Plugging the Holes in Your Budget

Posted by The Happy Rock on June 3, 2010

The following is a guest post by a dear friend Ed(@ed_bruner) who is just months away from finally getting out from under $40,000+ in debt.

Use cash to plug up the holes

I assume every family budget has holes in it. Ours did. The holes were mostly unaccounted spending or personal spending…a trip to a retail store, a lunch out, snacks, etc. These “little”spending events can destroy a budget or even derail your debt reduction if they are not kept in check.

The way we handle this issue is by allowing ourselves weekly spending cash. The rest of the income is for bills & savings. All significant purchases are planned and discussed. Once the personal cash is gone, the spending stops. With the change to cash I’ve found that I pay more attention to the cost of things I’m buying. If I want to buy something, then I need to save for it. It really is as simple as it sounds and it works.

I’m sure you are familiar with the statistics regarding credit cards specifically that we are likely to spend up to 15% more when shopping with plastic. Dave Ramsey says that a McDonald’s study showed a 47% increase with plastic. Cash is finite, credit (and debit) have overdrafts and outrageous credit limits, which entice you to be less concerned about price. The minimum payment is only a small fraction of the debt amount.

We do use debit cards but have stopped all spending on credit. When we use debit, it is subtracted from weekly cash allowance.

Its much more enjoyable to manage money, than manage debt.

» Filed Under Cash, Credit Cards, Psychology of Spending

We Spend Coins Faster than Bills

Posted by Debt Destroyer on May 18, 2009

Lately I’m becoming an expert on the psychology of spending money, and it’s all thanks to my trusty radio.

Last month I wrote about a story I heard on NPR which said that we can save money by carrying big bills. Earlier this week I heard another story which goes hand-in-hand with the big bill story. According to this story, not only will we hold onto a $100 longer than five $20′s, but we’ll also keep a $1 longer than we will 4 quarters.

I did some head scratching while listening to it.

They talked about a couple of studies which show that people will spend coins faster than bills. The studies were interesting, and they got me thinking back to my days at an office job. Back then, if I had change in my pocket, I’d probably pay a visit to the vending machine. But I’d hardly break a $1 for the same snacky goodness.

The lady went on to say that if the Obama Administration wanted to stimulate the economy they should increase circulation of $1 coins and introduce a $2 coin.

That comment reminded me a story I heard the previous day on NPR, on how the opposite is actually happening.

The US Mint is producing 70% fewer coins this year compared to last year.

They said that a key factor in the reduction was the economic slowdown.

“The Mint’s mission is primarily to make coins to fulfill the demands of commerce,” says Ed Moy, director of the Mint. “The demands of commerce haven’t been doing too well the past six months.

They also mentioned that more people have been saving coins and turning them back into the bank.

“So in addition to low economic activity, there’s an increased number of coins coming back into the banking system, which means that the banks need less coins from the Mint,” says Moy.

So while the penny is not being retired, there will be less of them floating around. In fact collectors are grabbing up. According to the story a 50-cent roll of Lincoln Bicentennial pennies is selling on eBay for up to $10.

Yet another head scratching moment.

So how do you handle coins? Do you spend them as soon as you get them, do you roll them up and put them in the bank, or do you scour ebay and look for coins to add to you collection?

Until next time,

-DD

PS The piece of info I found most interesting in these stories was the fact that the U.S. Mint funds its own operations through sales of collectible and bullion coins. Last year it made a $750 million profit for the U.S. Treasury.

» Filed Under Cash, Psychology of Spending, Spending

Remember Traveler’s checks? Do People Still Use Them?

Posted by Debt Destroyer on April 25, 2009

Yee-Haw!

The Debt Destroyer clan finally got out of Dodge (meaning we took a quick vacation over Easter break). And with such a trip, there are all the last minute preparations you need to take care of before leaving.

Making sure the kids are all packed up.
Making sure the van is ready to go.
Bring snacks, DVDs, & music for the trip.
Drop off the dog.
Get Traveler’s checks(cheques).

