The Simple Dollar
A money changer displays one-hundred US dollar bills at an exchange booth in Tokyo. Fixing a short term problem by pillaging your long term savings is never a good idea, Hamm writes. (Issei Kato/Reuters/File)
The financial mistake 25 percent of America makes
What mistake? According to the Arizona Star, more than 25% of Americans are raiding their 401(k)s to stay afloat.
The only way this even looks like a good idea at all is if you’re looking only at the very, very short term. If you look beyond that, making this move is pretty clearly worse than using a high-interest credit card to pay your bills. In fact, if we’re comparing disastrously bad financial moves, I’d actually prefer to use a credit card cash advance to pay a bill than pull money out of my 401(k) early.
Why is it so bad to tap into your 401(k) early? Let’s use this 401(k) early withdrawal calculator to see how big the disaster is.
Let’s make a few reasonable assumptions first. ( Continue… )
A staffer checks a column of lockers at a mini storage service provider inside an industrial building in Hong Kong. If you’re using some square footage for storage, then you’re spending a lot of money just to store stuff, Hamm writes. (Bobby Yip/Reuters/File)
Want to save money this spring? Lose the storage space.
Storage space is one of the biggest money drains that people have.
Think about it for a second. What do you do with storage space? You fill it up with stuff that you don’t have any consistent use for. If you had a consistent use for it, it wouldn’t be in storage.
Most of the stuff that people have in storage should actually be sold on Craigslist or eBay or put in a yard sale to generate some funds instead of taking up space. Sure, there are always a few things that make sense to put into storage – Christmas decorations, older tax documents – but those items take up perhaps one closet.
That’s only part of the equation, though. You actually pay for storage space.
Storage space counts toward the square footage of your home. The greater the square footage, the greater the cost. If you’re using some of that square footage for storage, then you’re spending a lot of money just to store stuff. ( Continue… )
A credit card user displays her cards in Washington. If your finances are out of control, Hamm recommends that you take credit cards out of your wallet and stop using them immediately, at least for a little while. (Kevin Lamarque/Reuters/File)
Digging out of debt: the first step
Financial meltdowns often start with a small thing – the figurative straw that breaks the camel’s back.
I’ve read stories from readers about the many small things that have caused them to start reassessing their lives. They had a credit card rejected at an inopportune moment. They didn’t have enough cash to pay for the groceries in their cart. For me, it was facing a stack of bills that I didn’t have the money to pay.
For some, that figurative back-breaking straw can come with the first real sign of financial distress. For others, it takes something much more severe, and sometimes nothing will make them change their routines.
RECOMMENDED: Can you manage your money? A personal finance quiz.
When people reach that back-breaking point, though, whatever it may be, their first instinct is usually to get their short-term finances in good shape. In other words, they want to do things so that they know they’re going to make the rent this month and that their bills are paid. Once that’s under control, medium and long-term planning can begin to take priority – how can we get out of this mess, in other words.
Today, let’s focus on that first step. What do you do when you finally reach a breaking point, realize that your finances are a disaster, and need a plan to help you get rid of some late bills and still make the rent? ( Continue… )
Sales consultant James Field adjusts the tie display at bespoke Savile Row tailors Anderson & Sheppard in central London last month. Hamm recommends asking co-workers for tips on building a new, work-appropriate wardrobe on a budget. (Andrew Winning/Reuters/File)
Dress for success without breaking the bank
Monica writes in:
At my new job, everyone dresses incredibly well. Everyone is wearing expensive – or at least expensive-looking – suits and other businesswear. My wardrobe is simply not up to snuff. Catching my wardrobe up to the level of everyone else is going to be really expensive. Do you have any suggestions?
First of all, I view it as a completely reasonable thing to dress at an appropriate level in the workplace. If your workplace has a dress code, whether informal or formal, then you should measure up to that dress code.
That being said, I don’t think it’s realistic nor expected that you immediately have a $10,000 wardrobe if you’re new to the environment. There may be a subtle expectation that you eventually reach that level, but I don’t think you need to go out tomorrow and get thousands of dollars in debt to play catch-up.
If I were in your shoes, I’d actually use this situation as an opportunity. You are in a great position, being new in the workplace, to establish some relationships in the office, and your clothing situation is a great opportunity to do so.
Look around your office and identify a few people that you consider to be very sensible and potentially compatible with your personality. If you pay attention, you’ll be able to find people who are more sensible than others. What people use mass transit for their commute? What people drive more sensible cars? What people are solid and reliable in the workplace and are liked by everyone? Look for those people.
