How Financially Limber Are You?

"Oh that was a bad month. The car needed repair."
"That was a tough month. We had to fly to my sister's wedding."
"December was rough this year."
"Last month was unusual. I had to pay that big dentist bill.

How many times have you made excuses for going over budget or living close to the edge? Is there really such a thing as a typical spending month where all you have to do is pay your usual bills, buy a typical amount of groceries, spend an average amount on household items and go out only a minimal amount?

There is no "average month." Something always comes up...the car breaks, the house needs something or you need a getaway. It's not bad when these things come up. And you're not a bad person if you spend a little frivolously.

The dangerous thing is setting your budget so tight that these things are then a big set back. If you find yourself having unusual months more than 4 times a year, you are budgeting too tightly.

Can you look at your spending over the last year? If not you need to start using some service that helps you analyze your spending. In my opinion online banking is the greatest banking service ever, but it's not enough. You can download your transactions into an Excel spreadsheet and setup your own analysis, but what a hassle. Services like Quicken, Mint and Microsoft Money (though I'm not a fan of the latter) are available for free or a nominal fee and let you see your spending trends in just moments.

Those months that you do happen to stay in budget are for preparation for the other months when you don't. I know you've heard of emergency savings. This is the money that will help you out with the little emergencies and keep your budget balanced.

So how much flexibility do you need? Again return to your previous spending trends. How much did those unusual months or little emergencies cost you? Average that out over a year in your current budget. Or if you see that you tend to spend more in one part of the year, tighten your budget in the months prior to prepare.

If you have no idea how much the unusual months cost, then you've just got to pick an amount and add that flexibility into your budget. Maybe start with a $200 cushion. It may not be enough but it will make the blow of unexpected expenses softer. Then watch how this works out for you and adjust the amount if needed.

You'll probably need to find areas in your budget that need trimming to come up with this cushion. It's not as hard as you think. Once you dive in and look at the numbers you'll find ways to cut some fat. For our household small cuts in fast food and coffee shops was enough to plump the cushion. This month we've had an unusual amount of gifts to purchase and a sizeable dental bill, but thanks to the cushion our budget didn't crack at all.

Remember a budget is more of a guideline. The more rigid your budget the more likely it is to break.

I dare you to buy nothing!

Have you scoured the paper this weekend? Did you visit the Black Friday websites? Have you made your list, checked it twice and planned your route for the biggest shopping day?

Or are you celebrating Buy Nothing Day?

Buy Nothing Day is an informal day of protest against consumerism. It's typically promoted for the Friday (a.k.a Black Friday) after Thanksgiving in North America and the next day internationally. The day was founded by Vancouver artist, Ted Dave and has been subsequently promoted by the Canadian Adbusters magazine.

In this year of financial crisis when many high profile retail corporations are counting on Black Friday to start and carry them through the season critics say that all that buying won't help one bit. Instead they claim that consumption is what got us into this mess in the first place. They may be right--too much credit, too much "I want it now" and must haves make us crazy consumer world.

Could you really buy nothing on any day? Set aside mall and big box Black Friday shopping--it's not that hard to refrain from crowded overly glittery stores. But, what about today? Or tomorrow? Could you buy absolutely nothing? That means no coffee, no picking up something for dinner, no Itunes. It means nothing. I dare you to try.

Have you budgeted for the holidays?

Yes, it's Halloween, but it marks the beginning of your wallet's most frightening event known as "the holidays." There are just 58 days until the big spending season. You've got nothing to fear if you are one of those people that prepares all year long. But for the rest of us, I'll be taking this week to look at ways we can prepare our finances. We'll look at quick ways to set aside some cash and stick to your budget. We'll explore some smarter shopping strategies. You might have noticed that Wednesdays are usually dedicated to small business articles, so we'll take a look at how the holidays affect small biz retailers. I'll give you some ideas for non-traditional gifts that keep giving. And we'll wrap up the week with an appropriate Friday Encore.

Saving up for the HOliDAys

Maybe you might think it's too early to start thinking of Christmas. Or you're nauseated by the appearance of holiday items in the store. I have to ask, "Have you budgeted for the holidays?" Typically the same people who are organized enough to shop early have also budgeted and saved throughout the year. For everyone else this is the ultimate savings challenge.

I just read this article distributed by Kiplinger entitled, "There's Still Time to Save $1,000 for Christmas Shopping". The most unique idea in this article is to Adjust your tax witholding.

The average tax refund last year was about $2,700. If you got a refund, that means you paid Uncle Sam too much money! Keep it for yourself to pad your holiday fund instead. You simply need to change your tax withholding by filing a new W-4 with your employer's human resources department. To find out how many withholdings you should be claiming, try our Easy-To-Use Tax Withholding Calculator. The changes will go into effect on your next paycheck.

The smart thing about this is that by now you've paid your tax dues for the year. Why loan the money to the government? If you eek out 2 months of average witholdings you could put $450 toward your holiday budget. But don't forget to change it back or you'll end up oweing Uncle Sam a bundle the next year.