I crossed the last one off because it’s the 21st Century.

While I might pretend to be a pretty cool cat, I’ll admit to being old enough to have used Traveler’s checks. When my high school marching band went to Disneyworld (early 90s), my Mom made me get some. It made sense, I mean I wouldn’t trust a high school kid walking around with a wad of cash either. I of course would’ve wanted big bills, and if I had lost them I’d have been screwed.

So looking back I think she made the right move in making me get some Travelers Checks. And I actually remember using them (I think it was in the gift shop after watching the Muppets in 3-D).

But just a few short years after that trip, while sitting in a dorm room playing Techmo Super Bowl, I would be solicited to apply for my very own credit card(by a very attractive young lady…what are the odds?). And I would never use a travelers check again.

But should I be?

Looking at some sites it seems like they can serve as a nice emergency option when traveling abroad. But sadly my international travel experience have only been a couple of trips to Canada(Honeymoon & Pearl Jam concert), so I didn’t feel the need to worry about that.

Does anybody use these things anymore?

No really, I’m curious if people still use these or not. If you don’t, did you ever?

Until next time,

-DD

» Filed Under Cash, Credit Cards

Does Carrying Big Bills Save You Money?

Posted by Debt Destroyer on April 7, 2009

On more than one occasion I’ve mentioned my love of public radio, so it should come as no surprise that a piece I heard this past Sunday made my wheels turn.

All Things Considered ran a story about a study which found that people will spend less money if they carry around big bills rather than smaller ones.

The idea was that it is psychological more painful to spend a $100 bill than it is to spend five $20′s.

Does this sound familiar?

It should, because this is the same logic behind the idea that using cash will save you money over using credit.

I instantly found myself in agreement with this idea. I know it used to be true for me. If Ben Franklin somehow found his way into my wallet, he was going to be there for awhile.

I had a hard time spending a $100 bill. I don’t know why, I just did.

Maybe it was because I remember seeing clerks turn down customers who tried to use $100′s. Or maybe it was because I very rarely would come into contact with one myself, so I was in no rush to get rid of it.

But notice I said I “had” a hard time. I’m using the past tense because I have overcome my inhibitions of parting with big bills. And I owe it all to the envelope system.

Just yesterday me and my four year old daughter hit the grocery store and racked up a $97 bill. I just pulled a $100 out of my pocket and let my little girl pay. The clerk got a kick out of it. I guess you had to be there.

Basically, I agree with the report that people will spend less if they only carry big bills, but I think that effect will lesson as time goes on. After a few months I think people will get use to the idea of dropping $100′s and their spending will return to normal.

What do you think?

Is there anything to this idea or was NPR just trying to fill up a few minutes of airtime with nonsense?

Until next time,

-DD

» Filed Under Cash, Psychology of Spending

The Penny Is Being Retired!

Posted by The Happy Rock on April 1, 2009

With the soaring cost of gold and other precious metals, the penny which has cost more than 1 cent to make for a few years is finally being retired. A single penny which is 97.5% zinc and 2.5% copper now costs almost 1.8 cents to produce in 2009. It has been this way for years, but only recently has the cost of a penny risen to almost twice its worth. The Obama administration has decided that removing the penny will be a simple cost cutting measure that will also be a boost to the economy and the exchange of money.

It just doesn’t make sense sense to carry around this antiquated banking holdover when our economy and inflation have rendered the penny meaningless. Criminals are getting more value out of a penny by melting it down than the citizens who are wasting their valuable time fumbling with the useless coin. In 2007 alone the federal mint produced 7.4 billion pennies and could have saved 74 million dollars had this measure been in place. – Secretary of the Treasury, Timothy Geitner

Merchants are being urged to start rounded prices up or down to the nearest nickel to prepare for the penny’s phase out which begins June 12, 2009. The government has already stopped producing pennies and state governments will hold penny clean up locations on the third Saturday of every month. The government will give the taxpayers 1.2 cents per penny that is returned. This added stimulus will save the government in the long run and help stimulate the economy. Next up is the nickel in 2010. The government expects to save almost 1 billion dollars as the cost to produce a nickel has risen over 8 cents.

