My Car Broke Down (Again)! November 6, 2009

I decided to move to the new apartment, and wow, am I glad I did!

On NetworthIQ, one of the comments I received asked what would happen if I need a car repair or other unexpected expense if I move into the more expensive apartment close to campus. Would I have trouble coming up with money for those sorts of things due to spending more each month on bills? My answer was that if I move into the apartment and my car breaks down, I wouldn’t have to get it repaired if I didn’t want to – I would be able to walk to work and school, and the university has a “shopping shuttle” that runs a few nights a week so that students who live on campus without a vehicle can go to WalMart, the mall, Barnes & Noble, etc., and I could take that shuttle as needed.

Last Friday I decided to return to Missouri for an overnight trip to visit my family. As soon as I got to town, my car broke down! I was unable to get it repaired on Saturday (most places are closed on the weekend, or were already booked solid) so I got a rental car for this week. I was planning to try to move into the apartment today (Friday), but was able to switch my move-in day to Tuesday. I have decided not to get my car repaired. We suspect it needs a new fuel pump, which will cost $400-$600 (I called around for some estimates). Since I haven’t actually had it looked at, I’m not sure that it would be that much. However, I don’t want to spend the money on it even if it’s only $200-300. I’ve spent so much money on my car this year, it’s just not worth it to keep spending more money – especially since I now live within walking distance of everywhere I need to be on a daily basis.

As of right now, I’m keeping my car insurance for when I need to get rental cars. I know that I will need rental cars at least a couple of times to go to Nashville to work at Titans games, and if I want to go home for a weekend I’ll have to rent a car. The weekend rate to rent a car is about $50, or the daily rate is $20-25 with unlimited miles. If you don’t have insurance, you have to purchase insurance through the rental car company. Since my full-coverage insurance is $38.50 per month (and I can now easily drop that to liability only, which will be much cheaper), I think it will be worth it to keep my insurance. After the new year starts, I will re-evaluate since I will likely be doing much less traveling.

All that being said, I have savings that would cover the cost of getting my car repaired, should I decide I can’t live without a vehicle any longer. However, I have been watching my savings dwindle steadily since starting graduate school, and it is NOT fun! My current incomes (from my graduate assistantship and the bartending jobs) cover my expenses, but paying nearly $5,000 for the study abroad in Australia and New Zealand in January is taking a big chunk of my money! I’m also trying to save some extra money for spending while on the trip, and I have some other large-ish expenses coming up too (in particular, Ph.D. applications). So I think it will be much better for now to save the money for other potential expenses rather than spending it on car repairs when it isn’t even necessary that I have a car.

Thoughts? Comments? What would you do?

Quality of Life vs. Saving Money October 26, 2009

About a week ago I posted the following question on Networth IQ to solicit some feedback, and I’d like your opinions, too. Let me know what you think!

I’ve been saving money pretty steadily for the past 2 years, but I have decided to go back to school (working on an MA in Economics, thinking about applying to PhD programs) and am now a full-time student again. I’m 25.

Right now I rent a super cheap apartment a few miles away from campus. My total house-related expenses (rent, utilities, internet, etc.) total less than $300 per month. I live 5 minutes from campus (by car), but have to leave my house 30 minutes early in order to find parking and get across campus. I’ve found myself eating out more lately (even though I actually LIKE to cook) just because I have so little free time and am constantly rushing between work and school.

Today I looked at an apartment that is a 5 minute walk from my building on campus. Living there would significantly increase my quality of life. I would spend much less time in transit, I would have reason to go through drive-thrus (since I would have to walk back to the apartment first to get my car, so at that point I might as well grab dinner at home!), I could walk home for lunch instead of grabbing crap to take to campus with me (which usually means Easy Mac or something similar, since it’s easy to transport), and I could probably cancel internet because campus wireless might reach there (and if it doesn’t, I could force myself to walk 5 minutes to the library or another building on campus rather than paying $50/month to have internet at home).

