Retirement Doesn’t Have to be Your [only] Goal

Ever since I’ve started to read Personal Finance blogs I’ve realized there seems to be a common theme: retirement. And there’s definitely nothing wrong with that. Many people’s goal is to work, save and live in such a way to be able to retire earlier than most with more money than most. Now, what they are actually going to DO during retirement, I am not sure. It varies from person to person, I guess.

But regardless if that is the dream most people are chasing and working to achieve it does not mean that is the dream you have to work to achieve. Or at least the only one you work toward.

Maybe your goal is to save enough money to start your own business one day. Or to have enough to live on while you start blogging full-time.

I guess it all comes down to how you define, “retirement.” Sure, one day, I’d like to escape the 8-5 and “retire” but that doesn’t mean I want to sit around and do nothing. It means I want to be able to do whatever I want 24/7…whether that’s working, playing, relaxing or traveling. But with that definition of retirement we don’t have to wait till we’re older when we are able to cash in our 401(k)s or IRAs. It’s something we can work to achieve much earlier than that if we would like (while still funding those ‘retirement’ accounts for later on.)

Of course it’s hard enough to save enough to live on after the traditional “retirement” around the age of 60, so if you’re wanting to do some major things before then it will require even more focus and planning. But of course, as always, it’s totally possible.

If you’ve been stuck in the mindset that all you’re working toward is retirement but feel a little uneasy about it you should take time today or this week to sit down and write out the things you’d like to achieve before then. And then how you’re going to get there. 🙂

The Automatic Millionaire: The Latte Factor

I finished reading the book The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich(affiliate link) a few weeks ago but with trying to finish the school semester strong (which I did!) I have yet to post about it. So here it is!

The Automatic Millionaire is written by David Bach, and despite its title, is not a “get-rich-quick” scheme (trust me, if it was, I would not have wasted my time to read the entire thing.)

It’s a fairly quick read, and one I highly recommend to any person starting to pay attention to their finances and setting the goal of being well-off and worry-free one day. (Remember, the first decision is to DECIDE.)

The points David makes in the book are valid and powerful regardless of whether you choose to “automate” them or not. He is a big fan of making everything automatic–especially retirement savings (setting it to come automatically out of your paycheck into your 401(k) or IRA.) But some people do not feel comfortable setting everything up automatically so I would vary with him on that some people DO have the self-control to move the money right away on a regular basis (every paycheck.) I’m one of those people who takes great pride and joy in moving my money (manually, though still electronically) into my savings accounts.  If, however, you foresee or start to see, the problem of spending the money you are supposed to be saving, it would be best to automate it.

Besides the “automatic” side of the book, one of the major points Bach writes about is what has become known as the “Latte Factor.” How little expenditures every day add up and how that money could be adding up to wealth for retirement (or whatever other kind of goal you have!) Here’s the breakdown if you buy a latte and a muffin every morning for breakfast:

$5 average cost of a latte and muffin x 7 days = $35/week = approx. $150/month.

But if you chose to INVEST that $150 a month and happened to earn a %10 annual return, you’d wind up with:
1 year = $1,885
2 years = $3,967
5 years = $11,616
10 years = $30,727
15 years =  $62,171
30 yea rs = $339,073
40 years = $948,611

Some of you are saying, “But I have to eat breakfast,” and others are saying, “I’m not going to earn %10 every year.” Both are true but 1.) You can eat breakfast for much cheaper (at home!) and 2.) You may not, but it’s definitely possible and the idea behind it is what is important and powerful!

The point is to realize that most of us spend money like we breathe. Obviously, life requires spending money. But it doesn’t require spending ALL of it or spending it just because we HAVE it. If you have a dream that requires money (retirement, starting a business, building a house, etc.) then you need to start saving for it NOW. It won’t just magically appear whenever you’re ready to start living out the dream.

There  are definitely other principles David Bach discusses in the book, and I will address some more of them in the coming days. My hope is that when you start to think about it and see the numbers the way you view and spend money will change and your life will be better off because of it!

Do you have something that you could give up on a daily (or just regular) basis and start saving that money instead? (Mine used to be lattes but I’ve cut that out of my life since January of this year! So glad I did too.)

Put Your Money IN The Bank

I can’t tell you how many people I’ve met or heard about who, for whatever reason, don’t have an account at a financial institution. They take their paycheck every week or two, get it cashed and head on their merry way.

Of course it’s no wonder they’re probably living paycheck to paycheck.