I can’t really picture an economy without a penny or a nickel, but I can’t say I am sad. I will make sure I have some on hand to make sure the transition goes well and for my scrapbook. It is pretty funny to think we will be showing our children pennies in a decade and they won’t even know that they exist.

Source : Fox News article about the cost of a penny

Notice the publish date – APRIL FOOLS’ DAY!

» Filed Under Cash

Gift Cards Are Bad Gifts And A Waste Of Money

Posted by The Happy Rock on December 18, 2008

Harsh? I don’t think so. An estimated $97 billion dollars were spent on gift cards in 2007 and companies were able to keep almost $8 billion dollars in breakage, fees or unused money. It is one of the first things they teach you when opening a business, sell gift cards. Any unused money is pure profit and even if they use it they are forced to use you service or store. Brilliant business, but not good personal finance.

The real brilliance in the gift card business came when they were able to convince us that the gift of cash was taboo. We all cringe at giving cash. It is too insensitive and effortless, right? So instead we trade hard earned flexible cash that can be spent anywhere on anything for an inflexible form of currency that can ‘break’. You can lose it, only spend part of it, or get a card for something you won’t use. Yet, we keep on giving them.

My solution is to either admit that the gift is just formality and decide not to have two people swap cash for a much less worthwhile form of currency, or just give cash. If that sounds to socially unacceptable, then you probably want to go a step further and examine why you are giving the gift in the first place.

For those that do get stuck with cards you could consider selling them on eBay or on sites like Plastic Jungle. The fees usually end up eating 10% or more, but its a better option than wasting it. On the flip side you can get great deals when buying cards if you decide you still want to go that route.

So, skip the cards! What do you think?

» Filed Under Cash, Giving, Money Savers, Spending

The “Paying Cash” Experience – 2 Months Later

Posted by Debt Destroyer on November 25, 2008

Some of you may remember that at the end of August I decided that starting in September, I would start paying cash for certain items (groceries, household stuff, & entertainment).

Obviously I hoped that this would lead to major savings. Dave Ramsey professes that paying in cash will save around 12% or even more! I was shooting for savings of around $100 per month.

I have to admit that it was a little weird paying for stuff using cash after so many years of putting everything on plastic. Especially at the grocery store where the bill can easily be over $100. But very quickly I started to have fun in those situations. I think I surprise the clerk when I start flashing the AJs around (Andrew Jacksons).

As luck would have it, I’ve charted my expenses for 4 months (2 using credit cards, and 2 with paying cash). So how about we see how things are going so far?

In July & August we spent on average:

$507.62 on groceries
$145.66 on household items
$67.06 on dinning out

For a total of $720.34.

In September & October we spent on average:

$481.92 on groceries
$133.18 on household items
$81.31 on dinning out

For a total of $696.41

Paying cash has been saving me $24 a month.

I know that $24 isn’t all that impressive, but at least I saved.

Actually I have a hunch that November’s grocery expenses will be much lower than previous months. I think this for a couple of reasons:

My daughter’s food allergies improved enough so we no longer have to avoid wheat & dairy.
I hit some “sales” and stocked up on lunch items. I don’t think I’ll have buy lunch until mid December

But there’s plenty of time left, so who knows what could happen. It was mentioned in the comments of my last expense report , that I should try an envelope system to see real savings.

So that’s what I’m going to do.

Starting in December we’ll set aside $450 for groceries, $125 for Household stuff, & $75 for going out. The last two amounts will be lowered in January to $115 & $60 (I’m giving us a little bit extra for the holidays).

If we can make the January amounts work, that would be $620 for those three categories which would be $100 less than what we spent on those same items in July & August.