Rent at this apartment would be $425/month. Utilities would run an additional $30 to $50, from the estimate I was given. The apartment is one bedroom, so there’s no possibility of getting a roommate (it’s allowed to have more than one person in the apartment, but I don’t want to share a one bedroom with anyone). I also don’t know a lot of people here, and most students have leases locking them in for the school year so it’s unlikely I’ll meet anyone through school who is looking for a place.

I’ve gotten into the habit of saving a lot of my money, and watching my savings dwindle (and having debt again!) since I’ve been in school is stressing me out some. I know that I can afford the bills at this new apartment, but I’m not sure if the increases in quality of life would balance out the new stress of not being able to put money into savings. I won’t have much left over after I pay the bills, especially in the spring semester.

Is it worth it to save less so that my day-to-day quality of life would be much greater, given that “quality of life” here means living conditions and transportation? If it was a question of entertainment/lattes/etc. my answer would easily be I don’t need that, save the money. But for this, I’m not so sure. (And I’ll still be contributing to my Roth IRA. That’s one piece of savings I refuse to give up, even though I only contribute $200 a month.) How do you all determine when to sacrifice some saving to increase quality of life, and vice-versa? Any advice for me?

US Savings Rates – Permanent Income Hypothesis October 18, 2009

A few weeks ago I wrote about the US savings rate, since we were reading articles for one of my classes about that topic.

Today I’m reviewing the articles and my notes for the class, because we have an exam later this week. As I was re-reading my summaries of the articles, it occurred to me that in the next few years, the US savings rate is probably going to drop drastically.

In Economics there is an idea called the Permanent Income Hypothesis, which basically says that most people will estimate their total income for their entire life, divide that income by the number of years they expect to live, and spend that amount of money each year. Whether people actually think about it that way is debatable, but here’s what it comes down to: Basically, it means that young people will go into debt (usually for education or to start businesses), then through the middle years people will pay down debts and save money for the future, then in retirement people will draw down their savings. Sounds pretty familiar, right?

Well, it just occurred to me that as baby boomers retire in the coming years, we will see a huge drop in the overall savings rate in America. As this huge generation retires, they will stop contributing to savings and start withdrawing. Since they are much larger as a generation than the generation currently in their middle years (who, according to the Hypothesis, will be the ones doing most of the saving), the average savings rate will fall drastically EVEN IF those in their middle years are saving a significant portion of their incomes. Maybe in coming years, we should focus on savings rates for age cohorts rather than the overall savings rate. The rates are going to sound much more dismal than they really are, since such a large proportion of our population in the US will be retiring and no longer contributing to savings. So, take heart, those of you who worry about things like savings rates! Keep in mind that it will sound much worse than it really is for the next few decades!

And I hope somebody other than me finds this stuff interesting :)

CD Laddering at ING October 15, 2009

I don’t log into ING to check my accounts there very often – although I have an Electric Orange checking account and multiple savings accounts set up there, I rarely use the accounts for anything other than saving. I log in a few times a month, once early in the month when I’m updating my networth and occasionally if I want to transfer money into or out of one of the accounts.

I just logged in to check my accounts, though, and realized that ING’s current rate on 12 month CDs is a little over 2%. While this isn’t a lot, I figured I can throw $500 in one of those and at least make a little more money than it makes sitting in my savings. I’m doing a study abroad in January and the balance for the trip (about $2500 – I’ve paid around $2200 already) is due next month. I also wanted to make sure I have plenty of money for emergencies or other trip-related stuff, since I’ll be out of the country, so I didn’t want to lock up too much money since my savings is quickly dwindling now that I’m back in school.