I’m not trying to dog on anyone. And to most it seems like common sense. But if you don’t have a bank (or credit union) account you need to go out tomorrow and GET ONE. And put your money in it. And keep it there. 😉 It’s much safer there than in your house anyway. Every financial institution is backed by the FDIC or NCUA for up to $250,000. This means that if for whatever reason the institution that has all your money goes under, you will still get all your money back up to a quarter of a million dollars.

But that is truly besides the point because the people who don’t have accounts at a financial institution are, more than likely, not the ones saving up wads of it in their home somewhere. They are the people who spend all their money and sit around miserable until the next paycheck comes (if the next one comes!)

If you’re just getting out on your own or are finally starting to make some kind of income (even an allowance!) search out the best financial institution in your area and open up at least a basic savings account and a checking account. Savings can be for your growing emergency fund and your checking account, well, it’s to live out of. Get a debit card and then just watch your spending (make sure to sign up for access to your accounts through your institution’s website so you can view balances and such 24/7.)

I’m not sure why some people are opposed to keeping their money at a financial institution. Do you have any ideas?

Stupid Mistakes Will Cost You

I have 2 checking accounts. One I use to pay bills out of (reoccurring, monthly ones basically) and the other to “live” out of (daily expenses.)

I keep only what I need to in my bills checking account–though I know I need to put a few hundred in there as a cushion, I just haven’t got that far yet.

So this past week I deposited money into the account through the “night drop” at my credit union thinking it would get posted on Saturday (because they are open.) Of course, it didn’t get deposited till Monday but I knew there was that risk.

In the mean time I was charged rent. It was the one weekend I wasn’t paying very close attention to my finances since I had taken cash out to spend while on a mini-vacation to Dallas, and I didn’t think there was any reason to really check up on it.

Wrong.

My stupid (little) mistake cost me a $22.50 non-sufficient fund fee plus a little bit of hassle with the management of my apartment (though they were very understanding since I went to them the day of instead of later.)

Thankfully, since I have a good track record the (awesome) credit union I am a member of refunded it for me, no questions asked. But it does show that regardless of how “automated” your finances are you still need to keep an eye on it.

Wisdom: I have now set up overdraft protection from another account of mine just in case. I should have done this when I opened the account but it goes to show we all can make mistakes sometimes. 😉 I was tempted to get stressed over the whole ordeal but I knew it would work out, and I’d just have to be patient. So I did. And it all paid off. All stress does it make you miserable. It doesn’t help your finances. So next time, just take a deep breath, plan how to fix the problem, then go fix it.

It will all be over soon. 🙂

How to Make the Right Buying Decisions

Though I have a budget–and stick to it for the most part–there are sometimes things that “come up.” They aren’t necessarily emergencies but a decision needs to be made about whether I am going to part with my hard-earned money for an actual physical item or service.

Surely this happens to you too.

One of those things for me recently was a new laptop. I had dropped mine (like I had the one before that…I never considered myself clumsy but maybe I am?!) and had broken the piece where the charger goes in. There was no way to charge the laptop, and it eventually died (whodathunk?)

I sent it into the manufacturer, and they said it would cost me 200 BIG ONES to fix it. I bought the laptop for $350 so I thought that wasn’t necessarily the best idea.

So off I go laptop shopping….because I can’t live without one, right?? 😉

Well it definitely wasn’t in my “budget” to drop $600 on a new laptop that week. But I did. You may be thinking, “Well, that’s not frugal” or “What about the budget, Meghan??” I understand both of those and here’s a few thoughts to consider when situations similar to this come up.

When to Spend Outside Your Budget

There’s not a formula (or maybe there is! Anyone care to share?) but I realized when I broke my laptop that I truly did need one. It wasn’t an emergency–there were other laptops available to me, but in the long run, to do what I need to do on a daily basis, I need my own laptop to save files, surf the internet, do homework, create new posts, connect with friends, etc. It wasn’t in my budget, but I had to make a way where there was no way.

This could potentially come up when you are out window shopping with your friend (who’s REALLY shopping) and you find the greatest deal in the world on something you’e wanted for a long time. You didn’t PLAN it for that month (or week or however you do your budget) but if you’re ever going to buy it, NOW is the time. Guess what? There’s nothing wrong with that….As long as you CAN. And when I say “can” I mean as long as you have enough money to pay all your other bills, feed yourself and still get to work everyday.

Depending on your cash flow this may or may not be an option, but here are some steps for us to take to make sure we make the right buying decision:

1. If possible, wait.
For me, this was possible. I was able to search out different laptops and decide which one I wanted. I didn’t have to go buy it the day my other one broke. There are plenty of people I know (in my house) who will let me use their computer. So that is what I did. I used my dad’s while I searched for what I wanted and decided whether I wanted to part with my money. Impulse spending WILL get you in trouble! No doubt. Wait at least 5 days before making a big purchase just to make sure that is exactly what you want and for that price. Sometimes this isn’t possible–the deal ends today–and in that instance, if it’s not a need, you might want to part with it.