And that would be great!

Come winter, we need to save money any place we can because as I alluded to way back when in my Nitty Gritty post, heating costs are a killer! I keep meaning to sign up for the budget plan, but I never get around to it (I did fill out an online form requesting this, but that seemed to do nothing).

Enough of my ramblings…

Do any of you use an envelope system? Does it work? Was it hard to get used to? Did you stick with it?

I’m looking forward to hearing some of your experiences.

Until next time,

-DD

» Filed Under Cash, Experiments, Money Savers

Paying with Cash…Does it Save Money?

Posted by Debt Destroyer on August 30, 2008

The other day when I was prepping for a fantasy football draft, I stumbled upon a video at Yahoo that covered a family who spent only cash for one month. According to the story they saved $1800 (24%) compared to what they normally spent. After I picked my jaw off the floor from being amazed that they could spend almost 8 grand a month, I started thinking maybe I should get in on the savings.

Some of you will remember that I’ve recently been introduced to Dave Ramsey and his method of debt elimination set out in his book, Total Money Makeover. There he proposes that you will save big money by paying all cash (12-18%). It makes sense. I mean we all do our best Bill Clinton and “feel the pain” of handing over cash rather than the ease of just swiping a card.

But do you really save that much?

I guess there is only one way to find out. Starting in September, I’ll stat paying cash. But here’s the thing, I’m not going to go all cash.

I know I won’t reap the full benefits of spending only cash, and that is fine by me. Here’s where we spent money in July. I don’t see how spending cash for some of these items would’ve saved me any money.

I’m going cash only for groceries, department store items, entertainment (eating out), and other household misc items. These are the parts of my budget where I’d love to see some savings. Even if it ends up only being 5%, it’ll be worth it.

I see that The Happy Rock has gone down the cash only road himself. From the way it sounds it didn’t work out the way he planned. I can totally see that happening in an experiment type setting. And from reading the comments on THR’s post, it sounds like a lot of people have had mixed reactions when trying something similar. The Happy Rock has also talked about the credit card premium and the benefits of spending cash.

That’s another reason I’m trying a hybrid of the cash only method. Instead of setting ourselves up for failure by going cash only for everything, I want to start small and if we see tangible results. If we do, maybe then we’ll expand this way of spending to other areas of our budget.

I’ll only have two months of spending habits to compare this new way to (July & August), but it’ll have to do. I’m really hoping that we can shave off around $100 a month by doing this.

In our house that extra $1200 a year will come in mighty handy.

As always I’d love to hear what your thoughts are. I bet a lot of you are already on the “cash” train, if so, how is it working for you? And on the flip-side, I’m also willing to bet that a lot of you have already tried something like this for yourselves. Did it stick, or did you decide it wasn’t for you?

Until next time,

-DD

» Filed Under Cash, Credit Cards, Psychology of Spending, Spending

Paying Cash Saved Us Over $1,000

Posted by The Happy Rock on June 6, 2008

I talk often about the benefits of paying cash and the credit card premium, but just recently The Rockette received a first hand lesson about how paying cash can save you money.

The Rock Garden had to hire a new babysitter a few weeks back who wanted to get paid in cash rather than by check. The Rockette works 18 hours a week as a Registered Dietitian Consultant and would now be handing over the cash on Friday afternoons instead of me writing a check with the bills. The second week she had to hand over $212 in cash to our new babysitter and it hurt. Normally, I would have written a check and not given it too much extra thought, but this time it hurt. The Rockette had something tangible to help visualize all the money the was being spent. The intangibility of the babysitting services made even more of a stark contrast. The same principle works in reverse for credit cards. Since we can’t see or feel the money leaving our hands, it is often easier to overlook the real cost of what you are buying and charge more than you would have paying cash.