But I haven’t got to the exciting part yet! When I went to open the CD, I discovered that ING has a CD laddering page, so you can easily open multiple CDs at once, and it shows you the rates for each term right beside the boxes. I think I’m in love! I went ahead and threw $2000 into a 6-month CD at 1.55%. Current rates on their savings accounts are 1.3%, so I won’t be making a lot more off of this, but I (hopefully) shouldn’t need the money in the next six months – once the spring semester starts I’ll have more student loan money (which can be used to pay off emergency credit card expenses if I incur any on the study abroad in January). After I set up my 2 new CDs (which literally took about TWO MINUTES), I went back to my homepage and noticed that you can click on the accounts to view more information about them. When I clicked on one of the CDs, it not only listed the maturity dates (which are also conveniently listed on my homepage when I log in), but told me what the worth of the CD will be at maturity AND what the early withdraw fee will be. I can easily see that my $500 CD will pay me $510.50 on 15 October 2010, and that if I need to withdraw my money today, the amount I would receive after early-withdraw penalties are deducted will be $497.44. How cool is that?! This makes me so excited to be playing with money again! I haven’t been thinking about it a lot lately because I have so many school-related expenses and not a lot of income, but this just made me so happy to think about money again! (At least temporarily!)

No Spend Month? October 1, 2009

I’ve been thinking about doing another No Spend Month, because I know my spending has been a little crazy in the past few months. I don’t think I’ve spend a horribly large amount of useless stuff, the problem is just that I’m really not sure how much I’ve spent or what I’ve spent it on. Since my summer income was really random, and my income for the rest of the year will be too, tracking has been much more difficult.

Part of this is because I don’t really like Wesabe anymore. That is, I like the site, but since they did all of their changes to make the site more intuitive, it actually seems much less intuitive to me. I hate the way the message boards are set up, and that is the main feature I used before. I’ve been thinking about trying Mint, but I’m so apathetic lately. I’m on campus for what seems like a million hours a week, and then I come home and have a few more hours of studying to do. It’s very hard to care about anything else! I’d been using Wesabe for a year and a half to track my income and expenses, and while I still track almost everything (except a few miscellaneous cash expenditures which probably total $50 to $100 over the course of the past six months), I don’t have it all in a nice convenient place.

Anyway. Over the summer I knew I would be spending quite a bit on car repairs (ended up being about $2500) and health insurance for the current school year ($1000), plus various travel expenses, so I never gave myself a set budget and didn’t worry about saving – if I could pay the current bills with money I made from the summer without dipping into savings too much, that was good enough for me!

But now I’m back to “real life,” at least in the sense of having semi-regular income and very regular bills. I also now have $10000 in student loan debt, which will double when next semester starts. Of course, this makes current saving all the more important, because I don’t like being in debt again! About $4000 went to tuition, and the other $6000 will be put toward study abroads (one of which is in January).

Someone help me be motivated again!

One month of grad school down, eleven more to go . . . .

Budgeting and Saving at Age 16 September 28, 2009

About a year ago, I mentioned making my first zero-based budget. Since I’ve been bartending, I’ve been making a lot of trips to the bank to deposit cash – I really don’t like leaving more than $50 to $100 in cash sitting around my house, and usually keep even less than that. Since I very rarely use cash, I don’t feel a need to hang on to it – I can always stop by an ATM if I think I’ll need cash later. When I went to the bank one day last week, I decided to deposit all of the bills I had that were $10 or higher, and hang on to the $1s and $5s in case I wanted cash for vending machines or other miscellaneous small expenses.

At that point I realized that I have made a budget at one point before. I started working in a restaurant when I was 15, and waiting tables at 16. Toward the end of my sophomore year of high school, I decided I should start saving up some money, because I knew I’d be quitting my job and going away to school that fall. Before I left work each night, I would cash in all of my tips for the biggest bills possible (if the restaurant had any $50 or $100 bills that was great, but usually it just ended up being a bunch of $20s). I would put all of the bills $20 or higher in an envelope at home, and keep the smaller bills for my spending money. Within a month or two I had $300 or $400 saved. I don’t remember how much I ultimately ended up saving – I’m sure it didn’t get up to much more than that, or I would remember feeling like I had a LOT of money at age 16! But I realized that was probably my true first attempt at budgeting/saving.

How did you start saving money? Did you save money from part-time jobs in high school or college? Do you ever wonder what on earth you spent all of your money on at that age, before you started having real bills to pay and contributing to savings? (I know I wonder that!)