I waited at least a couple of weeks going back and forth on what I wanted to do. But I’m glad I did.

2. Find the best deal.
Duh, right? But just think about some of the people you know who spend the extra 15 cents a gallon for gas just because they don’t feel like crossing the street. Some people are just…..not smart! =) Take the time to find the best deal. When I was buying my laptop, I didn’t do this. I paid $600 at Best Buy for the exact same laptop Office Depot was selling for $550 that week. After I bought it, my dad (the smart guy he is) researched it a little more and let me know about the discount at Office Depot. So I took the TIME to go back into Best Buy and ask them for a price match (which they gave me.) Don’t be like me–find the best deal.

3. Evaluate your cash flow.
Honestly, it wasn’t in my best interest to part with $600 (laptop plus tax) in cash that week. Yes, I had waited. Yes, I (or my dad!) had found the best deal, but I still didn’t want to give the cash. If it wasn’t something necessary to my life like a laptop I probably would have waited longer and just saved up the cash to specifically buy the laptop. But it was coming down to the point where I really did need it, and I didn’t want to use my Emergency Fund to pay for it. So what do you do? If you come to this step and you realize it’s not in your best interest to part with the cash, decide then and there whether this is really a necessity (for the situation, time, and price.) If it is, look for the best payment option. If it’s not, maybe you should pass this time.

4. Decide how to pay.
I didn’t want to part with all the cash so I looked at other options. I could put it on my regular Visa credit card and pay interest on it (because I knew I wouldn’t pay off the entire balance in a month) OR I could sign up for Best Buy’s card and get a “same-as-cash” deal where some bank pays for it and as long as I pay them back the full balance before 18 months is up it’s the same as cash, no interest charged. When all was evaluated, this was the only way for me to buy this laptop. I wasn’t going to put it on my credit card, and I wasn’t going to part with that amount of cash at the time. So if this option wouldn’t have been there I would have chosen a laptop that was less expensive and paid cash for it. Sometimes these kind of deals are available and sometime they’re not. But look and ask! You’ll never know if you don’t.

Have you had to buy something that was “out of your budget” recently? How did you handle it?

Back to the Basics Part 4: Frugality

We’ve touched on having an emergency fund, keeping cash savings, creating and maintaining a budget, and now a little less fun (or potentially a lot more fun!) topic…FRUGALITY.

What is it? My definition is short and sweet: saving money where you can save it.

There are some out there who say you do not need to be frugal with daily expenses like lattes and fast food. That you only need to watch major expenses like vehicles, houses, furniture, etc. But what if you did both? What if you saved money wherever you could save it–on the big and the small?

Right now, on my income and with my budget, it’s important for me to not buy a latte or a Starbucks drink everyday. It’s important I don’t buy every book I want to read. It’s not that I couldn’t–it’s that I’m choosing to save that money instead.

And in the future when my income is higher, I’m still choosing to take that view on daily frugal living. Why? Because nothing has really changed. My income has gone up and I have the money for it (just like I did before.) But now I get to save even more.

Call me a tightwad.
But I’m not.

Being frugal doesn’t mean you never go out. It doesn’t mean you don’t give your money to charity. It doesn’t mean you hate having fun. In fact, it means you love to have fun so much you’re going to not spend now and save instead so you can have a TON of fun later.

But being frugal does mean you might cut coupons. Or take advantage of Starbucks free pastry day today before 10:30am. Or  take your lunch to work. Or wear clothes more than once. 😉

Or–a  huge one for me–NOT spend your money on the dumb vending machines at work. They SUCK your money. All so you can just get up from your desk to “do” something for a minute. Go ahead, throw your $2.25 on an energy drink! But I’ll keep mine and hope you do yourself a favor one day and add up how much you spent this month on that machine.

There’s no cut and dry, “This is what frugal is. This is what frugal is not.” But regardless, frugality DOES exist and regardless of your rate of income you should be practicing it. Because no one needs to spend $150 when they could spend $140 for the exact same thing just with a little more effort.

Overall, I see frugality as a lifestyle. And as such it is one that you give yourself permission to break out of instead of vice versa (where you live an extravagant lifestyle and ‘make yourself’ live frugally when you have to.)

What is frugality to you? Do you think it’s portrayed in a bad light? How do you practice it?