Then, approach those people individually and privately and ask how they put their wardrobe together. Where did they shop? How do they seem so well put-together? Don’t be afraid to add some compliments when you ask, as everyone likes to be flattered.
Be honest about your financial situation. Make it clear that you’re new and that you don’t have a lot of accumulated money.
I have approached people – and been approached by people – in situations very much like this one. Each time, it has become the source for a good relationship. Most of the time, people like to help others, and they particularly feel flattered if you’re coming to them specifically for advice. That’s a great first step for a good workplace relationship and/or friendship.
Another point of advice: buy modular clothing, especially at first. Buy clothes that can be easily mixed and matched to give the appearance of different outfits so that you’re not having to buy as many articles of clothing at once.
I’ll openly confess that I find this pretty easy to do for my own dressy clothing, but I am rather unfamiliar with the specific needs of professional clothing for women. My only experience in that department is through Sarah’s clothing, and she seems to indicate that mixing and matching works reasonably well for her, too.
For myself, anyway, I have a suit and several pairs of dress pants, but I have several shirts and a number of ties. Most of the permutations of shirt, pants/suit, and tie work well together, so it can appear like I have a lot of dress clothes when I actually have very little. Since there are clearly some combinations that don’t work well, I don’t wear a combination unless both Sarah and I think it looks good.
The result of this is that I don’t have to invest in lots of different clothes to make a variety of nice clothing work. I just have to maintain compatible clothes and replace the individual pieces as needed (which isn’t too often – I rarely have to “dress up” for professional or personal purposes).
If you use that clothes-buying strategy along with the tactics and tips suggested by your new workplace acquaintances, you’ll not only build a solid wardrobe at a very passable cost, but you’ll also build a much stronger professional network.
The post Dressed for Success appeared first on The Simple Dollar.
A vault in the lower level of the First National Bank building in Richmond Va. There are several factors that can help you figure out how big your emergency fund needs to be, Hamm writes. (Mark Gormus/Richmond Times-Dispatch/AP/File)
Emergency funds: How much should you save for a rainy day?
I consider an emergency fund to be an essential part of financial preparedness for every person. If you or your family doesn’t have one, you need to start building one now.
Let’s start off with the basic idea of what an emergency fund is. I like Dave Ramsey’s definition of an emergency fund: An emergency fund is a rainy day fund, an umbrella. It is for those unexpected events in life: a job loss, an unexpected pregnancy, a car transmission going out, and so on. This is not an investment or a Bahamas fund!
Dave goes on to suggest that a person have an emergency fund of $1,000 while they’re paying off high interest debt (any debts above 8% interest or so), but grow that to an emergency fund of three to six months of living expenses when they’re focused on their lower interest debts.
RECOMMENDED: Top 10 richest Americans
Those are reasonable numbers, but where do they come from? Honestly, I think those numbers are just good, rough approximations of the needs that a typical American will have from their emergency fund.
I think there are several factors that can help you figure out how big your emergency fund needs to be. ( Continue… )
A Panera employee restocks pastries during the lunch break at Panera Bread bakery-cafe in New York City. If you stop eating out for lunch and cut other extra expenses, you have more to save or to put toward debts, Hamm writes. (Ann Hermes/The Christian Science Monitor)
Where has all your money gone? Into small, daily purchases.
Let’s say you make $45,000 a year – that was the median income for a male in the United States in 2007. You pay 25% in taxes each year between federal, state, and local taxes of various kinds, leaving you with $33,750 in money you bring home each year. Reasonable, right?
Let’s say you’re paid weekly. Your paycheck, then, is $679 per week.
Now, let’s look at some hypothetical expenses.
You go out with coworkers for lunch each day, costing you $10 per lunch. That’s $50 per week. Right there, you’re blowing 8% of your take-home pay.
RECOMMENDED: Top 10 richest Americans
You hit Starbucks each morning for a pick-me-up. It costs you $5 each time you stop, or $25 per week. Right there, you’re blowing 4% of your take-home pay. ( Continue… )
A job seeker gestures while speaking to a company representative during a job fair in Boston. For some, building a side business or a second career is a good option, Hamm writes. (Michael Dwyer/AP/File)
Should you get a second job?
Undoubtedly, frugality can be a powerful tool that can help you start digging out of a financial hole. Every time you make a choice to cut your spending, you’re directly leaving more money behind in your bank account. It’s an immediate effect, too.