Long-Term Goals September 24, 2009

I’ve recently started reading The Millionaire Next Door (finally!) and it has inspired me to finally set some long-term financial goals (other than “save a lot”). Here is my rough outline of net worth goals for the next 20 years:

Current net worth: 13,382 (as of early this month)
Aug 2010: Finish graduate school. Get a “real” job.

2 years later: Sept 2012: Net worth of $100,000
3 years later: Sept 2015: Net worth of $250,000
7 years later: Sept 2022: Net worth of $1,000,000
8 years later: Sept 2030: Financially free

Obviously, all of these will be adjusted as real-life allows me to save more or less toward my goals (probably more). And “financially free” is not worth determining right now, as I have no clue what the value of money will be in 20 years or how much I’ll need for retirement – my retirement goals/plans will likely change quite a bit between now and then.

I turned 25 this month, so in Sept. of 2030 I will turn 46. The last goal could also be read as “Financially free before age 46″ or “by age 45.” The others can also be read in the same manner if you wish to do the math.

Outsourcing Laundry September 22, 2009

For the past six weeks I’ve lived in an apartment where, for the first time in my life, I don’t have access to a washer and dryer. I don’t return to my hometown often enough to do laundry regularly at my dad’s house (though I do use his washer and dryer on the rare occasions I am there). It’s not like I’ve never used a laundromat before – I’m quite familiar with the concept. I went to multi-week summer camps as a kid where we were hauled to laundromats on the weekend to clean our clothing, and there’s always the occasional problem with an appliance at home. I’ve also gone to laundromats once or twice when I just wanted to get all of my laundry done at once, instead of doing 3 separate loads over the course of the day.

So using the laundromat here hasn’t been a problem in the past six weeks. The problem tends to be that the laundromat I go to has a nail salon next door on one side, and a Dollar General next door on the other. So about as often as not, I head to the Dollar General for 10 or 15 minutes while my clothes are in the washer, to buy a snack or some household stuff. Then I transfer my laundry, and go to the nail salon to get a pedicure while my clothes are in the dryer. What would be a $10 trip to the laundromat suddenly becomes a $60 event since I decide to multi-task. Spending the money isn’t a huge problem, since I’d probably buy those things eventually anyway. However, I’m trying to get myself back into the “No Spend Month” attitude, including delayed gratification/not buying things until you actually need them. And right now, I really don’t need a pedicure.

The last time I was doing laundry at the laundromat, I noticed people dropping off and picking up their laundry, so I asked the woman in charge a little about how it worked. She told me that they only charge an extra $1.50 per load to do your laundry for you (and they fold your clothes). If you have special requests (don’t dry something, etc.), you just let them know and they follow your requests to the best of their ability.

Friday afternoon I dropped off a load of clothes, because I needed my work clothes clean to bartend over the weekend and hadn’t had time to wash them myself during the week. I expected the total to be around $5 for one (large) load of clothes. When I came to pick them up a few hours later, the woman told me they had split into two loads and the total was $5.75. I had my own detergent and dryer sheets (I always leave them in my laundry basket), so I got a discount for that. So far nothing I’ve looked at appears to be ruined, so having them do my laundry not only saved me time and energy, but I think it also ended up being less expensive than doing it myself would have been! Washers there are $1.50 per load, and dryers are $.25 for 8 minutes (so I usually spend $1.50 or more per load to dry, also). I can’t believe I somehow saved money by having someone else do my laundry, and I also can’t believe I didn’t think of this ages ago!

Cooking At Home September 17, 2009

In the past few months I’ve been cooking at home a lot – I’m so glad to have a real kitchen again! I’ve been stocking up on “staples” and learning how to make real food (sort of). I’m not sure yet how much (if anything) it’s saving me dollar-wise, but sanity-wise it’s saving me quite a bit! I know many people go through a drive-thru because they come home from a long day at work and don’t want to worry about doing anything. Well for me, I come home from a long day on campus (between the grad assistantship hours and classes I’ve been on campus nearly 50 hours per week) and want something to do to take my mine off of work and class before I start doing more work! Cooking dinner most nights has given me a chance to relax and unwind for an hour or so after work each day before I start reading textbooks or articles for a few more hours.