So how did we save money? Well, we decided that she would get into work an hour earlier each day the babysitter is there, which save us an hour each day on the back end. $24 dollars saved a week, just because paying cash hurt. Sure, we have to get to an ATM each week to make sure we have cash and the Rockette has to get up a little earlier, but those two simple changes will save us over $1,100 in a year.

» Filed Under Cash, Psychology of Spending

The $400 Phil and Ted’s Stroller – Dissecting The Purchase

Posted by The Happy Rock on April 28, 2008

Sticker shock. That is probably your first thought, I know it was mine when The Happy Rockette first told me about the stroller. A little more than 3 months later, we own one! See the picture below for a quick look or click here for an in depth look at PhilandTeds.com.

Here are the criteria I used to evaluate and review our Phil and Ted stroller purchase and why I think it was a great purchase:

Pay Cash. The Rockette had been working every other Saturday to help out at her former job and decided she wanted that extra effort to go towards something. We had the money in two weekends or so. That month gave us some time to do some extra research and really get behind the purchase.
Aligned With Our Values. Being in a small condo, going outside is a must. We love going the park and hiking the trails, walking the boardwalk, going to museums, etc. With the addition of Pebble Jr. two strollers just made everything much more of an ordeal. The purchase would help us cope with a small house, provide us with much more convenient time outside, and contribute to the positive welfare of our children.
Get Good Value. Could we have gotten a $200 double stroller? Sure…so that what did we get for the extra $200 dollars.
- When we went to the store to check the stroller out in person, it was quite apparent that this stroller had years of research and design put into it compared to the other double stroller. It folded up smaller then our current one seater. Size is a big deal for double strollers. It provided multiple child configurations that accommodated our baby and a toddler all the way to two toddlers. The current setup has the Pebble Jr. laying down, and the Big Pebble perched on top. There was even enough room to change the Pebble Jr. which has come in quite handy. Handles are adjustable, covers and rain protectors are easy to use and store nicely, it is easy for The Rockette to push, and the list goes on. The value is in the design.
- Pretty much everyone who owns a Phil and Ted stroller raves about it. Not in an I drive a BMW or Mercedes kind of way, but in a “it’s made my life so much easier” way.
- The resale value on used strollers was not much less than brand new, usually $300 or more. This is an indicator of people’s willingness to pay and the quality of the product. It also helps justify the purchase to know that you can unload the stroller and get a decent portion of the purchase price back.
Get A Good Price. We searched for about a month until with found a new sport one for $399 with free shipping from Pish Posh Baby. I even emailed to see if there were coupons available, but they didn’t respond until they included a coupon code for pishposhbaby.com with my order. You can get 5% with the code Save5 though, which readers say is still working.
- *Update – Pish Posh Baby updated their new price to $539, but they have the discontinued camo colors for Phil and Ted Sport for $449

So far we are very happy with our purchase, even though I still have a little sticker remorse from time to time when I realize the the stoller is almost worth the same amount as my car. What do you think? Am I crazy and just justifying a silly purchase?

Update[8/17/2008] – Here are a few answers to questions I received through email.

1. Which model did you get? – Inline Sport

2. Does it allow you to adapt your car seat to it for an infant? (If it does not, did you find this to be a problem?) – It does not adapt to the car seat out of the box, but there are car seat adapters out there – I think the stroller is way easier than the car seat. If you have a small infant that can’t sit up, it has the lay down position which works great. Phil and Ted Car Seat Adapters

3. Do you know where I can find a list of retailers where I can look at one in person?. – I think your best bet is here, although I know there is at least one local retailer that isn’t listed there. It was helpful to look in person to help combat sticker shock.

Update[7/21/2009] – Thanks to The Happy Rock reader Cristina for alerting us about a recall for almost all Phil and Ted strollers(2003 – 2008) for hinge problems. As a couple of commenter mentioned the stroller hinge is too sharp and can cut a person or rip the stroller material. View the details here: Phil and Ted Stroller Recall.

» Filed Under Cash, Children and Money, Spending

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