That’s money you can use to pay off debt, buff up an emergency fund, improve your retirement savings, or pretty much anything else you can imagine. The best part is that frugality is accessible to everyone. There’s virtually no one reading this site that cannot afford to trim their spending in some way.
No matter how effective frugality is, though, it has limitations. There’s only so much of a difference you can make using frugal tactics, and if you want to continue to improve your financial situation, you have to turn your eye to generating more income.
RECOMMENDED: Four job trends for 2013
While improving your income is an incredibly powerful tool as well, it also has drawbacks. There are only so many hours in a day, for one. For another, many avenues for improving your income don’t see immediate returns. ( Continue… )
Breakfast cereal is shown lines an aisle at a Ralphs grocery store in Del Mar, California earlier this month. Unless you're attached to a specific brand, making a habit of buying things with the lowest cost per unti will save you big in the long run. (Mike Blake/Reuters/File)
Shopping begins and ends with 'price per unit'
When I shop for garbage bags or toothpaste or something else that doesn’t really come with an expiration date, I really only use two criteria.
First, do I care at all what brand I buy?
Most of the time, I really don’t care. With an awful lot of products, I have found basically no difference between brands in terms of my usage. Shampoo? Body wash? Toothpaste? I’ll buy virtually any of them because I don’t see a major difference between them. I do see differences on a few items, such as garbage bags – I’ve had a few too many cheap garbage bags rip out on the bottom and leave me with trash all over the floor, so I am a bit picky there. Most items, though? I don’t care about the brand in the least.
Assuming I don’t care about the brand, the only thing that matters is the minimum cost per unit. I want to spend the least amount possible per ounce of shampoo or ounce of toothpaste.
RECOMMENDED: Are you a smart shopper? Take our quiz.
Generally, I’ve found that the lowest prices tend to be either the generic or store brand or a bulk purchase at a warehouse store. Sometimes, a pharmacy will offer some combination of deals that will drag the price down to the point where I can save money there, but it usually involves a lot of extra work to chase those savings.
(A side note: this is where a “price list” comes in handy. I keep a list of the generic prices at my preferred grocery store on my phone and I use it for comparison purposes when I shop at the warehouse store so that I’m sure I’m getting the best deal. Over time, I gradually begin to know the baseline price of certain items.) ( Continue… )
A man walks past a collage of copies of Chinese RMB, US dollar and other currencies at a money exchange store in Hong Kong. Often, overspending and other financial errors are tied to other aspects of marital life, Hamm writes, even in ways you don’t initially see. (Kin Cheung/AP/File)
How to talk about money without arguing
Before Sarah and I began our financial turnaround, we largely avoided talking about money issues. We’d talk a bit about basic things that we had to talk about, like making sure bills were paid, but in terms of seriously evaluating long-term goals and how we were spending our money, we just didn’t talk about it.
Frankly, it was easier not to talk about it and, as with much of life, the path of least resistance won out.
Eventually, we came to a financial crossroads. We began to have some difficulty paying our bills and we eventually realized that we needed to make some changes to how we used our money.
At first, though, we argued a lot about money. We were in a tough spot. We weren’t close to the nebulous goals that we had talked about. In fact, we were pretty far from them. Even worse, neither one of us wanted to take much blame for the problem. I think we both felt some private guilt for the situation we were in, but neither one of us wanted to admit that guilt to the other party. ( Continue… )
A dog walks past a landscape of central London, on Hampstead Heath in London. Dogs are enormous money sinks, Hamm writes. (Matt Dunham/AP/File)
Beware the financial impact of pet ownership
Sarah and I are very close friends with a couple who are dog lovers. They have two Saint Bernards in their home.
I quite like their dogs. One of them has awful breath, so I somewhat avoid him, but the other one is a charmer. I’ll pet them and play with them a bit every time I go visit them. In both cases, the dogs were rescued from animal shelter situations, and I applaud my friends for doing that.
However, their dogs are enormous money sinks.
The other day, I sat down to calculate what it would cost us to have a similar dog to one of theirs. Here’s theupkeep cost I came up with.
A fully-grown Saint Bernard eats five to ten cups of food per day. Ideally, I’d want to feed my pet a food that’s good for his or her health, so I’d probably select something that’s highly recommended by various sources for pet health, such as Castor and Pollux Adult Dry. A twenty five pound bag of that costs about $55, based on what I’ve seen shopping around. ( Continue… )
Previous
Become part of the Monitor community