Other ways to save might sound cliche, but now is a great time to test them out. There are tons of tips on how to be more frugal. Apply just a few and stuff the savings into your holiday budget. Who knows, you may even be able to use these savings tricks in the future and reach your savings/investing goals.

Some other simple ideas:

Skip holiday movies. The movie industry always pumps out their holiday movie fare right about late October. They know that colder nights leave you with less entertainment options. Be creative and you can find plenty of ways to occupy your Friday night and save a bundle.

Split dinner. Eating out doesn't have to reduce your wallet and increase your waisteline. You can enjoy a night out at your favorite restaurant and save money by splitting an entre.

Adjust your daily budget. Gas prices are sliding down for the short-term and chances are that we'll see them rise again. So take the money that you've budgeted for gas and allocate it toward your holiday shopping.

Speaking of the "B" word--Set a holiday budet. Most people overspend for the holidays because they haven't set a budget. So follow these basic steps to keep your spending under control.

1. Review your monthly budget for adjustments to put toward the holidays.
2. Establish a total amount for the season.
3. Make a list of the people you'll be giving to and divide your budget accordingly.
4. If your giving list outweighs your cash flow either cut down your giving list or adjust your spending per person.
5. Avoid borrowing from future earnings by using a credit card. Use your credit card for online purchases and for items that could be insured by the card. Don't use your card to push holiday purchase payments to your 2009 paychecks.
6. Most important-Spend within your means.

Same as Cash Promos--Nothing like Cash

What's the deal with those ads that read "90 Days Sames as Cash" "Paying nothing until 2009" "No Interest Financing"? It sounds great. I often see these headlines in furniture promotions. Maybe it's something you really want, right now. Should you take this offer? Well, don't just jump. Ask some questions first.

Is it really the same as cash?

No, not really. Only cash is the same as cash. As soon as you agree to purchase under any of these conditions you'll be asked to fill out a credit application, because essentially this is a loan. You'll probably be instantly approved without a credit check which means the store is making loans to anybody (hmm, not such a good idea).

But I know I'll have the money in 90 days, I just don't have it now. So should I take the offer?

Let's see. Is this purchase a need, something you absolutely can't wait 90 days for? If it's a major appliance, such as a refrigerator do you really need this model or would a cheaper one do?If it's furniture can you tough it out on your old bed, an airbed, sleeping bag or live with an empty livingroom for 90 days? You see what I'm saying? Unless it is an absolute necessity to have it now try waiting till you have the money. Live in the present and don't gamble with the future.

Even if I don't have it all in 90 days, I know I'll be able to pay in a few months. What's a little interest?

Once the 90 days comes you must either pay-in-full or make payments with interest. And actually it's more than a little interest. Interest usually begins accruing from the date of purchase--not the 90 day point. And rates are typically high as in 22% or more.

What about those other ads like "No Interest until 2009"?

Really it's all the same. Yes, you'll pay no interest during the time before the loan becomes due, but once the date comes you must either pay it off or pay more. Spreading the payments out will cost you even more.

This is why it's wise to save for what you want. It's the old fashion way of purchasing that we must return to. It's also why you must have an emergency fund. If you're hot water heater dies in the during the freezing month of February you don't want to get caught in an interest-free loan. Remember there's nothing like cash.

Hello My Old Vice

A while back I polled some readers to tell me their spending weak spots. These are things that you know you shouldn't spend money on, but just can't help it. Last year I successfully broke my book habit. I used to go to the bookstore about once a week, it was a ridiculous problem. Some people might not think that is so bad, but I can tell you I spent a lot on books. Why? I mean there is a library near my home. And with the new library systems you can request books from anywhere right at your own keyboard.

But my old habit is back and I couldn't be happier. That's because a friend told me about an Internet site where you can basically trade your books. And since I've decided to take a minimalist approach to my bookshelf this is working out for me. Unless I know that I'll be referencing the book again, it goes on my trade shelf.

I'm also getting caught up with my reading list because I don't have to wait for best sellers to come off the library hold list. Most of the books that I want appear on the paperbackswap in less than a week. Plus, I'm surprised that there are other readers out there who share my sometimes quirky taste.

Now I hope that readers don't think this is a plug. I get nothing from mentioning Paperbackswap.com. It's just a great way to save money on something I already do--read. I pay nothing for books that I request and just a few dollars to send books to other readers. Then once I'm finished reading I can trade again. So it's recycling and saving money.

A New Look at Budgeting

I don't know about you but I just hate the word "budget". It's just like that other word "diet". They're both nasty and all about denial and self-loathing. Who wants to spend their life worrying about what they shouldn't do? It's so true that we are the inventors of our own suffering.

That's why I like a little tool that's I've used to teach kids how to be fiscally responsible. It's called the Spending Plan. Isn't that really what money is all about? It was invented for spending.

What's different about a Spending Plan? Well, yes it is primarily semantics, but a spending plan is terrific for setting goals. A basic spending plan divides your goals into short-term, intermediate, and long-term. Kids seem to grasp this quickly. Their short-term goal might be to buy some iTunes. An intermediate would be something a little pricier. And, you get it, the long-term might be a car or something else big.

