that saving money is not her strong point.

I've been trying, for two years, to convince a young (28) coworker to open a tax deferred investment account in addition to the pension that we'll receive as state employees (assuming we make it to retirement age). He's been dragging his feet, and will probably continue to do so, regardless of my nagging (or maybe because of my nagging. . .) I use the words 'compound interest' and 'millionaire' many times in my little talks with him, to no avail. I simply can't understand his reluctance. Then, yesterday, I read this article concerning young Americans and their reluctance to save for retirement.

The survey results presented in the article indicated that young Americans (defined as those in their "20's and 30's") often cash out their 401(k) accounts each time they change employers, rather than letting the accounts roll over and continue growing! And most people will change jobs at least 6 times during their lifetime (I think I've almost hit that milestone). I actually have a friend who did this recently---she and her husband were moving across the country, and she took money out of her retirement account to use as savings while she looked for a job----as far as I know, it never went back into her fund.

Although I am in no way a financial expert, and my own financial history is less than stellar, I consider the money I put into my 403(b) to be sacrosanct, not to be touched unless there is a dire emergency. This is because I understand that I've waited a long time to begin saving, and I need all the compound interest benefit I can get so that I can someday retire. I only wish I'd figured all of this out when I was in my mid-20's before racking up thousands (and thousands) of dollars of credit card debt!

Frugal clutter. . . . .

Yesterday, in honor of Labor Day, I started hoisting boxes from the upper reaches of the garage, with the goal of finding items I could easily part with at my yard sale next Saturday. When I first began thinking about having a tag sale several weeks ago, I was afraid that I wouldn't have enough 'stuff' to sell. There's nothing worse than a yard sale with only a few items, and I just couldn't picture what exactly---beyond a few obvious kitchen gadgets and some furniture---I could sell.

The garage, however, turned out to be a veritable goldmine! There were more than a few boxes that had never been unpacked. I hadn't unpacked them when I moved to Portland over two years ago, and lived in an apartment. I hadn't unpacked them when I moved into the house I live in now. I realized that if I've been able to live without these things for this long, I could easily 'let go' and sell them. Now one wall of my office is lined with boxes and bags of price-tagged STUFF that I don't need now, and probably never really 'needed'. It feels GREAT! And I still have two more boxes to open and investigate. . . . .

Another benefit of this Labor Day 'purge' is that I went through piles of paperwork going back years and years. I filled my entire recycling can with shredded documents! My particular form of clutter-disease is made up almost entirely of paper (mostly mail) and clothing. Mail and other documents are stacked and stacked day after day, until guests are imminent, and then the stacks are hidden in drawers and boxes. Rarely are they looked at again (I once found an eight-month-old check for $1,200 in one of these stacks)! I'm getting much better at taking care of mail at the moment it enters my house, but again, it felt phenomenal to rid myself of these lurking stacks once and for all!

It was a bit like a geological survey; for example, I found old check registers ranging from five to eight years ago. It was incredibly interesting to see what sorts of things I was spending my money on, so long ago. The number of checks I wrote to credit card companies astounds me, and it's clear from the amounts that I was simply paying the minimums. Here's an example of just one round of credit card bill-paying:

• The Gap: $15
• MBNA: $55
• Macys: $21
• Wells Fargo: $35
• Gottschalk's: $24
• Victoria's Secret: $20
• Mervyn's: $35

I couldn't believe how many department store cards I had! And I was paying over 20% interest on those cards, no doubt!

So, my Labor Day was both laborious and educational. I learned that I've created and maintained much better habits, and that I'm not a prisoner of my stuff---I really can (and will, this Saturday) get rid of the things that take up space in my life.