The reason I’m not sure if I’m saving money dollar-wise is two-fold. First, when I go through a drive-thru, I rarely spend more than $3 on a meal. I don’t eat a lot of food at once, and I don’t like fast food enough to order extravagantly. I also don’t drink soda, so I pass on the “value meals” that actually have way more food than I could eat for twice what I normally pay. Most meals, particularly if they include meat, cost more than $3 to make. Some things I can eat over the course of a few days, but other things cost more than $3 for one serving. The other reason is that I often share what I make with other people. As I mentioned, I don’t eat a lot at one time, so if I make a casserole or other dish, it will last me at least a few days. However, I often invite other people over or share with my roommate, because I do actually enjoy being social on occasion. I’ve discovered that when I share with a guy, it’s almost inevitable that he will finish whatever I don’t take. Once, I put part of a casserole in a container before dinner, to make sure I had left-overs for lunch the next day!

Does anyone have any recipes they recommend? Or cooking secrets/tips? This is all still pretty new to me, so any links or advice would be greatly appreciated!

US Savings Rates September 11, 2009

In one of my classes we’ve read multiple articles* this week about the US savings rate, which most of us have heard time after time is decreasing every year and possibly even negative (as in, people are spending more than they earn). The articles we read focused on why this may not be accurate, and it may not be a problem.

Estimates of income and expenditures tend to look only at a given year’s data, and don’t include wealth (assets) that had previously been built up. It’s possible that people are saving less from their current incomes because they feel they have accumulated a comfortable amount of wealth already and don’t need to continue saving at a higher rate.

The point of saving money is to provide for future consumption. There’s no reason to save money if you don’t intend to spend it later (and “spend” could mean “give away”). Essentially the idea is that your goal probably isn’t to die with a net worth of 8 million dollars, but rather to use any money you’ve saved for later expenses. Buying durable goods (things that aren’t replaced often, like houses, cars, household appliances, etc.) is also a way of providing for future consumption. If I spent $500 on a new washing machine, it’s not because I plan to get $500+ of use out of it this year. Rather, I make the initial investment in order to be able to consume the use of the washing machine for 10 or 15 years to come. In savings estimates, however, durable goods are counted as expenses in the same way as buying food and other items that need to be replaced frequently. If you believe that durable goods should count as savings (or investment), since they provide for future consumption, then the savings rate is grossly underestimated.

If a business buys a new machine, it is considered an investment rather than consumption, because the additional equipment should increase output or production for the business. However, if a person buys an education (pays for college or skills training, professional workshops, etc.), it is counted as normal consumption rather than as an investment in human capital. Most people would argue that education is an investment, because purchasing education should lead to a more valuable skill set (and therefore, higher pay) for the person receiving the education. Yet education is also counted as an expense, not an investment. Should we include education as savings, as providing for future consumption?

Some savings rate estimates don’t include pension funds. It certainly makes sense that if someone expects a large pension at retirement, they will save less money on their own. Should pensions count as savings, even if the employer is in charge of them (in defined benefits plans)?** I know if I were to expect a pension from my employer, I wouldn’t feel a need to save as much money for long-term (in particular, retirement) plans. Wouldn’t that be reasonable? (I realize that defined benefits pensions are virtually unheard of among 20-somethings, but since many older employees still plan to take advantage of them, it’s still very relevant for the country overall.)

I’m not trying to argue that people are saving plenty of money – I have no idea what would be “enough” and will probably never reach a truly “comfortable” amount of savings – after all, the more you have, the more you think you need, right? I just thought the articles brought up some interesting points, and I thought I’d share them. Comments?

*Links to articles:
Webb, 1993 (Richmond Fed)
Guidolin and La Jeunesse, 2007 (St. Louis Fed)

**To see the differences between defined benefits and defined contributions, click here.