It's not that different for us grown-ups (I define grown-up as someone who has bills to pay). For us the Spending Plan could look like this:
Short-term: Pay monthly expenses on time
Intermediate: Down payment for a house
Long-term: Retirement fund

Of course for adults there are likely to be several short and intermediate goals. But if you know that you can't give up certain vices, the spending plan lets you go easy on your psyche. Don't deny your spending whether it's for pleasure or necessity.

The real key to success with the spending plan is to work in real dollars--not credit (okay with few exceptions like a mortgage).

But before you can get to the goals of your spending plan. You need to do some work. Just as you might if you putting together that other so called tool.

1. You need identify all of your income and expenses.
2. You also need to track your spending for at least a month. This helps you see where all that money goes and why you're not reaching your goals.
3. Then you get to setting your goals.

Setting a goal like "reduce debt" is not manageable. If your short-term goal is to reduce debt. Review the debt and pick one to attack one first. Try following the SMART rules for goal setting--Specific, Measurable, Attainable, Realistic and Timely.

Try the Spending Plan to breathe a little life into that dull budget.

I Read the News Today, Oh Boy

So we arrived at the Portland, OR airport sometime Monday. It's a short flight just under 2.5 hours from Denver. But I haven't blogged about it since we needed time to get settled. The first thing you see when you get on your feet is this very clever display of handmade bicycles. Which of course gets you thinking about how you should be more friendly to the earth and that you just got off a giant fuel devouring flying bus. Which then reminds you of how much money you spent and how airlines are nickel and dime-ing their customers. But then I/you think about how your flight wasn't that bad. They gave us a free drink! They didn't charge us for our bags!

We flew United and things seemed rather normal. Our friends flew US Air where they do charge for e-v-e-r-y-t-h-i-n-g. (You gotta feel for airline attendants, they don't like being the bad guys.) As I ate a leisurely breakfast yesterday I read that Jet Blue is now charging for blankets and pillows. Not to change this blog into a rant, but why do companies feel they need to penalize their customers? Yes, fuel is expensive. So charge more for a ticket and don't make us feel like we are bothering you for your service. Nuff said.

On the flip side....another struggling company is getting creative.

I got this email from Starbucks.

They're not desperately giving away the product. Instead they're enticing you to come back. Get your morning java and then come back for a your afternoon pick up for just $2.

As you know I like to end my posts with a sort of fable style morality lesson. Here's is today's...you catch more flies with honey--or more revenue by respecting your customers. But airline's won't stop customer punching until when we refuse to take it.

BTW: So far I've seen $4.05 per gallon for gas here. But I'll be spying around to see what else I find.

What's Your Spending Vice?

Last week Five Cent Nickle posed this question to the online community. I have to say that one got me thinking. At first I thought "I have no spending vices." For sure I know I have other vices but spending I've got under control now that I've kicked my book habit and use the library. Oh come on we all have vices. I'm not above them and neither are you.

But first what's a vice? The dictionary defines a vice as something immoral, but I think popular culture looks at it differently. A spending vice is something that you spend money on, even though you know you shouldn't. It's different from a real problem in that a vice probably won't run you into the ground and you can stop if you have to. So gambling and other addictions aren't included.

After some thought I did identify some current spending vices. But I though it might make for a more interesting experiment to ask people that I know what there vice is. I was surprised when some of the people that I asked shuttered at the my insinuation that they have a dirty little spending secret. Others were happy to oblige. Here's a sampling:

• The teacher who spends $100 a month on extra incentives for students.


• The frugal guy who can't resist funky shoes like Chuck Taylors, Vans or other fun kicks.


• Mom's who can't pass up cute clothes for their little ones who have drawers full.


• The wine buying couple.


• The grandmother that can't stop buying handbags.


• The girl with too many sunglasses.


• Coffee. "Love is a latte in the morning..."


• 1,000 Itunes songs and building.


• A bargain crazed shopper who can't pass up sales on essentials and ends up with hoards.


• Like midnight refrigerator raiders the late-night eBay shopper can't believe the junk she buys.


• Eating out is weakness for many.


• Snake oil beauty products grab dollars from those of us who are looking for a miracle.


• The accidental antique collector who goes to the dentist and comes home with a table.


• Coffee, again. "$100/month is waaaayyy too much to spend on coffee..."


• Knitting yarn junkies.


• The woman who loves sparkly things keeps buying gold jewelry.


• Normally frugal people who go on spending sprees only when the cash flow is low. Not too crazy, but a bit reckless.


• More coffee. Yep, we're caffeinated. "I have to buy 1-3 drinks most days..."

Now don't looked so shocked and awed by these confessions. You know you've got your spending secrets too. And don't wag your finger at these people and say "knock it off". Sure we're (I'm included in that list) wasting some cash, but money is for spending. Besides its the little vices like these that make us more interesting.

So come on fess up. What's your spending vice?